Question 1

Lowering the discount rate is

Accepted Answer

A) a contractionary policy stance because the cost of borrowing funds falls, thereby encouraging consumption and investment spending. 
B) a contractionary policy because it reduces banks' profit margins by lowering the return on lending. 
C) an expansionary policy stance because consumers and businesses can now borrow funds directly from the Fed at a lower cost, thereby encouraging private spending. 
D) an expansionary policy stance because it will be less costly for banks to borrow funds and this puts downward pressure on interest rates in the economy. 
A) a contractionary policy stance because the cost of borrowing funds falls, thereby encouraging consumption and investment spending. 
B) a contractionary policy because it reduces banks' profit margins by lowering the return on lending. 
C) an expansionary policy stance because consumers and businesses can now borrow funds directly from the Fed at a lower cost, thereby encouraging private spending. 
D) an expansionary policy stance because it will be less costly for banks to borrow funds and this puts downward pressure on interest rates in the economy.

Question 2

Use the following to answer questions 
Exhibit: Balance Sheet of the Alpha-Beta Bank
  
-(Exhibit: Balance Sheet of the Alpha-Beta Bank)
If the required reserve ratio is 10% and the market interest rate is 6%, then the opportunity cost of holding excess reserves is

Accepted Answer

A) zero since Alpha-Beta does not hold any excess reserves. 
B) $0.9 million. 
C) $2.4 million. 
D) $4 million. 
A) zero since Alpha-Beta does not hold any excess reserves. 
B) $0.9 million. 
C) $2.4 million. 
D) $4 million.

Question 3

When the Fed _______ governments bonds it _______ bank reserves.

Accepted Answer

A) sells; increases 
B) buys; increases 
C) buys; decreases 
D) issues new; increases 
A) sells; increases 
B) buys; increases 
C) buys; decreases 
D) issues new; increases

Question 4

When the Federal Reserve conducts open market transactions, it

Accepted Answer

A) buys or sells corporate bonds in the bond market. 
B) issues government bonds to raise funds for the government. 
C) makes credit available to financial institutions in crises. 
D) buys or sells previously issued government bonds. 
A) buys or sells corporate bonds in the bond market. 
B) issues government bonds to raise funds for the government. 
C) makes credit available to financial institutions in crises. 
D) buys or sells previously issued government bonds.

Question 5

One disadvantage of commodity money is that

Accepted Answer

A) it cannot be readily converted to gold. 
B) its quantity can fluctuate erratically. 
C) its value does not change. 
D) it has no value apart from its use as money. 
A) it cannot be readily converted to gold. 
B) its quantity can fluctuate erratically. 
C) its value does not change. 
D) it has no value apart from its use as money.

Question 6

Linda sells her Economics textbook to Ejere for $40.Ejere pays Linda with a check, which she deposits in her checking account in West Bank.Which statement below describes the check-clearing process?

Accepted Answer

A) Linda's bank gains $40 in checkable deposits and loses $40 in reserves.Ejere's bank gains $40 in reserves and loses $40 in deposits. 
B) Linda's bank loses $40 in checkable deposits and gains $40 in reserves.Ejere's bank gains $40 in checkable deposits and loses $10,000 in reserves. 
C) Ejere's bank loses $40 in both reserves and checkable deposits.Linda's bank gains $40 in both checkable deposits and reserves. 
D) Ejere's bank loses $40 in reserves and gains $10,000 in checkable deposits.Linda's bank loses $40 in both reserves and checkable deposits. 
A) Linda's bank gains $40 in checkable deposits and loses $40 in reserves.Ejere's bank gains $40 in reserves and loses $40 in deposits. 
B) Linda's bank loses $40 in checkable deposits and gains $40 in reserves.Ejere's bank gains $40 in checkable deposits and loses $10,000 in reserves. 
C) Ejere's bank loses $40 in both reserves and checkable deposits.Linda's bank gains $40 in both checkable deposits and reserves. 
D) Ejere's bank loses $40 in reserves and gains $10,000 in checkable deposits.Linda's bank loses $40 in both reserves and checkable deposits.

Question 7

Use the following to answer questions 
Exhibit: Deposit Expansion Stages
  
-(Exhibit: Deposit Expansion Stages)
What is the value of the deposit multiplier?

Accepted Answer

A) 0.1 
B) 0.2 
C) 1 
D) 5 
A) 0.1 
B) 0.2 
C) 1 
D) 5

Question 8

Use the following to answer questions 
Exhibit: Reserves, Loans, and Money
  
-(Exhibit: Reserves, Loans, and Money)
The required reserve ratio is 10%.What is the amount of Bolton Bank's required reserves?

