Question 1

If banks were required to keep 100% of deposits in reserves, they could

Accepted Answer

A)  make more loans. 
B)  make no loans. 
C)  create more deposits. 
D)  only use required reserves for loans. 
A)  make more loans. 
B)  make no loans. 
C)  create more deposits. 
D)  only use required reserves for loans.

Question 2

Suppose the reserve ratio is 25% and banks do not hold excess reserves. When the Fed sells $40 million of bonds to the public,

Accepted Answer

A)  bank reserves increase by $40 million and money supply could increase by a maximum of $40 million. 
B)  bank reserves increase by $40 million and money supply could increase by a maximum of $160 million. 
C)  bank reserves decrease by $40 million and money supply could decrease by a maximum of $40 million. 
D)  bank reserves decrease by $40 million and money supply could decrease by a maximum of $160 million. 
A)  bank reserves increase by $40 million and money supply could increase by a maximum of $40 million. 
B)  bank reserves increase by $40 million and money supply could increase by a maximum of $160 million. 
C)  bank reserves decrease by $40 million and money supply could decrease by a maximum of $40 million. 
D)  bank reserves decrease by $40 million and money supply could decrease by a maximum of $160 million.

Question 3

Suppose the required reserve ratio is 10%. Mr. Normal uses his ATM card to withdraw $1,000 from this checking account in California National Bank. This action has

Accepted Answer

A)  increased the M1 measure of money supply by $1,000. 
B)  reduced the bank's required reserves by $1,000. 
C)  increased the M2 measure of money supply by $1,000. 
D)  not changed the M1 or M2 measures of money supply. 
A)  increased the M1 measure of money supply by $1,000. 
B)  reduced the bank's required reserves by $1,000. 
C)  increased the M2 measure of money supply by $1,000. 
D)  not changed the M1 or M2 measures of money supply.

Question 4

The Federal Reserve System was established in 1913 in response to the

Accepted Answer

A)  First World War. 
B)  bank panic of 1907. 
C)  depression of 1883. 
D)  prosperity of the 1920s. 
A)  First World War. 
B)  bank panic of 1907. 
C)  depression of 1883. 
D)  prosperity of the 1920s.

Question 5

Which of the following is a consequence of deposit insurance?

Accepted Answer

A)  It may induce the officers of a bank to take more risks. 
B)  It encourages banks to make loans only to the most credit-worthy customers. 
C)  It minimizes the risk of defaulting on loans made to the bank's customers. 
D)  It encourages depositors to closely scrutinize a bank's lending activities. 
A)  It may induce the officers of a bank to take more risks. 
B)  It encourages banks to make loans only to the most credit-worthy customers. 
C)  It minimizes the risk of defaulting on loans made to the bank's customers. 
D)  It encourages depositors to closely scrutinize a bank's lending activities.

Question 6

Membership in the Federal Reserve System

Accepted Answer

A)  is held by state-owned banks only. 
B)  is held collectively by all banks in the banking system. 
C)  is held by only a minority of banks in the banking system. 
D)  is held by banks that also have branches outside the United States. 
A)  is held by state-owned banks only. 
B)  is held collectively by all banks in the banking system. 
C)  is held by only a minority of banks in the banking system. 
D)  is held by banks that also have branches outside the United States.

Question 7

The Federal Reserve does all of the following except

Accepted Answer

A)  make loans to individuals 
B)  influence the supply of money 
C)  influence the value of money 
D)  regulate the banking system 
A)  make loans to individuals 
B)  influence the supply of money 
C)  influence the value of money 
D)  regulate the banking system

Question 8

Which of the following is the most liquid asset?

Accepted Answer

A)  season tickets to the Yankees' games 
B)  the cash that your Aunt Ursula stuffs in her mattress 
C)  a $5,000 6-month certificate of deposit (time deposit) 
D)  one hundred shares of IBM stock 
A)  season tickets to the Yankees' games 
B)  the cash that your Aunt Ursula stuffs in her mattress 
C)  a $5,000 6-month certificate of deposit (time deposit) 
D)  one hundred shares of IBM stock

Question 9

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

Question 10

Increasing 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. 
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 11

The Federal Reserve System was created in order to provide a constant money supply for the economy.

Accepted Answer

A) True 
 B)False

Question 12

If the reserve ratio is 10%, and banks do not hold excess reserves, when the Fed purchases $10 million of government bonds, bank reserves

Accepted Answer

A)  increase by $10 million and the money supply could eventually increase by $10 million. 
B)  decrease by $10 million and the money supply could eventually decrease by $100 million. 
C)  increase by $10 million and the money supply could eventually increase by $100 million. 
D)  decrease by $10 million and the money supply could eventually decrease by $10 million 
A)  increase by $10 million and the money supply could eventually increase by $10 million. 
B)  decrease by $10 million and the money supply could eventually decrease by $100 million. 
C)  increase by $10 million and the money supply could eventually increase by $100 million. 
D)  decrease by $10 million and the money supply could eventually decrease by $10 million

Question 13

The Board of Governors of the Federal Reserve System is

Accepted Answer

A)  elected by the member banks' presidents. 
B)  appointed by the Secretary of the Treasury. 
C)  appointed by the state governors in each Federal Reserve district. 
D)  appointed by the president of the United States and confirmed by the Senate. 
A)  elected by the member banks' presidents. 
B)  appointed by the Secretary of the Treasury. 
C)  appointed by the state governors in each Federal Reserve district. 
D)  appointed by the president of the United States and confirmed by the Senate.

Question 14

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 value of $G (the total new required reserves)?

