Question 1

When a member bank borrows reserves from the Fed,

Accepted Answer

A) it pays an interest rate called the discount rate. 
B) it pays no interest rate but is required to repay the loan within the stipulated period. 
C) it pays an interest rate equivalent to the coupon rate on long-term government bonds. 
D) it pays an interest rate equal to the federal funds in the reserves market. 
A) it pays an interest rate called the discount rate. 
B) it pays no interest rate but is required to repay the loan within the stipulated period. 
C) it pays an interest rate equivalent to the coupon rate on long-term government bonds. 
D) it pays an interest rate equal to the federal funds in the reserves market.

Question 2

Use the following to answer questions 
Exhibit: Deposit Expansion Stages
  
-(Exhibit: Deposit Expansion Stages)
What is the value of $F (the total new checkable deposits)
?

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 3

The value of the simple money multiplier tends to be greater when individuals hold less cash.

Accepted Answer

A) True 
 B)False

Question 4

Use the following to answer questions 
Exhibit: Deposit Expansion Stages
  
-(Exhibit: Deposit Expansion Stages)
What is the value of $D in Stage 4 (round up to the nearest whole number)
?

Accepted Answer

A) $82 
B) $102 
C) $128 
D) $160 
A) $82 
B) $102 
C) $128 
D) $160

Question 5

The Fed seldom uses the reserve requirement ratio to influence the money supply.What is the reason for this?

Accepted Answer

A) It is difficult and costly for the Fed to monitor compliance. 
B) Frequent manipulation of reserve requirements would require bankers to constantly adjust their lending policies to changing requirements, which could be destabilizing for financial markets. 
C) The Fed would like to discourage banks from making loans indiscriminately and therefore sets just one standard. 
D) Reserves in excess of a certain amount will not be covered by the Federal Depository Insurance Corporation. 
A) It is difficult and costly for the Fed to monitor compliance. 
B) Frequent manipulation of reserve requirements would require bankers to constantly adjust their lending policies to changing requirements, which could be destabilizing for financial markets. 
C) The Fed would like to discourage banks from making loans indiscriminately and therefore sets just one standard. 
D) Reserves in excess of a certain amount will not be covered by the Federal Depository Insurance Corporation.

Question 6

Suppose you deposit $1,000 cash in your checking account at a bank.If the bank is loaned up and if the required reserve ratio is 10%, the maximum amount that the bank can lend now, following your deposit is

Accepted Answer

A) $100. 
B) $900. 
C) $1,000. 
D) $10,000. 
A) $100. 
B) $900. 
C) $1,000. 
D) $10,000.

Question 7

When a bank receives new deposits, it can make new loans up to the amount of

Accepted Answer

A) the deposits received. 
B) the excess reserves generated by the deposits 
C) the reserves generated by the deposits. 
D) the required reserves generated by the deposits. 
A) the deposits received. 
B) the excess reserves generated by the deposits 
C) the reserves generated by the deposits. 
D) the required reserves generated by the deposits.

Question 8

Which of the following is not an example of a financial intermediary?

Accepted Answer

A) a pension fund 
B) an insurance company 
C) a commercial bank 
D) the New York Stock Exchange 
A) a pension fund 
B) an insurance company 
C) a commercial bank 
D) the New York Stock Exchange

Question 9

Which of the following is true?

Accepted Answer

A) A bank is solvent when its deposits become positive. 
B) A bank is insolvent when its reserves become negative. 
C) A bank is solvent when its excess reserves become negative. 
D) A bank is insolvent when its net worth becomes negative. 
A) A bank is solvent when its deposits become positive. 
B) A bank is insolvent when its reserves become negative. 
C) A bank is solvent when its excess reserves become negative. 
D) A bank is insolvent when its net worth becomes negative.

