Question 1

The Federal Reserve System is owned by

Accepted Answer

A) federal government agencies such as the Treasury. 
B) the Congress of the United States. 
C) the banks that are members of the Federal Reserve System. 
D) anyone who buys stock over the counter. 
E) people who have deposits in member banks. 
A) federal government agencies such as the Treasury. 
B) the Congress of the United States. 
C) the banks that are members of the Federal Reserve System. 
D) anyone who buys stock over the counter. 
E) people who have deposits in member banks.

Question 2

Which of the following guarantees the deposits in almost all banks up to a $250,000 limit per account?

Accepted Answer

A) the Federal Reserve 
B) the FDIC 
C) the U.S.Treasury 
D) Bank of America Corporation 
A) the Federal Reserve 
B) the FDIC 
C) the U.S.Treasury 
D) Bank of America Corporation

Question 3

Which of the following provides the best explanation of why money is valuable?

Accepted Answer

A) Money is valuable because it is declared legal tender by the government issuing it. 
B) Money is valuable because it is scarce relative to the demand for the services it provides. 
C) Money is valuable because it is backed by precious metals, primarily gold and silver. 
D) Money is valuable because it has intrinsic value, independent of its use as a means of exchange. 
A) Money is valuable because it is declared legal tender by the government issuing it. 
B) Money is valuable because it is scarce relative to the demand for the services it provides. 
C) Money is valuable because it is backed by precious metals, primarily gold and silver. 
D) Money is valuable because it has intrinsic value, independent of its use as a means of exchange.

Question 4

Which of the following is the best definition of money?

Accepted Answer

A) anything generally accepted as a payment for goods or repayment of debt 
B) anything that is a liability of the federal government 
C) anything that is a liability of a commercial bank 
D) the outstanding balances of households on credit cards 
A) anything generally accepted as a payment for goods or repayment of debt 
B) anything that is a liability of the federal government 
C) anything that is a liability of a commercial bank 
D) the outstanding balances of households on credit cards

Question 5

When reserve requirements are increased, the

Accepted Answer

A) excess reserves of commercial banks will decrease. 
B) excess reserves of commercial banks will increase. 
C) U.S.Treasury will have to borrow additional funds. 
D) money supply will rise. 
A) excess reserves of commercial banks will decrease. 
B) excess reserves of commercial banks will increase. 
C) U.S.Treasury will have to borrow additional funds. 
D) money supply will rise.

Question 6

Banks are considered a safer place to deposit money now than they were prior to 1933 because

Accepted Answer

A) gold reserves have increased. 
B) reserve requirements are higher. 
C) the creation of the FDIC reduced the likelihood of bank runs. 
D) the commercial banks are no longer permitted to extend loans to the Federal Government. 
A) gold reserves have increased. 
B) reserve requirements are higher. 
C) the creation of the FDIC reduced the likelihood of bank runs. 
D) the commercial banks are no longer permitted to extend loans to the Federal Government.

Question 7

Checking account deposits are counted as part of the M1 money supply because

Accepted Answer

A) they earn interest income for the depositor. 
B) they are widely used as a means of making payment. 
C) banks hold currency equal to the value of their outstanding checking account deposits. 
D) they are ultimately the obligations of the Treasury. 
A) they earn interest income for the depositor. 
B) they are widely used as a means of making payment. 
C) banks hold currency equal to the value of their outstanding checking account deposits. 
D) they are ultimately the obligations of the Treasury.

Question 8

The sale of government securities by the Fed will cause

Accepted Answer

A) a decrease in both the monetary base and the money supply. 
B) an increase in both the monetary base and the money supply. 
C) an increase in the monetary base but no change in the money supply. 
D) a decrease in the monetary base but no change in the money supply. 
A) a decrease in both the monetary base and the money supply. 
B) an increase in both the monetary base and the money supply. 
C) an increase in the monetary base but no change in the money supply. 
D) a decrease in the monetary base but no change in the money supply.

Question 9

As debit cards become more popular, individuals will reduce their holdings of currency. Other things constant, how will this impact the money supply?

Accepted Answer

A) Because more money is held as deposits at banks, the money supply will fall. 
B) Because more money is held as deposits at banks, the money supply will expand. 
C) Because debit card expenditures are counted in M2 but not M1, the M1 money supply will fall. 
D) Because debit card expenditures are counted in M1 but not M2, the M2 money supply will fall. 
A) Because more money is held as deposits at banks, the money supply will fall. 
B) Because more money is held as deposits at banks, the money supply will expand. 
C) Because debit card expenditures are counted in M2 but not M1, the M1 money supply will fall. 
D) Because debit card expenditures are counted in M1 but not M2, the M2 money supply will fall.

