Question 1

Which of the following lists two things that both decrease the money supply?

Accepted Answer

A) raise the discount rate, make open market purchases 
B) raise the discount rate, make open market sales 
C) lower the discount rate, make open market purchases 
D) lower the discount rate, make open market sales 
A) raise the discount rate, make open market purchases 
B) raise the discount rate, make open market sales 
C) lower the discount rate, make open market purchases 
D) lower the discount rate, make open market sales B

Question 2

U.S.dollars are an example of commodity money and hides used to make trades are an example of fiat money.

Accepted Answer

A) True 
 B)False  False

Question 3

Suppose the banking system currently has $300 billion in reserves,that the reserve requirement is 10%,and that $3 billion of the reserves are excess reserves that will not be lent out.What is the value of deposits?

Accepted Answer

A) $3,300 billion 
B) $2,970 billion 
C) $2,700 billion 
D) $2,673 billion 
A) $3,300 billion 
B) $2,970 billion 
C) $2,700 billion 
D) $2,673 billion B

Question 4

Use the balance sheet for the following questions.
Table 29-2
  
-Refer to Table 29-2.If someone deposits $400 into the First Bank of Mason City,

Accepted Answer

A) the bank will be able to make additional loans totaling $320. 
B) excess reserves initially increase by $320. 
C) required reserves initially increase by $80. 
D) All of the above are correct. 
A) the bank will be able to make additional loans totaling $320. 
B) excess reserves initially increase by $320. 
C) required reserves initially increase by $80. 
D) All of the above are correct.

Question 5

Bottles of very fine wine are less liquid than demand deposits.

Accepted Answer

A) True 
 B)False

Question 6

The Federal Reserve is a privately operated commercial bank.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is included in both M1 and M2?

Accepted Answer

A) savings deposits 
B) demand deposits 
C) small time deposits 
D) money market mutual funds 
A) savings deposits 
B) demand deposits 
C) small time deposits 
D) money market mutual funds

Question 8

Suppose that banks decide to hold more excess reserves relative to deposits.Other things the same,this action will cause the

Accepted Answer

A) money supply to fall.To reduce the impact of this the Fed could sell Treasury bonds. 
B) money supply to fall.To reduce the impact of this the Fed could buy Treasury bonds. 
C) money supply to rise.To reduce the impact of this the Fed could sell Treasury bonds. 
D) money supply to rise.To reduce the impact of this the Fed could buy Treasury bonds. 
A) money supply to fall.To reduce the impact of this the Fed could sell Treasury bonds. 
B) money supply to fall.To reduce the impact of this the Fed could buy Treasury bonds. 
C) money supply to rise.To reduce the impact of this the Fed could sell Treasury bonds. 
D) money supply to rise.To reduce the impact of this the Fed could buy Treasury bonds.

Question 9

The Federal Funds rate is the interest rate

Accepted Answer

A) the Federal Reserves charges for loans it makes to the federal government. 
B) the Federal Reserve charges banks for short-term loans. 
C) banks charge each other for short-term loans of reserves. 
D) on newly issued one-year Treasury bonds. 
A) the Federal Reserves charges for loans it makes to the federal government. 
B) the Federal Reserve charges banks for short-term loans. 
C) banks charge each other for short-term loans of reserves. 
D) on newly issued one-year Treasury bonds.

Question 10

If the reserve ratio is 20 percent,the money multiplier is

Accepted Answer

A) 2. 
B) 4. 
C) 5. 
D) 8. 
A) 2. 
B) 4. 
C) 5. 
D) 8.

Question 11

The Fed can increase the money supply by conducting open market

Accepted Answer

A) sales and raising the discount rate. 
B) sales and lowering the discount rate. 
C) purchases and raising the discount rate. 
D) purchases and lowering the discount rate. 
A) sales and raising the discount rate. 
B) sales and lowering the discount rate. 
C) purchases and raising the discount rate. 
D) purchases and lowering the discount rate.

Question 12

Suppose that banks decide to hold fewer excess reserves relative to deposits.Other things the same,this action will cause the

Accepted Answer

A) money supply to fall.To reduce the impact of this the Fed could sell Treasury bonds. 
B) money supply to fall.To reduce the impact of this the Fed could buy Treasury bonds. 
C) money supply to rise.To reduce the impact of this the Fed could sell Treasury bonds. 
D) money supply to rise.To reduce the impact of this the Fed could buy Treasury bonds. 
A) money supply to fall.To reduce the impact of this the Fed could sell Treasury bonds. 
B) money supply to fall.To reduce the impact of this the Fed could buy Treasury bonds. 
C) money supply to rise.To reduce the impact of this the Fed could sell Treasury bonds. 
D) money supply to rise.To reduce the impact of this the Fed could buy Treasury bonds.

Question 13

Which of the following is correct?

Accepted Answer

A) The Fed can control the money supply precisely. 
B) The amount of money in the economy does not depend on the behavior of depositors. 
C) The amount of money in the economy depends in part on the behavior of banks. 
D) None of the above is correct. 
A) The Fed can control the money supply precisely. 
B) The amount of money in the economy does not depend on the behavior of depositors. 
C) The amount of money in the economy depends in part on the behavior of banks. 
D) None of the above is correct.

