Question 1

A bank has a 10 percent reserve requirement, $5,000 in deposits, and has loaned out all it can given the reserve requirement.

Accepted Answer

A)  It has $50 in reserves and $4,950 in loans. 
B)  It has $500 in reserves and $4,500 in loans. 
C)  It has $555 in reserves and $4,445 in loans. 
D)  None of the above is correct. 
A)  It has $50 in reserves and $4,950 in loans. 
B)  It has $500 in reserves and $4,500 in loans. 
C)  It has $555 in reserves and $4,445 in loans. 
D)  None of the above is correct. B

Question 2

If the reserve ratio is 9 percent, then a decrease in reserves of $6,000 can cause the money supply to fall by as much as

Accepted Answer

A)  $60,000.00. 
B)  $66,666.67. 
C)  $90,900.00. 
D)  $100,555.56. 
A)  $60,000.00. 
B)  $66,666.67. 
C)  $90,900.00. 
D)  $100,555.56. B

Question 3

Which list ranks assets from most to least liquid?

Accepted Answer

A)  money, bonds, cars, houses 
B)  money, cars, houses, bonds 
C)  bonds, money, cars, houses 
D)  bonds, cars, money, houses 
A)  money, bonds, cars, houses 
B)  money, cars, houses, bonds 
C)  bonds, money, cars, houses 
D)  bonds, cars, money, houses A

Question 4

The discount rate is the rate the Federal Reserve charges banks for loans. By lowering this rate, the Fed provides banks with a greater incentive to borrow from it.

Accepted Answer

A) True 
 B)False

Question 5

Table 11-6.
  
-Refer to Table 11-6. Assume the Fed's reserve requirement is 6 percent and that the Bank of Springfield makes new loans so as to make its new reserve ratio 6 percent. From then on, no bank holds any excess reserves. Assume also that people hold only deposits and no currency. Then by what amount does the economy's money supply increase?

Accepted Answer

A)  $50,200 
B)  $60,000 
C)  $72,000 
D)  $106,000 
A)  $50,200 
B)  $60,000 
C)  $72,000 
D)  $106,000

Question 6

The Fed can directly protect a bank during a bank run by

Accepted Answer

A)  increasing reserve requirements. 
B)  selling government bonds to the bank. 
C)  lending reserves to the bank. 
D)  doing any of the above. 
A)  increasing reserve requirements. 
B)  selling government bonds to the bank. 
C)  lending reserves to the bank. 
D)  doing any of the above.

Question 7

When prisoners use cigarettes or some other good as money, cigarettes become

Accepted Answer

A)  commodity money, but do not function as a unit of account. 
B)  commodity money and function as a unit of account. 
C)  fiat money, but do not function as a unit of account. 
D)  fiat money and function as a unit of account. 
A)  commodity money, but do not function as a unit of account. 
B)  commodity money and function as a unit of account. 
C)  fiat money, but do not function as a unit of account. 
D)  fiat money and function as a unit of account.

Question 8

The Fed purchases $200 worth of government bonds from the public. The reserve requirement is 8 percent, people hold no currency, and the banking system keeps no excess reserves. The U.S. money supply eventually increases by

Accepted Answer

A)  $16. 
B)  $200. 
C)  $1,600. 
D)  $2,500. 
A)  $16. 
B)  $200. 
C)  $1,600. 
D)  $2,500.

Question 9

All of the presidents of the regional Federal Reserve banks

Accepted Answer

A)  attend each FOMC meeting. 
B)  have voting rights at each FOMC meeting. 
C)  are appointed by the president of the U.S. and confirmed by the U.S. Senate. 
D)  All of the above are correct. 
A)  attend each FOMC meeting. 
B)  have voting rights at each FOMC meeting. 
C)  are appointed by the president of the U.S. and confirmed by the U.S. Senate. 
D)  All of the above are correct.

Question 10

What is meant by the term "lender of last resort?" In what circumstances might the Fed be a lender of last resort?

Accepted Answer

A "lender of last resort" is a lender to

Question 11

Explain why banks can influence the money supply if the required reserve ratio is less than 100 percent.