Question 10

Other things being equal, an increase in the rate of interest causes

Accepted Answer

A) an upward movement along the demand for money curve. 
B) a downward movement along the demand for money curve. 
C) a rightward shift of the demand for money curve. 
D) a leftward shift of the demand for money curve. 
A) an upward movement along the demand for money curve. 
B) a downward movement along the demand for money curve. 
C) a rightward shift of the demand for money curve. 
D) a leftward shift of the demand for money curve.

Question 11

Reserves that banks are required by law to keep on hand to back up their deposits are called

Accepted Answer

A) required reserves. 
B) borrowed reserves. 
C) actual reserves. 
D) excess reserves. 
A) required reserves. 
B) borrowed reserves. 
C) actual reserves. 
D) excess reserves.

Question 12

The Fed's use of the interest rate it pays banks on their excess reserves

Accepted Answer

A) is a tool the Fed has used effectively over the past several decades to control the money supply. 
B) is a tool that can be used to reduce the supply of money, but it cannot be used to expand it. 
C) is a monetary tool that the Fed introduced in 2008. 
D) is a tool that could be used to expand the money supply, but it could not be used to reduce it. 
A) is a tool the Fed has used effectively over the past several decades to control the money supply. 
B) is a tool that can be used to reduce the supply of money, but it cannot be used to expand it. 
C) is a monetary tool that the Fed introduced in 2008. 
D) is a tool that could be used to expand the money supply, but it could not be used to reduce it.

Question 13

When a banker accepts a deposit of $1,000 in cash and puts $200 aside as required reserves and then makes a loan of $800 to a new borrower, this set of transactions

Accepted Answer

A) decreases the money supply by $1,000. 
B) decreases the money supply by $200. 
C) does not change the money supply. 
D) increases the money supply by $200. 
E) increases the money supply by $800. 
A) decreases the money supply by $1,000. 
B) decreases the money supply by $200. 
C) does not change the money supply. 
D) increases the money supply by $200. 
E) increases the money supply by $800.

Question 14

During the financial crisis of 2008-2010, the Fed

Accepted Answer

A) increased its purchases of securities and other financial assets and extended more loans, which expanded the monetary base. 
B) increased its purchases of securities and other financial assets and extended more loans, which reduced the monetary base. 
C) reduced its purchases of securities and other financial assets and extended fewer loans, which expanded the monetary base. 
D) reduced its purchases of securities and other financial assets and extended fewer loans, which caused the monetary base to decline. 
A) increased its purchases of securities and other financial assets and extended more loans, which expanded the monetary base. 
B) increased its purchases of securities and other financial assets and extended more loans, which reduced the monetary base. 
C) reduced its purchases of securities and other financial assets and extended fewer loans, which expanded the monetary base. 
D) reduced its purchases of securities and other financial assets and extended fewer loans, which caused the monetary base to decline.

Question 15

Suppose the Fed buys $100,000 of U.S. Treasury bonds from Bill Gates. If the reserve requirement is 10 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

Accepted Answer

A) an increase by $100,000. 
B) an increase by $1,000,000. 
C) a decrease by $100,000. 
D) a decrease by $1,000,000. 
A) an increase by $100,000. 
B) an increase by $1,000,000. 
C) a decrease by $100,000. 
D) a decrease by $1,000,000.

Question 16

When the required reserve ratio is lowered,

Accepted Answer

A) the money multiplier increases, and the amount of excess reserves increases in the banking system. 
B) the money multiplier decreases, and the amount of excess reserves increases in the banking system. 
C) the money multiplier decreases, and the amount of excess reserves decreases in the banking system. 
D) the money multiplier increases, and the amount of excess reserves decreases in the banking system. 
E) there is no change in either the money multiplier or the amount of excess reserves in the banking system. 
A) the money multiplier increases, and the amount of excess reserves increases in the banking system. 
B) the money multiplier decreases, and the amount of excess reserves increases in the banking system. 
C) the money multiplier decreases, and the amount of excess reserves decreases in the banking system. 
D) the money multiplier increases, and the amount of excess reserves decreases in the banking system. 
E) there is no change in either the money multiplier or the amount of excess reserves in the banking system.

Question 17

During the economic crisis of 2008, the Fed acquired the authority to

Accepted Answer

A) pay interest to commercial banks on their reserves. 
B) determine the size of the budget deficit or surplus of the Federal Government. 
C) require the Treasury to print and issue additional currency. 
D) purchase gold in sufficient amounts to back the U.S.dollar. 
A) pay interest to commercial banks on their reserves. 
B) determine the size of the budget deficit or surplus of the Federal Government. 
C) require the Treasury to print and issue additional currency. 
D) purchase gold in sufficient amounts to back the U.S.dollar.