Question 10

The three main monetary policy instruments are

Accepted Answer

A) the money supply, the market interest rate, and deposit insurance. 
B) open market operations, reserve requirement ratio, and the discount rate. 
C) open market operations, deposit insurance, and the money supply. 
D) open market operations, reserve requirement ratio, and the market interest rate. 
A) the money supply, the market interest rate, and deposit insurance. 
B) open market operations, reserve requirement ratio, and the discount rate. 
C) open market operations, deposit insurance, and the money supply. 
D) open market operations, reserve requirement ratio, and the market interest rate.

Question 11

If the Fed increases the discount rate, it is pursuing

Accepted Answer

A) a contractionary policy because it will be more costly for banks to borrow funds and this puts upward pressure on interest rates in the economy. 
B) a contractionary policy because it reduces banks' profit margins by raising the cost of borrowing and lowering the return on lending. 
C) an expansionary policy because it raises the cost of holding excess reserves in the banking system. 
D) an expansionary policy because it increases bank profits by putting upward pressure on the interest rates that banks can charge on its loans. 
A) a contractionary policy because it will be more costly for banks to borrow funds and this puts upward pressure on interest rates in the economy. 
B) a contractionary policy because it reduces banks' profit margins by raising the cost of borrowing and lowering the return on lending. 
C) an expansionary policy because it raises the cost of holding excess reserves in the banking system. 
D) an expansionary policy because it increases bank profits by putting upward pressure on the interest rates that banks can charge on its loans.

Question 12

The federal funds rate is determined

Accepted Answer

A) by the Board of Governors. 
B) by the supply and demand for bank reserves. 
C) directly by households' and firms' demands for funds. 
D) by the federal government. 
A) by the Board of Governors. 
B) by the supply and demand for bank reserves. 
C) directly by households' and firms' demands for funds. 
D) by the federal government.

Question 13

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.
-Money is any item that is widely used and freely accepted as payment for goods and services.

Accepted Answer

A) True 
 B)False

Question 14

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.
-(Exhibit: Fed Sells Bonds)
Which of the following happens when Henry Hyde pays for the bond by writing a check from his checking account at the Jekyll Bank?

Accepted Answer

A) Jekyll Bank's checkable deposits decreases by $50,000 and its reserves decreases by $45,000. 
B) Jekyll Bank's checkable deposits decreases by $45,000 and its reserves decreases by $50,000. 
C) Jekyll Bank's checkable deposits and reserves decrease by $50,000 each. 
D) Jekyll Bank's checkable deposits and reserves increase by $45,000 each. 
A) Jekyll Bank's checkable deposits decreases by $50,000 and its reserves decreases by $45,000. 
B) Jekyll Bank's checkable deposits decreases by $45,000 and its reserves decreases by $50,000. 
C) Jekyll Bank's checkable deposits and reserves decrease by $50,000 each. 
D) Jekyll Bank's checkable deposits and reserves increase by $45,000 each.

Question 15

In the banking system today, the reserves banks hold against their deposit liabilities must take one of two forms.They are

Accepted Answer

A) vault cash and deposits at the Fed. 
B) vault cash and checkable deposits. 
C) currency in circulation and checkable deposits. 
D) gold and vault cash. 
A) vault cash and deposits at the Fed. 
B) vault cash and checkable deposits. 
C) currency in circulation and checkable deposits. 
D) gold and vault cash.

Question 16

A bank has $100,000 in checkable deposits and $30,000 in reserves.If the required reserve ratio is 10%, what is the amount of excess reserves?

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 17

In Romania under Communist Party rule in the 1980s, Kent cigarettes served as a medium of exchange.Given this, which of the following statements is true?

Accepted Answer

A) This illustrates the use of Kent cigarettes as fiat money. 
B) Commodity money has no value apart from its use as money. 
C) This illustrates the use of Kent cigarettes as commodity money. 
D) Fiat money must be backed by gold; otherwise it is worthless. 
A) This illustrates the use of Kent cigarettes as fiat money. 
B) Commodity money has no value apart from its use as money. 
C) This illustrates the use of Kent cigarettes as commodity money. 
D) Fiat money must be backed by gold; otherwise it is worthless.

