Question 1

The amount of capital that banks are required to hold depends on the:

Accepted Answer

A)  amount of deposits held at a bank. 
B)  riskiness of the bank's assets. 
C)  reserve requirements set by the Fed. 
D)  level of deposit insurance coverage. 
A)  amount of deposits held at a bank. 
B)  riskiness of the bank's assets. 
C)  reserve requirements set by the Fed. 
D)  level of deposit insurance coverage.

Question 2

The value of banks' owners' equity is called bank:

Accepted Answer

A)  deposits. 
B)  reserves. 
C)  capital. 
D)  liquidity. 
A)  deposits. 
B)  reserves. 
C)  capital. 
D)  liquidity.

Question 3

Financial intermediation is the process of:

Accepted Answer

A)  settling disputes between borrowers and lenders. 
B)  advising corporations on whether to expand using debt or equity. 
C)  transferring funds from savers to borrowers. 
D)  converting from a barter economy to a money economy. 
A)  settling disputes between borrowers and lenders. 
B)  advising corporations on whether to expand using debt or equity. 
C)  transferring funds from savers to borrowers. 
D)  converting from a barter economy to a money economy.

Question 4

For borrowing from the discount window, the Fed sets the _____ of borrowing, compared to borrowing using the Term Auction Facility, where the Fed sets the _____ of borrowing.

Accepted Answer

A)  maximum quantity; minimum quantity 
B)  minimum price; maximum price 
C)  quantity; price 
D)  price; quantity 
A)  maximum quantity; minimum quantity 
B)  minimum price; maximum price 
C)  quantity; price 
D)  price; quantity

Question 5

As the 2008-2009 financial crisis unfolded, one major U.S. bank had a leverage ratio of 54. In Canada regulators put a ceiling on bank leverage ratios of 20. Compare the change in asset values that would push the capital in the U.S. bank to zero with the change required to eliminate capital in a Canadian bank at the ceiling-leverage ratio. What is the implication of the differences in maximum leverage ratios for the stability of the banking system?

Accepted Answer

With a leverage ratio of 54, a 1. 85 per

Question 6

If the ratio of currency to deposits (cr) increases, while the ratio of reserves to deposits (rr) is constant and the monetary base (B) is constant, then:

Accepted Answer

A)  it cannot be determined whether the money supply increases or decreases. 
B)  the money supply increases. 
C)  the money supply decreases. 
D)  the money supply does not change. 
A)  it cannot be determined whether the money supply increases or decreases. 
B)  the money supply increases. 
C)  the money supply decreases. 
D)  the money supply does not change.

Question 7

People use money as a unit of account when they:

Accepted Answer

A)  hold money to transfer purchasing power into the future. 
B)  use money as a measure of economic transactions. 
C)  use money to buy goods and services. 
D)  hold money to gain power and esteem. 
A)  hold money to transfer purchasing power into the future. 
B)  use money as a measure of economic transactions. 
C)  use money to buy goods and services. 
D)  hold money to gain power and esteem.

Question 8

If you hear in the news that the Federal Reserve conducted open-market purchases, then you should expect ______ to increase.

Accepted Answer

A)  reserve requirements 
B)  the discount rate 
C)  the money supply 
D)  the reserve-deposit ratio 
A)  reserve requirements 
B)  the discount rate 
C)  the money supply 
D)  the reserve-deposit ratio

Question 9

Between August 1929 and March 1933, the money supply fell 28 percent. At that time the monetary base ______ and the currency-deposit and reserve-deposit ratios both ______.

Accepted Answer

A)  fell; fell 
B)  fell; rose 
C)  rose; fell 
D)  rose; rose 
A)  fell; fell 
B)  fell; rose 
C)  rose; fell 
D)  rose; rose

Question 10

In a system with fractional-reserve banking:

Accepted Answer

A)  all banks must hold reserves equal to a fraction of their loans. 
B)  no banks can make loans. 
C)  the banking system completely controls the size of the money supply. 
D)  all banks must hold reserves equal to a fraction of their deposits. 
A)  all banks must hold reserves equal to a fraction of their loans. 
B)  no banks can make loans. 
C)  the banking system completely controls the size of the money supply. 
D)  all banks must hold reserves equal to a fraction of their deposits.

Question 11

(Table: Bank Balance Sheet) Based on the table, owners' equity will fall to zero if loan defaults reduce the value of total assets by _____ percent.

Accepted Answer

A)  10 
B)  20 
C)  30 
D)  40 
A)  10 
B)  20 
C)  30 
D)  40

Question 12

The monetary base of Moneyland is $500 million. The current-deposit ratio (cr) is 0.2 and reserve-deposit ratio (rr) is 0.2. Calculate the money multiplier and money supply.

Accepted Answer

Money multiplier = (1 + cr) /

Question 13

The quantitative easing operations conducted by the Federal Reserve between 2007 and 2011 resulted in _____ increases in the monetary base and _____ increases in money supply.

