Question 1

Over one time horizon or another, Fed policy decisions influence

Accepted Answer

A)  inflation and employment. 
B)  inflation but not employment. 
C)  employment but not inflation. 
D)  neither inflation nor employment. 
A)  inflation and employment. 
B)  inflation but not employment. 
C)  employment but not inflation. 
D)  neither inflation nor employment.

Question 2

Which of the following items is included in M2?

Accepted Answer

A)  credit cards 
B)  money market mutual funds 
C)  corporate bonds 
D)  large time deposits 
A)  credit cards 
B)  money market mutual funds 
C)  corporate bonds 
D)  large time deposits

Question 3

A double coincidence of wants

Accepted Answer

A)  is required when there is no item in an economy that is widely accepted in exchange for goods and services. 
B)  is required in an economy that relies on barter. 
C)  is a hindrance to the allocation of resources when it is required for trade. 
D)  All of the above are correct. 
A)  is required when there is no item in an economy that is widely accepted in exchange for goods and services. 
B)  is required in an economy that relies on barter. 
C)  is a hindrance to the allocation of resources when it is required for trade. 
D)  All of the above are correct.

Question 4

If $300 of new reserves generates $800 of new money in the economy, then the reserve ratio is

Accepted Answer

A)  2.7 percent. 
B)  12.5 percent. 
C)  37.5 percent. 
D)  40 percent. 
A)  2.7 percent. 
B)  12.5 percent. 
C)  37.5 percent. 
D)  40 percent.

Question 5

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 6

Credit cards are

Accepted Answer

A)  a medium of exchange. 
B)  counted as part of M2 but not as part of M1. 
C)  important for analyzing the monetary system. 
D)  All of the above are correct. 
A)  a medium of exchange. 
B)  counted as part of M2 but not as part of M1. 
C)  important for analyzing the monetary system. 
D)  All of the above are correct.

Question 7

If R represents the reserve ratio for all banks in the economy, then the money multiplier is

Accepted Answer

A)  1/(1-R). 
B)  1/R. 
C)  1/(1+R). 
D)  (1+R)/R. 
A)  1/(1-R). 
B)  1/R. 
C)  1/(1+R). 
D)  (1+R)/R.

Question 8

In the U.S., the average adult holds about $3,700 in

Accepted Answer

A)  currency. 
B)  wealth. 
C)  M1. 
D)  M2. 
A)  currency. 
B)  wealth. 
C)  M1. 
D)  M2.

Question 9

The Federal Reserve can alter the size of the money supply by changing reserves or changing reserve requirements.

Accepted Answer

A) True 
 B)False

Question 10

Table 11-5.
  
-Refer to Table 11-5. From the table it follows that the Bank of Pleasantville operates in a

Accepted Answer

A)  fractional-reserve banking system, since its reserves are less than its deposits. 
B)  fractional-reserve banking system, since its reserves are less than its loans. 
C)  100-percent-reserve banking system, since its assets are equal to its liabilities. 
D)  100-percent-reserve banking system if the Fed's reserve requirement is 10 percent; otherwise, it operates in a fractional-reserve banking system. 
A)  fractional-reserve banking system, since its reserves are less than its deposits. 
B)  fractional-reserve banking system, since its reserves are less than its loans. 
C)  100-percent-reserve banking system, since its assets are equal to its liabilities. 
D)  100-percent-reserve banking system if the Fed's reserve requirement is 10 percent; otherwise, it operates in a fractional-reserve banking system.

Question 11

Most financial assets other than money function as

Accepted Answer

A)  a medium of exchange, a unit of account, and a store of value. 
B)  a medium of exchange and a store of value, but not a unit of account. 
C)  a store of value and a unit of account, but not a mediuim of exchange. 
D)  a store of value, but not a unit of account nor a medium of exchange 
A)  a medium of exchange, a unit of account, and a store of value. 
B)  a medium of exchange and a store of value, but not a unit of account. 
C)  a store of value and a unit of account, but not a mediuim of exchange. 
D)  a store of value, but not a unit of account nor a medium of exchange

Question 12

The interest rate that the Fed charges banks that borrow reserves from it is the

Accepted Answer

A)  federal funds rate. 
B)  discount rate. 
C)  reserve requirement. 
D)  prime rate. 
A)  federal funds rate. 
B)  discount rate. 
C)  reserve requirement. 
D)  prime rate.

