Question 1

A decrease in the money supply might indicate that the Fed had

Accepted Answer

A) purchased bonds to increase banks reserves. 
B) purchased bonds to decrease banks reserves. 
C) sold bonds to increase banks reserves. 
D) sold bonds to decrease banks reserves. 
A) purchased bonds to increase banks reserves. 
B) purchased bonds to decrease banks reserves. 
C) sold bonds to increase banks reserves. 
D) sold bonds to decrease banks reserves.

Question 2

A problem that the Fed faces when it attempts to control the money supply is that

Accepted Answer

A) the 100-percent-reserve banking system in the U.S.makes it difficult for the Fed to carry out its monetary policy. 
B) the Fed has to get the approval of the U.S.Treasury Department whenever it uses any of its monetary policy tools. 
C) the Fed does not have a tool that it can use to change the money supply by either a small amount or a large amount. 
D) the Fed does not control the amount of money that households choose to hold as deposits in banks. 
A) the 100-percent-reserve banking system in the U.S.makes it difficult for the Fed to carry out its monetary policy. 
B) the Fed has to get the approval of the U.S.Treasury Department whenever it uses any of its monetary policy tools. 
C) the Fed does not have a tool that it can use to change the money supply by either a small amount or a large amount. 
D) the Fed does not control the amount of money that households choose to hold as deposits in banks.

Question 3

If the money multiplier decreased from 20 to 12.5,then

Accepted Answer

A) the Fed increased the reserve ratio from 5 percent to 8 percent. 
B) the Fed increased the fed funds rate from 5 percent to 8 percent. 
C) the Fed decreased the reserve ratio from 8 percent to 5 percent. 
D) the Fed decreased the fed funds rate from 8 percent to 5 percent. 
A) the Fed increased the reserve ratio from 5 percent to 8 percent. 
B) the Fed increased the fed funds rate from 5 percent to 8 percent. 
C) the Fed decreased the reserve ratio from 8 percent to 5 percent. 
D) the Fed decreased the fed funds rate from 8 percent to 5 percent.

Question 4

The tool most often used by the Fed to control the money supply is

Accepted Answer

A) changing reserve requirements. 
B) open market operations. 
C) buying and selling of equities. 
D) altering the discount rate. 
A) changing reserve requirements. 
B) open market operations. 
C) buying and selling of equities. 
D) altering the discount rate.

Question 5

The Fed sets the interest that borrowers pay on loans from

Accepted Answer

A) the discount window and the term auction facility 
B) the discount window but not the term auction facility 
C) the term auction facility but not the discount window 
D) neither the discount window nor the term auction facility 
A) the discount window and the term auction facility 
B) the discount window but not the term auction facility 
C) the term auction facility but not the discount window 
D) neither the discount window nor the term auction facility

Question 6

The Fed's primary tool to change the money supply is

Accepted Answer

A) changing the interest rate on reserves. 
B) changing the reserve requirement. 
C) conducting open market operations. 
D) redeeming Federal Reserve notes. 
A) changing the interest rate on reserves. 
B) changing the reserve requirement. 
C) conducting open market operations. 
D) redeeming Federal Reserve notes.

Question 7

In December 1999 people feared that there might be computer problems at banks as the century changed.Consequently,people wanted to hold relatively more in currency and relatively less in deposits.In anticipation banks raised their reserve ratios to have enough cash on hand to meet depositors' demands.These actions by the public

Accepted Answer

A) would increase the multiplier.If the Fed wanted to offset the effect of this on the size of the money supply,it could have sold bonds. 
B) would increase the multiplier.If the Fed wanted to offset the effect of this on the size of the money supply,it could have bought bonds. 
C) would reduce the multiplier.If the Fed wanted to offset the effect of this on the size of the money supply,it could have sold bonds. 
D) would reduce the multiplier.If the Fed wanted to offset the effect of this on the size of the money supply,it could have bought bonds. 
A) would increase the multiplier.If the Fed wanted to offset the effect of this on the size of the money supply,it could have sold bonds. 
B) would increase the multiplier.If the Fed wanted to offset the effect of this on the size of the money supply,it could have bought bonds. 
C) would reduce the multiplier.If the Fed wanted to offset the effect of this on the size of the money supply,it could have sold bonds. 
D) would reduce the multiplier.If the Fed wanted to offset the effect of this on the size of the money supply,it could have bought bonds.

Question 8

In a fractional-reserve banking system,a decrease in reserve requirements

Accepted Answer

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

Question 9

The Federal Deposit Insurance Corporation

Accepted Answer

A) protects depositors in the event of bank failures. 
B) has become insolvent in recent years due to a large number of bank failures. 
C) is part of the Federal Reserve System. 
D) in practice has seldom been of much use. 
A) protects depositors in the event of bank failures. 
B) has become insolvent in recent years due to a large number of bank failures. 
C) is part of the Federal Reserve System. 
D) in practice has seldom been of much use.

Question 10

If the federal funds rate were below the level the Federal Reserve had targeted,the Fed could move the rate back towards its target by

Accepted Answer

A) buying bonds.This buying would reduce reserves. 
B) buying bonds.This buying would increase reserves. 
C) selling bonds.This selling would reduce reserves. 
D) selling bonds.This selling would increase reserves. 
A) buying bonds.This buying would reduce reserves. 
B) buying bonds.This buying would increase reserves. 
C) selling bonds.This selling would reduce reserves. 
D) selling bonds.This selling would increase reserves.

