Question 1

If people decide to hold more currency relative to deposits,the money supply

Accepted Answer

A) falls.The larger the reserve ratio is,the more the money supply falls. 
B) falls.The larger the reserve ratio is,the less the money supply falls. 
C) rises.The larger the reserve ratio is,the more the money supply rises. 
D) rises.The larger the reserve ratio is,the less the money supply rises. 
A) falls.The larger the reserve ratio is,the more the money supply falls. 
B) falls.The larger the reserve ratio is,the less the money supply falls. 
C) rises.The larger the reserve ratio is,the more the money supply rises. 
D) rises.The larger the reserve ratio is,the less the money supply rises.

Question 2

Which of the following increases when the Fed makes open-market sales?

Accepted Answer

A) currency and reserves 
B) currency but not reserves 
C) reserves but not currency 
D) neither currency nor reserves 
A) currency and reserves 
B) currency but not reserves 
C) reserves but not currency 
D) neither currency nor reserves

Question 3

The banking system currently has $200 billion of reserves,none of which are excess.People hold only deposits and no currency,and the reserve requirement is 4 percent.If the Fed raises the reserve requirement to 10 percent and at the same time buys $50 billion worth of bonds,then by how much does the money supply change?

Accepted Answer

A) It rises by $600 billion. 
B) It rises by $125 billion. 
C) It falls by $2,500 billion. 
D) None of the above is correct. 
A) It rises by $600 billion. 
B) It rises by $125 billion. 
C) It falls by $2,500 billion. 
D) None of the above is correct.

Question 4

If people decide to hold less currency relative to deposits,the money supply

Accepted Answer

A) falls.The Fed could lessen the impact of this by buying Treasury bonds. 
B) falls.The Fed could lessen the impact of this by selling Treasury bonds. 
C) rises.The Fed could lessen the impact of this by buying Treasury bonds. 
D) rises.The Fed could lessen the impact of this by selling Treasury bonds. 
A) falls.The Fed could lessen the impact of this by buying Treasury bonds. 
B) falls.The Fed could lessen the impact of this by selling Treasury bonds. 
C) rises.The Fed could lessen the impact of this by buying Treasury bonds. 
D) rises.The Fed could lessen the impact of this by selling Treasury bonds.

Question 5

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 increase the money supply. 
B) buying bonds.This buying would reduce the money supply. 
C) selling bonds.This selling would increase the money supply. 
D) selling bonds.This selling would reduce the money supply. 
A) buying bonds.This buying would increase the money supply. 
B) buying bonds.This buying would reduce the money supply. 
C) selling bonds.This selling would increase the money supply. 
D) selling bonds.This selling would reduce the money supply.

Question 6

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.Assume that banks desire to continue holding the same ratio of excess reserves to deposits.What is the reserve requirement and what is the reserve ratio?

Accepted Answer

A) 2 percent,8 percent 
B) 8 percent,10 percent 
C) 10 percent,12.5 percent 
D) None of the above is correct. 
A) 2 percent,8 percent 
B) 8 percent,10 percent 
C) 10 percent,12.5 percent 
D) None of the above is correct.

Question 7

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits.As a result,bank reserves will

Accepted Answer

A) decrease and the money supply will eventually decrease. 
B) decrease and the money supply will eventually increase. 
C) increase and the money supply will eventually decrease. 
D) increase and the money supply will eventually increase. 
A) decrease and the money supply will eventually decrease. 
B) decrease and the money supply will eventually increase. 
C) increase and the money supply will eventually decrease. 
D) increase and the money supply will eventually increase.

Question 8

When the Fed sells government bonds,

Accepted Answer

A) the money supply increases and the federal funds rate increases. 
B) the money supply increases and the federal funds rate decreases. 
C) the money supply decreases and the federal funds rate increases. 
D) the money supply decreases and the federal funds rate decreases. 
A) the money supply increases and the federal funds rate increases. 
B) the money supply increases and the federal funds rate decreases. 
C) the money supply decreases and the federal funds rate increases. 
D) the money supply decreases and the federal funds rate decreases.

Question 9

Which of the following can banks use to borrow from the Federal Reserve?

Accepted Answer

A) the discount window or 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) Banks cannot borrow from the Federal Reserve,only the government can. 
A) the discount window or 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) Banks cannot borrow from the Federal Reserve,only the government can.

Question 10

Today,bank runs are

Accepted Answer

A) uncommon because of the high reserve requirement. 
B) uncommon because of FDIC deposit insurance. 
C) common because of the low reserve requirement. 
D) common because the FDIC is nearly bankrupt. 
A) uncommon because of the high reserve requirement. 
B) uncommon because of FDIC deposit insurance. 
C) common because of the low reserve requirement. 
D) common because the FDIC is nearly bankrupt.

Question 11

The banking system currently has $50 billion of reserves,none of which are excess.People hold only deposits and no currency,and the reserve requirement is 10 percent.If the Fed raises the reserve requirement to 12.5 percent and at the same time sells $10 billion worth of bonds,then by how much does the money supply change?

