Question 1

High-powered money is another name for:

Accepted Answer

A)  currency. 
B)  demand deposits. 
C)  the monetary base. 
D)  M2. 
A)  currency. 
B)  demand deposits. 
C)  the monetary base. 
D)  M2. C

Question 2

To prevent banks from using excess reserves to make loans that would increase the money supply, the Federal Reserve could conduct open-market ______ and _____ the interest rate paid on bank reserves.

Accepted Answer

A)  purchases; raise 
B)  purchases; lower 
C)  sales; raise 
D)  sales; lower 
A)  purchases; raise 
B)  purchases; lower 
C)  sales; raise 
D)  sales; lower C

Question 3

Explain at least three factors that will affect the quantity of reserves that a bank wishes to hold.

Accepted Answer

Banks' demand for reserves will be affected by: (1) legal reserve requirements, (2) the size and regularity of customer deposits and withdrawals, (3) the interest rate paid on reserves relative to alternative bank investments, and (4) the number of bank failures and level of uncertainty in the economy.

Question 4

In the United States, bank reserves consist of:

Accepted Answer

A)  currency and demand deposits. 
B)  vault cash and deposits at the Federal Reserve. 
C)  gold deposits at the Federal Reserve. 
D)  the money supply. 
A)  currency and demand deposits. 
B)  vault cash and deposits at the Federal Reserve. 
C)  gold deposits at the Federal Reserve. 
D)  the money supply.

Question 5

Money that has no value other than as money is called ______ money.

Accepted Answer

A)  fiat 
B)  intrinsic 
C)  commodity 
D)  government 
A)  fiat 
B)  intrinsic 
C)  commodity 
D)  government

Question 6

Economists occasionally speak of "helicopter money" as a short-hand approach to explaining increases in the money supply. Suppose the Chairman of the Federal Reserve flies over the country in a helicopter dropping 10,000,000 in newly printed $100 bills (a total of $1 billion). By how much will the money supply increase if, holding everything else constant: a. all of the new bills are held by the public?
b. all of the new bills are deposited in banks that choose to hold 10 percent of their deposits as reserves (and no one in the economy holds any currency)?
c. all of the new bills are deposited in banks that practice 100-percent-reserve banking?
d. people in the economy hold half of their money as currency and half as deposits, while banks choose to hold 10 percent of their deposits as reserves?

Accepted Answer

The answer of Economists occasionally speak of "helicopter money" as...

Question 7

Banks create money in:

Accepted Answer

A)  a 100-percent-reserve banking system but not in a fractional-reserve banking system. 
B)  a fractional-reserve banking system but not in a 100-percent-reserve banking system. 
C)  both a 100-percent-reserve banking system and a fractional-reserve banking system. 
D)  neither a 100-percent-reserve banking system nor a fractional-reserve banking system. 
A)  a 100-percent-reserve banking system but not in a fractional-reserve banking system. 
B)  a fractional-reserve banking system but not in a 100-percent-reserve banking system. 
C)  both a 100-percent-reserve banking system and a fractional-reserve banking system. 
D)  neither a 100-percent-reserve banking system nor a fractional-reserve banking system.

Question 8

Compared to typical open-market operations, when pursuing quantitative easing, Federal Reserve purchases tended to be _____ securities.

Accepted Answer

A)  safer and shorter-term 
B)  tax-favored and foreign 
C)  smaller-denomination and higher-grade 
D)  riskier and longer-term 
A)  safer and shorter-term 
B)  tax-favored and foreign 
C)  smaller-denomination and higher-grade 
D)  riskier and longer-term

Question 9

To increase the money multiplier, the Fed can:

Accepted Answer

A)  conduct open-market purchases. 
B)  conduct open-market sales. 
C)  raise the interest rate paid on reserves. 
D)  lower the interest rate paid on reserves. 
A)  conduct open-market purchases. 
B)  conduct open-market sales. 
C)  raise the interest rate paid on reserves. 
D)  lower the interest rate paid on reserves.

