Question 1

-The effect on interest rates and the amount of loans made caused by a drop in a bank's required reserves is shown by the movement from:

Accepted Answer

A)  D1 to D2 in Figure A. 
B)  D1 to D2 in Figure B. 
C)  S1 to S2 in Figure C. 
D)  S1 to S2 in Figure D. 
A)  D1 to D2 in Figure A. 
B)  D1 to D2 in Figure B. 
C)  S1 to S2 in Figure C. 
D)  S1 to S2 in Figure D. C

Question 2

If a bank does not meet its reserve requirement it can borrow from the Fed or from other banks in the Federal Funds market.

Accepted Answer

A) True 
 B)False  True

Question 3

The economy's output always expands when the money supply increases.

Accepted Answer

A) True 
 B)False  False

Question 4

The discount rate is the interest rate charged by:

Accepted Answer

A)  banks to other banks. 
B)  banks to their best customers. 
C)  the Federal Reserve to financial depository institutions. 
D)  none of the above. 
A)  banks to other banks. 
B)  banks to their best customers. 
C)  the Federal Reserve to financial depository institutions. 
D)  none of the above.

Question 5

The size of the money multiplier is:

Accepted Answer

A)  directly related to the discount rate. 
B)  inversely related to the discount rate. 
C)  directly related to the size of the reserve requirement. 
D)  inversely related to the size of the reserve requirement. 
A)  directly related to the discount rate. 
B)  inversely related to the discount rate. 
C)  directly related to the size of the reserve requirement. 
D)  inversely related to the size of the reserve requirement.

Question 6

Increases in the money supply result in higher:

Accepted Answer

A)  spending, output, and prices if the economy is at full employment. 
B)  spending and prices if the economy is at less than full employment. 
C)  spending, output, and employment if the economy is at full employment. 
D)  spending, output, and employment if the economy is at less than full employment. 
A)  spending, output, and prices if the economy is at full employment. 
B)  spending and prices if the economy is at less than full employment. 
C)  spending, output, and employment if the economy is at full employment. 
D)  spending, output, and employment if the economy is at less than full employment.

Question 7

-The effect of an increase in excess reserves on interest rates and the amount of loans made is shown by the movement from:

Accepted Answer

A)  D1 to D2 in Figure A. 
B)  D1 to D2 in Figure B. 
C)  S1 to S2 in Figure C. 
D)  S1 to S2 in Figure D. 
A)  D1 to D2 in Figure A. 
B)  D1 to D2 in Figure B. 
C)  S1 to S2 in Figure C. 
D)  S1 to S2 in Figure D.

Question 8

Crowding out:

Accepted Answer

A)  occurs when the Fed monetizes the debt. 
B)  occurs when the discount rate is lowered. 
C)  results from an increase in interest rates due to federal government borrowing. 
D)  becomes more of a problem for households and businesses when the Fed follows an easy money policy. 
A)  occurs when the Fed monetizes the debt. 
B)  occurs when the discount rate is lowered. 
C)  results from an increase in interest rates due to federal government borrowing. 
D)  becomes more of a problem for households and businesses when the Fed follows an easy money policy.

Question 9

TS&B Bank has deposits of $200 million, a reserve requirement of 20 percent, $50 million in actual reserves, and $6 million in other assets. Based on this information, TS&B:

Accepted Answer

A)  can make no additional loans. 
B)  must call in $6 million in loans. 
C)  can make an additional $4 million in loans. 
D)  can make an additional $10 million in loans. 
A)  can make no additional loans. 
B)  must call in $6 million in loans. 
C)  can make an additional $4 million in loans. 
D)  can make an additional $10 million in loans.

Question 10

Open Market Operations are the buying and selling of:

Accepted Answer

A)  U.S. government securities by the Treasury. 
B)  U.S. government securities by the Federal Reserve. 
C)  Federal Reserve securities by the Federal Reserve. 
D)  high-grade corporate securities by the Federal Reserve. 
A)  U.S. government securities by the Treasury. 
B)  U.S. government securities by the Federal Reserve. 
C)  Federal Reserve securities by the Federal Reserve. 
D)  high-grade corporate securities by the Federal Reserve.

