Question 1

If the Fed wanted to expand the money supply as part of an antirecession strategy, it could

Accepted Answer

A)  increase the reserve requirements imposed on commercial banks. 
B)  decrease the interest rate paid on excess reserves encouraging banks to extend more loans. 
C)  sell U.S. government securities and other financial assets that it is currently holding. 
D)  raise the interest rate on loans extended to banks and other financial institutions. 
A)  increase the reserve requirements imposed on commercial banks. 
B)  decrease the interest rate paid on excess reserves encouraging banks to extend more loans. 
C)  sell U.S. government securities and other financial assets that it is currently holding. 
D)  raise the interest rate on loans extended to banks and other financial institutions.

Question 2

The primary source of earnings of commercial banks is income derived from

Accepted Answer

A)  the checking account services provided to customers. 
B)  the use of deposits to extend loans and undertake investments. 
C)  vault cash and deposits held with the Fed. 
D)  services provided to the U.S. Treasury. 
A)  the checking account services provided to customers. 
B)  the use of deposits to extend loans and undertake investments. 
C)  vault cash and deposits held with the Fed. 
D)  services provided to the U.S. Treasury.

Question 3

Are outstanding credit card balances counted as part of the money supply?

Accepted Answer

A)  No; credit card balances reflect funds that have been borrowed. Unlike money, they cannot be used as a means of payment. 
B)  Yes; they are used to purchase things and therefore they are included in the money supply figures. 
C)  They are included in the M1 money supply, but not the M2 figures. 
D)  They are included in the M2 money supply, but not the M1 figures. 
A)  No; credit card balances reflect funds that have been borrowed. Unlike money, they cannot be used as a means of payment. 
B)  Yes; they are used to purchase things and therefore they are included in the money supply figures. 
C)  They are included in the M1 money supply, but not the M2 figures. 
D)  They are included in the M2 money supply, but not the M1 figures.

Question 4

Suppose the Fed buys $100,000 of U.S. Treasury bonds from Bill Gates. If the reserve requirement is 10 percent, the currency holdings of the public are unchanged, and banks have zero excess reserves both before and after the transaction, the total impact on the money supply will be

Accepted Answer

A)  an increase by $100,000. 
B)  an increase by $1,000,000. 
C)  a decrease by $100,000. 
D)  a decrease by $1,000,000. 
A)  an increase by $100,000. 
B)  an increase by $1,000,000. 
C)  a decrease by $100,000. 
D)  a decrease by $1,000,000.

Question 5

If the Fed wanted to shift to a restrictive monetary policy and reduce the money supply, it could

Accepted Answer

A)  decrease the reserve requirements imposed on commercial banks. 
B)  purchase U.S. government securities and other financial assets in the open market. 
C)  decrease the interest rate on loans extended to banks and other financial institutions. 
D)  increase the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans. 
A)  decrease the reserve requirements imposed on commercial banks. 
B)  purchase U.S. government securities and other financial assets in the open market. 
C)  decrease the interest rate on loans extended to banks and other financial institutions. 
D)  increase the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans.

Question 6

The foreign holdings of U.S. dollars

Accepted Answer

A)  are hard to explain since the dollar is not legal tender outside the United States. 
B)  have decreased substantially during the last decade. 
C)  indicate that foreigners have confidence in the monetary policy and economy of the United States. 
D)  are largely held in countries with a lengthy historical record of monetary and price stability. 
A)  are hard to explain since the dollar is not legal tender outside the United States. 
B)  have decreased substantially during the last decade. 
C)  indicate that foreigners have confidence in the monetary policy and economy of the United States. 
D)  are largely held in countries with a lengthy historical record of monetary and price stability.

Question 7

Open-market purchases by the Fed make the money supply

Accepted Answer

A)  increase, which tends to increase the value of money. 
B)  increase, which tends to decrease the value of money. 
C)  decrease, which tends to decrease the value of money. 
D)  decrease, which tends to increase the value of money. 
A)  increase, which tends to increase the value of money. 
B)  increase, which tends to decrease the value of money. 
C)  decrease, which tends to decrease the value of money. 
D)  decrease, which tends to increase the value of money.

Question 8

Other things constant, which of the following would cause the M2 money supply to decline?

