Question 1

Use the following to answer questions 
Exhibit: Components of the Money System
  
-(Exhibit: Components of the Money System)
The money supply measured by M2 is

Accepted Answer

A) $450 billion. 
B) $1,425 billion. 
C) $1,725 billion. 
D) $2,075 billion. 
A) $450 billion. 
B) $1,425 billion. 
C) $1,725 billion. 
D) $2,075 billion.

Question 2

The law requires banks to maintain

Accepted Answer

A) fractional reserves in the form of deposit liabilities against their liquid assets. 
B) fractional reserves in the form of federal securities against their outstanding loans. 
C) fractional reserves in the form of cash in their vaults or deposits with the central bank against their deposit liabilities. 
D) legal reserves in the form of gold against their outstanding loans. 
A) fractional reserves in the form of deposit liabilities against their liquid assets. 
B) fractional reserves in the form of federal securities against their outstanding loans. 
C) fractional reserves in the form of cash in their vaults or deposits with the central bank against their deposit liabilities. 
D) legal reserves in the form of gold against their outstanding loans.

Question 3

A bank has $100,000 in checkable deposits and $30,000 in reserves.If the required reserve ratio is 20%, what is the maximum amount of loans this bank can create?

Accepted Answer

A) $0 
B) $10,000 
C) $20,000 
D) $30,000 
A) $0 
B) $10,000 
C) $20,000 
D) $30,000

Question 4

Use the following to answer questions 
Exhibit: Fed Sells Bonds
Scenario 2: Fed sells bonds to Henry Hyde
Consider a banking system in which the reserve requirement is 10%, banks try not to hold excess reserves, consumers and firms hold money only in the form of checking account balances, and all loan proceeds are spent.Suppose initially all banks in the system are loaned up.Now, suppose that the Fed sells a $50,000 bond to Henry Hyde, who pays for the bond by writing a check drawn against Jekyll Bank.
-Banks play two primary roles in the economy: They take in deposits and lend them to borrowers, and they facilitate purchases of goods and services by allowing people to write checks against their deposits.

Accepted Answer

A) True 
 B)False

Question 5

The Fed can increase the federal funds rate by

Accepted Answer

A) selling government securities which increases bank reserves. 
B) selling government securities which decreases bank reserves. 
C) buying government securities which increases bank reserves. 
D) buying government securities which decreases bank reserves. 
A) selling government securities which increases bank reserves. 
B) selling government securities which decreases bank reserves. 
C) buying government securities which increases bank reserves. 
D) buying government securities which decreases bank reserves.

Question 6

How does the Fed decide which monetary measure should be the focus of its monetary policy choices?

Accepted Answer

A) The Fed would like to track a monetary measure that is most closely related to the market interest rate. 
B) The Fed would like to track a monetary measure that is most closely related to the quantity of money demanded by economic agents. 
C) The Fed would like to track a monetary measure that is most closely related to the level of real GDP and the price level. 
D) The Fed would like to track a monetary measure that is most closely related to government spending. 
A) The Fed would like to track a monetary measure that is most closely related to the market interest rate. 
B) The Fed would like to track a monetary measure that is most closely related to the quantity of money demanded by economic agents. 
C) The Fed would like to track a monetary measure that is most closely related to the level of real GDP and the price level. 
D) The Fed would like to track a monetary measure that is most closely related to government spending.

Question 7

Which of the following is an example of a bank's reserves?

Accepted Answer

A) currency held in the vaults of the bank 
B) demand deposits with other member banks 
C) U.S.Treasury bills 
D) U.S.Treasury bonds 
A) currency held in the vaults of the bank 
B) demand deposits with other member banks 
C) U.S.Treasury bills 
D) U.S.Treasury bonds

Question 8

Use the following to answer questions 
Exhibit: Deposit Expansion Stages
  
-(Exhibit: Deposit Expansion Stages)
What is the value of $B in stage 1?

Accepted Answer

A) $100 
B) $200 
C) $600 
D) $800 
A) $100 
B) $200 
C) $600 
D) $800

Question 9

Any reserves that banks hold in excess of required reserves are called

Accepted Answer

A) excess reserves. 
B) margin reserves. 
C) federal reserves. 
D) surplus reserves. 
A) excess reserves. 
B) margin reserves. 
C) federal reserves. 
D) surplus reserves.

