Question 1

Reserves decrease if the Federal Reserve

Accepted Answer

A) raises the discount rate or auctions more credit. 
B) raises the discount rate but not if it auctions more credit. 
C) lowers the discount rate or auctions more credit. 
D) lowers the discount rate but not if it auctions more credit. 
A) raises the discount rate or auctions more credit. 
B) raises the discount rate but not if it auctions more credit. 
C) lowers the discount rate or auctions more credit. 
D) lowers the discount rate but not if it auctions more credit. B

Question 2

Table 16-6.  
-Refer to Table 16-6. If the Fed requires a reserve ratio of 6 percent, then what quantity of excess reserves does the Bank of Springfield now hold?

Accepted Answer

A) $1,200 
B) $2,400 
C) $2,880 
D) $4,800 
A) $1,200 
B) $2,400 
C) $2,880 
D) $4,800 D

Question 3

M1 includes

Accepted Answer

A) currency. 
B) demand deposits. 
C) traveler's checks. 
D) All of the above are correct. 
A) currency. 
B) demand deposits. 
C) traveler's checks. 
D) All of the above are correct. D

Question 4

Which of the following is included in M2 but not in M1?

Accepted Answer

A) currency 
B) demand deposits 
C) savings deposits 
D) All of the above are included in both M1 and M2. 
A) currency 
B) demand deposits 
C) savings deposits 
D) All of the above are included in both M1 and M2.

Question 5

Bank runs

Accepted Answer

A) will affect neither the money supply nor the money multiplier. 
B) are only a problem for insolvent banks. 
C) can be neither prevented nor mitigated by the Federal Reserve. 
D) are a problem because banks only hold a fraction of deposits as reserves. 
A) will affect neither the money supply nor the money multiplier. 
B) are only a problem for insolvent banks. 
C) can be neither prevented nor mitigated by the Federal Reserve. 
D) are a problem because banks only hold a fraction of deposits as reserves.

Question 6

If an economy uses silver as money, then that economy's money

Accepted Answer

A) serves as a store of value but not as a medium of exchange. 
B) serves as a medium of exchange but not as a unit of account. 
C) is commodity money. 
D) has no intrinsic value. 
A) serves as a store of value but not as a medium of exchange. 
B) serves as a medium of exchange but not as a unit of account. 
C) is commodity money. 
D) has no intrinsic value.

Question 7

Suppose 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 8

To increase the money supply, the Fed can

Accepted Answer

A) buy government bonds or increase the discount rate. 
B) buy government bonds or decrease the discount rate. 
C) sell government bonds or increase the discount rate. 
D) sell government bonds or decrease the discount rate. 
A) buy government bonds or increase the discount rate. 
B) buy government bonds or decrease the discount rate. 
C) sell government bonds or increase the discount rate. 
D) sell government bonds or decrease the discount rate.

Question 9

If the money multiplier is 2 and the Fed buys $50,000 worth of bonds, what happens to the money supply?

Accepted Answer

A) it increases by $100,000 
B) it increases by $150,000 
C) it decreases by $100,000 
D) it decreases by $150,000 
A) it increases by $100,000 
B) it increases by $150,000 
C) it decreases by $100,000 
D) it decreases by $150,000

Question 10

To increase the money supply, the Fed could

Accepted Answer

A) sell government bonds. 
B) increase the discount rate. 
C) decrease the reserve requirement. 
D) None of the above is correct. 
A) sell government bonds. 
B) increase the discount rate. 
C) decrease the reserve requirement. 
D) None of the above is correct.

Question 11

Which of the following statements regarding the Federal Open Market Committee is correct?

Accepted Answer

A) Only the five voting regional Fed presidents attend the meetings. 
B) All regional Fed presidents attend and vote at the meetings. 
C) All regional Fed presidents attend the meetings, but only five get to vote. 
D) Regional Fed presidents may neither attend nor vote the meetings. 
A) Only the five voting regional Fed presidents attend the meetings. 
B) All regional Fed presidents attend and vote at the meetings. 
C) All regional Fed presidents attend the meetings, but only five get to vote. 
D) Regional Fed presidents may neither attend nor vote the meetings.

Question 12

A bank loans Greg's Ice Cream $250,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

Accepted Answer

A) a liability for the bank and an asset for Greg's Ice Cream. The loan increases the money supply. 
B) a liability for the bank and an asset for Greg's Ice Cream. The loan does not increase the money supply. 
C) an asset for the bank and a liability for Greg's Ice Cream. The loan increases the money supply. 
D) an asset for the bank and a liability for Greg's Ice Cream. The loan does not increase the money supply. 
A) a liability for the bank and an asset for Greg's Ice Cream. The loan increases the money supply. 
B) a liability for the bank and an asset for Greg's Ice Cream. The loan does not increase the money supply. 
C) an asset for the bank and a liability for Greg's Ice Cream. The loan increases the money supply. 
D) an asset for the bank and a liability for Greg's Ice Cream. The loan does not increase the money supply.

