Question 1

If money were not used as a medium of exchange,

Accepted Answer

A)  the gains from trade would be severely limited. 
B)  our standard of living would probably improve. 
C)  the transaction costs of exchange would be lower. 
D)  economic efficiency would increase. 
A)  the gains from trade would be severely limited. 
B)  our standard of living would probably improve. 
C)  the transaction costs of exchange would be lower. 
D)  economic efficiency would increase.

Question 2

The Fed is institutionally independent. A major advantage of this is that monetary policy

Accepted Answer

A)  is subject to regular congressional scrutiny. 
B)  will often offset fiscal policy. 
C)  is not controlled by politicians. 
D)  is usually coordinated with fiscal policy. 
A)  is subject to regular congressional scrutiny. 
B)  will often offset fiscal policy. 
C)  is not controlled by politicians. 
D)  is usually coordinated with fiscal policy.

Question 3

Suppose the Fed purchases $10 million of U.S. securities from the public. 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 a

Accepted Answer

A)  $10 million decrease in the money supply. 
B)  $10 million increase in the money supply. 
C)  $100 million decrease in the money supply. 
D)  $100 million increase in the money supply. 
A)  $10 million decrease in the money supply. 
B)  $10 million increase in the money supply. 
C)  $100 million decrease in the money supply. 
D)  $100 million increase in the money supply.

Question 4

If the Federal Reserve wants to increase the availability of money and credit, it can

Accepted Answer

A)  lower the discount rate. 
B)  raise the reserve requirements. 
C)  sell government bonds to the public. 
D)  encourage banks to increase their prime lending rate. 
A)  lower the discount rate. 
B)  raise the reserve requirements. 
C)  sell government bonds to the public. 
D)  encourage banks to increase their prime lending rate.

Question 5

If the Fed buys a T-bill from a commercial bank, how will it pay for the T-bill?

Accepted Answer

A)  It will give the bank new reserves. 
B)  It will write the bank a check. 
C)  It will transfer cash to the bank's vault. 
D)  It will take reserves from another bank. 
A)  It will give the bank new reserves. 
B)  It will write the bank a check. 
C)  It will transfer cash to the bank's vault. 
D)  It will take reserves from another bank.

Question 6

A reserve requirement of 20 percent implies a potential money deposit multiplier of

Accepted Answer

A)  4. 
B)  5. 
C)  20. 
D)  25. 
A)  4. 
B)  5. 
C)  20. 
D)  25.

Question 7

The term "open market operations" refers to the

Accepted Answer

A)  loan-making activities of commercial banks. 
B)  effect of expansionary monetary policy on interest rates. 
C)  operation of competitive markets in the banking industry as the result of deregulation. 
D)  buying and selling of government securities by the Federal Reserve. 
A)  loan-making activities of commercial banks. 
B)  effect of expansionary monetary policy on interest rates. 
C)  operation of competitive markets in the banking industry as the result of deregulation. 
D)  buying and selling of government securities by the Federal Reserve.

Question 8

Other things constant, if the Fed decreased the discount rate,

Accepted Answer

A)  the earnings of the Fed would increase. 
B)  the incentive of commercial banks to borrow from the Fed would be reduced. 
C)  the prime interest rate would automatically decline. 
D)  commercial banks probably would reduce their excess reserves and be more willing to extend additional loans. 
A)  the earnings of the Fed would increase. 
B)  the incentive of commercial banks to borrow from the Fed would be reduced. 
C)  the prime interest rate would automatically decline. 
D)  commercial banks probably would reduce their excess reserves and be more willing to extend additional loans.

Question 9

You withdraw $100 from your checking account. How does this affect the money supply and the reserves of your bank?

Accepted Answer

A)  The money supply increases, and the reserves of your bank decline. 
B)  Both money supply and the reserves of your bank increase. 
C)  There is no change in the money supply, and the reserves of your bank decline. 
D)  The money supply decreases, and the reserves of your bank increase. 
A)  The money supply increases, and the reserves of your bank decline. 
B)  Both money supply and the reserves of your bank increase. 
C)  There is no change in the money supply, and the reserves of your bank decline. 
D)  The money supply decreases, and the reserves of your bank increase.

