Question 1

If the Federal Reserve increases the interest rate on bank deposits at the Fed,banks will want to hold

Accepted Answer

A) fewer reserves,so the money multiplier will fall. 
B) fewer reserves,so the money multiplier will rise. 
C) more reserves,so the money multiplier will fall. 
D) more reserves,so the money multiplier will rise. 
A) fewer reserves,so the money multiplier will fall. 
B) fewer reserves,so the money multiplier will rise. 
C) more reserves,so the money multiplier will fall. 
D) more reserves,so the money multiplier will rise.

Question 2

The money supply decreases if the Fed

Accepted Answer

A) sells Treasury bonds.The larger the reserve requirement,the larger the decrease will be. 
B) sells Treasury bonds.The smaller the reserve requirement,the larger the decrease will be. 
C) buys Treasury bonds.The larger the reserve requirement,the larger the decrease will be. 
D) buys Treasury bonds.The smaller the reserve requirement,the larger the decrease will be. 
A) sells Treasury bonds.The larger the reserve requirement,the larger the decrease will be. 
B) sells Treasury bonds.The smaller the reserve requirement,the larger the decrease will be. 
C) buys Treasury bonds.The larger the reserve requirement,the larger the decrease will be. 
D) buys Treasury bonds.The smaller the reserve requirement,the larger the decrease will be.

Question 3

When the Fed conducts open-market purchases,

Accepted Answer

A) banks buy Treasury securities from Fed,which increases the money supply. 
B) banks buy Treasury securities from the Fed,which decreases the money supply. 
C) it buys Treasury securities,which increases the money supply. 
D) it buys Treasury securities,which decreases the money supply. 
A) banks buy Treasury securities from Fed,which increases the money supply. 
B) banks buy Treasury securities from the Fed,which decreases the money supply. 
C) it buys Treasury securities,which increases the money supply. 
D) it buys Treasury securities,which decreases the money supply.

Question 4

Bank runs

Accepted Answer

A) will affect neither the money supply nor the money multiplier. 
B) increase the money supply. 
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) increase the money supply. 
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 5

To decrease 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 6

Which of the following can the Fed do to change the money supply?

Accepted Answer

A) change reserves or change the reserve ratio 
B) change reserves but not change the reserve ratio 
C) change the reserve ratio but not change the reserve ratio 
D) neither change reserves nor change the reserve ratio 
A) change reserves or change the reserve ratio 
B) change reserves but not change the reserve ratio 
C) change the reserve ratio but not change the reserve ratio 
D) neither change reserves nor change the reserve ratio

Question 7

When there is a reserve requirement,banks

Accepted Answer

A) must hold exactly the required quantity of reserves. 
B) may hold more than,but not less than,the required quantity of reserves. 
C) may hold less than,but not more than,the required quantity of reserves. 
D) must seek the Fed's permission whenever they wish to expand or contract their loans to customers. 
A) must hold exactly the required quantity of reserves. 
B) may hold more than,but not less than,the required quantity of reserves. 
C) may hold less than,but not more than,the required quantity of reserves. 
D) must seek the Fed's permission whenever they wish to expand or contract their loans to customers.

Question 8

At one time,people in a certain country had no access to banks;they relied exclusively on currency.Then,a fractional-reserve banking system was created.As a result,the money supply

Accepted Answer

A) increased.The central bank could have reduced the size of this increase by buying bonds. 
B) increased.The central bank could have reduced the size of this increase by selling bonds. 
C) decreased.The central bank could have reduced the size of this decrease by buying bonds. 
D) decreased.The central bank could have reduced the size of this decrease by selling bonds. 
A) increased.The central bank could have reduced the size of this increase by buying bonds. 
B) increased.The central bank could have reduced the size of this increase by selling bonds. 
C) decreased.The central bank could have reduced the size of this decrease by buying bonds. 
D) decreased.The central bank could have reduced the size of this decrease by selling bonds.

Question 9

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 10

The discount rate is the interest rate that

Accepted Answer

A) banks charge one another for loans. 
B) banks charge the Fed for loans. 
C) the Fed charges banks for loans. 
D) the Fed charges Congress for loans. 
A) banks charge one another for loans. 
B) banks charge the Fed for loans. 
C) the Fed charges banks for loans. 
D) the Fed charges Congress for loans.

Question 11

To decrease the money supply,the Fed could

Accepted Answer

A) sell government bonds. 
B) increase the discount rate. 
C) increase the reserve requirement. 
D) All of the above are correct. 
A) sell government bonds. 
B) increase the discount rate. 
C) increase the reserve requirement. 
D) All of the above are correct.

