Question 1

Scenario 2: Fed sells bonds to Henry Hyde
Consider a banking system in which the reserve requirement is 10%, banks try not to hold excess reserves, consumers and firms hold money only in the form of checking account balances, and all loan proceeds are spent. Suppose initially all banks in the system are loaned up. Now, suppose that the Fed sells a $50,000 bond to Henry Hyde, who pays for the bond by writing a check drawn against Jekyll Bank.
-Refer to Scenario 2. Once the full impact of the Fed's open market sale works its way through the banking system, what is the maximum change on the money supply as a result of these two events?

Accepted Answer

A)  Money supply rises by $5,000. 
B)  Money supply rises by $500,000. 
C)  Money supply falls by $50,000. 
D)  Money supply falls by $500,000.

Question 2

Table 9-3
Balance Sheet of the Alpha-Beta Bank
(All figures in $ million)
 
-Refer to Table 9-3. What is the value of the bank's total reserves?

Accepted Answer

A)  $25 million 
B)  $75 million 
C)  $100 million 
D)  $200 million

Question 3

When a person makes price comparisons among products, money is being used as a(n)

Accepted Answer

A)  unit of account. 
B)  standard of quality. 
C)  medium of exchange. 
D)  checkable deposit.

Question 4

Suppose a bank has $50,000 in deposits and $6,000 in reserves. The required reserve ratio is 10%. Which of the following occurs if the required reserve ratio is increased to 12%?

Accepted Answer

A)  The bank's total reserves will fall. 
B)  The bank will now be fully loaned up. 
C)  The bank will have insufficient required reserves. 
D)  The bank's profit will fall.

Question 5

Any item that serves as a medium of exchange is called

Accepted Answer

A)  gold. 
B)  capital. 
C)  silver. 
D)  money.

Question 6

Suppose you deposit $1,000 cash in your checking account at a bank. If the bank is loaned up and if the required reserve ratio is 10%, the maximum amount that the bank can lend now, following your deposit is

Accepted Answer

A)  $100. 
B)  $900. 
C)  $1,000. 
D)  $10,000.

Question 7

Which of the following is an example of a bank's reserves?

Accepted Answer

A)  demand deposits with other banks 
B)  deposits with the Federal Reserve 
C)  Treasury bonds and bills 
D)  state bonds of the state in which the bank is located but not state bonds of other states.

Question 8

Decreasing the reserve requirement ratio is

Accepted Answer

A)  a contractionary policy because it lowers the amount of total reserves in the banking system. 
B)  a contractionary policy because it lowers the amount of excess reserves in the banking system. 
C)  an expansionary policy because it raises the amount of excess reserves in the banking system. 
D)  an expansionary policy because it raises the amount of required reserves in the banking system.

Question 9

Which of the following statements is true?

Accepted Answer

A)  In Romania under Communist Party rule in the 1980s, Kent cigarettes served as a medium of exchange. This illustrates the use of Kent cigarettes as fiat money. 
B)  Commodity money has no value apart from its use as money. 
C)  In Romania under Communist Party rule in the 1980s, Kent cigarettes served as a medium of exchange. This illustrates the use of Kent cigarettes as commodity money. 
D)  Fiat money must be backed by gold; otherwise it is worthless.

Question 10

Suppose the Fed purchases $1,000 of government securities from the general public who then deposit the proceeds into their checking accounts in commercial banks. Which pair of the T-accounts below shows this transaction?

Accepted Answer

A)   
B)   
C)   
D)

Question 11

The banking system is able to make new loans equal to

Accepted Answer

A)  total legal reserves of the system. 
B)  total excess reserves of the system. 
C)  total required reserves of the system. 
D)  a multiple of total excess reserves of the system.

Question 12

Table 9-6: Deposit Expansion Stages
  In Table 9-6, assume that banks loan out 100% of their excess banking reserves, there are no cash withdrawals, and all loan proceeds are spent. Figures have been rounded up to the nearest whole number.
-Refer to Table 9-6. What is the required reserve ratio?