Accepted Answer

A) It falls by $20 billion. 
B) It falls by $110 billion. 
C) It falls by $180 billion. 
D) None of the above is correct. 
A) It falls by $20 billion. 
B) It falls by $110 billion. 
C) It falls by $180 billion. 
D) None of the above is correct.

Question 12

When the Fed decreases the discount rate,banks will

Accepted Answer

A) borrow more from the Fed and lend more to the public.The money supply increases. 
B) borrow more from the Fed and lend less to the public.The money supply decreases. 
C) borrow less from the Fed and lend more to the public.The money supply increases. 
D) borrow less from the Fed and lend less to the public.The money supply decreases. 
A) borrow more from the Fed and lend more to the public.The money supply increases. 
B) borrow more from the Fed and lend less to the public.The money supply decreases. 
C) borrow less from the Fed and lend more to the public.The money supply increases. 
D) borrow less from the Fed and lend less to the public.The money supply decreases.

Question 13

The Fed decreases reserves if it conducts open market

Accepted Answer

A) purchases or auctions term credit. 
B) purchases but not if it auctions term credit 
C) sales or auctions term credit 
D) sales but not if it auctions term credit 
A) purchases or auctions term credit. 
B) purchases but not if it auctions term credit 
C) sales or auctions term credit 
D) sales but not if it auctions term credit

Question 14

The most common method employed by the Fed to increase the money supply is the

Accepted Answer

A) sale of U.S.government bonds. 
B) purchase of U.S.government bonds. 
C) sale of gold. 
D) increase of the federal debt ceiling. 
A) sale of U.S.government bonds. 
B) purchase of U.S.government bonds. 
C) sale of gold. 
D) increase of the federal debt ceiling.

Question 15

The Fed increases reserves if it conducts open market

Accepted Answer

A) purchases or auctions term credit. 
B) purchases but not if it auctions term credit 
C) sales or auctions term credit 
D) sales but not if it auctions term credit 
A) purchases or auctions term credit. 
B) purchases but not if it auctions term credit 
C) sales or auctions term credit 
D) sales but not if it auctions term credit

Question 16

When the Federal Reserve conducts open-market operations to increase the money supply,it

Accepted Answer

A) redeems Federal Reserve notes. 
B) buys government bonds from the public. 
C) raises the discount rate. 
D) decreases its lending to member banks. 
A) redeems Federal Reserve notes. 
B) buys government bonds from the public. 
C) raises the discount rate. 
D) decreases its lending to member banks.

Question 17

Which of the following policies can the Fed follow to increase the money supply?

Accepted Answer

A) ​Reduce the interest rate on reserves 
B) ​Increase reserve requirements for banks 
C) ​Reduce the quantity of funds available through the Term Auction Facility 
D) ​Sell government bonds 
A) ​Reduce the interest rate on reserves 
B) ​Increase reserve requirements for banks 
C) ​Reduce the quantity of funds available through the Term Auction Facility 
D) ​Sell government bonds

Question 18

If the Fed sells government bonds to the public,then reserves

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 19

In 1991,the Federal Reserve lowered the reserve requirement from 12 percent to 10 percent.Other things the same this should have

Accepted Answer

A) increased both the money multiplier and the money supply. 
B) decreased both the money multiplier and the money supply. 
C) increased the money multiplier and decreased the money supply. 
D) decreased the money multiplier and increased the money supply. 
A) increased both the money multiplier and the money supply. 
B) decreased both the money multiplier and the money supply. 
C) increased the money multiplier and decreased the money supply. 
D) decreased the money multiplier and increased the money supply.

Question 20

The manager of the bank where you work tells you that the bank has $300 million in deposits and $255 million dollars in loans.If the reserve requirement is 8.5 percent,how much is the bank holding in excess reserves?

Accepted Answer

A) $15 million 
B) $19.5 million 
C) $25.5 million 
D) $0 million 
A) $15 million 
B) $19.5 million 
C) $25.5 million 
D) $0 million

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

If people decide to hold more currency relative to deposits,the money supply

Which of the following increases when the Fed makes open-market sales?

If people decide to hold less currency relative to deposits,the money supply

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

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits.As a result,bank reserves will

When the Fed sells government bonds,

Which of the following can banks use to borrow from the Federal Reserve?

Today,bank runs are

When the Fed decreases the discount rate,banks will

The Fed decreases reserves if it conducts open market

The most common method employed by the Fed to increase the money supply is the

The Fed increases reserves if it conducts open market

When the Federal Reserve conducts open-market operations to increase the money supply,it

Which of the following policies can the Fed follow to increase the money supply?

If the Fed sells government bonds to the public,then reserves

In 1991,the Federal Reserve lowered the reserve requirement from 12 percent to 10 percent.Other things the same this should have

The manager of the bank where you work tells you that the bank has $300 million in deposits and $255 million dollars in loans.If the reserve requirement is 8.5 percent,how much is the bank holding in excess reserves?

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

Measuring a Nations Income