Question 12

Which of the following will not help to prevent bank runs?

Accepted Answer

A) government insurance of deposits 
B) fractional reserve banking 
C) 100% reserve banking 
D) All of the above prevent bank runs. 
A) government insurance of deposits 
B) fractional reserve banking 
C) 100% reserve banking 
D) All of the above prevent bank runs.

Question 13

People hold $400 million of bank deposits but no currency.Banks have made $380 million dollars of loans and only hold enough reserves to satisfy reserve requirements.Because of uncertainty,banks choose to hold $10 million more in reserves.The Fed takes no action.What happens to bank loans?

Accepted Answer

A) they fall $220 million 
B) they fall $200 million 
C) they rise $200 million 
D) they rise $220 million 
A) they fall $220 million 
B) they fall $200 million 
C) they rise $200 million 
D) they rise $220 million

Question 14

The money supply decreases if

Accepted Answer

A) households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively more excess reserves and make fewer loans. 
B) households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively fewer excess reserves and make more loans. 
C) households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively more excess reserves and make fewer loans. 
D) households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively less excess reserves and make more loans. 
A) households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively more excess reserves and make fewer loans. 
B) households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively fewer excess reserves and make more loans. 
C) households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively more excess reserves and make fewer loans. 
D) households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively less excess reserves and make more loans.

Question 15

Other things the same,if reserve requirements are increased,the reserve ratio

Accepted Answer

A) increases,the money multiplier increases,and the money supply increases. 
B) increases,the money multiplier decreases,and the money supply decreases. 
C) decreases,the money multiplier increases,and the money supply increases. 
D) decreases,the money multiplier decreases,and the money supply increases. 
A) increases,the money multiplier increases,and the money supply increases. 
B) increases,the money multiplier decreases,and the money supply decreases. 
C) decreases,the money multiplier increases,and the money supply increases. 
D) decreases,the money multiplier decreases,and the money supply increases.

Question 16

The Fed's control of the money supply is not precise because

Accepted Answer

A) Congress can also make changes to the money supply. 
B) there are not always government bonds available for purchase when the Fed wants to perform open-market operations. 
C) the Fed does not know where all U.S.currency is located. 
D) the amount of money in the economy depends in part on the behavior of depositors and bankers. 
A) Congress can also make changes to the money supply. 
B) there are not always government bonds available for purchase when the Fed wants to perform open-market operations. 
C) the Fed does not know where all U.S.currency is located. 
D) the amount of money in the economy depends in part on the behavior of depositors and bankers.

Question 17

The money supply increases when the Fed

Accepted Answer

A) buys bonds.The increase will be larger,the smaller is the reserve ratio. 
B) buys bonds.The increase will be larger,the larger is the reserve ratio. 
C) sells bonds.The increase will be larger,the smaller is the reserve ratio. 
D) sells bonds.The increase will be larger,the larger is the reserve ratio. 
A) buys bonds.The increase will be larger,the smaller is the reserve ratio. 
B) buys bonds.The increase will be larger,the larger is the reserve ratio. 
C) sells bonds.The increase will be larger,the smaller is the reserve ratio. 
D) sells bonds.The increase will be larger,the larger is the reserve ratio.

Question 18

What does the Fed auction at the Term-Auction Facility?

Accepted Answer

A) government bonds of a quantity it sets 
B) government bonds with the quantity determined at the auction 
C) loans of a quantity it sets 
D) loans with the quantity determined at the auction 
A) government bonds of a quantity it sets 
B) government bonds with the quantity determined at the auction 
C) loans of a quantity it sets 
D) loans with the quantity determined at the auction

Question 19

Scenario 29-2.
The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi.The local unit of currency is the taz.Aggregate banking statistics show that collectively the banks of Tazi hold 300 million tazes of required reserves,75 million tazes of excess reserves,have issued 7,500 million tazes of deposits,and hold 225 million tazes of Tazian Treasury bonds.Tazians prefer to use only demand deposits and so all money is on deposit at the bank.
-Refer to Scenario 29-2.Suppose the Bank of Tazi loaned the banks of Tazi 10 million tazes.Suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the same.By how much would the money supply change?

Accepted Answer

A) 250 million tazes 
B) 200 million tazes 
C) 125 million tazes 
D) None of the above is correct. 
A) 250 million tazes 
B) 200 million tazes 
C) 125 million tazes 
D) None of the above is correct.