Question 10

When the Fed sells Treasury Bonds on the open market, it will tend to

Accepted Answer

A)  decrease the money supply and raise interest rates. 
B)  decrease the money supply and lower interest rates. 
C)  increase the money supply and raise interest rates. 
D)  increase the money supply and lower interest rates. 
A)  decrease the money supply and raise interest rates. 
B)  decrease the money supply and lower interest rates. 
C)  increase the money supply and raise interest rates. 
D)  increase the money supply and lower interest rates.

Question 11

Does the Federal Reserve operate like an ordinary commercial bank? What is the Fed's job?

Accepted Answer

Since the Fed is an independent branch o

Question 12

A reserve requirement of 5 percent implies a potential money deposit multiplier of

Accepted Answer

A)  5. 
B)  10. 
C)  20. 
D)  25. 
A)  5. 
B)  10. 
C)  20. 
D)  25.

Question 13

Which of the following would cause the actual deposit expansion multiplier to be less than its potential?

Accepted Answer

A)  The general public holding of funds in the form of currency rather than bank deposits 
B)  The holding of excess reserves by commercial banks 
C)  The general public holding of funds in the form of coins rather than bills 
D)  Both a and b 
A)  The general public holding of funds in the form of currency rather than bank deposits 
B)  The holding of excess reserves by commercial banks 
C)  The general public holding of funds in the form of coins rather than bills 
D)  Both a and b

Question 14

Regional Bank is subject to a 10 percent required-reserve ratio. If this bank received a new checkable deposit of $1,000, it could make new loans of

Accepted Answer

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

Question 15

When a banker accepts a deposit of $1,000 in cash and puts $200 aside as required reserves and then makes a loan of $800 to a new borrower, this set of transactions

Accepted Answer

A)  decreases the money supply by $1,000. 
B)  decreases the money supply by $200. 
C)  does not change the money supply. 
D)  increases the money supply by $200. 
E)  increases the money supply by $800. 
A)  decreases the money supply by $1,000. 
B)  decreases the money supply by $200. 
C)  does not change the money supply. 
D)  increases the money supply by $200. 
E)  increases the money supply by $800.

Question 16

When the Fed lowers the discount rate, it makes it

Accepted Answer

A)  cheaper for banks to borrow from each other. 
B)  cheaper for banks to obtain additional reserves by borrowing from the Fed. 
C)  more difficult for banks to accept deposits. 
D)  more difficult for banks to extend loans. 
A)  cheaper for banks to borrow from each other. 
B)  cheaper for banks to obtain additional reserves by borrowing from the Fed. 
C)  more difficult for banks to accept deposits. 
D)  more difficult for banks to extend loans.

Question 17

Marquis decides to bank with First National Bank (FNB). He opens a checking account by depositing $1,000. According to the FNB balance sheet, after this initial $1,000 checkable deposit, there are $1,000 in

Accepted Answer

A)  reserves and $1,000 in checkable deposits. 
B)  liabilities and $2,000 in checkable deposits. 
C)  checkable deposits and $0 in assets. 
D)  assets and $0 in liabilities. 
E)  reserves and $0 in liabilities. 
A)  reserves and $1,000 in checkable deposits. 
B)  liabilities and $2,000 in checkable deposits. 
C)  checkable deposits and $0 in assets. 
D)  assets and $0 in liabilities. 
E)  reserves and $0 in liabilities.

Question 18

Why did the monetary base increase rapidly during the economic crisis of 2008?

Accepted Answer

A)  The Fed sold financial assets and extended fewer loans. 
B)  The Fed increased both its purchase of assets and quantity of loans extended. 
C)  The Fed increased its purchases of assets, but offset this with an increase in the reserve requirement. 
D)  The Fed sold financial assets, but offset this with a reduction in the reserve requirement. 
A)  The Fed sold financial assets and extended fewer loans. 
B)  The Fed increased both its purchase of assets and quantity of loans extended. 
C)  The Fed increased its purchases of assets, but offset this with an increase in the reserve requirement. 
D)  The Fed sold financial assets, but offset this with a reduction in the reserve requirement.