Question 14

The legal tender requirement means that

Accepted Answer

A) people are more likely to accept the dollar as a medium of exchange. 
B) the government must hold enough gold to redeem all currency. 
C) people may not make trades with anything else. 
D) All of the above are correct. 
A) people are more likely to accept the dollar as a medium of exchange. 
B) the government must hold enough gold to redeem all currency. 
C) people may not make trades with anything else. 
D) All of the above are correct.

Question 15

Table 29-5
  
-Refer to Figure 29-5.If the Fed requires a reserve ratio of 4%,how much in excess reserves does the Bank of Springfield now hold?

Accepted Answer

A) $1,200 
B) $2,400 
C) $2,880 
D) $3,000 
A) $1,200 
B) $2,400 
C) $2,880 
D) $3,000

Question 16

Suppose a bank has $200,000 in deposits and $190,000 in loans.It has loaned out all it can.It has a reserve ratio of

Accepted Answer

A) 2.5 percent. 
B) 5 percent. 
C) 9.5 percent. 
D) 10 percent. 
A) 2.5 percent. 
B) 5 percent. 
C) 9.5 percent. 
D) 10 percent.

Question 17

If banks desire to hold no excess reserves,the reserve ratio is 10 percent,and a bank that was previously just meeting its reserve requirement receives a new deposit of $400,then initially the bank has a

Accepted Answer

A) $400 increase in excess reserves and no increase in required reserves. 
B) $400 increase in required reserves and no increase in excess reserves. 
C) $360 increase in excess reserves and $40 increase in required reserves. 
D) $40 increase in excess reserves and $360 increase in required reserves. 
A) $400 increase in excess reserves and no increase in required reserves. 
B) $400 increase in required reserves and no increase in excess reserves. 
C) $360 increase in excess reserves and $40 increase in required reserves. 
D) $40 increase in excess reserves and $360 increase in required reserves.

Question 18

Commodity money is

Accepted Answer

A) backed by gold. 
B) the principal type of money in use today. 
C) money with intrinsic value. 
D) receipts created in international trade that are used as a medium of exchange. 
A) backed by gold. 
B) the principal type of money in use today. 
C) money with intrinsic value. 
D) receipts created in international trade that are used as a medium of exchange.

Question 19

If the Fed sells government bonds to the public,bank reserves tend to

Accepted Answer

A) increase and the money supply increases. 
B) increase and the money supply decreases. 
C) decrease and the money supply increases. 
D) decrease and the money supply decreases. 
A) increase and the money supply increases. 
B) increase and the money supply decreases. 
C) decrease and the money supply increases. 
D) decrease and the money supply decreases.

Question 20

Which of the following lists two things that both increase the money supply?

Accepted Answer

A) make open market purchases, raise the reserve requirement ratio 
B) make open market purchases, lower the reserve requirement ratio 
C) make open market sales, raise the reserve requirement ratio 
D) make open market sales, lower the reserve requirement ratio 
A) make open market purchases, raise the reserve requirement ratio 
B) make open market purchases, lower the reserve requirement ratio 
C) make open market sales, raise the reserve requirement ratio 
D) make open market sales, lower the reserve requirement ratio

Exam 29: The Monetary System

Which of the following lists two things that both decrease the money supply?

U.S.dollars are an example of commodity money and hides used to make trades are an example of fiat money.

Suppose the banking system currently has $300 billion in reserves,that the reserve requirement is 10%,and that $3 billion of the reserves are excess reserves that will not be lent out.What is the value of deposits?

Use the balance sheet for the following questions. Table 29-2 -Refer to Table 29-2.If someone deposits $400 into the First Bank of Mason City,

Bottles of very fine wine are less liquid than demand deposits.

The Federal Reserve is a privately operated commercial bank.

Which of the following is included in both M1 and M2?

Suppose that banks decide to hold more excess reserves relative to deposits.Other things the same,this action will cause the

The Federal Funds rate is the interest rate

If the reserve ratio is 20 percent,the money multiplier is

The Fed can increase the money supply by conducting open market

Suppose that banks decide to hold fewer excess reserves relative to deposits.Other things the same,this action will cause the

Which of the following is correct?

The legal tender requirement means that

Table 29-5 -Refer to Figure 29-5.If the Fed requires a reserve ratio of 4%,how much in excess reserves does the Bank of Springfield now hold?

Suppose a bank has $200,000 in deposits and $190,000 in loans.It has loaned out all it can.It has a reserve ratio of

If banks desire to hold no excess reserves,the reserve ratio is 10 percent,and a bank that was previously just meeting its reserve requirement receives a new deposit of $400,then initially the bank has a

Commodity money is

If the Fed sells government bonds to the public,bank reserves tend to

Which of the following lists two things that both increase the money supply?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Applications

Supply, demand, and Government Policies

Consumers, producers, and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Oligopoly

Monopolistic Competition

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

The Basic Tools of Finance

Unemployment

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short Run Trade Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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