Question 10

Demand deposits are funds held in:

Accepted Answer

A)  currency. 
B)  certificates of deposit. 
C)  checking accounts. 
D)  money markets. 
A)  currency. 
B)  certificates of deposit. 
C)  checking accounts. 
D)  money markets.

Question 11

To increase the monetary base, the Fed can:

Accepted Answer

A)  conduct open-market purchases. 
B)  conduct open-market sales. 
C)  raise the interest rate paid on reserves. 
D)  lower the required reserve ratio. 
A)  conduct open-market purchases. 
B)  conduct open-market sales. 
C)  raise the interest rate paid on reserves. 
D)  lower the required reserve ratio.

Question 12

Open-market operations are:

Accepted Answer

A)  Commerce Department efforts to open foreign markets to international trade. 
B)  Federal Reserve purchases and sales of government bonds. 
C)  Securities and Exchange Commission rules requiring open disclosure of market trades. 
D)  Treasury Department purchases and sales of the U.S. gold stock. 
A)  Commerce Department efforts to open foreign markets to international trade. 
B)  Federal Reserve purchases and sales of government bonds. 
C)  Securities and Exchange Commission rules requiring open disclosure of market trades. 
D)  Treasury Department purchases and sales of the U.S. gold stock.

Question 13

A bank balance sheet consists of only the following items: $$\begin{array} { l l } 
\text { Deposits } & \$ 1,000 \
\text { Reserves } & \$ 100 \
\text { Securities } & \$ 400 \
\text { Debt } & \$ 500 \
\text { Loans } & \$ 2,000
\end{array}$$ What is the value of bank capital?

Accepted Answer

A)  -$1,000 
B)  +$500 
C)  +$1,000 
D)  +$1,500 
A)  -$1,000 
B)  +$500 
C)  +$1,000 
D)  +$1,500

Question 14

"Some economists believe that the large decline in the money supply was the primary cause of the Great Depression of the 1930s." Explain how this can be the case.

Accepted Answer

Banks defaulted on their deposits. This

Question 15

The banking system creates:

Accepted Answer

A)  liquidity. 
B)  wealth. 
C)  reserves. 
D)  currency. 
A)  liquidity. 
B)  wealth. 
C)  reserves. 
D)  currency.

Question 16

Excess reserves are reserves that banks keep:

Accepted Answer

A)  in their vaults. 
B)  at the central bank. 
C)  to meet legal reserve requirements. 
D)  above the legally required amount. 
A)  in their vaults. 
B)  at the central bank. 
C)  to meet legal reserve requirements. 
D)  above the legally required amount.

Question 17

Macroeconomists call assets used to make transactions:

Accepted Answer

A)  real income. 
B)  nominal income. 
C)  money. 
D)  consumption. 
A)  real income. 
B)  nominal income. 
C)  money. 
D)  consumption.

Question 18

Payment is deferred by using _______, but immediate access to funds occurs when using ______.

Accepted Answer

A)  currency; demand deposits 
B)  credit cards; debit cards 
C)  demand deposits; savings deposits 
D)  debit cards; credit cards 
A)  currency; demand deposits 
B)  credit cards; debit cards 
C)  demand deposits; savings deposits 
D)  debit cards; credit cards

Question 19

(Table: Bank Balance Sheet) Based on the table, what is the reserve-deposit ratio at the bank?

Accepted Answer

A)  3 percent 
B)  5 percent 
C)  10 percent 
D)  15 percent 
A)  3 percent 
B)  5 percent 
C)  10 percent 
D)  15 percent

Question 20

The currency-deposit ratio is determined by:

Accepted Answer

A)  the Federal Reserve. 
B)  business policies of banks and the laws regulating banks. 
C)  preferences of households about the form of money they wish to hold. 
D)  the Federal Deposit Insurance Corporation (FDI
C) . 
A)  the Federal Reserve. 
B)  business policies of banks and the laws regulating banks. 
C)  preferences of households about the form of money they wish to hold. 
D)  the Federal Deposit Insurance Corporation (FDI
C) .