Question 11

The OBL bank has $320 million in deposits, $80 million in actual reserves, and a reserve requirement of 20 percent. How much must OBL keep in required reserves?

Accepted Answer

A)  $16 million. 
B)  $32 million. 
C)  $64 million. 
D)  $256 million. 
A)  $16 million. 
B)  $32 million. 
C)  $64 million. 
D)  $256 million.

Question 12

What is the equation of exchange and what does each term in the equation represent?

Accepted Answer

The equation of exchange comar

Question 13

If the economy were experiencing high rates of both unemployment and inflation, the appropriate monetary policy strategy would be:

Accepted Answer

A)  to have the Fed sell securities on the open market. 
B)  to have the Fed buy securities on the open market. 
C)  to have the Fed buy securities on the open market while at the same time raising the reserve requirement. 
D)  unclear. 
A)  to have the Fed sell securities on the open market. 
B)  to have the Fed buy securities on the open market. 
C)  to have the Fed buy securities on the open market while at the same time raising the reserve requirement. 
D)  unclear.

Question 14

To stimulate the economy the Federal Reserve would:

Accepted Answer

A)  reduce the discount rate. 
B)  increase the discount rate. 
C)  reduce the federal funds rate. 
D)  increase the federal funds rate. 
A)  reduce the discount rate. 
B)  increase the discount rate. 
C)  reduce the federal funds rate. 
D)  increase the federal funds rate.

Question 15

To stimulate the economy the Federal Reserve should:

Accepted Answer

A)  reduce the reserve requirement, reduce the discount rate, and reduce open market purchases. 
B)  reduce the reserve requirement, reduce the discount rate, and increase open market purchases. 
C)  reduce the reserve requirement, increase the discount rate, and increase open market purchases. 
D)  increase the reserve requirement, increase the discount rate, and increase open market purchases. 
A)  reduce the reserve requirement, reduce the discount rate, and reduce open market purchases. 
B)  reduce the reserve requirement, reduce the discount rate, and increase open market purchases. 
C)  reduce the reserve requirement, increase the discount rate, and increase open market purchases. 
D)  increase the reserve requirement, increase the discount rate, and increase open market purchases.

Question 16

-The change from S to S' in this figure is consistent with:

Accepted Answer

A)  a tight money policy. 
B)  an easy money policy. 
C)  a policy to monetize the debt. 
D)  a policy to reduce unemployment. 
A)  a tight money policy. 
B)  an easy money policy. 
C)  a policy to monetize the debt. 
D)  a policy to reduce unemployment.

Question 17

Given the supply of and demand for loans:

Accepted Answer

A)  a decrease in demand will increase the equilibrium interest rate on loans. 
B)  a decrease in supply will decrease the equilibrium interest rate on loans. 
C)  an increase in demand will increase the equilibrium quantity of loans made. 
D)  an increase in supply will decrease the equilibrium quantity of loans made. 
A)  a decrease in demand will increase the equilibrium interest rate on loans. 
B)  a decrease in supply will decrease the equilibrium interest rate on loans. 
C)  an increase in demand will increase the equilibrium quantity of loans made. 
D)  an increase in supply will decrease the equilibrium quantity of loans made.

Question 18

Why is money created when a financial depository institution makes a loan, but not when one person makes a loan to another person?

Accepted Answer

When one person makes a loan to another

Question 19

-The effect on the market for loans of a decrease in the reserve requirement is shown by the movement from:

Accepted Answer

A)  D1 to D2 in Figure A. 
B)  D1 to D2 in Figure B. 
C)  S1 to S2 in Figure C. 
D)  S1 to S2 in Figure D. 
A)  D1 to D2 in Figure A. 
B)  D1 to D2 in Figure B. 
C)  S1 to S2 in Figure C. 
D)  S1 to S2 in Figure D.

Question 20

Assume RST Bank has a reserve requirement of 20 percent. If RST Bank borrows $3 million from the Fed, how much new money could be created in the depository institutions system as a result?

Accepted Answer

A)  $3 million. 
B)  $12 million. 
C)  $15 million. 
D)  $600 thousand. 
A)  $3 million. 
B)  $12 million. 
C)  $15 million. 
D)  $600 thousand.