Accepted Answer

When the reserve requirement is less tha

Question 12

Scenario 11-1.
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 11-1. 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 13

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 14

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 15

In the United States, currency holdings per person average about

Accepted Answer

A)  $125; one explanation for this relatively small average is that many people use credit and debit cards to make transactions. 
B)  $125; one explanation for this relatively small average is that U.S. citizens hold a lot of foreign currency. 
C)  $3,700; one explanation for this relatively large amount is that criminals probably prefer currency as a medium of exchange. 
D)  $3,700; one explanation for this relatively large average is that U.S. citizens hold a lot of foreign currency. 
A)  $125; one explanation for this relatively small average is that many people use credit and debit cards to make transactions. 
B)  $125; one explanation for this relatively small average is that U.S. citizens hold a lot of foreign currency. 
C)  $3,700; one explanation for this relatively large amount is that criminals probably prefer currency as a medium of exchange. 
D)  $3,700; one explanation for this relatively large average is that U.S. citizens hold a lot of foreign currency.

Question 16

If the federal funds rate were above 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 17

If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by

Accepted Answer

A)  $64 of new reserves. 
B)  $448 of new reserves. 
C)  $700 of new reserves. 
D)  $800 of new reserves. 
A)  $64 of new reserves. 
B)  $448 of new reserves. 
C)  $700 of new reserves. 
D)  $800 of new reserves.

Question 18

Scenario 11-1.
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 11-1 . Suppose the Central Bank of Namdia purchases 25 million dias of Namdian Treasury Bonds from banks. 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 of Namdia change?

Accepted Answer

A)  200 million dias 
B)  150 million dias 
C)  100 million dias 
D)  None of the above is correct. 
A)  200 million dias 
B)  150 million dias 
C)  100 million dias 
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

A bank's reserve ratio is 10 percent and the bank has $2,000 in deposits. Its reserves amount to

Accepted Answer

A)  $20. 
B)  $200. 
C)  $400. 
D)  $1,800. 
A)  $20. 
B)  $200. 
C)  $400. 
D)  $1,800.

A bank has a 10 percent reserve requirement, $5,000 in deposits, and has loaned out all it can given the reserve requirement.

If the reserve ratio is 9 percent, then a decrease in reserves of $6,000 can cause the money supply to fall by as much as

Which list ranks assets from most to least liquid?

The discount rate is the rate the Federal Reserve charges banks for loans. By lowering this rate, the Fed provides banks with a greater incentive to borrow from it.

The Fed can directly protect a bank during a bank run by

When prisoners use cigarettes or some other good as money, cigarettes become

The Fed purchases $200 worth of government bonds from the public. The reserve requirement is 8 percent, people hold no currency, and the banking system keeps no excess reserves. The U.S. money supply eventually increases by

All of the presidents of the regional Federal Reserve banks

What is meant by the term "lender of last resort?" In what circumstances might the Fed be a lender of last resort?

Explain why banks can influence the money supply if the required reserve ratio is less than 100 percent.

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

The money supply increases when the Fed

In the United States, currency holdings per person average about

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

If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by

When the Fed makes open-market purchases bank

A bank's reserve ratio is 10 percent and the bank has $2,000 in deposits. Its reserves amount to

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

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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Exam 11: The Monetary System

A bank has a 10 percent reserve requirement, $5,000 in deposits, and has loaned out all it can given the reserve requirement.

If the reserve ratio is 9 percent, then a decrease in reserves of $6,000 can cause the money supply to fall by as much as

Which list ranks assets from most to least liquid?

The discount rate is the rate the Federal Reserve charges banks for loans. By lowering this rate, the Fed provides banks with a greater incentive to borrow from it.

The Fed can directly protect a bank during a bank run by

When prisoners use cigarettes or some other good as money, cigarettes become

The Fed purchases $200 worth of government bonds from the public. The reserve requirement is 8 percent, people hold no currency, and the banking system keeps no excess reserves. The U.S. money supply eventually increases by

All of the presidents of the regional Federal Reserve banks

What is meant by the term "lender of last resort?" In what circumstances might the Fed be a lender of last resort?

Explain why banks can influence the money supply if the required reserve ratio is less than 100 percent.

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

The money supply increases when the Fed

In the United States, currency holdings per person average about

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

If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by

When the Fed makes open-market purchases bank

A bank's reserve ratio is 10 percent and the bank has $2,000 in deposits. Its reserves amount to

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

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

Filters