Question 1

Money is

Accepted Answer

A)  whatever is generally accepted in exchange for goods and services. 
B)  an object to be consumed. 
C)  a highly illiquid asset. 
D)  widely used in a barter economy. 
A)  whatever is generally accepted in exchange for goods and services. 
B)  an object to be consumed. 
C)  a highly illiquid asset. 
D)  widely used in a barter economy.

Question 2

The federal funds rate is the interest rate paid when

Accepted Answer

A)  the Federal Reserve makes loans to member banks. 
B)  taxpayers pay overdue taxes. 
C)  one bank borrows reserves from another bank. 
D)  banks make loans to the federal government. 
E)  the federal debt is refinanced. 
A)  the Federal Reserve makes loans to member banks. 
B)  taxpayers pay overdue taxes. 
C)  one bank borrows reserves from another bank. 
D)  banks make loans to the federal government. 
E)  the federal debt is refinanced.

Question 3

In order to increase the money supply, the banking system must have

Accepted Answer

A)  required reserves. 
B)  the authority to buy corporate stocks. 
C)  the authority to print U.S. currency. 
D)  excess reserves. 
E)  the authority to engage in interstate banking. 
A)  required reserves. 
B)  the authority to buy corporate stocks. 
C)  the authority to print U.S. currency. 
D)  excess reserves. 
E)  the authority to engage in interstate banking.

Question 4

The primary source of revenue for the Federal Reserve is

Accepted Answer

A)  the interest earned on the bonds held by the Fed. 
B)  its annual appropriation from Congress. 
C)  the interest earned on discount loans to banks. 
D)  the dividends earned on the stocks held by the Fed. 
A)  the interest earned on the bonds held by the Fed. 
B)  its annual appropriation from Congress. 
C)  the interest earned on discount loans to banks. 
D)  the dividends earned on the stocks held by the Fed.

Question 5

When commercial banks extend loans, they are able to expand the supply of money in the United States because the U.S. has

Accepted Answer

A)  a fiat supply of money. 
B)  money that is backed by gold. 
C)  a fractional reserve banking system. 
D)  a system of federal deposit insurance. 
A)  a fiat supply of money. 
B)  money that is backed by gold. 
C)  a fractional reserve banking system. 
D)  a system of federal deposit insurance.

Question 6

You deposit a $1,000 scholarship check in the bank. If the required reserve ratio is 10 percent, explain how the banking system will create new money and how much money can potentially be created.

Accepted Answer

Once the $1,000 is deposited, the bank i

Question 7

What are the advantages of a fractional reserve banking system compared to a system that requires 100 percent of deposits to be kept on reserve?

Accepted Answer

If a bank must keep all of its deposits

Question 8

What is meant by the expression, "There is too much money chasing too few goods"?

Accepted Answer

A)  People spend too much time chasing after money. 
B)  An expansion in the supply of money relative to the availability of goods and services is causing an increase in the general level of prices. 
C)  The value of money will tend to decline when the supply of gold increases. 
D)  People would be better off if the monetary authorities increased the supply of money more rapidly. 
A)  People spend too much time chasing after money. 
B)  An expansion in the supply of money relative to the availability of goods and services is causing an increase in the general level of prices. 
C)  The value of money will tend to decline when the supply of gold increases. 
D)  People would be better off if the monetary authorities increased the supply of money more rapidly.

Question 9

Which one of the following is the largest component of the money supply (M1) in the United States?

Accepted Answer

A)  demand and other checking deposits 
B)  gold certificates 
C)  credit cards and traveler's checks 
D)  Federal Reserve notes 
A)  demand and other checking deposits 
B)  gold certificates 
C)  credit cards and traveler's checks 
D)  Federal Reserve notes

Question 10

Explain how the Fed would use its four tools to decrease and to increase the money supply.

Accepted Answer

The Fed would raise reserve requirements

Question 11

Under the Term Auction Facility (TAF), the rate that a depository institution pays on a loan from the Fed is determined by

Accepted Answer

A)  the federal funds rate. 
B)  the discount rate. 
C)  the real rate of interest. 
D)  a bidding process allocating the funds to those willing to pay the highest rates. 
A)  the federal funds rate. 
B)  the discount rate. 
C)  the real rate of interest. 
D)  a bidding process allocating the funds to those willing to pay the highest rates.

