Question 1

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 2

When the Fed conducts open-market purchases,

Accepted Answer

A)  it buys Treasury securities, which increases the money supply. 
B)  it buys Treasury securities, which decreases the money supply. 
C)  it borrows money from member banks, which increases the money supply. 
D)  it lends money to member banks, which decreases the money supply. 
A)  it buys Treasury securities, which increases the money supply. 
B)  it buys Treasury securities, which decreases the money supply. 
C)  it borrows money from member banks, which increases the money supply. 
D)  it lends money to member banks, which decreases the money supply.

Question 3

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 4

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 5

The set of items that serve as media of exchange clearly includes

Accepted Answer

A)  demand deposits. 
B)  short-term bonds. 
C)  credit cards. 
D)  All of the above are correct. 
A)  demand deposits. 
B)  short-term bonds. 
C)  credit cards. 
D)  All of the above are correct.

Question 6

If the reserve requirement is 10 percent and banks desire to hold no excess reserves, when a bank receives a new deposit of $100,

Accepted Answer

A)  it must increase its required reserves by $10. 
B)  its total reserves initially increase by $10. 
C)  it will be able to make new loans up to a maximum of $10. 
D)  None of the above is correct. 
A)  it must increase its required reserves by $10. 
B)  its total reserves initially increase by $10. 
C)  it will be able to make new loans up to a maximum of $10. 
D)  None of the above is correct.

Question 7

Which of the following is correct?

Accepted Answer

A)  A bank's deposits at the Federal Reserves counts as part of the bank's reserves. The Federal Reserve pays interest on these deposits. 
B)  A bank's deposits at the Federal Reserves counts as part of the bank's reserves. The Federal Reserve does not pay interest on these deposits. 
C)  A bank's deposits at the Federal Reserves does not count as part of the bank's reserves. The Federal Reserve pays interest on these deposits. 
D)  A bank's deposits at the Federal Reserves does not counts as part of the bank's reserves. The Federal Reserve does not pay interest on these deposits. 
A)  A bank's deposits at the Federal Reserves counts as part of the bank's reserves. The Federal Reserve pays interest on these deposits. 
B)  A bank's deposits at the Federal Reserves counts as part of the bank's reserves. The Federal Reserve does not pay interest on these deposits. 
C)  A bank's deposits at the Federal Reserves does not count as part of the bank's reserves. The Federal Reserve pays interest on these deposits. 
D)  A bank's deposits at the Federal Reserves does not counts as part of the bank's reserves. The Federal Reserve does not pay interest on these deposits.

Question 8

Fractional reserve banking is a system where banks must hold an amount of cash based on a percentage of its loans.

Accepted Answer

A) True 
 B)False

Question 9

Table 11-3.
  
-Refer to Table 11-3. Starting from the situation as depicted by the T-account, if someone deposits $500 into the First Bank of Fairfield, and if the bank makes new loans so as to keep its reserve ratio unchanged, then the amount of new loans that it makes will be

Accepted Answer

A)  $320. 
B)  $400. 
C)  $680. 
D)  $750. 
A)  $320. 
B)  $400. 
C)  $680. 
D)  $750.

Question 10

On a bank's T-account, which are part of the banks assets?

Accepted Answer

A)  both deposits made by its customers and reserves 
B)  deposits made by its customers but not reserves 
C)  reserves but not deposits made by its customers 
D)  neither deposits made by its customers nor reserves 
A)  both deposits made by its customers and reserves 
B)  deposits made by its customers but not reserves 
C)  reserves but not deposits made by its customers 
D)  neither deposits made by its customers nor reserves

Question 11

Given the following information, what are the values of M1 and M2? Small time deposits
$1,300 billion
Demand deposits and other checkable deposits
$600 billion
Savings deposits
$1,500 billion
Money market mutual funds
$1,200 billion
Traveler's checks
$50 billion
Large time deposits
$1,200 billion
Currency
$200 billion
Miscellaneous categories in M2
$50 billion

Accepted Answer

A)  M1 = $800 billion, M2 = $4,950 billion. 
B)  M1 = $250 billion, M2 = $6,050 billion. 
C)  M1 = $850 billion, M2 = $4, 900 billion. 
D)  M1 = $850 billion, M2 = $6,100 billion. 
A)  M1 = $800 billion, M2 = $4,950 billion. 
B)  M1 = $250 billion, M2 = $6,050 billion. 
C)  M1 = $850 billion, M2 = $4, 900 billion. 
D)  M1 = $850 billion, M2 = $6,100 billion.

Question 12

Given the following information, what are the values of M1 and M2? Small time deposits
$650 billion
Demand deposits and other checkable deposits
$300 billion
Savings deposits
$750 billion
Money market mutual funds
$600 billion
Traveler's checks
$25 billion
Large time deposits
$600 billion
Currency
$100 billion
Miscellaneous categories in M2
$25 billion

Accepted Answer

A)  M1 = $400 billion, M2 = $2,475 billion. 
B)  M1 = $125 billion, M2 = $3,025 billion. 
C)  M1 = $425 billion, M2 = $2, 450 billion. 
D)  M1 = $425 billion, M2 = $1,875 billion. 
A)  M1 = $400 billion, M2 = $2,475 billion. 
B)  M1 = $125 billion, M2 = $3,025 billion. 
C)  M1 = $425 billion, M2 = $2, 450 billion. 
D)  M1 = $425 billion, M2 = $1,875 billion.