-The effect on interest rates and the amount of loans made caused by a drop in a bank's required reserves is shown by the movement from:

If a bank does not meet its reserve requirement it can borrow from the Fed or from other banks in the Federal Funds market.

The economy's output always expands when the money supply increases.

The discount rate is the interest rate charged by:

The size of the money multiplier is:

Increases in the money supply result in higher:

-The effect of an increase in excess reserves on interest rates and the amount of loans made is shown by the movement from:

Crowding out:

TS&B Bank has deposits of $200 million, a reserve requirement of 20 percent, $50 million in actual reserves, and $6 million in other assets. Based on this information, TS&B:

Open Market Operations are the buying and selling of:

The OBL bank has $320 million in deposits, $80 million in actual reserves, and a reserve requirement of 20 percent. How much must OBL keep in required reserves?

What is the equation of exchange and what does each term in the equation represent?

If the economy were experiencing high rates of both unemployment and inflation, the appropriate monetary policy strategy would be:

To stimulate the economy the Federal Reserve would:

To stimulate the economy the Federal Reserve should:

-The change from S to S' in this figure is consistent with:

Given the supply of and demand for loans:

Why is money created when a financial depository institution makes a loan, but not when one person makes a loan to another person?

-The effect on the market for loans of a decrease in the reserve requirement is shown by the movement from:

Assume RST Bank has a reserve requirement of 20 percent. If RST Bank borrows $3 million from the Fed, how much new money could be created in the depository institutions system as a result?

Introduction to Economics

Economic Decision Making and Economic Systems

Demand, Supply, and the Determination of Price

Goals and Problems of the Macroeconomy: Employment, Prices and Production

Foundations of the Macroeconomy

The Role of Government in the Macroeconomy

Money, Financial Institutions, and the Federal Reserve

Macroeconomic Viewpoints and Models

Households and Businesses: An Overview

Benefits, Costs, and Maximization

Production and the Costs of Production

Competition and Market Structures

Government and the Markets

Labor Markets, Unions, and the Distribution of Income-A

International Trade

International Finance

Filters

Exam 8: Money Creation, Monetary Theory, and Monetary Policy

-The effect on interest rates and the amount of loans made caused by a drop in a bank's required reserves is shown by the movement from:

If a bank does not meet its reserve requirement it can borrow from the Fed or from other banks in the Federal Funds market.

The economy's output always expands when the money supply increases.

The discount rate is the interest rate charged by:

The size of the money multiplier is:

Increases in the money supply result in higher:

-The effect of an increase in excess reserves on interest rates and the amount of loans made is shown by the movement from:

Crowding out:

TS&B Bank has deposits of $200 million, a reserve requirement of 20 percent, $50 million in actual reserves, and $6 million in other assets. Based on this information, TS&B:

Open Market Operations are the buying and selling of:

The OBL bank has $320 million in deposits, $80 million in actual reserves, and a reserve requirement of 20 percent. How much must OBL keep in required reserves?

What is the equation of exchange and what does each term in the equation represent?

If the economy were experiencing high rates of both unemployment and inflation, the appropriate monetary policy strategy would be:

To stimulate the economy the Federal Reserve would:

To stimulate the economy the Federal Reserve should:

-The change from S to S' in this figure is consistent with:

Given the supply of and demand for loans:

Why is money created when a financial depository institution makes a loan, but not when one person makes a loan to another person?

-The effect on the market for loans of a decrease in the reserve requirement is shown by the movement from:

Assume RST Bank has a reserve requirement of 20 percent. If RST Bank borrows $3 million from the Fed, how much new money could be created in the depository institutions system as a result?

Introduction to Economics

Economic Decision Making and Economic Systems

Demand, Supply, and the Determination of Price

Goals and Problems of the Macroeconomy: Employment, Prices and Production

Foundations of the Macroeconomy

The Role of Government in the Macroeconomy

Money, Financial Institutions, and the Federal Reserve

Macroeconomic Viewpoints and Models

Households and Businesses: An Overview

Benefits, Costs, and Maximization

Production and the Costs of Production

Competition and Market Structures

Government and the Markets

Labor Markets, Unions, and the Distribution of Income-A

International Trade

International Finance

Filters