Question 12

During the second half of 2008, the Fed approximately doubled the reserves of the commercial banking system.  As a result, the M1 money supply

Accepted Answer

A)  fell sharply, because the banks used the excess reserves to extend additional loans. 
B)  also approximately doubled. 
C)  was unchanged, because bank reserves will not affect the M1 money supply. 
D)  increased, but by a much smaller amount, because the banks used only a small portion of their excess reserves to extend additional loans. 
A)  fell sharply, because the banks used the excess reserves to extend additional loans. 
B)  also approximately doubled. 
C)  was unchanged, because bank reserves will not affect the M1 money supply. 
D)  increased, but by a much smaller amount, because the banks used only a small portion of their excess reserves to extend additional loans.

Question 13

Suppose you transfer $1,000 from your checking account to your savings account. How does this action affect the M1 and M2 money supplies?

Accepted Answer

A)  M1 and M2 are both unchanged. 
B)  M1 falls by $1,000, and M2 rises by $1,000. 
C)  M1 is unchanged, and M2 rises by $1,000. 
D)  M1 falls by $1,000, and M2 is unchanged. 
A)  M1 and M2 are both unchanged. 
B)  M1 falls by $1,000, and M2 rises by $1,000. 
C)  M1 is unchanged, and M2 rises by $1,000. 
D)  M1 falls by $1,000, and M2 is unchanged.

Question 14

Citizens Bank confronts a reserve requirement of 20 percent and currently holds millions of dollars in excess reserves. If a depositor withdraws $35,000, the excess reserves of the bank will

Accepted Answer

A)  decline by $7,000. 
B)  decline by $35,000. 
C)  decline by $28,000. 
D)  increase by $7,000. 
A)  decline by $7,000. 
B)  decline by $35,000. 
C)  decline by $28,000. 
D)  increase by $7,000.

Question 15

If the Federal Reserve is engaging in open market operations designed to expand the money supply, it is probably

Accepted Answer

A)  selling government securities to banks. 
B)  selling government securities to the public. 
C)  buying government securities from the public. 
D)  encouraging banks to exchange their Fed deposits for currency. 
A)  selling government securities to banks. 
B)  selling government securities to the public. 
C)  buying government securities from the public. 
D)  encouraging banks to exchange their Fed deposits for currency.

Question 16

Which of the following actions of the Fed would increase the money supply?

Accepted Answer

A)  The purchase of U.S. government securities. 
B)  A reduction in the discount rate. 
C)  A reduction in the required reserve ratio. 
D)  All of the above are correct. 
A)  The purchase of U.S. government securities. 
B)  A reduction in the discount rate. 
C)  A reduction in the required reserve ratio. 
D)  All of the above are correct.

Question 17

The type of banking system under which banks are required to hold only a portion of their assets in reserve against the checking deposits of their customers is called

Accepted Answer

A)  a gold-backed banking system. 
B)  a full reserve banking system. 
C)  a fiat banking system. 
D)  a fractional reserve banking system. 
A)  a gold-backed banking system. 
B)  a full reserve banking system. 
C)  a fiat banking system. 
D)  a fractional reserve banking system.

Question 18

As debit cards become more popular, individuals will reduce their holdings of currency. Other things constant, how will this impact the money supply?

Accepted Answer

A)  Because more money is held as deposits at banks, the money supply will fall. 
B)  Because more money is held as deposits at banks, the money supply will expand. 
C)  Because debit card expenditures are counted in M2 but not M1, the M1 money supply will fall. 
D)  Because debit card expenditures are counted in M1 but not M2, the M2 money supply will fall. 
A)  Because more money is held as deposits at banks, the money supply will fall. 
B)  Because more money is held as deposits at banks, the money supply will expand. 
C)  Because debit card expenditures are counted in M2 but not M1, the M1 money supply will fall. 
D)  Because debit card expenditures are counted in M1 but not M2, the M2 money supply will fall.