Accepted Answer

A)  an increase in the quantity of U.S. currency held overseas 
B)  a shift of funds from interest-earning checking accounts to money market mutual funds 
C)  a reduction in the general public's holdings of currency outside of banks because debit cards have become more popular and widely accepted 
D)  a shift of funds from money market mutual funds into stock and bond mutual funds because the fees to invest in the latter have declined 
A)  an increase in the quantity of U.S. currency held overseas 
B)  a shift of funds from interest-earning checking accounts to money market mutual funds 
C)  a reduction in the general public's holdings of currency outside of banks because debit cards have become more popular and widely accepted 
D)  a shift of funds from money market mutual funds into stock and bond mutual funds because the fees to invest in the latter have declined

Question 9

Which of the following is the best definition of money?

Accepted Answer

A)  Anything generally accepted as payment for goods or repayment of debt 
B)  Anything that can be converted to a liquid asset 
C)  A national currency that is backed by gold or other precious metals 
D)  Paper or coin currency that is produced by the Federal Reserve 
A)  Anything generally accepted as payment for goods or repayment of debt 
B)  Anything that can be converted to a liquid asset 
C)  A national currency that is backed by gold or other precious metals 
D)  Paper or coin currency that is produced by the Federal Reserve

Question 10

How did the Fed's conduct of open market operations change during the economic crisis of 2008?

Accepted Answer

A)  Open market operations are no longer the most common tool that the Fed utilizes. 
B)  The Fed now buys and sells a broader range of assets than only government securities. 
C)  The Federal Open Market Committee cannot act without the approval of the Treasury. 
D)  The Fed now must have adequate funds available before purchasing government securities. 
A)  Open market operations are no longer the most common tool that the Fed utilizes. 
B)  The Fed now buys and sells a broader range of assets than only government securities. 
C)  The Federal Open Market Committee cannot act without the approval of the Treasury. 
D)  The Fed now must have adequate funds available before purchasing government securities.

Question 11

Which of the following indicates the primary mechanism by which the money supply expands?

Accepted Answer

A)  The U.S. Treasury prints additional currency. 
B)  The Fed purchases additional bonds, which increases the reserves available to the banking system. 
C)  The public decides to hold more currency rather than checking deposits. 
D)  The U.S. government purchases additional gold. 
A)  The U.S. Treasury prints additional currency. 
B)  The Fed purchases additional bonds, which increases the reserves available to the banking system. 
C)  The public decides to hold more currency rather than checking deposits. 
D)  The U.S. government purchases additional gold.

Question 12

Historically, the excess reserves of banks have been ________ relative to checkable deposits, but during the crisis of 2008 the excess reserves of banks ________. (Fill in the blanks)

Accepted Answer

A)  large; declined sharply 
B)  small; fell sharply 
C)  small; increased sharply 
D)  large; increased sharply 
A)  large; declined sharply 
B)  small; fell sharply 
C)  small; increased sharply 
D)  large; increased sharply

Question 13

Are funds available on a credit card included in a definition of the money supply?

Accepted Answer

A)  Yes, because these funds can be used to pay for goods and services. 
B)  Yes, because these funds are included in M2. 
C)  No, because these funds are hard to measure total credit card spending. 
D)  No, because these funds are not a store of value. 
A)  Yes, because these funds can be used to pay for goods and services. 
B)  Yes, because these funds are included in M2. 
C)  No, because these funds are hard to measure total credit card spending. 
D)  No, because these funds are not a store of value.

Question 14

Which of the following will increase the excess reserves of commercial banks?

Accepted Answer

A)  A reduction in the reserve requirement ratio. 
B)  An increase in the discount rate. 
C)  The sale of government bonds by the Fed to the public. 
D)  The sale of government bonds by the Treasury to the public. 
A)  A reduction in the reserve requirement ratio. 
B)  An increase in the discount rate. 
C)  The sale of government bonds by the Fed to the public. 
D)  The sale of government bonds by the Treasury to the public.

Question 15

Demand deposits are

Accepted Answer

A)  deposits held by individuals at one of the twelve Federal Reserve District Banks. 
B)  interest-earning savings deposits held by individuals at a banking institution. 
C)  deposits of commercial banks at one of the twelve Federal Reserve District Banks. 
D)  deposits of individuals that can either be withdrawn or made payable on demand to a third party by a check. 
A)  deposits held by individuals at one of the twelve Federal Reserve District Banks. 
B)  interest-earning savings deposits held by individuals at a banking institution. 
C)  deposits of commercial banks at one of the twelve Federal Reserve District Banks. 
D)  deposits of individuals that can either be withdrawn or made payable on demand to a third party by a check.