Accepted Answer

A)  5% 
B)  10% 
C)  20% 
D)  25%

Question 13

The Federal Reserve System
I. is the central bank for the United States.
II. is a United States government owned bank.
III. is a branch of the Treasury of the United States.

Accepted Answer

A)  I only 
B)  I and II only 
C)  I and III only 
D)  I, II, and III

Question 14

Debit cards are the electronic equivalent of a check, but neither debit cards nor checks are money.

Accepted Answer

A) True 
 B)False

Question 15

The reserve-requirement ratio is the interest rate the Federal Reserve System charges banks for loans.

Accepted Answer

A) True 
 B)False

Question 16

Money, like other assets such as durable goods, stocks, and bonds is a way of transferring purchasing power from the present to the future but money is different from these other assets because it is a medium of exchange while the other assets are not.

Accepted Answer

A) True 
 B)False

Question 17

Money is essentially defined by

Accepted Answer

A)  the intrinsic value of what is being used as money. 
B)  the judicial branch. 
C)  the government. 
D)  social usage.

Question 18

Table 9-1
 
-Refer to Table 9-1. The difference between M1 and M2 amounts to

Accepted Answer

A)  $325 billion. 
B)  $350 billion. 
C)  $450 billion. 
D)  $1,275 billion.

Question 19

A bank has $100,000 in checkable deposits and $30,000 in reserves. If the required reserve ratio is 10%, what is the amount of excess reserves?

Accepted Answer

A)  $0 
B)  $10,000 
C)  $20,000 
D)  $30,000

Question 20

The Federal Reserve influences the level of interest rates in the short run by changing the

Accepted Answer

A)  demand for money through changes in reserve requirements. 
B)  demand for money through open market operations. 
C)  supply of money through changes in open market operations. 
D)  supply of money through changes in stock market operations.

Exam 24: The Aggregate Demandaggregate Supply Model

Table 9-3 Balance Sheet of the Alpha-Beta Bank (All figures in $ million) -Refer to Table 9-3. What is the value of the bank's total reserves?

When a person makes price comparisons among products, money is being used as a(n)

Suppose a bank has $50,000 in deposits and $6,000 in reserves. The required reserve ratio is 10%. Which of the following occurs if the required reserve ratio is increased to 12%?

Any item that serves as a medium of exchange is called

Suppose you deposit $1,000 cash in your checking account at a bank. If the bank is loaned up and if the required reserve ratio is 10%, the maximum amount that the bank can lend now, following your deposit is

Which of the following is an example of a bank's reserves?

Decreasing the reserve requirement ratio is

Which of the following statements is true?

Suppose the Fed purchases $1,000 of government securities from the general public who then deposit the proceeds into their checking accounts in commercial banks. Which pair of the T-accounts below shows this transaction?

The banking system is able to make new loans equal to

Table 9-6: Deposit Expansion Stages In Table 9-6, assume that banks loan out 100% of their excess banking reserves, there are no cash withdrawals, and all loan proceeds are spent. Figures have been rounded up to the nearest whole number. -Refer to Table 9-6. What is the required reserve ratio?

The Federal Reserve System I. is the central bank for the United States. II. is a United States government owned bank. III. is a branch of the Treasury of the United States.

Debit cards are the electronic equivalent of a check, but neither debit cards nor checks are money.

The reserve-requirement ratio is the interest rate the Federal Reserve System charges banks for loans.

Money, like other assets such as durable goods, stocks, and bonds is a way of transferring purchasing power from the present to the future but money is different from these other assets because it is a medium of exchange while the other assets are not.

Money is essentially defined by

Table 9-1 -Refer to Table 9-1. The difference between M1 and M2 amounts to

A bank has $100,000 in checkable deposits and $30,000 in reserves. If the required reserve ratio is 10%, what is the amount of excess reserves?

The Federal Reserve influences the level of interest rates in the short run by changing the