Accepted Answer

A) $30 million 
B) $70 million 
C) $100 million 
D) $300 million 
A) $30 million 
B) $70 million 
C) $100 million 
D) $300 million

Question 9

Use the following to answer questions 
Exhibit: Deposit Expansion Stages
  
-(Exhibit: Deposit Expansion Stages)
What is the value of $G (the total new required reserves)
?

Accepted Answer

A) $1,000 
B) $4,000 
C) $5,000 
D) $6,000 
A) $1,000 
B) $4,000 
C) $5,000 
D) $6,000

Question 10

Which of the following describes the store of value function of money?

Accepted Answer

A) noting that Audible.com sells downloadable audio books for $10 per book 
B) making a monthly payment toward your car loan 
C) paying $30 for a haircut 
D) putting away $50 each month into your savings account 
A) noting that Audible.com sells downloadable audio books for $10 per book 
B) making a monthly payment toward your car loan 
C) paying $30 for a haircut 
D) putting away $50 each month into your savings account

Question 11

The Federal Reserve System
I.is the central bank for the United States.
II.is a United States government owned bank.
III.is a branch of the Treasury of the United States.

Accepted Answer

A) I only 
B) I and II only 
C) I and III only 
D) I, II, and III 
A) I only 
B) I and II only 
C) I and III only 
D) I, II, and III

Question 12

Debit cards are the electronic equivalent of a check, but neither debit cards nor checks are money.

Accepted Answer

A) True 
 B)False

Question 13

Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel in exchange for goods and services.What function do these packages of mackerel perform?

Accepted Answer

A) They function as a store of value. 
B) They function as a medium of exchange. 
C) They function as a unit of account. 
D) They function as a factor of production. 
A) They function as a store of value. 
B) They function as a medium of exchange. 
C) They function as a unit of account. 
D) They function as a factor of production.

Question 14

Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel in exchange for goods and services.Why were they willing to accept mackerel in exchange for goods and services?

Accepted Answer

A) because mackerel is a good source of protein 
B) because prison authorities deemed mackerel legal tender 
C) because the inmates know that they could use the packages of mackerel to buy other goods and services 
D) because the inmates do not wish to consume mackerel 
A) because mackerel is a good source of protein 
B) because prison authorities deemed mackerel legal tender 
C) because the inmates know that they could use the packages of mackerel to buy other goods and services 
D) because the inmates do not wish to consume mackerel

Question 15

Open market transactions involve which of the following activities?
I.issuing new Federal Reserve notes
II.buying or selling newly issued government bonds to raise funds for the government
III.buying or selling previously issued government bonds to change the volume of bank reserves

Accepted Answer

A) I only 
B) II only 
C) III only 
D) II and III only . 
E) I, II ,and III 
A) I only 
B) II only 
C) III only 
D) II and III only . 
E) I, II ,and III

Question 16

Use the following to answer questions 
Exhibit: Reserves, Loans, and Money
  
-(Exhibit: Reserves, Loans, and Money)
The required reserve ratio is 10%.What is the value of the deposit multiplier?

Accepted Answer

A) 1 
B) 2.5 
C) 7 
D) 10 
A) 1 
B) 2.5 
C) 7 
D) 10

Question 17

When the Fed buys U.S.Treasury bonds from a bank, it increases the supply of reserves by crediting the seller's account at the Fed.

Accepted Answer

A) True 
 B)False

Question 18

Assume that the required reserve ratio is 10%.An increase of $1,000 in the banking system's excess reserves may result in a total expansion of new deposits for the banking system as a whole by as much as

Accepted Answer

A) $1,000. 
B) $9,000. 
C) $10,000. 
D) $100,000. 
A) $1,000. 
B) $9,000. 
C) $10,000. 
D) $100,000.

Question 19

Which of the following is a market in which banks lend reserves to one another?

Accepted Answer

A) required reserve market 
B) open market 
C) discount market 
D) federal funds market 
A) required reserve market 
B) open market 
C) discount market 
D) federal funds market

Question 20

Which of the following describes the medium-of-exchange function of money?

Accepted Answer

A) noting that Audible.com sells downloadable audio books for $10 per book 
B) making a monthly payment toward your car loan 
C) paying $30 for a haircut 
D) putting away $50 each month into your savings account 
A) noting that Audible.com sells downloadable audio books for $10 per book 
B) making a monthly payment toward your car loan 
C) paying $30 for a haircut 
D) putting away $50 each month into your savings account

Lowering the discount rate is

Use the following to answer questions Exhibit: Balance Sheet of the Alpha-Beta Bank -(Exhibit: Balance Sheet of the Alpha-Beta Bank) If the required reserve ratio is 10% and the market interest rate is 6%, then the opportunity cost of holding excess reserves is

When the Fed _ governments bonds it _ bank reserves.