Question 18

Open market operations is the

Accepted Answer

A) tool most often used by the Fed to alter the money supply. 
B) least effective tool the Fed has to alter the money supply. 
C) tool used by the Treasury to raise tax revenues. 
D) tool used by the Fed to regulate stock market activities. 
A) tool most often used by the Fed to alter the money supply. 
B) least effective tool the Fed has to alter the money supply. 
C) tool used by the Treasury to raise tax revenues. 
D) tool used by the Fed to regulate stock market activities.

Question 19

What restricts the Fed's ability to write checks and purchase U.S. securities?

Accepted Answer

A) Congress; the Fed must receive a budget allocation from Congress before it can write a check. 
B) The gold requirement; the Fed cannot write a check unless it has a sufficient amount of gold to back the expenditure. 
C) Reserve requirements; the Fed must maintain 20 percent of its assets in the form of cash against the deposits that it is holding for commercial banks. 
D) Nothing; the Fed can create money simply by writing a check on itself. 
A) Congress; the Fed must receive a budget allocation from Congress before it can write a check. 
B) The gold requirement; the Fed cannot write a check unless it has a sufficient amount of gold to back the expenditure. 
C) Reserve requirements; the Fed must maintain 20 percent of its assets in the form of cash against the deposits that it is holding for commercial banks. 
D) Nothing; the Fed can create money simply by writing a check on itself.

Question 20

When the Fed lowers the discount rate, it makes it

Accepted Answer

A) cheaper for banks to borrow from each other. 
B) cheaper for banks to obtain additional reserves by borrowing from the Fed. 
C) more difficult for banks to accept deposits. 
D) more difficult for banks to extend loans. 
A) cheaper for banks to borrow from each other. 
B) cheaper for banks to obtain additional reserves by borrowing from the Fed. 
C) more difficult for banks to accept deposits. 
D) more difficult for banks to extend loans.

The Federal Reserve System is owned by

Which of the following guarantees the deposits in almost all banks up to a $250,000 limit per account?

Which of the following provides the best explanation of why money is valuable?

Which of the following is the best definition of money?

When reserve requirements are increased, the

Banks are considered a safer place to deposit money now than they were prior to 1933 because

Checking account deposits are counted as part of the M1 money supply because

The sale of government securities by the Fed will cause

As debit cards become more popular, individuals will reduce their holdings of currency. Other things constant, how will this impact the money supply?

Other things being equal, an increase in the rate of interest causes

Reserves that banks are required by law to keep on hand to back up their deposits are called

The Fed's use of the interest rate it pays banks on their excess reserves

When a banker accepts a deposit of $1,000 in cash and puts $200 aside as required reserves and then makes a loan of $800 to a new borrower, this set of transactions

During the financial crisis of 2008-2010, the Fed

Suppose the Fed buys $100,000 of U.S. Treasury bonds from Bill Gates. If the reserve requirement is 10 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

When the required reserve ratio is lowered,

During the economic crisis of 2008, the Fed acquired the authority to

Open market operations is the

What restricts the Fed's ability to write checks and purchase U.S. securities?

When the Fed lowers the discount rate, it makes it

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

The Federal Reserve System is owned by

Which of the following guarantees the deposits in almost all banks up to a $250,000 limit per account?

Which of the following provides the best explanation of why money is valuable?

Which of the following is the best definition of money?

When reserve requirements are increased, the

Banks are considered a safer place to deposit money now than they were prior to 1933 because

Checking account deposits are counted as part of the M1 money supply because

The sale of government securities by the Fed will cause

As debit cards become more popular, individuals will reduce their holdings of currency. Other things constant, how will this impact the money supply?

Other things being equal, an increase in the rate of interest causes

Reserves that banks are required by law to keep on hand to back up their deposits are called

The Fed's use of the interest rate it pays banks on their excess reserves

When a banker accepts a deposit of $1,000 in cash and puts $200 aside as required reserves and then makes a loan of $800 to a new borrower, this set of transactions

During the financial crisis of 2008-2010, the Fed

Suppose the Fed buys $100,000 of U.S. Treasury bonds from Bill Gates. If the reserve requirement is 10 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

When the required reserve ratio is lowered,

During the economic crisis of 2008, the Fed acquired the authority to

Open market operations is the

What restricts the Fed's ability to write checks and purchase U.S. securities?

When the Fed lowers the discount rate, it makes it

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