Question 13

If the reserve requirement is 5 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $400, it

Accepted Answer

A)  must increase required reserves by $20. 
B)  will initially see reserves increase by $400. 
C)  will be able to use this deposit to make new loans amounting to $380. 
D)  All of the above are correct. 
A)  must increase required reserves by $20. 
B)  will initially see reserves increase by $400. 
C)  will be able to use this deposit to make new loans amounting to $380. 
D)  All of the above are correct.

Question 14

Money is the only asset that functions as a store of value.

Accepted Answer

A) True 
 B)False

Question 15

If the reserve ratio is 10 percent, $1,000 of additional reserves can create up to

Accepted Answer

A)  $100 of new money. 
B)  $1,000 of new money. 
C)  $10,000 of new money. 
D)  None of the above is correct. 
A)  $100 of new money. 
B)  $1,000 of new money. 
C)  $10,000 of new money. 
D)  None of the above is correct.

Question 16

If the reserve ratio is 15 percent, and banks do not hold excess reserves, and people hold only deposits and no currency, then when the Fed sells $65 million worth of bonds to the public, bank reserves

Accepted Answer

A)  increase by $65 million and the money supply eventually increases by $266.67 million. 
B)  increase by $65 million and the money supply eventually increases by $433.33 million. 
C)  decrease by $65 million and the money supply eventually decreases by $266.67 million. 
D)  decrease by $65 million and the money supply eventually decreases by $433.33 million. 
A)  increase by $65 million and the money supply eventually increases by $266.67 million. 
B)  increase by $65 million and the money supply eventually increases by $433.33 million. 
C)  decrease by $65 million and the money supply eventually decreases by $266.67 million. 
D)  decrease by $65 million and the money supply eventually decreases by $433.33 million.

Question 17

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 18

On a bank's T-account, which are part of the banks liabilities?

Accepted Answer

A)  both deposits made by its customers and reserves 
B)  deposits made by its customers but not reserves 
C)  reserves but not deposits made by its customers 
D)  neither deposits made by its customers nor reserves 
A)  both deposits made by its customers and reserves 
B)  deposits made by its customers but not reserves 
C)  reserves but not deposits made by its customers 
D)  neither deposits made by its customers nor reserves

Question 19

Table 11-6.
  
-Refer to Table 11-6. Assuming the Bank of Springfield and all other banks have the same reserve ratio, then what is the value of the money multiplier?

Accepted Answer

A)  5.0 
B)  7.5 
C)  10.00 
D)  12.5 
A)  5.0 
B)  7.5 
C)  10.00 
D)  12.5

Question 20

Fiat money

Accepted Answer

A)  has no intrinsic value. 
B)  is backed by gold. 
C)  is a medium of exchange but not a unit of account. 
D)  is any close substitute for currency such as checkable deposits. 
A)  has no intrinsic value. 
B)  is backed by gold. 
C)  is a medium of exchange but not a unit of account. 
D)  is any close substitute for currency such as checkable deposits.

When there is a reserve requirement, banks

When the Fed conducts open-market purchases,

Today, bank runs are

The set of items that serve as media of exchange clearly includes

If the reserve requirement is 10 percent and banks desire to hold no excess reserves, when a bank receives a new deposit of $100,

Which of the following is correct?

Fractional reserve banking is a system where banks must hold an amount of cash based on a percentage of its loans.

Table 11-3. -Refer to Table 11-3. Starting from the situation as depicted by the T-account, if someone deposits $500 into the First Bank of Fairfield, and if the bank makes new loans so as to keep its reserve ratio unchanged, then the amount of new loans that it makes will be

On a bank's T-account, which are part of the banks assets?

If the reserve requirement is 5 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $400, it

Money is the only asset that functions as a store of value.

If the reserve ratio is 10 percent, $1,000 of additional reserves can create up to

If the reserve ratio is 15 percent, and banks do not hold excess reserves, and people hold only deposits and no currency, then when the Fed sells $65 million worth of bonds to the public, bank reserves

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

On a bank's T-account, which are part of the banks liabilities?

Table 11-6. -Refer to Table 11-6. Assuming the Bank of Springfield and all other banks have the same reserve ratio, then what is the value of the money multiplier?

Fiat money

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

When there is a reserve requirement, banks

When the Fed conducts open-market purchases,

Today, bank runs are

The set of items that serve as media of exchange clearly includes

If the reserve requirement is 10 percent and banks desire to hold no excess reserves, when a bank receives a new deposit of $100,

Which of the following is correct?

Fractional reserve banking is a system where banks must hold an amount of cash based on a percentage of its loans.

Table 11-3. -Refer to Table 11-3. Starting from the situation as depicted by the T-account, if someone deposits $500 into the First Bank of Fairfield, and if the bank makes new loans so as to keep its reserve ratio unchanged, then the amount of new loans that it makes will be

On a bank's T-account, which are part of the banks assets?

If the reserve requirement is 5 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $400, it

Money is the only asset that functions as a store of value.

If the reserve ratio is 10 percent, $1,000 of additional reserves can create up to

If the reserve ratio is 15 percent, and banks do not hold excess reserves, and people hold only deposits and no currency, then when the Fed sells $65 million worth of bonds to the public, bank reserves

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

On a bank's T-account, which are part of the banks liabilities?

Table 11-6. -Refer to Table 11-6. Assuming the Bank of Springfield and all other banks have the same reserve ratio, then what is the value of the money multiplier?

Fiat money

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