High-powered money is another name for:

To prevent banks from using excess reserves to make loans that would increase the money supply, the Federal Reserve could conduct open-market __ and _ the interest rate paid on bank reserves.

Explain at least three factors that will affect the quantity of reserves that a bank wishes to hold.

In the United States, bank reserves consist of:

Money that has no value other than as money is called ______ money.

Banks create money in:

Compared to typical open-market operations, when pursuing quantitative easing, Federal Reserve purchases tended to be _____ securities.

To increase the money multiplier, the Fed can:

Demand deposits are funds held in:

To increase the monetary base, the Fed can:

Open-market operations are:

A bank balance sheet consists of only the following items: Deposits \ 1,000 Reserves \ 100 Securities \ 400 Debt \ 500 Loans \ 2,000 What is the value of bank capital?

"Some economists believe that the large decline in the money supply was the primary cause of the Great Depression of the 1930s." Explain how this can be the case.

The banking system creates:

Excess reserves are reserves that banks keep:

Macroeconomists call assets used to make transactions:

Payment is deferred by using _, but immediate access to funds occurs when using .

(Table: Bank Balance Sheet) Based on the table, what is the reserve-deposit ratio at the bank?

The currency-deposit ratio is determined by:

The Science of Macroeconomics

The Data of Macroeconomics

National Income: Where It Comes From and Where It Goes

Inflation: Its Causes, Effects, and Social Costs

The Open Economy

Unemployment and the Labor Market

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Is-Lm Model

Aggregate Demand Ii: Applying the Is-Lm Model

The Open Economy Revisited: the Mundell-Fleming Model and the Exchange-Rate Regime

Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

A Dynamic Model of Economic Fluctuations

Understanding Consumer Behavior

The Theory of Investment

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

The Financial System: Opportunities and Dangers

Filters

Exam 4: The Monetary System: What It Is and How It Works

High-powered money is another name for:

To prevent banks from using excess reserves to make loans that would increase the money supply, the Federal Reserve could conduct open-market ______ and _____ the interest rate paid on bank reserves.

Explain at least three factors that will affect the quantity of reserves that a bank wishes to hold.

In the United States, bank reserves consist of:

Money that has no value other than as money is called ______ money.

Banks create money in:

Compared to typical open-market operations, when pursuing quantitative easing, Federal Reserve purchases tended to be _____ securities.

To increase the money multiplier, the Fed can:

Demand deposits are funds held in:

To increase the monetary base, the Fed can:

Open-market operations are:

A bank balance sheet consists of only the following items: Deposits \ 1,000 Reserves \ 100 Securities \ 400 Debt \ 500 Loans \ 2,000 What is the value of bank capital?

"Some economists believe that the large decline in the money supply was the primary cause of the Great Depression of the 1930s." Explain how this can be the case.

The banking system creates:

Excess reserves are reserves that banks keep:

Macroeconomists call assets used to make transactions:

Payment is deferred by using _______, but immediate access to funds occurs when using ______.

(Table: Bank Balance Sheet) Based on the table, what is the reserve-deposit ratio at the bank?

The currency-deposit ratio is determined by:

The Science of Macroeconomics

The Data of Macroeconomics

National Income: Where It Comes From and Where It Goes

Inflation: Its Causes, Effects, and Social Costs

The Open Economy

Unemployment and the Labor Market

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Is-Lm Model

Aggregate Demand Ii: Applying the Is-Lm Model

The Open Economy Revisited: the Mundell-Fleming Model and the Exchange-Rate Regime

Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

A Dynamic Model of Economic Fluctuations

Understanding Consumer Behavior

The Theory of Investment

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

The Financial System: Opportunities and Dangers

Filters

To prevent banks from using excess reserves to make loans that would increase the money supply, the Federal Reserve could conduct open-market __ and _ the interest rate paid on bank reserves.

Payment is deferred by using _, but immediate access to funds occurs when using .