Question 10

Use the following to answer questions 
Exhibit: Deposit Expansion Stages
  
-(Exhibit: Deposit Expansion Stages)
What is the value of $E in Stage 4?

Accepted Answer

A) $1,000 
B) $1,800 
C) $2,440 
D) $2,952 
A) $1,000 
B) $1,800 
C) $2,440 
D) $2,952

Question 11

Assume that the required reserve ratio is 20%.What is the maximum increase in money supply for the banking system as a whole following a $10,000 increase in excess reserves?

Accepted Answer

A) $5,000 
B) $10,000 
C) $40,000 
D) $50,000 
A) $5,000 
B) $10,000 
C) $40,000 
D) $50,000

Question 12

In 2008, commercial banks' share of the U.S.credit market changed as a result of

Accepted Answer

A) commercial banks that experienced significant difficulties resulting from real estate investments applied for status as investment banks. 
B) investment banks that experienced significant difficulties resulting from real estate investments applied for status as commercial banks. 
C) increasing returns on real estate investments led commercial banks to expand. 
D) increasing returns on real estate investments led investment banks to expand. 
A) commercial banks that experienced significant difficulties resulting from real estate investments applied for status as investment banks. 
B) investment banks that experienced significant difficulties resulting from real estate investments applied for status as commercial banks. 
C) increasing returns on real estate investments led commercial banks to expand. 
D) increasing returns on real estate investments led investment banks to expand.

Question 13

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

Accepted Answer

A) writing a check to buy a new Volkswagen 
B) noting that the price of a $20,000 Volkswagen is 16,000 euros 
C) keeping $20,000 in cash in your mattress instead of buying a new Volkswagen 
D) driving your $20,000 Volkswagen to a friend's house 
A) writing a check to buy a new Volkswagen 
B) noting that the price of a $20,000 Volkswagen is 16,000 euros 
C) keeping $20,000 in cash in your mattress instead of buying a new Volkswagen 
D) driving your $20,000 Volkswagen to a friend's house

Question 14

Fiat money is money that has a value apart from its use as money.

Accepted Answer

A) True 
 B)False

Question 15

Use the following to answer questions 
Exhibit: Fed Sells Bonds
Scenario 2: Fed sells bonds to Henry Hyde
Consider a banking system in which the reserve requirement is 10%, banks try not to hold excess reserves, consumers and firms hold money only in the form of checking account balances, and all loan proceeds are spent.Suppose initially all banks in the system are loaned up.Now, suppose that the Fed sells a $50,000 bond to Henry Hyde, who pays for the bond by writing a check drawn against Jekyll Bank.
-The higher the discount rate, the greater the incentive for banks to hold excess reserves.

Accepted Answer

A) True 
 B)False

Question 16

Increasing the reserve requirement ratio is

Accepted Answer

A) a contractionary policy because it lowers the amount of total reserves in the banking system. 
B) a contractionary policy because it lowers the amount of excess reserves in the banking system. 
C) an expansionary policy because it raises the amount of excess reserves in the banking system. 
D) an expansionary policy because it raises the amount of required reserves in the banking system. 
A) a contractionary policy because it lowers the amount of total reserves in the banking system. 
B) a contractionary policy because it lowers the amount of excess reserves in the banking system. 
C) an expansionary policy because it raises the amount of excess reserves in the banking system. 
D) an expansionary policy because it raises the amount of required reserves in the banking system.

Question 17

For a given level of reserves, an increase in the reserve requirement ratio will

Accepted Answer

A) decrease legal reserves and decrease the money supply. 
B) increase legal reserves and decrease excess reserves. 
C) increase legal reserves and increase excess reserves. 
D) increase excess reserves and increase the money supply. 
A) decrease legal reserves and decrease the money supply. 
B) increase legal reserves and decrease excess reserves. 
C) increase legal reserves and increase excess reserves. 
D) increase excess reserves and increase the money supply.

Question 18

Which of the following is a consequence of deposit insurance?