Accepted Answer

A)  $1,000 
B)  $4,000 
C)  $5,000 
D)  $6,000 
A)  $1,000 
B)  $4,000 
C)  $5,000 
D)  $6,000

Question 15

If the Fed buys U.S. government bonds from the public, it

Accepted Answer

A)  increases the volume of reserves in the banking system and the money supply tends to grow. 
B)  decreases the volume of reserves in the banking system and the money supply tends to grow. 
C)  increases the volume of reserves in the banking system and the money supply tends to fall. 
D)  decreases the volume of reserves in the banking system and the money supply tends to fall. 
A)  increases the volume of reserves in the banking system and the money supply tends to grow. 
B)  decreases the volume of reserves in the banking system and the money supply tends to grow. 
C)  increases the volume of reserves in the banking system and the money supply tends to fall. 
D)  decreases the volume of reserves in the banking system and the money supply tends to fall.

Question 16

The three main monetary policy instruments are

Accepted Answer

A)  the money supply, the market interest rate, and deposit insurance. 
B)  open market operations, reserve requirement ratio, and the discount rate. 
C)  open market operations, deposit insurance, and the money supply. 
D)  open market operations, reserve requirement ratio, and the market interest rate. 
A)  the money supply, the market interest rate, and deposit insurance. 
B)  open market operations, reserve requirement ratio, and the discount rate. 
C)  open market operations, deposit insurance, and the money supply. 
D)  open market operations, reserve requirement ratio, and the market interest rate.

Question 17

A primary function of a central bank is to

Accepted Answer

A)  regulate dividend payments by corporations. 
B)  act as a regulator of banks. 
C)  control the bond market. 
D)  publish statistics on banking and related financial matters. 
A)  regulate dividend payments by corporations. 
B)  act as a regulator of banks. 
C)  control the bond market. 
D)  publish statistics on banking and related financial matters.

Question 18

The law requires banks to maintain

Accepted Answer

A)  fractional reserves in the form of deposit liabilities against their liquid assets. 
B)  fractional reserves in the form of federal securities against their outstanding loans. 
C)  fractional reserves in the form of cash in their vaults or deposits with the central bank against their deposit liabilities. 
D)  legal reserves in the form of gold against their outstanding loans. 
A)  fractional reserves in the form of deposit liabilities against their liquid assets. 
B)  fractional reserves in the form of federal securities against their outstanding loans. 
C)  fractional reserves in the form of cash in their vaults or deposits with the central bank against their deposit liabilities. 
D)  legal reserves in the form of gold against their outstanding loans.

Question 19

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. To collect the $50,000 payment made by Henry, the Fed

Accepted Answer

A)  adds $50,000 to Jekyll Bank's reserves by $50,000. 
B)  subtracts $50,000 from Jekyll Bank's reserves. 
C)  accepts the cash from Jekyll Bank which acts on behalf of Henry Hyde. 
D)  collects $5,000 (the required reserve portion) from Jekyll Bank. 
A)  adds $50,000 to Jekyll Bank's reserves by $50,000. 
B)  subtracts $50,000 from Jekyll Bank's reserves. 
C)  accepts the cash from Jekyll Bank which acts on behalf of Henry Hyde. 
D)  collects $5,000 (the required reserve portion) from Jekyll Bank.

Question 20

Suppose the required reserve ratio is 10%. If a bank has total reserves of $80,000 and checkable deposits of $550,000, what is the amount of the bank's required reserves?

Accepted Answer

A)  $25,000 
B)  $55,000 
C)  $80,000 
D)  $135,000 
A)  $25,000 
B)  $55,000 
C)  $80,000 
D)  $135,000

If banks were required to keep 100% of deposits in reserves, they could

Suppose the reserve ratio is 25% and banks do not hold excess reserves. When the Fed sells $40 million of bonds to the public,

Suppose the required reserve ratio is 10%. Mr. Normal uses his ATM card to withdraw $1,000 from this checking account in California National Bank. This action has

The Federal Reserve System was established in 1913 in response to the

Which of the following is a consequence of deposit insurance?

Membership in the Federal Reserve System

The Federal Reserve does all of the following except

Which of the following is the most liquid asset?

Money is essentially defined by

Increasing the reserve requirement ratio is

The Federal Reserve System was created in order to provide a constant money supply for the economy.

If the reserve ratio is 10%, and banks do not hold excess reserves, when the Fed purchases $10 million of government bonds, bank reserves

The Board of Governors of the Federal Reserve System is

If the Fed buys U.S. government bonds from the public, it

The three main monetary policy instruments are

A primary function of a central bank is to

The law requires banks to maintain

Suppose the required reserve ratio is 10%. If a bank has total reserves of $80,000 and checkable deposits of $550,000, what is the amount of the bank's required reserves?

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

If banks were required to keep 100% of deposits in reserves, they could

Suppose the reserve ratio is 25% and banks do not hold excess reserves. When the Fed sells $40 million of bonds to the public,

Suppose the required reserve ratio is 10%. Mr. Normal uses his ATM card to withdraw $1,000 from this checking account in California National Bank. This action has

The Federal Reserve System was established in 1913 in response to the

Which of the following is a consequence of deposit insurance?

Membership in the Federal Reserve System

The Federal Reserve does all of the following except

Which of the following is the most liquid asset?

Money is essentially defined by

Increasing the reserve requirement ratio is

The Federal Reserve System was created in order to provide a constant money supply for the economy.

If the reserve ratio is 10%, and banks do not hold excess reserves, when the Fed purchases $10 million of government bonds, bank reserves

The Board of Governors of the Federal Reserve System is

If the Fed buys U.S. government bonds from the public, it

The three main monetary policy instruments are

A primary function of a central bank is to

The law requires banks to maintain

Suppose the required reserve ratio is 10%. If a bank has total reserves of $80,000 and checkable deposits of $550,000, what is the amount of the bank's required reserves?

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