Question 1

The earliest banks

Accepted Answer

A) had checkable deposits. 
B) took in deposits, but did not make loans. 
C) made loans, but did not accept deposits. 
D) took in deposits and made loans, just as modern banks do. 
A) had checkable deposits. 
B) took in deposits, but did not make loans. 
C) made loans, but did not accept deposits. 
D) took in deposits and made loans, just as modern banks do. B

Question 2

A $10 million open market sale will decrease the reserves of the banking system by

Accepted Answer

A) $10 million. 
B) $10 million times the money multiplier. 
C) $10 million divided by the money multiplier. 
D) an amount between $0 and $10 million, depending on the fraction of the sale the public wishes to hold as currency. 
A) $10 million. 
B) $10 million times the money multiplier. 
C) $10 million divided by the money multiplier. 
D) an amount between $0 and $10 million, depending on the fraction of the sale the public wishes to hold as currency. D

Question 3

The central bank for the countries who have adopted the euro as their currency is known as

Accepted Answer

A) Eurofed. 
B) European Central Bank. 
C) Bank of Europe. 
D) Federal Reserve of Europe. 
A) Eurofed. 
B) European Central Bank. 
C) Bank of Europe. 
D) Federal Reserve of Europe. B

Question 4

Which of the following statements concerning movements in the currency-deposit ratio is NOT correct?

Accepted Answer

A) The currency-deposit ratio declined during the early 1930s. 
B) The currency-deposit ratio declined during most of the period from the late nineteenth century through the mid-1960s. 
C) The currency-deposit ratio has generally risen since the late 1960s. 
D) The currency-deposit ratio rose during World War II. 
A) The currency-deposit ratio declined during the early 1930s. 
B) The currency-deposit ratio declined during most of the period from the late nineteenth century through the mid-1960s. 
C) The currency-deposit ratio has generally risen since the late 1960s. 
D) The currency-deposit ratio rose during World War II.

Question 5

Vault cash is a(an)

Accepted Answer

A) liability of the Fed and is counted as reserves. 
B) asset of the Fed and is counted as reserves. 
C) liability of the Fed and is not counted as reserves. 
D) asset of the Fed and is not counted as reserves. 
A) liability of the Fed and is counted as reserves. 
B) asset of the Fed and is counted as reserves. 
C) liability of the Fed and is not counted as reserves. 
D) asset of the Fed and is not counted as reserves.

Question 6

A $10 million open market purchase will increase bank reserves by

Accepted Answer

A) $10 million. 
B) $10 million times the money multiplier. 
C) $10 million divided by the money multiplier. 
D) an amount between $0 and $10 million, depending on the fraction of the purchase the public wishes to hold as currency. 
A) $10 million. 
B) $10 million times the money multiplier. 
C) $10 million divided by the money multiplier. 
D) an amount between $0 and $10 million, depending on the fraction of the purchase the public wishes to hold as currency.

Question 7

If the Fed buys securities worth $10 million, then

Accepted Answer

A) bank reserves will increase by $10 million. 
B) bank reserves will decrease by $10 million. 
C) currency in circulation will increase by $10 million. 
D) the sum of bank reserves and currency in circulation will increase by $10 million. 
A) bank reserves will increase by $10 million. 
B) bank reserves will decrease by $10 million. 
C) currency in circulation will increase by $10 million. 
D) the sum of bank reserves and currency in circulation will increase by $10 million.

Question 8

Which of the following equations is correct?

Accepted Answer

A) B = Bnon + BR 
B) B = Bnon + ER 
C) B = ER + BR 
D) B = C + D 
A) B = Bnon + BR 
B) B = Bnon + ER 
C) B = ER + BR 
D) B = C + D

Question 9

The aggregate M1 consists of

Accepted Answer

A) currency plus all deposits in financial institutions. 
B) currency plus all deposits in all institutions. 
C) currency plus checkable deposits in financial institutions. 
D) currency plus all checkable deposits. 
A) currency plus all deposits in financial institutions. 
B) currency plus all deposits in all institutions. 
C) currency plus checkable deposits in financial institutions. 
D) currency plus all checkable deposits.

Question 10

Over periods of several years, the primary determinant of changes in the money supply is changes in

Accepted Answer

A) the money multiplier. 
B) discount loans. 
C) the required reserve ratio. 
D) the nonborrowed monetary base. 
A) the money multiplier. 
B) discount loans. 
C) the required reserve ratio. 
D) the nonborrowed monetary base.

Question 11

Which of the following is a liability of the Fed?

Accepted Answer

A) Reserves 
B) U.S. government securities 
C) Discount loans to banks 
D) Checkable deposits in commercial banks 
A) Reserves 
B) U.S. government securities 
C) Discount loans to banks 
D) Checkable deposits in commercial banks

Question 12

The money supply process focuses on the monetary base rather than on bank reserves because

Accepted Answer

A) bank reserves have little connection to the money supply. 
B) the Fed has better control of the monetary base than it has on bank reserves. 
C) bank reserves are difficult to measure. 
D) banks are not required to report the level of their reserves, which makes it difficult for the Fed to use them to control the money supply. 
A) bank reserves have little connection to the money supply. 
B) the Fed has better control of the monetary base than it has on bank reserves. 
C) bank reserves are difficult to measure. 
D) banks are not required to report the level of their reserves, which makes it difficult for the Fed to use them to control the money supply.

Question 13

On the books of the Fed the difference between borrowed reserves and discount loans is equal to

Accepted Answer

A) excess reserves. 
B) required reserves. 
C) currency in circulation. 
D) zero; they are the same thing. 
A) excess reserves. 
B) required reserves. 
C) currency in circulation. 
D) zero; they are the same thing.

Question 14

Most of the reserves of the banking system are held as

Accepted Answer

A) Treasury securities. 
B) deposits accounts with the Fed. 
C) discount loans. 
D) vault cash. 
A) Treasury securities. 
B) deposits accounts with the Fed. 
C) discount loans. 
D) vault cash.

Question 15

During the early 1930s

Accepted Answer

A) the monetary base rose, but the money multiplier and the money supply fell. 
B) the monetary base fell, but the money multiplier and the money supply rose. 
C) the monetary base, the money multiplier, and the money supply all fell. 
D) the monetary base, the money multiplier, and the money supply all rose. 
A) the monetary base rose, but the money multiplier and the money supply fell. 
B) the monetary base fell, but the money multiplier and the money supply rose. 
C) the monetary base, the money multiplier, and the money supply all fell. 
D) the monetary base, the money multiplier, and the money supply all rose.

Question 16

Which of the following statements about the early 1930s is correct?

Accepted Answer

A) The ratio of the money supply to the monetary base fell. 
B) The ratio of the money supply to the monetary base rose. 
C) The ratio of the money supply to the monetary base was unchanged. 
D) The monetary base fell to zero during the early 1930s. 
A) The ratio of the money supply to the monetary base fell. 
B) The ratio of the money supply to the monetary base rose. 
C) The ratio of the money supply to the monetary base was unchanged. 
D) The monetary base fell to zero during the early 1930s.

Question 17

Banks prefer to hold their liquid balances as

Accepted Answer

A) excess reserves. 
B) required reserves. 
C) marketable securities. 
D) mortgage loans. 
A) excess reserves. 
B) required reserves. 
C) marketable securities. 
D) mortgage loans.

Question 18

Which of the following is an asset of the Fed?

Accepted Answer

A) Reserves of banks 
B) Currency in circulation 
C) Discount loans to banks 
D) Checkable deposits in commercial banks 
A) Reserves of banks 
B) Currency in circulation 
C) Discount loans to banks 
D) Checkable deposits in commercial banks

Question 19

Which of the following expressions is correct?

Accepted Answer

A) B = Bnon + BR 
B) BR = Bnon + B 
C) Bnon = B + BR 
D) Bnon = -BR - B 
A) B = Bnon + BR 
B) BR = Bnon + B 
C) Bnon = B + BR 
D) Bnon = -BR - B

Question 20

When the Fed extends loans to depository institutions

Accepted Answer

A) it increases the level of reserves. 
B) it decreases the level of reserves. 
C) it reduces the total value of the assets on its balance sheet. 
D) it reduces the total value of the liabilities on its balance sheet. 
A) it increases the level of reserves. 
B) it decreases the level of reserves. 
C) it reduces the total value of the assets on its balance sheet. 
D) it reduces the total value of the liabilities on its balance sheet.

Exam 17: The Money Supply Process

The earliest banks

A $10 million open market sale will decrease the reserves of the banking system by

The central bank for the countries who have adopted the euro as their currency is known as

Which of the following statements concerning movements in the currency-deposit ratio is NOT correct?

Vault cash is a(an)

A $10 million open market purchase will increase bank reserves by

If the Fed buys securities worth $10 million, then

Which of the following equations is correct?

The aggregate M1 consists of

Over periods of several years, the primary determinant of changes in the money supply is changes in

Which of the following is a liability of the Fed?

The money supply process focuses on the monetary base rather than on bank reserves because

On the books of the Fed the difference between borrowed reserves and discount loans is equal to

Most of the reserves of the banking system are held as

During the early 1930s

Which of the following statements about the early 1930s is correct?

Banks prefer to hold their liquid balances as

Which of the following is an asset of the Fed?

Which of the following expressions is correct?

When the Fed extends loans to depository institutions

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking Regulation: Crisis and Response

Banking in the International Economy

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

Filters