Question 20

If the discount rate is lowered,banks borrow

Accepted Answer

A) less from the Fed so reserves increase. 
B) less from the Fed so reserves decrease. 
C) more from the Fed so reserves increase. 
D) more from the Fed so reserves decrease. 
A) less from the Fed so reserves increase. 
B) less from the Fed so reserves decrease. 
C) more from the Fed so reserves increase. 
D) more from the Fed so reserves decrease.

Exam 16: The Monetary System: The Feds Tools of Monetary Control

If the Federal Reserve increases the interest rate on bank deposits at the Fed,banks will want to hold

The money supply decreases if the Fed

When the Fed conducts open-market purchases,

Bank runs

To decrease the money supply,the Fed can

Which of the following can the Fed do to change the money supply?

When there is a reserve requirement,banks

At one time,people in a certain country had no access to banks;they relied exclusively on currency.Then,a fractional-reserve banking system was created.As a result,the money supply

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

The discount rate is the interest rate that

To decrease the money supply,the Fed could

Which of the following will not help to prevent bank runs?

People hold $400 million of bank deposits but no currency.Banks have made $380 million dollars of loans and only hold enough reserves to satisfy reserve requirements.Because of uncertainty,banks choose to hold $10 million more in reserves.The Fed takes no action.What happens to bank loans?

The money supply decreases if

Other things the same,if reserve requirements are increased,the reserve ratio

The Fed's control of the money supply is not precise because

The money supply increases when the Fed

What does the Fed auction at the Term-Auction Facility?

If the discount rate is lowered,banks borrow

Ten Principles of Economics

Ten Principles of Economics: How People Make Decisions

Ten Principles of Economics: How People Interact

Ten Principles of Economics: How the Economy As a Whole Works

Ten Principles of Economics: Part A

Ten Principles of Economics: Part B

Thinking Like an Economist

Thinking Like an Economist: The Economist As Scientist

Thinking Like an Economist: The Economist As Policy Adviser

Thinking Like an Economist: Why Economists Disagree

Thinking Like an Economist: Lets Get Going

Thinking Like an Economist: Graphing a Brief Review

Thinking Like an Economist: Part A

Thinking Like an Economist: Part B

Interdependence and the Gains From Trade

Interdependence and the Gains From Trade: A Parable for the Modern Economy

Interdependence and the Gains From Trade: Comparative Advantage the Driving Force of Specialization

Interdependence and the Gains From Trade: Applications of Comparative Advantage

Interdependence and the Gains From Trade: Conclusion

Interdependence and the Gains From Trade: Part A

Interdependence and the Gains From Trade: Part B

The Market Forces of Supply and Demand

The Market Forces of Supply and Demand:Markets and Competition

The Market Forces of Supply and Demand: Demand

The Market Forces of Supply and Demand: Supply

The Market Forces of Supply and Demand: Supply and Demand Together

The Market Forces of Supply and DemandConclusion How Prices Allocate Resources

The Market Forces of Supply and Demand: Part A

The Market Forces of Supply and Demand: Part B

Elasticity and Its Applications

Elasticity and Its Applications: The Elasticity of Demand

Elasticity and Its Applications: The Elasticity of Supply

Elasticity and Its Applications: Three Applications of Supply,demand,and Elasticity

Elasticity and Its Applications: Part A

Elasticity and Its Applications: Part B

Supply Demand and Government Policies

Supply Demand and Government Policies: Controls on Prices

Supply Demand and Government Policies: Taxes

Supply Demand and Government Policies: Part A

Supply Demand and Government Policies: Part B

Consumers Producers and the Efficiency of Markets

Consumers Producers and the Efficiency of Markets: Consumer Surplus

Consumers Producers and the Efficiency of Markets: Producer Surplus

Consumers Producers and the Efficiency of Markets: Market Efficiency

Consumers Producers and the Efficiency of Markets: Conclusion Market Efficiency and Market Failure

Consumers Producers and the Efficiency of Markets: Part A

Consumers Producers and the Efficiency of Markets: Part B

Application the Cost of Taxation

Application the Cost of Taxation: The Deadweight Loss of Taxation

Application the Cost of Taxation: The Determinants of the Deadweight Loss

Application the Cost of Taxation: Deadweight Loss and Tax Revenue As Taxes Vary

Application the Cost of Taxation: Conclusion

Application the Cost of Taxation: Part A

Application the Cost of Taxation: Part B

Application International Trade

Application International Trade: The Determinants of Trade

Application International Trade: The Winners and Losers From Trade

Application International Trade: The Arguments for Restricting Trade

Application International Trade: Conclusion

Application International Trade: Part A