Question 13

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

Accepted Answer

A)  demand deposits 
B)  corporate bonds 
C)  large time deposits 
D)  money market mutual funds 
A)  demand deposits 
B)  corporate bonds 
C)  large time deposits 
D)  money market mutual funds

Question 14

Table 11-4.
  
-Refer to Table 11-4. If the bank is holding $4,000 in excess reserves, then the reserve requirement with which it must comply is

Accepted Answer

A)  4 percent. 
B)  6 percent. 
C)  12 percent. 
D)  14 percent. 
A)  4 percent. 
B)  6 percent. 
C)  12 percent. 
D)  14 percent.

Question 15

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 16

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 17

The president of each regional Federal Reserve Bank is appointed by

Accepted Answer

A)  the U.S. president with the approval of the Senate. 
B)  the Board of Governors. 
C)  the voting members of the Federal Open Market Committee. 
D)  the board of directors of that regional Federal Reserve Bank. 
A)  the U.S. president with the approval of the Senate. 
B)  the Board of Governors. 
C)  the voting members of the Federal Open Market Committee. 
D)  the board of directors of that regional Federal Reserve Bank.

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. 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 19

The New York Federal Reserve Bank

Accepted Answer

A)  president always gets to vote at the FOMC meetings. 
B)  conducts open market transactions. 
C)  is one of 12 regional Federal Reserve Banks. 
D)  All of the above are correct. 
A)  president always gets to vote at the FOMC meetings. 
B)  conducts open market transactions. 
C)  is one of 12 regional Federal Reserve Banks. 
D)  All of the above are correct.

Question 20

Which of the following is included in both M1 and M2?

Accepted Answer

A)  currency 
B)  demand deposits 
C)  other checkable deposits 
D)  All of the above are correct. 
A)  currency 
B)  demand deposits 
C)  other checkable deposits 
D)  All of the above are correct.

Over one time horizon or another, Fed policy decisions influence

Which of the following items is included in M2?

A double coincidence of wants

If $300 of new reserves generates $800 of new money in the economy, then the reserve ratio is

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

Credit cards are

If R represents the reserve ratio for all banks in the economy, then the money multiplier is

In the U.S., the average adult holds about $3,700 in

The Federal Reserve can alter the size of the money supply by changing reserves or changing reserve requirements.

Table 11-5. -Refer to Table 11-5. From the table it follows that the Bank of Pleasantville operates in a

Most financial assets other than money function as

The interest rate that the Fed charges banks that borrow reserves from it is the

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

Table 11-4. -Refer to Table 11-4. If the bank is holding $4,000 in excess reserves, then the reserve requirement with which it must comply is

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

The president of each regional Federal Reserve Bank is appointed by

The New York Federal Reserve Bank

Which of the following is included in both M1 and M2?

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

Over one time horizon or another, Fed policy decisions influence

Which of the following items is included in M2?

A double coincidence of wants

If $300 of new reserves generates $800 of new money in the economy, then the reserve ratio is

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

Credit cards are

If R represents the reserve ratio for all banks in the economy, then the money multiplier is

In the U.S., the average adult holds about $3,700 in

The Federal Reserve can alter the size of the money supply by changing reserves or changing reserve requirements.

Table 11-5. -Refer to Table 11-5. From the table it follows that the Bank of Pleasantville operates in a

Most financial assets other than money function as

The interest rate that the Fed charges banks that borrow reserves from it is the

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

Table 11-4. -Refer to Table 11-4. If the bank is holding $4,000 in excess reserves, then the reserve requirement with which it must comply is

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

The president of each regional Federal Reserve Bank is appointed by

The New York Federal Reserve Bank

Which of the following is included in both M1 and M2?

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