Question 1

The agency responsible for regulating the money supply in the United States is

Accepted Answer

A)  the Comptroller of the Currency. 
B)  the U.S. Treasury. 
C)  the Federal Reserve. 
D)  the U.S. Bank. 
A)  the Comptroller of the Currency. 
B)  the U.S. Treasury. 
C)  the Federal Reserve. 
D)  the U.S. Bank. C

Question 2

The regional Federal Reserve Banks

Accepted Answer

A)  are not allowed to make loans to banks in their region. 
B)  regulate banks in their regions. 
C)  have more voting members on the FOMC than does the Board of Governors. 
D)  are each headed by a member of the Board of Governors. 
A)  are not allowed to make loans to banks in their region. 
B)  regulate banks in their regions. 
C)  have more voting members on the FOMC than does the Board of Governors. 
D)  are each headed by a member of the Board of Governors. B

Question 3

Which of the following is a store of value?

Accepted Answer

A)  cash and stocks 
B)  cash but not stocks 
C)  stocks but not cash 
D)  neither cash nor stocks 
A)  cash and stocks 
B)  cash but not stocks 
C)  stocks but not cash 
D)  neither cash nor stocks A

Question 4

An increase in the reserve requirement increases reserves and decreases the money supply.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is not included in M1?

Accepted Answer

A)  currency 
B)  demand deposits 
C)  savings deposits 
D)  traveler's checks 
A)  currency 
B)  demand deposits 
C)  savings deposits 
D)  traveler's checks

Question 6

Which of the following items is not included in the most narrow definition of money, M1?

Accepted Answer

A)  currency 
B)  savings deposits 
C)  traveler's checks 
D)  demand deposits 
A)  currency 
B)  savings deposits 
C)  traveler's checks 
D)  demand deposits

Question 7

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 8

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 9

If the reserve requirement is 5 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $10, then this bank

Accepted Answer

A)  must increase its required reserves by $10. 
B)  will initially see its total reserves increase by $10.50. 
C)  will be able to make new loans up to a maximum of $9.50. 
D)  All of the above are correct. 
A)  must increase its required reserves by $10. 
B)  will initially see its total reserves increase by $10.50. 
C)  will be able to make new loans up to a maximum of $9.50. 
D)  All of the above are correct.

Question 10

Which of the following best illustrates the unit of account function of money?

Accepted Answer

A)  You list prices for candy sold on your Web site, HYPERLINK "http://www.sweettooth.com/" www.sweettooth.com, in dollars. 
B)  You pay for your theater tickets with dollars. 
C)  You hold currency even though you don't intend to spend it right away. 
D)  None of the above is correct. 
A)  You list prices for candy sold on your Web site, HYPERLINK "http://www.sweettooth.com/" www.sweettooth.com, in dollars. 
B)  You pay for your theater tickets with dollars. 
C)  You hold currency even though you don't intend to spend it right away. 
D)  None of the above is correct.

Question 11

All Fed purchases and sales of

Accepted Answer

A)  corporate stocks and bonds are conducted at the New York Fed's trading desk. 
B)  government bonds are conducted at the New York Fed's trading desk. 
C)  real estate and other real assets are conducted by the Federal Open Market Committee. 
D)  All of the above are correct. 
A)  corporate stocks and bonds are conducted at the New York Fed's trading desk. 
B)  government bonds are conducted at the New York Fed's trading desk. 
C)  real estate and other real assets are conducted by the Federal Open Market Committee. 
D)  All of the above are correct.

Question 12

In a fractional-reserve banking system with no excess reserves and no currency holdings, if the central bank buys $100 million worth of bonds,

Accepted Answer

A)  reserves and the money supply increase by less than $100 million. 
B)  reserves increase by $100 million and the money supply increases by $100 million. 
C)  reserves increase by $100 million and the money supply increases by more than $100 million. 
D)  both reserves and the money supply increase by more than $100 million. 
A)  reserves and the money supply increase by less than $100 million. 
B)  reserves increase by $100 million and the money supply increases by $100 million. 
C)  reserves increase by $100 million and the money supply increases by more than $100 million. 
D)  both reserves and the money supply increase by more than $100 million.