Accepted Answer

A)  no; no 
B)  large; larger 
C)  large; smaller 
D)  small; smaller 
A)  no; no 
B)  large; larger 
C)  large; smaller 
D)  small; smaller

Question 14

The Federal Reserve's tools to control the money supply include: open-market operations, the discount rate, and interest payments on reserves. a. How should each instrument be changed if the Fed wishes to decrease the money supply?
b. Will the change affect the monetary base and/or the money multiplier?

Accepted Answer

a. The Fed would conduct open-market sal

Question 15

The money supply consists of:

Accepted Answer

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

Question 16

Open-market operations change the ______; changes in interest rate paid on reserves change the ______; and changes in the discount rate change the ______.

Accepted Answer

A)  monetary base; monetary base; monetary base 
B)  money multiplier; money multiplier; money multiplier 
C)  monetary base; money multiplier; monetary base 
D)  money multiplier; monetary base; money multiplier 
A)  monetary base; monetary base; monetary base 
B)  money multiplier; money multiplier; money multiplier 
C)  monetary base; money multiplier; monetary base 
D)  money multiplier; monetary base; money multiplier

Question 17

People use money as a store of value when they:

Accepted Answer

A)  hold money to transfer purchasing power into the future. 
B)  use money as a measure of economic transactions. 
C)  use money to buy goods and services. 
D)  hold money to gain power and esteem. 
A)  hold money to transfer purchasing power into the future. 
B)  use money as a measure of economic transactions. 
C)  use money to buy goods and services. 
D)  hold money to gain power and esteem.

Question 18

If the monetary base equals $400 billion and the money multiplier equals 2, then the money supply equals:

Accepted Answer

A)  $200 billion. 
B)  $400 billion. 
C)  $800 billion. 
D)  $1,000 billion. 
A)  $200 billion. 
B)  $400 billion. 
C)  $800 billion. 
D)  $1,000 billion.

The amount of capital that banks are required to hold depends on the:

The value of banks' owners' equity is called bank:

Financial intermediation is the process of:

For borrowing from the discount window, the Fed sets the _ of borrowing, compared to borrowing using the Term Auction Facility, where the Fed sets the _ of borrowing.

If the ratio of currency to deposits (cr) increases, while the ratio of reserves to deposits (rr) is constant and the monetary base (B) is constant, then:

People use money as a unit of account when they:

If you hear in the news that the Federal Reserve conducted open-market purchases, then you should expect ______ to increase.

Between August 1929 and March 1933, the money supply fell 28 percent. At that time the monetary base and the currency-deposit and reserve-deposit ratios both .

In a system with fractional-reserve banking:

(Table: Bank Balance Sheet) Based on the table, owners' equity will fall to zero if loan defaults reduce the value of total assets by _____ percent.

The monetary base of Moneyland is $500 million. The current-deposit ratio (cr) is 0.2 and reserve-deposit ratio (rr) is 0.2. Calculate the money multiplier and money supply.

The quantitative easing operations conducted by the Federal Reserve between 2007 and 2011 resulted in _ increases in the monetary base and _ increases in money supply.

The money supply consists of:

Open-market operations change the ; changes in interest rate paid on reserves change the ; and changes in the discount rate change the __.

People use money as a store of value when they:

If the monetary base equals $400 billion and the money multiplier equals 2, then the money supply equals:

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

The amount of capital that banks are required to hold depends on the:

The value of banks' owners' equity is called bank:

Financial intermediation is the process of:

For borrowing from the discount window, the Fed sets the _____ of borrowing, compared to borrowing using the Term Auction Facility, where the Fed sets the _____ of borrowing.

If the ratio of currency to deposits (cr) increases, while the ratio of reserves to deposits (rr) is constant and the monetary base (B) is constant, then:

People use money as a unit of account when they:

If you hear in the news that the Federal Reserve conducted open-market purchases, then you should expect ______ to increase.

Between August 1929 and March 1933, the money supply fell 28 percent. At that time the monetary base ______ and the currency-deposit and reserve-deposit ratios both ______.

In a system with fractional-reserve banking:

(Table: Bank Balance Sheet) Based on the table, owners' equity will fall to zero if loan defaults reduce the value of total assets by _____ percent.

The monetary base of Moneyland is $500 million. The current-deposit ratio (cr) is 0.2 and reserve-deposit ratio (rr) is 0.2. Calculate the money multiplier and money supply.

The quantitative easing operations conducted by the Federal Reserve between 2007 and 2011 resulted in _____ increases in the monetary base and _____ increases in money supply.

The money supply consists of:

Open-market operations change the ______; changes in interest rate paid on reserves change the ______; and changes in the discount rate change the ______.

People use money as a store of value when they:

If the monetary base equals $400 billion and the money multiplier equals 2, then the money supply equals:

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

For borrowing from the discount window, the Fed sets the _ of borrowing, compared to borrowing using the Term Auction Facility, where the Fed sets the _ of borrowing.

Between August 1929 and March 1933, the money supply fell 28 percent. At that time the monetary base and the currency-deposit and reserve-deposit ratios both .

The quantitative easing operations conducted by the Federal Reserve between 2007 and 2011 resulted in _ increases in the monetary base and _ increases in money supply.

Open-market operations change the ; changes in interest rate paid on reserves change the ; and changes in the discount rate change the __.