When the Federal Reserve conducts open market transactions, it

One disadvantage of commodity money is that

Linda sells her Economics textbook to Ejere for $40.Ejere pays Linda with a check, which she deposits in her checking account in West Bank.Which statement below describes the check-clearing process?

Use the following to answer questions Exhibit: Deposit Expansion Stages -(Exhibit: Deposit Expansion Stages) What is the value of the deposit multiplier?

Use the following to answer questions Exhibit: Reserves, Loans, and Money -(Exhibit: Reserves, Loans, and Money) The required reserve ratio is 10%.What is the amount of Bolton Bank's required reserves?

Use the following to answer questions Exhibit: Deposit Expansion Stages -(Exhibit: Deposit Expansion Stages) What is the value of $G (the total new required reserves) ?

Which of the following describes the store of value function of money?

The Federal Reserve System I.is the central bank for the United States. II.is a United States government owned bank. III.is a branch of the Treasury of the United States.

Debit cards are the electronic equivalent of a check, but neither debit cards nor checks are money.

Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel in exchange for goods and services.What function do these packages of mackerel perform?

Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel in exchange for goods and services.Why were they willing to accept mackerel in exchange for goods and services?

Open market transactions involve which of the following activities? I.issuing new Federal Reserve notes II.buying or selling newly issued government bonds to raise funds for the government III.buying or selling previously issued government bonds to change the volume of bank reserves

Use the following to answer questions Exhibit: Reserves, Loans, and Money -(Exhibit: Reserves, Loans, and Money) The required reserve ratio is 10%.What is the value of the deposit multiplier?

When the Fed buys U.S.Treasury bonds from a bank, it increases the supply of reserves by crediting the seller's account at the Fed.

Assume that the required reserve ratio is 10%.An increase of $1,000 in the banking system's excess reserves may result in a total expansion of new deposits for the banking system as a whole by as much as

Which of the following is a market in which banks lend reserves to one another?

Which of the following describes the medium-of-exchange function of money?

Economics: the Study of Choice

Confronting Scarcity: Choices in Production

Demand and Supply

Applications of Supply and Demand

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

Financial Markets and the Economy

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Filters

Exam 9: The Nature and Creation of Money

Lowering the discount rate is

Use the following to answer questions Exhibit: Balance Sheet of the Alpha-Beta Bank -(Exhibit: Balance Sheet of the Alpha-Beta Bank) If the required reserve ratio is 10% and the market interest rate is 6%, then the opportunity cost of holding excess reserves is

When the Fed _______ governments bonds it _______ bank reserves.

When the Federal Reserve conducts open market transactions, it

One disadvantage of commodity money is that

Linda sells her Economics textbook to Ejere for $40.Ejere pays Linda with a check, which she deposits in her checking account in West Bank.Which statement below describes the check-clearing process?

Use the following to answer questions Exhibit: Deposit Expansion Stages -(Exhibit: Deposit Expansion Stages) What is the value of the deposit multiplier?

Use the following to answer questions Exhibit: Reserves, Loans, and Money -(Exhibit: Reserves, Loans, and Money) The required reserve ratio is 10%.What is the amount of Bolton Bank's required reserves?

Use the following to answer questions Exhibit: Deposit Expansion Stages -(Exhibit: Deposit Expansion Stages) What is the value of $G (the total new required reserves) ?

Which of the following describes the store of value function of money?

The Federal Reserve System I.is the central bank for the United States. II.is a United States government owned bank. III.is a branch of the Treasury of the United States.

Debit cards are the electronic equivalent of a check, but neither debit cards nor checks are money.

Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel in exchange for goods and services.What function do these packages of mackerel perform?

Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel in exchange for goods and services.Why were they willing to accept mackerel in exchange for goods and services?

Open market transactions involve which of the following activities? I.issuing new Federal Reserve notes II.buying or selling newly issued government bonds to raise funds for the government III.buying or selling previously issued government bonds to change the volume of bank reserves

Use the following to answer questions Exhibit: Reserves, Loans, and Money -(Exhibit: Reserves, Loans, and Money) The required reserve ratio is 10%.What is the value of the deposit multiplier?

When the Fed buys U.S.Treasury bonds from a bank, it increases the supply of reserves by crediting the seller's account at the Fed.

Assume that the required reserve ratio is 10%.An increase of $1,000 in the banking system's excess reserves may result in a total expansion of new deposits for the banking system as a whole by as much as

Which of the following is a market in which banks lend reserves to one another?

Which of the following describes the medium-of-exchange function of money?

Economics: the Study of Choice

Confronting Scarcity: Choices in Production

Demand and Supply

Applications of Supply and Demand

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

Financial Markets and the Economy

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Filters

When the Fed _ governments bonds it _ bank reserves.