Question 1

During the financial crisis of 2008-2010, the Fed increased its purchases of securities and extended more loans, which caused the monetary base to

Accepted Answer

A) increase rapidly, but the M1 money supply declined because the banks loaned out most of the additional reserves to businesses. 
B) fall, but the M1 money supply still expanded rapidly because the banks increased their loans to businesses. 
C) increase rapidly, but the M1 money supply expanded at a much slower rate because the banks enlarged their excess reserves. 
D) fall, and this led to a sharp decline in the M1 money supply. 
A) increase rapidly, but the M1 money supply declined because the banks loaned out most of the additional reserves to businesses. 
B) fall, but the M1 money supply still expanded rapidly because the banks increased their loans to businesses. 
C) increase rapidly, but the M1 money supply expanded at a much slower rate because the banks enlarged their excess reserves. 
D) fall, and this led to a sharp decline in the M1 money supply.

Question 2

Which of the following actions would the Fed undertake if it wants to follow a more restrictive monetary policy?

Accepted Answer

A) sell some of its holdings of government bonds 
B) decrease government expenditures 
C) urge the Treasury to sell more U.S.securities 
D) reduce the reserve requirements 
A) sell some of its holdings of government bonds 
B) decrease government expenditures 
C) urge the Treasury to sell more U.S.securities 
D) reduce the reserve requirements

Question 3

If the Fed buys a T-bill from a commercial bank, how will it pay for the T-bill?

Accepted Answer

A) It will give the bank new reserves. 
B) It will write the bank a check. 
C) It will transfer cash to the bank's vault. 
D) It will take reserves from another bank. 
A) It will give the bank new reserves. 
B) It will write the bank a check. 
C) It will transfer cash to the bank's vault. 
D) It will take reserves from another bank.

Question 4

Which of the following lists two things that both decrease the money supply?

Accepted Answer

A) lower the discount rate and raise the reserve requirement ratio 
B) lower the discount rate and lower the reserve requirement ratio 
C) raise the discount rate and raise the reserve requirement ratio 
D) raise the discount rate and lower the reserve requirement ratio 
A) lower the discount rate and raise the reserve requirement ratio 
B) lower the discount rate and lower the reserve requirement ratio 
C) raise the discount rate and raise the reserve requirement ratio 
D) raise the discount rate and lower the reserve requirement ratio

Question 5

In recent years, the Fed has generally set the discount rate

Accepted Answer

A) lower than the federal funds rate to help financially troubled banks get more solvent. 
B) higher than the interest rate on 30-year fixed-rate mortgage loans. 
C) higher than the federal funds rate for most banks. 
D) equal to the rate of inflation. 
A) lower than the federal funds rate to help financially troubled banks get more solvent. 
B) higher than the interest rate on 30-year fixed-rate mortgage loans. 
C) higher than the federal funds rate for most banks. 
D) equal to the rate of inflation.

Question 6

Other things constant, if the Fed decreased the discount rate,

Accepted Answer

A) the earnings of the Fed would increase. 
B) the incentive of commercial banks to borrow from the Fed would be reduced. 
C) the prime interest rate would automatically decline. 
D) commercial banks probably would reduce their excess reserves and be more willing to extend additional loans. 
A) the earnings of the Fed would increase. 
B) the incentive of commercial banks to borrow from the Fed would be reduced. 
C) the prime interest rate would automatically decline. 
D) commercial banks probably would reduce their excess reserves and be more willing to extend additional loans.

Question 7

If the Fed wants to shift toward a more expansionary policy, it often announces that it is going to change the federal funds interest rate. The Fed controls the federal funds interest rate

Accepted Answer

A) by imposing legal restrictions that prohibit exchanges at interest rates other than the ones designated by the Fed. 
B) by having the U.S.Treasury fix this interest rate 
C) through its policy of open market operations. 
D) by altering the size of the federal budget deficit or surplus. 
A) by imposing legal restrictions that prohibit exchanges at interest rates other than the ones designated by the Fed. 
B) by having the U.S.Treasury fix this interest rate 
C) through its policy of open market operations. 
D) by altering the size of the federal budget deficit or surplus.

Question 8

If debit cards become more widely used by consumers and businesses, which of the following is most likely to happen?