Question 19

In order for barter trades to occur, there must be a

Accepted Answer

A)  singularity of interests. 
B)  bargaining intermediary. 
C)  double coincidence of wants. 
D)  sufficient supply of cash. 
A)  singularity of interests. 
B)  bargaining intermediary. 
C)  double coincidence of wants. 
D)  sufficient supply of cash.

Question 20

A bank finds itself short of required reserves and therefore borrows from another commercial bank. The interest rate on this loan is

Accepted Answer

A)  zero. 
B)  the prime rate. 
C)  the discount rate. 
D)  the federal funds rate. 
E)  the required reserve ratio. 
A)  zero. 
B)  the prime rate. 
C)  the discount rate. 
D)  the federal funds rate. 
E)  the required reserve ratio.

If money were not used as a medium of exchange,

The Fed is institutionally independent. A major advantage of this is that monetary policy

Suppose the Fed purchases $10 million of U.S. securities from the public. 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 a

If the Federal Reserve wants to increase the availability of money and credit, it can

If the Fed buys a T-bill from a commercial bank, how will it pay for the T-bill?

A reserve requirement of 20 percent implies a potential money deposit multiplier of

The term "open market operations" refers to the

Other things constant, if the Fed decreased the discount rate,

You withdraw $100 from your checking account. How does this affect the money supply and the reserves of your bank?

When the Fed sells Treasury Bonds on the open market, it will tend to

Does the Federal Reserve operate like an ordinary commercial bank? What is the Fed's job?

A reserve requirement of 5 percent implies a potential money deposit multiplier of

Which of the following would cause the actual deposit expansion multiplier to be less than its potential?

Regional Bank is subject to a 10 percent required-reserve ratio. If this bank received a new checkable deposit of $1,000, it could make new loans of

When a banker accepts a deposit of $1,000 in cash and puts $200 aside as required reserves and then makes a loan of $800 to a new borrower, this set of transactions

When the Fed lowers the discount rate, it makes it

Marquis decides to bank with First National Bank (FNB). He opens a checking account by depositing $1,000. According to the FNB balance sheet, after this initial $1,000 checkable deposit, there are $1,000 in

Why did the monetary base increase rapidly during the economic crisis of 2008?

In order for barter trades to occur, there must be a

A bank finds itself short of required reserves and therefore borrows from another commercial bank. The interest rate on this loan 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 money were not used as a medium of exchange,

The Fed is institutionally independent. A major advantage of this is that monetary policy

Suppose the Fed purchases $10 million of U.S. securities from the public. 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 a

If the Federal Reserve wants to increase the availability of money and credit, it can

If the Fed buys a T-bill from a commercial bank, how will it pay for the T-bill?

A reserve requirement of 20 percent implies a potential money deposit multiplier of

The term "open market operations" refers to the

Other things constant, if the Fed decreased the discount rate,

You withdraw $100 from your checking account. How does this affect the money supply and the reserves of your bank?

When the Fed sells Treasury Bonds on the open market, it will tend to

Does the Federal Reserve operate like an ordinary commercial bank? What is the Fed's job?

A reserve requirement of 5 percent implies a potential money deposit multiplier of

Which of the following would cause the actual deposit expansion multiplier to be less than its potential?

Regional Bank is subject to a 10 percent required-reserve ratio. If this bank received a new checkable deposit of $1,000, it could make new loans of

When a banker accepts a deposit of $1,000 in cash and puts $200 aside as required reserves and then makes a loan of $800 to a new borrower, this set of transactions

When the Fed lowers the discount rate, it makes it

Marquis decides to bank with First National Bank (FNB). He opens a checking account by depositing $1,000. According to the FNB balance sheet, after this initial $1,000 checkable deposit, there are $1,000 in

Why did the monetary base increase rapidly during the economic crisis of 2008?

In order for barter trades to occur, there must be a

A bank finds itself short of required reserves and therefore borrows from another commercial bank. The interest rate on this loan 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