Question 1

How do banks create liquidity?

Accepted Answer

Banks create liquidity because they acce

Question 2

Travelerʹs checks are included in M1 but not in M2.

Accepted Answer

A) True 
 B)False

Question 3

Liquidity can

Accepted Answer

A)  be created by borrowing long and lending short. 
B)  not be created. 
C)  only be created by the government. 
D)  be created by borrowing short and lending long. 
A)  be created by borrowing long and lending short. 
B)  not be created. 
C)  only be created by the government. 
D)  be created by borrowing short and lending long.

Question 4

The monetary expansion process from an open market operation continues until

Accepted Answer

A)  excess bank reserves are eliminated. 
B)  the Federal Reserve takes actions to stop the process. 
C)  required reserves are eliminated. 
D)  the discount rate is lower than market interest rates. 
A)  excess bank reserves are eliminated. 
B)  the Federal Reserve takes actions to stop the process. 
C)  required reserves are eliminated. 
D)  the discount rate is lower than market interest rates.

Question 5

When you bought your textbook for this course, you were using money as a

Accepted Answer

A)  store of value. 
B)  unit of account. 
C)  price mechanism. 
D)  medium of exchange. 
A)  store of value. 
B)  unit of account. 
C)  price mechanism. 
D)  medium of exchange.

Question 6

The current chairman of the Federal Reserve System is

Accepted Answer

A)  President Obama. 
B)  Milton Friedman. 
C)  Ben Bernanke. 
D)  Alan Greenspan. 
A)  President Obama. 
B)  Milton Friedman. 
C)  Ben Bernanke. 
D)  Alan Greenspan.

Question 7

If velocity is 6 and the quantity of money is $2 trillion, what is nominal GDP?

Accepted Answer

A)  $6 trillion 
B)  $12 trillion 
C)  $3 trillion 
D)  $333 billion 
A)  $6 trillion 
B)  $12 trillion 
C)  $3 trillion 
D)  $333 billion

Question 8

If the Fed buys $100,000 in U.S. government securities from a commercial bank, the bank now has an additional $100,000 of

Accepted Answer

A)  net worth. 
B)  actual reserves. 
C)  excess reserves. 
D)  total assets. 
A)  net worth. 
B)  actual reserves. 
C)  excess reserves. 
D)  total assets.

Question 9

Which of the following is NOT an asset of the Federal Reserve System?

Accepted Answer

A)  reserves of depository institutions 
B)  U.S. government securities 
C)  loans to depository institutions 
D)  None of the above are correct because they are all assets of the Federal Reserve 
A)  reserves of depository institutions 
B)  U.S. government securities 
C)  loans to depository institutions 
D)  None of the above are correct because they are all assets of the Federal Reserve

Question 10

There are ___________regional Federal Reserve banks.

Accepted Answer

A)  10 
B)  over 10,000 
C)  15 
D)  12 
A)  10 
B)  over 10,000 
C)  15 
D)  12

Question 11

Using a credit card can best be likened to

Accepted Answer

A)  a barter exchange. 
B)  writing a check on your demand deposit account. 
C)  taking out a loan. 
D)  using any other form of money because you immediately get to take the goods home. 
A)  a barter exchange. 
B)  writing a check on your demand deposit account. 
C)  taking out a loan. 
D)  using any other form of money because you immediately get to take the goods home.

Question 12

The required reserve ratio

Accepted Answer

A)  is the fraction of a bankʹs total deposits that are required to be held in reserve. 
B)  is higher for banks that make riskier loans. 
C)  is the amount of money that banks require borrowers to reserve in their accounts. 
D)  increases when withdrawals from a bank are made. 
A)  is the fraction of a bankʹs total deposits that are required to be held in reserve. 
B)  is higher for banks that make riskier loans. 
C)  is the amount of money that banks require borrowers to reserve in their accounts. 
D)  increases when withdrawals from a bank are made.

Question 13

$\begin{array}{|c|l|l|}
\hline \begin{array}{c}
\text { Interest rate } \
\text { (percent) }
\end{array} & \begin{array}{l}
\text { lantity of money } \
\text { lllions ofdollars) }
\end{array} & \begin{array}{l}
\text { Money demand } \
\text { billions of dollars) }
\end{array} \\hline 2 & 500 & 575 \
\hline 3 & 500 & 550 \
\hline 4 & 500 & 525 \
\hline 5 & 500 & 500 \
\hline 6 & 500 & 475 \
\hline 7 & 500 & 450 \
\hline
\end{array}$
-The table above gives the quantity of money and money demand schedules. Suppose that the interest rate is equal to 3 percent. The effect of this interest rate in the money market is that

Accepted Answer

A)  the money market is in equilibrium. 
B)  bond prices rise so that the interest rate rises. 
C)  people buy bonds and the interest rate falls. 
D)  people sell bonds and the interest rate rises. 
A)  the money market is in equilibrium. 
B)  bond prices rise so that the interest rate rises. 
C)  people buy bonds and the interest rate falls. 
D)  people sell bonds and the interest rate rises.

Question 14

The required reserve ratio is the ratio of reserves to ____________required by banking regulations.

Accepted Answer

A)  deposits 
B)  profits 
C)  loans 
D)  cash 
A)  deposits 
B)  profits 
C)  loans 
D)  cash

Question 15

The Fed buys $50,000 of government securities from Commerce Bank. The desired reserve ratio is 25 percent. What is the change in Commerce Bankʹs total reserves and its excess reserves?