Accepted Answer

A) Currency holdings will remain the same, but the M1 money supply will fall. 
B) The amount of currency held by the public will increase. 
C) Less money will be held as currency and more money will be held in bank accounts, which will increase the reserves of banks unless the Fed takes offsetting actions. 
D) The money supply will be unaffected because debit card expenditures are considered the equivalent of cash. 
A) Currency holdings will remain the same, but the M1 money supply will fall. 
B) The amount of currency held by the public will increase. 
C) Less money will be held as currency and more money will be held in bank accounts, which will increase the reserves of banks unless the Fed takes offsetting actions. 
D) The money supply will be unaffected because debit card expenditures are considered the equivalent of cash.

Question 9

In order to increase the money supply, the banking system must have

Accepted Answer

A) required reserves. 
B) the authority to buy corporate stocks. 
C) the authority to print U.S.currency. 
D) excess reserves. 
E) the authority to engage in interstate banking. 
A) required reserves. 
B) the authority to buy corporate stocks. 
C) the authority to print U.S.currency. 
D) excess reserves. 
E) the authority to engage in interstate banking.

Question 10

Suppose the Fed bought $150 million of U.S. securities from the public. The reserve requirement is 20 percent, and there are no initial excess reserves. A few weeks later, if the public's holdings of currency are constant and the banks have loaned all excess reserves, the money supply will increase by

Accepted Answer

A) $150 million. 
B) $300 million. 
C) $600 million. 
D) $750 million. 
A) $150 million. 
B) $300 million. 
C) $600 million. 
D) $750 million.

Question 11

If a bank has actual reserves of $40,000 and a 20 percent reserve requirement, then the maximum amount of checkable deposits the bank can have if excess reserves are zero is

Accepted Answer

A) $100,000. 
B) $80,000. 
C) $300,000. 
D) $20,000. 
E) $200,000. 
A) $100,000. 
B) $80,000. 
C) $300,000. 
D) $20,000. 
E) $200,000.

Question 12

The immediate effect of a member bank's sale of U.S. government securities to the Fed is

Accepted Answer

A) an increase in that bank's required reserves. 
B) a decrease in that bank's required reserves. 
C) an increase in that bank's excess reserves. 
D) a decrease in that bank's excess reserves. 
A) an increase in that bank's required reserves. 
B) a decrease in that bank's required reserves. 
C) an increase in that bank's excess reserves. 
D) a decrease in that bank's excess reserves.

Question 13

Suppose the Fed purchases $100 million of U.S. securities from the public. If the reserve requirement is 20 percent, the currency holdings of the public are unchanged, and banks have zero excess reserves both before and after the transaction, the total impact on the money supply will be a

Accepted Answer

A) $100 million decrease in the money supply. 
B) $100 million increase in the money supply. 
C) $200 million increase in the money supply. 
D) $500 million increase in the money supply. 
A) $100 million decrease in the money supply. 
B) $100 million increase in the money supply. 
C) $200 million increase in the money supply. 
D) $500 million increase in the money supply.

Question 14

What are the advantages of a fractional reserve banking system compared to a system that requires 100 percent of deposits to be kept on reserve?

Accepted Answer

If a bank must keep all of its deposits

Question 15

What advantages does a money economy have over a barter economy?

Accepted Answer

The existence of money substantially red

Question 16

The primary source of earnings of commercial banks is income derived from

Accepted Answer

A) the checking account services provided to customers. 
B) the use of deposits to extend loans and undertake investments. 
C) vault cash and deposits held with the Fed. 
D) services provided to the U.S.Treasury. 
A) the checking account services provided to customers. 
B) the use of deposits to extend loans and undertake investments. 
C) vault cash and deposits held with the Fed. 
D) services provided to the U.S.Treasury.

Question 17

The type of banking system under which banks are required to hold only a portion of their assets in reserve against the checking deposits of their customers is called

Accepted Answer

A) a gold-backed banking system. 
B) a full reserve banking system. 
C) a fiat banking system. 
D) a fractional reserve banking system. 
A) a gold-backed banking system. 
B) a full reserve banking system. 
C) a fiat banking system. 
D) a fractional reserve banking system.

Question 18

Which of the following would appear on the liability side of the balance sheet of a commercial bank?