Question 18

Currency is paper money and coin issued by the government.

Accepted Answer

A) True 
 B)False

Question 19

Freema withdraws $1,000 from her checking account to purchase a $1,000 time-deposit.
As a result of her transaction,

Accepted Answer

A) M1 and M2 decrease. 
B) M1 decreases and M2 increases. 
C) M1 decreases and M2 is unaffected. 
D) M1 and M2 are unaffected. 
A) M1 and M2 decrease. 
B) M1 decreases and M2 increases. 
C) M1 decreases and M2 is unaffected. 
D) M1 and M2 are unaffected.

Question 20

If banks were required to keep 100% of deposits in reserves, they could

Accepted Answer

A) make more loans. 
B) make no loans. 
C) create more deposits. 
D) only use required reserves for loans. 
A) make more loans. 
B) make no loans. 
C) create more deposits. 
D) only use required reserves for loans.

When a member bank borrows reserves from the Fed,

Use the following to answer questions Exhibit: Deposit Expansion Stages -(Exhibit: Deposit Expansion Stages) What is the value of $F (the total new checkable deposits) ?

The value of the simple money multiplier tends to be greater when individuals hold less cash.

Use the following to answer questions Exhibit: Deposit Expansion Stages -(Exhibit: Deposit Expansion Stages) What is the value of $D in Stage 4 (round up to the nearest whole number) ?

The Fed seldom uses the reserve requirement ratio to influence the money supply.What is the reason for this?

Suppose you deposit $1,000 cash in your checking account at a bank.If the bank is loaned up and if the required reserve ratio is 10%, the maximum amount that the bank can lend now, following your deposit is

When a bank receives new deposits, it can make new loans up to the amount of

Which of the following is not an example of a financial intermediary?

Which of the following is true?

The three main monetary policy instruments are

If the Fed increases the discount rate, it is pursuing

The federal funds rate is determined

In the banking system today, the reserves banks hold against their deposit liabilities must take one of two forms.They are

A bank has $100,000 in checkable deposits and $30,000 in reserves.If the required reserve ratio is 10%, what is the amount of excess reserves?

In Romania under Communist Party rule in the 1980s, Kent cigarettes served as a medium of exchange.Given this, which of the following statements is true?

Currency is paper money and coin issued by the government.

Freema withdraws $1,000 from her checking account to purchase a $1,000 time-deposit. As a result of her transaction,

If banks were required to keep 100% of deposits in reserves, they could

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

When a member bank borrows reserves from the Fed,

Use the following to answer questions Exhibit: Deposit Expansion Stages -(Exhibit: Deposit Expansion Stages) What is the value of $F (the total new checkable deposits) ?

The value of the simple money multiplier tends to be greater when individuals hold less cash.

Use the following to answer questions Exhibit: Deposit Expansion Stages -(Exhibit: Deposit Expansion Stages) What is the value of $D in Stage 4 (round up to the nearest whole number) ?

The Fed seldom uses the reserve requirement ratio to influence the money supply.What is the reason for this?

Suppose you deposit $1,000 cash in your checking account at a bank.If the bank is loaned up and if the required reserve ratio is 10%, the maximum amount that the bank can lend now, following your deposit is

When a bank receives new deposits, it can make new loans up to the amount of

Which of the following is not an example of a financial intermediary?

Which of the following is true?

The three main monetary policy instruments are

If the Fed increases the discount rate, it is pursuing

The federal funds rate is determined

In the banking system today, the reserves banks hold against their deposit liabilities must take one of two forms.They are

A bank has $100,000 in checkable deposits and $30,000 in reserves.If the required reserve ratio is 10%, what is the amount of excess reserves?

In Romania under Communist Party rule in the 1980s, Kent cigarettes served as a medium of exchange.Given this, which of the following statements is true?

Currency is paper money and coin issued by the government.

Freema withdraws $1,000 from her checking account to purchase a $1,000 time-deposit. As a result of her transaction,

If banks were required to keep 100% of deposits in reserves, they could

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