Accepted Answer

When the Fed buys $50,000 of government

Question 16

$\begin{array}{|c|c|}
\hline\begin{array}{c}
\text { Interest rate } \
\text { (percent per year) }
\end{array} & \begin{array}{c}
\text { Uantity of money } \
\text { demanded (trillions } \
\text { of } 2005 \text { dollars) }
\end{array} \\hline 3 & 2.0 \
\hline 4 & 1.5 \
\hline 5 & 1.0 \
\hline 6 & 0.5 \
\hline
\end{array}$
-The above table has the demand for money schedule.
a) If the Fed sets the quantity of money equal to $1.0 trillion, what is the equilibrium interest rate?
b) If the Fed wants the interest rate to be 4 percent, what must it do?

Accepted Answer

a) If the Fed sets the quantity of money

Question 17

-In the figure above, if the interest rate is 4 percent, there is a $0.1 trillion excess

Accepted Answer

A)  demand for money and the interest rate will fall. 
B)  quantity of money and the interest rate will rise. 
C)  demand for money and the interest rate will rise. 
D)  quantity of money and the interest rate will fall. 
A)  demand for money and the interest rate will fall. 
B)  quantity of money and the interest rate will rise. 
C)  demand for money and the interest rate will rise. 
D)  quantity of money and the interest rate will fall.

Question 18

When the Fed conducts an open market operation by purchasing securities from a bank,__________________ .

Accepted Answer

A)  the bankʹs reserves increase 
B)  public holdings of securities increase 
C)  the bankʹs deposits increase but its reserves decrease 
D)  the bankʹs deposits increase but its reserves do not change 
A)  the bankʹs reserves increase 
B)  public holdings of securities increase 
C)  the bankʹs deposits increase but its reserves decrease 
D)  the bankʹs deposits increase but its reserves do not change

Question 19

A bank with $100 million in deposits has $15 million of cash in the bank, $10 million in deposits with the Fed, and $15 million in government securities in its vault. Its total reserves equal

Accepted Answer

A)  $10 million. 
B)  $40 million. 
C)  $15 million. 
D)  $25 million. 
A)  $10 million. 
B)  $40 million. 
C)  $15 million. 
D)  $25 million.

Question 20

The Federal Reserve reports that it has coins valued at $10 billion, bank reserves at the Fed of $15 billion, gold valued at $10 billion, Federal Reserves notes of $400 billion, and U.S. government securities of $300 billion. What is the size of the monetary base?

Accepted Answer

The monetary base is the sum o

How do banks create liquidity?

Travelerʹs checks are included in M1 but not in M2.

Liquidity can

The monetary expansion process from an open market operation continues until

When you bought your textbook for this course, you were using money as a

The current chairman of the Federal Reserve System is

If velocity is 6 and the quantity of money is $2 trillion, what is nominal GDP?

If the Fed buys $100,000 in U.S. government securities from a commercial bank, the bank now has an additional $100,000 of

Which of the following is NOT an asset of the Federal Reserve System?

There are ___________regional Federal Reserve banks.

Using a credit card can best be likened to

The required reserve ratio

The required reserve ratio is the ratio of reserves to ____________required by banking regulations.

The Fed buys $50,000 of government securities from Commerce Bank. The desired reserve ratio is 25 percent. What is the change in Commerce Bankʹs total reserves and its excess reserves?

-In the figure above, if the interest rate is 4 percent, there is a $0.1 trillion excess

When the Fed conducts an open market operation by purchasing securities from a bank,__________________ .

A bank with $100 million in deposits has $15 million of cash in the bank, $10 million in deposits with the Fed, and $15 million in government securities in its vault. Its total reserves equal

The Federal Reserve reports that it has coins valued at $10 billion, bank reserves at the Fed of $15 billion, gold valued at $10 billion, Federal Reserves notes of $400 billion, and U.S. government securities of $300 billion. What is the size of the monetary base?

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers: the Keynesian Model

U.S Inflation, Unemployment, and Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Review

Filters

Exam 8: Money, the Price Level, and Inflation

How do banks create liquidity?

Travelerʹs checks are included in M1 but not in M2.

Liquidity can

The monetary expansion process from an open market operation continues until

When you bought your textbook for this course, you were using money as a

The current chairman of the Federal Reserve System is

If velocity is 6 and the quantity of money is $2 trillion, what is nominal GDP?

If the Fed buys $100,000 in U.S. government securities from a commercial bank, the bank now has an additional $100,000 of

Which of the following is NOT an asset of the Federal Reserve System?

There are ___________regional Federal Reserve banks.

Using a credit card can best be likened to

The required reserve ratio

The required reserve ratio is the ratio of reserves to ____________required by banking regulations.

The Fed buys $50,000 of government securities from Commerce Bank. The desired reserve ratio is 25 percent. What is the change in Commerce Bankʹs total reserves and its excess reserves?

-In the figure above, if the interest rate is 4 percent, there is a $0.1 trillion excess

When the Fed conducts an open market operation by purchasing securities from a bank,__________________ .

A bank with $100 million in deposits has $15 million of cash in the bank, $10 million in deposits with the Fed, and $15 million in government securities in its vault. Its total reserves equal

The Federal Reserve reports that it has coins valued at $10 billion, bank reserves at the Fed of $15 billion, gold valued at $10 billion, Federal Reserves notes of $400 billion, and U.S. government securities of $300 billion. What is the size of the monetary base?

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers: the Keynesian Model

U.S Inflation, Unemployment, and Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Review

Filters