Question 13

The Federal Reserve

Accepted Answer

A) was created in 1913. 
B) is the U.S.'s central bank. 
C) has other duties in addition to controlling the money supply. 
D) All of the above are correct. 
A) was created in 1913. 
B) is the U.S.'s central bank. 
C) has other duties in addition to controlling the money supply. 
D) All of the above are correct.

Question 14

Table 16-5.  
-Refer to Table 16-5. Assume there is a reserve requirement and the Bank of Pleasantville is exactly in compliance with that requirement. Assume the same is true for all other banks. Lastly, assume people hold only deposits and no currency. What is the money multiplier?

Accepted Answer

A) 5 
B) 10 
C) 15 
D) 20 
A) 5 
B) 10 
C) 15 
D) 20

Question 15

In an economy that relies upon barter,

Accepted Answer

A) trade does not require a double coincidence of wants. 
B) scarce resources are allocated just as easily as they are in economies that do not rely upon barter. 
C) there is no item in the economy that is widely accepted in exchange for goods and services. 
D) All of the above are correct. 
A) trade does not require a double coincidence of wants. 
B) scarce resources are allocated just as easily as they are in economies that do not rely upon barter. 
C) there is no item in the economy that is widely accepted in exchange for goods and services. 
D) All of the above are correct.

Question 16

An open-market purchase

Accepted Answer

A) increases the number of dollars and the number of bonds in the hands of the public. 
B) increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public. 
C) decreases the number of dollars and the number of bonds in the hands of the public. 
D) decreases the number of dollars in the hands of the public and increases the number of bonds in the hands of the public. 
A) increases the number of dollars and the number of bonds in the hands of the public. 
B) increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public. 
C) decreases the number of dollars and the number of bonds in the hands of the public. 
D) decreases the number of dollars in the hands of the public and increases the number of bonds in the hands of the public.

Question 17

A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

Accepted Answer

A) an asset for the bank and a liability for Kellie's Print Shop. The loan increases the money supply. 
B) an asset for the bank and a liability for Kellie's Print Shop. The loan does not increase the money supply. 
C) a liability for the bank and an asset for Kellie's Print Shop. The loan increases the money supply. 
D) a liability for the bank and an asset for Kellie's Print Shop. The loan does not increase the money supply. 
A) an asset for the bank and a liability for Kellie's Print Shop. The loan increases the money supply. 
B) an asset for the bank and a liability for Kellie's Print Shop. The loan does not increase the money supply. 
C) a liability for the bank and an asset for Kellie's Print Shop. The loan increases the money supply. 
D) a liability for the bank and an asset for Kellie's Print Shop. The loan does not increase the money supply.

Question 18

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 19

Which two of the Ten Principles of Economics imply that the Fed can profoundly affect the economy?

Accepted Answer

1. Prices rise when the govern

Question 20

The discount rate is

Accepted Answer

A) the interest rate the Fed charges banks. 
B) one divided by the difference between one and the reserve ratio. 
C) the interest rate banks receive on reserve deposits with the Fed. 
D) the interest rate that banks charge on overnight loans to other banks. 
A) the interest rate the Fed charges banks. 
B) one divided by the difference between one and the reserve ratio. 
C) the interest rate banks receive on reserve deposits with the Fed. 
D) the interest rate that banks charge on overnight loans to other banks.

Exam 16: The Monetary System

Reserves decrease if the Federal Reserve

Table 16-6. -Refer to Table 16-6. If the Fed requires a reserve ratio of 6 percent, then what quantity of excess reserves does the Bank of Springfield now hold?

M1 includes

Which of the following is included in M2 but not in M1?

Bank runs

If an economy uses silver as money, then that economy's money

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

To increase the money supply, the Fed can

If the money multiplier is 2 and the Fed buys $50,000 worth of bonds, what happens to the money supply?

To increase the money supply, the Fed could

Which of the following statements regarding the Federal Open Market Committee is correct?

A bank loans Greg's Ice Cream $250,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

The Federal Reserve

Table 16-5. -Refer to Table 16-5. Assume there is a reserve requirement and the Bank of Pleasantville is exactly in compliance with that requirement. Assume the same is true for all other banks. Lastly, assume people hold only deposits and no currency. What is the money multiplier?

In an economy that relies upon barter,

An open-market purchase

A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

The legal tender requirement means that

Which two of the Ten Principles of Economics imply that the Fed can profoundly affect the economy?

The discount rate is

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

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 Macroeconomic Models

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

Six Debates Over Macroeconomic Policy

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