Accepted Answer

A) demand and other transaction deposits 
B) loans outstanding 
C) U.S.government securities 
D) vault cash 
A) demand and other transaction deposits 
B) loans outstanding 
C) U.S.government securities 
D) vault cash

Question 19

Regional Bank is subject to a 10 percent required-reserve ratio. If this bank received a new checkable deposit of $1,000, it could make new loans of

Accepted Answer

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

Question 20

If the Fed wanted to shift to a restrictive monetary policy and reduce the money supply, it could

Accepted Answer

A) increase the interest rate paid on excess reserves encouraging banks to extend more loans. 
B) decrease the interest rate paid on excess reserves encouraging banks to extend more loans. 
C) decrease the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans. 
D) increase the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans. 
A) increase the interest rate paid on excess reserves encouraging banks to extend more loans. 
B) decrease the interest rate paid on excess reserves encouraging banks to extend more loans. 
C) decrease the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans. 
D) increase the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans.

During the financial crisis of 2008-2010, the Fed increased its purchases of securities and extended more loans, which caused the monetary base to

Which of the following actions would the Fed undertake if it wants to follow a more restrictive monetary policy?

If the Fed buys a T-bill from a commercial bank, how will it pay for the T-bill?

Which of the following lists two things that both decrease the money supply?

In recent years, the Fed has generally set the discount rate

Other things constant, if the Fed decreased the discount rate,

If the Fed wants to shift toward a more expansionary policy, it often announces that it is going to change the federal funds interest rate. The Fed controls the federal funds interest rate

If debit cards become more widely used by consumers and businesses, which of the following is most likely to happen?

In order to increase the money supply, the banking system must have

If a bank has actual reserves of $40,000 and a 20 percent reserve requirement, then the maximum amount of checkable deposits the bank can have if excess reserves are zero is

The immediate effect of a member bank's sale of U.S. government securities to the Fed is

Suppose the Fed purchases $100 million of U.S. securities from the public. If the reserve requirement is 20 percent, the currency holdings of the public are unchanged, and banks have zero excess reserves both before and after the transaction, the total impact on the money supply will be a

What are the advantages of a fractional reserve banking system compared to a system that requires 100 percent of deposits to be kept on reserve?

What advantages does a money economy have over a barter economy?

The primary source of earnings of commercial banks is income derived from

The type of banking system under which banks are required to hold only a portion of their assets in reserve against the checking deposits of their customers is called

Which of the following would appear on the liability side of the balance sheet of a commercial bank?

Regional Bank is subject to a 10 percent required-reserve ratio. If this bank received a new checkable deposit of $1,000, it could make new loans of

If the Fed wanted to shift to a restrictive monetary policy and reduce the money supply, it could

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters

Exam 13: Money and the Banking System

During the financial crisis of 2008-2010, the Fed increased its purchases of securities and extended more loans, which caused the monetary base to

Which of the following actions would the Fed undertake if it wants to follow a more restrictive monetary policy?

If the Fed buys a T-bill from a commercial bank, how will it pay for the T-bill?

Which of the following lists two things that both decrease the money supply?

In recent years, the Fed has generally set the discount rate

Other things constant, if the Fed decreased the discount rate,

If the Fed wants to shift toward a more expansionary policy, it often announces that it is going to change the federal funds interest rate. The Fed controls the federal funds interest rate

If debit cards become more widely used by consumers and businesses, which of the following is most likely to happen?

In order to increase the money supply, the banking system must have

If a bank has actual reserves of $40,000 and a 20 percent reserve requirement, then the maximum amount of checkable deposits the bank can have if excess reserves are zero is

The immediate effect of a member bank's sale of U.S. government securities to the Fed is

Suppose the Fed purchases $100 million of U.S. securities from the public. If the reserve requirement is 20 percent, the currency holdings of the public are unchanged, and banks have zero excess reserves both before and after the transaction, the total impact on the money supply will be a

What are the advantages of a fractional reserve banking system compared to a system that requires 100 percent of deposits to be kept on reserve?

What advantages does a money economy have over a barter economy?

The primary source of earnings of commercial banks is income derived from

The type of banking system under which banks are required to hold only a portion of their assets in reserve against the checking deposits of their customers is called

Which of the following would appear on the liability side of the balance sheet of a commercial bank?

Regional Bank is subject to a 10 percent required-reserve ratio. If this bank received a new checkable deposit of $1,000, it could make new loans of

If the Fed wanted to shift to a restrictive monetary policy and reduce the money supply, it could

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters