Question 1

The maximum amount of increase in the money supply that can be caused by an increase in excess reserves is equal to the

Accepted Answer

A)  deposit multiplier *the required reserve ratio. 
B)  loan multiplier * the change in excess reserves. 
C)  deposit multiplier ÷ the change in excess reserves. 
D)  deposit multiplier F*the change in excess reserves. 
A)  deposit multiplier *the required reserve ratio. 
B)  loan multiplier * the change in excess reserves. 
C)  deposit multiplier ÷ the change in excess reserves. 
D)  deposit multiplier F*the change in excess reserves.

Question 2

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. 
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 3

Banks play two primary roles in the economy: They take in deposits and lend them to borrowers, and they facilitate purchases of goods and services by allowing people to write checks against their deposits.

Accepted Answer

A) True 
 B)False

Question 4

The Fed can increase the federal funds rate by

Accepted Answer

A)  selling government securities which increases bank reserves. 
B)  selling government securities which decreases bank reserves. 
C)  buying government securities which increases bank reserves. 
D)  buying government securities which decreases bank reserves. 
A)  selling government securities which increases bank reserves. 
B)  selling government securities which decreases bank reserves. 
C)  buying government securities which increases bank reserves. 
D)  buying government securities which decreases bank reserves.

Question 5

The Fed's most important and most frequently used tool of monetary policy is

Accepted Answer

A)  moral suasion. 
B)  open-market operations. 
C)  changes in the discount rate. 
D)  changes in required reserve ratios. 
A)  moral suasion. 
B)  open-market operations. 
C)  changes in the discount rate. 
D)  changes in required reserve ratios.

Question 6

The Federal Reserve System was created by the

Accepted Answer

A)  National Banking Act of 1864. 
B)  Federal Reserve Act of 1913. 
C)  Glass-Steagall Act of 1933. 
D)  Banking Act of 1935. 
A)  National Banking Act of 1864. 
B)  Federal Reserve Act of 1913. 
C)  Glass-Steagall Act of 1933. 
D)  Banking Act of 1935.

Question 7

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

Question 8

You spend $20 to buy a used textbook at the college bookstore. What function does money perform here?

Accepted Answer

A)  medium of exchange 
B)  store of value 
C)  unit of account 
D)  standard of deferred payment 
A)  medium of exchange 
B)  store of value 
C)  unit of account 
D)  standard of deferred payment

Question 9

When the Fed sells government bonds it ____ reserves and ______ the money supply.

Accepted Answer

A)  increases; increases 
B)  decreases; increases 
C)  decreases; decreases 
D)  increases; decreases 
A)  increases; increases 
B)  decreases; increases 
C)  decreases; decreases 
D)  increases; decreases

Question 10

A primary function of a central bank is to

Accepted Answer

A)  regulate dividend payments by corporations. 
B)  control the bond market. 
C)  set monetary policy. 
D)  publish statistics on banking and related financial matters. 
A)  regulate dividend payments by corporations. 
B)  control the bond market. 
C)  set monetary policy. 
D)  publish statistics on banking and related financial matters.

Question 11

A system in which banks hold reserves whose value is less than the sum of claims on those reserves is called

Accepted Answer

A)  speculative banking. 
B)  leveraged banking. 
C)  fractional reserve banking. 
D)  international banking. 
A)  speculative banking. 
B)  leveraged banking. 
C)  fractional reserve banking. 
D)  international banking.

Question 12

If the Fed increases the discount rate, it is pursuing

Accepted Answer

A)  a contractionary policy because it will be more costly for banks to borrow funds and this puts upward pressure on interest rates in the economy. 
B)  a contractionary policy because it reduces banks' profit margins by raising the cost of borrowing and lowering the return on lending. 
C)  an expansionary policy because it raises the cost of holding excess reserves in the banking system. 
D)  an expansionary policy because it increases bank profits by putting upward pressure on the interest rates that banks can charge on its loans. 
A)  a contractionary policy because it will be more costly for banks to borrow funds and this puts upward pressure on interest rates in the economy. 
B)  a contractionary policy because it reduces banks' profit margins by raising the cost of borrowing and lowering the return on lending. 
C)  an expansionary policy because it raises the cost of holding excess reserves in the banking system. 
D)  an expansionary policy because it increases bank profits by putting upward pressure on the interest rates that banks can charge on its loans.

Question 13

The Fed conducts an open market purchase of $10 million in government securities. If the reserve ratio is 20%, what is the maximum change in the money supply? Assume banks hold no excess reserves and there is no currency withdrawal from the banking system.

Accepted Answer

A)  maximum increase in money supply = $10 million 
B)  maximum decrease in money supply = $10 million 
C)  maximum increase in money supply = $50 million 
D)  maximum decrease in money supply = $50 million 
A)  maximum increase in money supply = $10 million 
B)  maximum decrease in money supply = $10 million 
C)  maximum increase in money supply = $50 million 
D)  maximum decrease in money supply = $50 million

Question 14

Which organization is responsible for managing the nation's money supply?

Accepted Answer

A)  The Federal Reserve Bank of New York 
B)  The United States Treasury 
C)  The Federal Open Market Committee 
D)  The American Association of Bankers 
A)  The Federal Reserve Bank of New York 
B)  The United States Treasury 
C)  The Federal Open Market Committee 
D)  The American Association of Bankers

Question 15

In a system with 100% reserve requirement, banks cannot create loans.

Accepted Answer

A) True 
 B)False

Question 16

Open market transactions involve which of the following activities? 
I. issuing new Federal Reserve notes
II. buying or selling newly issued government bonds to raise funds for the government
III. buying or selling previously issued government bonds to change the volume of bank reserves

Accepted Answer

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

Question 17

Table 9-2
  
-Refer to Table 9-2. In Year 2, the supply of money measured by M1 was

Accepted Answer

A)  $300 billion. 
B)  $550 billion. 
C)  $750 billion. 
D)  $900 billion. 
A)  $300 billion. 
B)  $550 billion. 
C)  $750 billion. 
D)  $900 billion.

Question 18

The required reserve ratio is the percentage of checkable deposits that must be held as reserves.

Accepted Answer

A) True 
 B)False

Question 19

Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel in exchange for goods and services. What function do these packages of mackerel perform?

Accepted Answer

A)  They function as a store of value. 
B)  They function as a medium of exchange. 
C)  They function as a unit of account. 
D)  They function as a factor of production. 
A)  They function as a store of value. 
B)  They function as a medium of exchange. 
C)  They function as a unit of account. 
D)  They function as a factor of production.

Question 20

Table 9-1
  
-Refer to Table 9-1. The money supply measured by M2 is

Accepted Answer

A)  $450 billion. 
B)  $1,425 billion. 
C)  $1,725 billion. 
D)  $2,075 billion. 
A)  $450 billion. 
B)  $1,425 billion. 
C)  $1,725 billion. 
D)  $2,075 billion.

The maximum amount of increase in the money supply that can be caused by an increase in excess reserves is equal to the

The banking system is able to make new loans equal to

Banks play two primary roles in the economy: They take in deposits and lend them to borrowers, and they facilitate purchases of goods and services by allowing people to write checks against their deposits.

The Fed can increase the federal funds rate by

The Fed's most important and most frequently used tool of monetary policy is

The Federal Reserve System was created by the

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

You spend $20 to buy a used textbook at the college bookstore. What function does money perform here?

When the Fed sells government bonds it reserves and __ the money supply.

A primary function of a central bank is to

A system in which banks hold reserves whose value is less than the sum of claims on those reserves is called

If the Fed increases the discount rate, it is pursuing

The Fed conducts an open market purchase of $10 million in government securities. If the reserve ratio is 20%, what is the maximum change in the money supply? Assume banks hold no excess reserves and there is no currency withdrawal from the banking system.

Which organization is responsible for managing the nation's money supply?

In a system with 100% reserve requirement, banks cannot create loans.

Open market transactions involve which of the following activities? I. issuing new Federal Reserve notes II. buying or selling newly issued government bonds to raise funds for the government III. buying or selling previously issued government bonds to change the volume of bank reserves

Table 9-2 -Refer to Table 9-2. In Year 2, the supply of money measured by M1 was

The required reserve ratio is the percentage of checkable deposits that must be held as reserves.

Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel in exchange for goods and services. What function do these packages of mackerel perform?

Table 9-1 -Refer to Table 9-1. The money supply measured by M2 is

Economics: the Study of Choice

Demand and Supply

Applications of Demand and Supply

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

Financial Markets and the Economy

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Economic Development

Socialist Economies in Transition

Filters

Exam 9: The Nature and Creation of Money

The maximum amount of increase in the money supply that can be caused by an increase in excess reserves is equal to the

The banking system is able to make new loans equal to

Banks play two primary roles in the economy: They take in deposits and lend them to borrowers, and they facilitate purchases of goods and services by allowing people to write checks against their deposits.

The Fed can increase the federal funds rate by

The Fed's most important and most frequently used tool of monetary policy is

The Federal Reserve System was created by the

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

You spend $20 to buy a used textbook at the college bookstore. What function does money perform here?

When the Fed sells government bonds it ____ reserves and ______ the money supply.

A primary function of a central bank is to

A system in which banks hold reserves whose value is less than the sum of claims on those reserves is called

If the Fed increases the discount rate, it is pursuing

The Fed conducts an open market purchase of $10 million in government securities. If the reserve ratio is 20%, what is the maximum change in the money supply? Assume banks hold no excess reserves and there is no currency withdrawal from the banking system.

Which organization is responsible for managing the nation's money supply?

In a system with 100% reserve requirement, banks cannot create loans.

Open market transactions involve which of the following activities? I. issuing new Federal Reserve notes II. buying or selling newly issued government bonds to raise funds for the government III. buying or selling previously issued government bonds to change the volume of bank reserves

Table 9-2 -Refer to Table 9-2. In Year 2, the supply of money measured by M1 was

The required reserve ratio is the percentage of checkable deposits that must be held as reserves.

Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel in exchange for goods and services. What function do these packages of mackerel perform?

Table 9-1 -Refer to Table 9-1. The money supply measured by M2 is

Economics: the Study of Choice

Demand and Supply

Applications of Demand and Supply

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

Financial Markets and the Economy

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Economic Development

Socialist Economies in Transition

Filters

When the Fed sells government bonds it reserves and __ the money supply.