Accepted Answer

A) It may induce the officers of a bank to take more risks. 
B) It encourages banks to make loans only to the most credit-worthy customers. 
C) It minimizes the risk of defaulting on loans made to the bank's customers. 
D) It encourages depositors to closely scrutinize a bank's lending activities. 
A) It may induce the officers of a bank to take more risks. 
B) It encourages banks to make loans only to the most credit-worthy customers. 
C) It minimizes the risk of defaulting on loans made to the bank's customers. 
D) It encourages depositors to closely scrutinize a bank's lending activities.

Question 19

Suppose the required reserve ratio is 10%.If a bank has total reserves of $80,000 and checkable deposits of $550,000, what is the amount of the bank's required reserves?

Accepted Answer

A) $25,000 
B) $55,000 
C) $80,000 
D) $135,000 
A) $25,000 
B) $55,000 
C) $80,000 
D) $135,000

Question 20

The function of money illustrated by the prevailing prices of goods and services is the

Accepted Answer

A) medium of exchange function. 
B) unit of account function. 
C) standard of deferred payments function. 
D) store of value function. 
A) medium of exchange function. 
B) unit of account function. 
C) standard of deferred payments function. 
D) store of value function.

Use the following to answer questions Exhibit: Components of the Money System -(Exhibit: Components of the Money System) The money supply measured by M2 is

The law requires banks to maintain

A bank has $100,000 in checkable deposits and $30,000 in reserves.If the required reserve ratio is 20%, what is the maximum amount of loans this bank can create?

The Fed can increase the federal funds rate by

How does the Fed decide which monetary measure should be the focus of its monetary policy choices?

Which of the following is an example of a bank's reserves?

Use the following to answer questions Exhibit: Deposit Expansion Stages -(Exhibit: Deposit Expansion Stages) What is the value of $B in stage 1?

Any reserves that banks hold in excess of required reserves are called

Use the following to answer questions Exhibit: Deposit Expansion Stages -(Exhibit: Deposit Expansion Stages) What is the value of $E in Stage 4?

Assume that the required reserve ratio is 20%.What is the maximum increase in money supply for the banking system as a whole following a $10,000 increase in excess reserves?

In 2008, commercial banks' share of the U.S.credit market changed as a result of

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

Fiat money is money that has a value apart from its use as money.

Increasing the reserve requirement ratio is

For a given level of reserves, an increase in the reserve requirement ratio will

Which of the following is a consequence of deposit insurance?

Suppose the required reserve ratio is 10%.If a bank has total reserves of $80,000 and checkable deposits of $550,000, what is the amount of the bank's required reserves?

The function of money illustrated by the prevailing prices of goods and services is the

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

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Exam 9: The Nature and Creation of Money

Use the following to answer questions Exhibit: Components of the Money System -(Exhibit: Components of the Money System) The money supply measured by M2 is

The law requires banks to maintain

A bank has $100,000 in checkable deposits and $30,000 in reserves.If the required reserve ratio is 20%, what is the maximum amount of loans this bank can create?

The Fed can increase the federal funds rate by

How does the Fed decide which monetary measure should be the focus of its monetary policy choices?

Which of the following is an example of a bank's reserves?

Use the following to answer questions Exhibit: Deposit Expansion Stages -(Exhibit: Deposit Expansion Stages) What is the value of $B in stage 1?

Any reserves that banks hold in excess of required reserves are called

Use the following to answer questions Exhibit: Deposit Expansion Stages -(Exhibit: Deposit Expansion Stages) What is the value of $E in Stage 4?

Assume that the required reserve ratio is 20%.What is the maximum increase in money supply for the banking system as a whole following a $10,000 increase in excess reserves?

In 2008, commercial banks' share of the U.S.credit market changed as a result of

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

Fiat money is money that has a value apart from its use as money.

Increasing the reserve requirement ratio is

For a given level of reserves, an increase in the reserve requirement ratio will

Which of the following is a consequence of deposit insurance?

Suppose the required reserve ratio is 10%.If a bank has total reserves of $80,000 and checkable deposits of $550,000, what is the amount of the bank's required reserves?

The function of money illustrated by the prevailing prices of goods and services is the

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