Question 13

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 14

Discuss why the Fed rarely changes the reserve requirements.

Accepted Answer

There are two main reasons the Fed does

Question 15

In the United States, currency holdings per person average about

Accepted Answer

A)  $110; one explanation for this relatively small average is that many people use credit and debit cards to make transactions. 
B)  $110; one explanation for this relatively small average is that U.S. citizens hold a lot of foreign currency. 
C)  $4,490; one explanation for this relatively large amount is that criminals probably prefer currency as a medium of exchange. 
D)  $4,490; one explanation for this relatively large average is that U.S. citizens hold a lot of foreign currency. 
A)  $110; one explanation for this relatively small average is that many people use credit and debit cards to make transactions. 
B)  $110; one explanation for this relatively small average is that U.S. citizens hold a lot of foreign currency. 
C)  $4,490; one explanation for this relatively large amount is that criminals probably prefer currency as a medium of exchange. 
D)  $4,490; one explanation for this relatively large average is that U.S. citizens hold a lot of foreign currency.

Question 16

Just after the terrorist attack on September 11, 2001, the Fed stood ready to lend financial institutions funds. When the Fed did this, it was acting in its role of lender of last resort.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is an example of barter?

Accepted Answer

A)  A parent gives a teenager a $10 bill in exchange for her babysitting services. 
B)  A homeowner gives an exterminator a check for $50 in exchange for extermination services. 
C)  A barber gives a plumber a haircut in exchange for the plumber fixing the barber's leaky faucet. 
D)  All of the above are examples of barter. 
A)  A parent gives a teenager a $10 bill in exchange for her babysitting services. 
B)  A homeowner gives an exterminator a check for $50 in exchange for extermination services. 
C)  A barber gives a plumber a haircut in exchange for the plumber fixing the barber's leaky faucet. 
D)  All of the above are examples of barter.

Question 18

In the nation of Wiknam, the money supply is $80,000 and reserves are $18,000. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

Accepted Answer

A)  29 percent. 
B)  22.5 percent. 
C)  16 percent. 
D)  None of the above is correct. 
A)  29 percent. 
B)  22.5 percent. 
C)  16 percent. 
D)  None of the above is correct.

Question 19

If the reserve ratio is 10 percent, the money multiplier is

Accepted Answer

A)  100. 
B)  10. 
C)  9/10. 
D)  1/10. 
A)  100. 
B)  10. 
C)  9/10. 
D)  1/10.

Question 20

The "yardstick" people use to post prices and record debts is called

Accepted Answer

A)  a medium of exchange. 
B)  a unit of account. 
C)  a store of value. 
D)  liquidity. 
A)  a medium of exchange. 
B)  a unit of account. 
C)  a store of value. 
D)  liquidity.

Exam 16: The Monetary System

The agency responsible for regulating the money supply in the United States is

The regional Federal Reserve Banks

Which of the following is a store of value?

An increase in the reserve requirement increases reserves and decreases the money supply.

Which of the following is not included in M1?

Which of the following items is not included in the most narrow definition of money, M1?

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

The Fed decreases reserves if it conducts open market

If the reserve requirement is 5 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $10, then this bank

Which of the following best illustrates the unit of account function of money?

All Fed purchases and sales of

In a fractional-reserve banking system with no excess reserves and no currency holdings, if the central bank buys $100 million worth of bonds,

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

Discuss why the Fed rarely changes the reserve requirements.

In the United States, currency holdings per person average about

Just after the terrorist attack on September 11, 2001, the Fed stood ready to lend financial institutions funds. When the Fed did this, it was acting in its role of lender of last resort.

Which of the following is an example of barter?

In the nation of Wiknam, the money supply is $80,000 and reserves are $18,000. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

If the reserve ratio is 10 percent, the money multiplier is

The "yardstick" people use to post prices and record debts is called

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

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 Macroeconomics: Basic Concepts

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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