Question 19

The main source of profit for financial institutions is

Accepted Answer

A)  their ownership of stocks in commercial corporations. 
B)  their ownership of real assets received in foreclosures on loans to households. 
C)  the fees charged for holding and servicing checking accounts. 
D)  the difference between interest paid on deposits and interest received on loans. 
E)  the difference between the cost of creating new money and the interest paid on loans. 
A)  their ownership of stocks in commercial corporations. 
B)  their ownership of real assets received in foreclosures on loans to households. 
C)  the fees charged for holding and servicing checking accounts. 
D)  the difference between interest paid on deposits and interest received on loans. 
E)  the difference between the cost of creating new money and the interest paid on loans.

Question 20

Which of the following actions would the Fed undertake if it wants to follow a more restrictive monetary policy?

Accepted Answer

A)  Sell some of its holdings of government bonds. 
B)  Decrease government expenditures. 
C)  Urge the Treasury to sell more U.S. securities. 
D)  Reduce the reserve requirements. 
A)  Sell some of its holdings of government bonds. 
B)  Decrease government expenditures. 
C)  Urge the Treasury to sell more U.S. securities. 
D)  Reduce the reserve requirements.

Money is

The federal funds rate is the interest rate paid when

In order to increase the money supply, the banking system must have

The primary source of revenue for the Federal Reserve is

When commercial banks extend loans, they are able to expand the supply of money in the United States because the U.S. has

You deposit a $1,000 scholarship check in the bank. If the required reserve ratio is 10 percent, explain how the banking system will create new money and how much money can potentially be created.

What are the advantages of a fractional reserve banking system compared to a system that requires 100 percent of deposits to be kept on reserve?

What is meant by the expression, "There is too much money chasing too few goods"?

Which one of the following is the largest component of the money supply (M1) in the United States?

Explain how the Fed would use its four tools to decrease and to increase the money supply.

Under the Term Auction Facility (TAF), the rate that a depository institution pays on a loan from the Fed is determined by

During the second half of 2008, the Fed approximately doubled the reserves of the commercial banking system. As a result, the M1 money supply

Suppose you transfer $1,000 from your checking account to your savings account. How does this action affect the M1 and M2 money supplies?

Citizens Bank confronts a reserve requirement of 20 percent and currently holds millions of dollars in excess reserves. If a depositor withdraws $35,000, the excess reserves of the bank will

If the Federal Reserve is engaging in open market operations designed to expand the money supply, it is probably

Which of the following actions of the Fed would increase the money supply?

The type of banking system under which banks are required to hold only a portion of their assets in reserve against the checking deposits of their customers is called

As debit cards become more popular, individuals will reduce their holdings of currency. Other things constant, how will this impact the money supply?

The main source of profit for financial institutions is

Which of the following actions would the Fed undertake if it wants to follow a more restrictive monetary policy?

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

Money is

The federal funds rate is the interest rate paid when

In order to increase the money supply, the banking system must have

The primary source of revenue for the Federal Reserve is

When commercial banks extend loans, they are able to expand the supply of money in the United States because the U.S. has

You deposit a $1,000 scholarship check in the bank. If the required reserve ratio is 10 percent, explain how the banking system will create new money and how much money can potentially be created.

What are the advantages of a fractional reserve banking system compared to a system that requires 100 percent of deposits to be kept on reserve?

What is meant by the expression, "There is too much money chasing too few goods"?

Which one of the following is the largest component of the money supply (M1) in the United States?

Explain how the Fed would use its four tools to decrease and to increase the money supply.

Under the Term Auction Facility (TAF), the rate that a depository institution pays on a loan from the Fed is determined by

During the second half of 2008, the Fed approximately doubled the reserves of the commercial banking system. As a result, the M1 money supply

Suppose you transfer $1,000 from your checking account to your savings account. How does this action affect the M1 and M2 money supplies?

Citizens Bank confronts a reserve requirement of 20 percent and currently holds millions of dollars in excess reserves. If a depositor withdraws $35,000, the excess reserves of the bank will

If the Federal Reserve is engaging in open market operations designed to expand the money supply, it is probably

Which of the following actions of the Fed would increase the money supply?

The type of banking system under which banks are required to hold only a portion of their assets in reserve against the checking deposits of their customers is called

As debit cards become more popular, individuals will reduce their holdings of currency. Other things constant, how will this impact the money supply?

The main source of profit for financial institutions is

Which of the following actions would the Fed undertake if it wants to follow a more restrictive monetary policy?

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