Question 11

During recessions,banks typically choose to hold more excess reserves relative to their deposits.This action

Accepted Answer

A) increases the money multiplier and increases the money supply. 
B) decreases the money multiplier and decreases the money supply. 
C) does not change the money multiplier,but increases the money supply. 
D) does not change the money multiplier,but decreases the money supply. 
A) increases the money multiplier and increases the money supply. 
B) decreases the money multiplier and decreases the money supply. 
C) does not change the money multiplier,but increases the money supply. 
D) does not change the money multiplier,but decreases the money supply.

Question 12

Scenario 29-1.
The monetary policy of Namdian is determined by the Namdian Central Bank.The local currency is the dia.Namdian banks collectively hold 100 million dias of required reserves,25 million dias of excess reserves,250 million dias of Namdian Treasury Bonds,and their customers hold 1,000 million dias of deposits.Namdians prefer to use only demand deposits and so the money supply consists of demand deposits.
-Refer to Scenario 29-1.Assuming the only other item Namdian banks have on their balance sheets is loans,what is the value of existing loans made by Namdian banks?

Accepted Answer

A) 625 million dias 
B) 875 million dias 
C) 1,125 million dias 
D) None of the above is correct. 
A) 625 million dias 
B) 875 million dias 
C) 1,125 million dias 
D) None of the above is correct.

Question 13

The Fed increases the reserve requirement,but it wants to offset the effects on the money supply.Which of the following should it do?

Accepted Answer

A) sell bonds to increase reserves 
B) sell bonds to decrease reserves 
C) buy bonds to increase reserves 
D) buy bonds to decrease reserves 
A) sell bonds to increase reserves 
B) sell bonds to decrease reserves 
C) buy bonds to increase reserves 
D) buy bonds to decrease reserves

Question 14

If the discount rate is raised then banks borrow

Accepted Answer

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

Question 15

The reserve requirement is 4 percent,banks hold no excess reserves and people hold no currency.If the Fed sells $10,000 worth of bonds,what happens to the money supply?

Accepted Answer

A) it increases by $250,000 
B) it increases by $200,000 
C) it decreases by $200,000 
D) it decreases by $250,000 
A) it increases by $250,000 
B) it increases by $200,000 
C) it decreases by $200,000 
D) it decreases by $250,000

Question 16

An increase in the money supply might indicate that the Fed had

Accepted Answer

A) purchased bonds in an attempt to increase the federal funds rate. 
B) purchased bonds in an attempt to reduce the federal funds rate. 
C) sold bonds in an attempt to increase the federal funds rate. 
D) sold bonds in an attempt to reduce the federal funds rate. 
A) purchased bonds in an attempt to increase the federal funds rate. 
B) purchased bonds in an attempt to reduce the federal funds rate. 
C) sold bonds in an attempt to increase the federal funds rate. 
D) sold bonds in an attempt to reduce the federal funds rate.

Question 17

A decrease in the money supply might indicate that the Fed had

Accepted Answer

A) purchased bonds in an attempt to increase the federal funds rate. 
B) purchased bonds in an attempt to reduce the federal funds rate. 
C) sold bonds in an attempt to increase the federal funds rate. 
D) sold bonds in an attempt to reduce the federal funds rate. 
A) purchased bonds in an attempt to increase the federal funds rate. 
B) purchased bonds in an attempt to reduce the federal funds rate. 
C) sold bonds in an attempt to increase the federal funds rate. 
D) sold bonds in an attempt to reduce the federal funds rate.

Question 18

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 19

When the Fed makes open-market purchases bank

Accepted Answer

A) withdrawals and lending increase. 
B) withdrawals increase and lending decreases. 
C) deposits and lending increase. 
D) deposits increase and lending decreases. 
A) withdrawals and lending increase. 
B) withdrawals increase and lending decreases. 
C) deposits and lending increase. 
D) deposits increase and lending decreases.

Question 20

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 reserve ratio will fall. 
B) fewer reserves,so the reserve ratio will rise. 
C) more reserves,so the reserve ratio will fall. 
D) more reserves,so the reserve ratio will rise. 
A) fewer reserves,so the reserve ratio will fall. 
B) fewer reserves,so the reserve ratio will rise. 
C) more reserves,so the reserve ratio will fall. 
D) more reserves,so the reserve ratio will rise.

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

A decrease in the money supply might indicate that the Fed had

A problem that the Fed faces when it attempts to control the money supply is that

If the money multiplier decreased from 20 to 12.5,then

The tool most often used by the Fed to control the money supply is

The Fed sets the interest that borrowers pay on loans from

The Fed's primary tool to change the money supply is

In a fractional-reserve banking system,a decrease in reserve requirements

The Federal Deposit Insurance Corporation

If the federal funds rate were below the level the Federal Reserve had targeted,the Fed could move the rate back towards its target by

During recessions,banks typically choose to hold more excess reserves relative to their deposits.This action

The Fed increases the reserve requirement,but it wants to offset the effects on the money supply.Which of the following should it do?

If the discount rate is raised then banks borrow

The reserve requirement is 4 percent,banks hold no excess reserves and people hold no currency.If the Fed sells $10,000 worth of bonds,what happens to the money supply?

An increase in the money supply might indicate that the Fed had

A decrease in the money supply might indicate that the Fed had

To increase the money supply,the Fed could

When the Fed makes open-market purchases bank

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

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

Application International Trade: Part B