Question 16

One advantage of a money system compared to a barter system is that

Accepted Answer

A)  barter never works. 
B)  money creates the need for banks. 
C)  money is more efficient. 
D)  everyone has money. 
A)  barter never works. 
B)  money creates the need for banks. 
C)  money is more efficient. 
D)  everyone has money.

Question 17

The interest rate in the federal funds market

Accepted Answer

A)  is determined by the imposition of price controls imposed by the Fed. 
B)  will tend to rise when the quantity of funds demanded by banks seeking additional reserves exceeds the quantity supplied by banks with excess reserves. 
C)  will tend to fall if the Fed sells bonds and, thereby, reduces the reserves available to banks. 
D)  is an interest rate that is largely unaffected by the policies of the Fed. 
A)  is determined by the imposition of price controls imposed by the Fed. 
B)  will tend to rise when the quantity of funds demanded by banks seeking additional reserves exceeds the quantity supplied by banks with excess reserves. 
C)  will tend to fall if the Fed sells bonds and, thereby, reduces the reserves available to banks. 
D)  is an interest rate that is largely unaffected by the policies of the Fed.

Question 18

The immediate effect of a member bank's sale of U.S. government securities to the Fed is

Accepted Answer

A)  an increase in that bank's required reserves. 
B)  a decrease in that bank's required reserves. 
C)  an increase in that bank's excess reserves. 
D)  a decrease in that bank's excess reserves. 
A)  an increase in that bank's required reserves. 
B)  a decrease in that bank's required reserves. 
C)  an increase in that bank's excess reserves. 
D)  a decrease in that bank's excess reserves.

If the Fed wanted to expand the money supply as part of an antirecession strategy, it could

The primary source of earnings of commercial banks is income derived from

Are outstanding credit card balances counted as part of the money supply?

Suppose the Fed buys $100,000 of U.S. Treasury bonds from Bill Gates. If the reserve requirement is 10 percent, the currency holdings of the public are unchanged, and banks have zero excess reserves both before and after the transaction, the total impact on the money supply will be

If the Fed wanted to shift to a restrictive monetary policy and reduce the money supply, it could

The foreign holdings of U.S. dollars

Open-market purchases by the Fed make the money supply

Other things constant, which of the following would cause the M2 money supply to decline?

Which of the following is the best definition of money?

How did the Fed's conduct of open market operations change during the economic crisis of 2008?

Which of the following indicates the primary mechanism by which the money supply expands?

Historically, the excess reserves of banks have been relative to checkable deposits, but during the crisis of 2008 the excess reserves of banks . (Fill in the blanks)

Are funds available on a credit card included in a definition of the money supply?

Which of the following will increase the excess reserves of commercial banks?

Demand deposits are

One advantage of a money system compared to a barter system is that

The interest rate in the federal funds market

The immediate effect of a member bank's sale of U.S. government securities to the Fed is

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Special Topics

Filters

Exam 13: Money and the Banking System

If the Fed wanted to expand the money supply as part of an antirecession strategy, it could

The primary source of earnings of commercial banks is income derived from

Are outstanding credit card balances counted as part of the money supply?

Suppose the Fed buys $100,000 of U.S. Treasury bonds from Bill Gates. If the reserve requirement is 10 percent, the currency holdings of the public are unchanged, and banks have zero excess reserves both before and after the transaction, the total impact on the money supply will be

If the Fed wanted to shift to a restrictive monetary policy and reduce the money supply, it could

The foreign holdings of U.S. dollars

Open-market purchases by the Fed make the money supply

Other things constant, which of the following would cause the M2 money supply to decline?

Which of the following is the best definition of money?

How did the Fed's conduct of open market operations change during the economic crisis of 2008?

Which of the following indicates the primary mechanism by which the money supply expands?

Historically, the excess reserves of banks have been ________ relative to checkable deposits, but during the crisis of 2008 the excess reserves of banks ________. (Fill in the blanks)

Are funds available on a credit card included in a definition of the money supply?

Which of the following will increase the excess reserves of commercial banks?

Demand deposits are

One advantage of a money system compared to a barter system is that

The interest rate in the federal funds market

The immediate effect of a member bank's sale of U.S. government securities to the Fed is

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Special Topics

Filters

Historically, the excess reserves of banks have been relative to checkable deposits, but during the crisis of 2008 the excess reserves of banks . (Fill in the blanks)