Question 1

Which of the following would cause the money supply in the United States to decrease?

Accepted Answer

A) an increase in reserve requirements 
B) a decrease in the discount rate 
C) a purchase of bonds by the Federal Reserve 
D) an increase in the world supply of gold 
A) an increase in reserve requirements 
B) a decrease in the discount rate 
C) a purchase of bonds by the Federal Reserve 
D) an increase in the world supply of gold

Question 2

The main source of profit for financial institutions is

Accepted Answer

A) their ownership of stocks in commercial corporations. 
B) their ownership of real assets received in foreclosures on loans to households. 
C) the fees charged for holding and servicing checking accounts. 
D) the difference between interest paid on deposits and interest received on loans. 
E) the difference between the cost of creating new money and the interest paid on loans. 
A) their ownership of stocks in commercial corporations. 
B) their ownership of real assets received in foreclosures on loans to households. 
C) the fees charged for holding and servicing checking accounts. 
D) the difference between interest paid on deposits and interest received on loans. 
E) the difference between the cost of creating new money and the interest paid on loans.

Question 3

Suppose you transfer $1,000 from your checking account to your savings account. How does this action affect the M1 and M2 money supplies?

Accepted Answer

A) M1 and M2 are both unchanged. 
B) M1 falls by $1,000, and M2 rises by $1,000. 
C) M1 is unchanged, and M2 rises by $1,000. 
D) M1 falls by $1,000, and M2 is unchanged. 
A) M1 and M2 are both unchanged. 
B) M1 falls by $1,000, and M2 rises by $1,000. 
C) M1 is unchanged, and M2 rises by $1,000. 
D) M1 falls by $1,000, and M2 is unchanged.

Question 4

Which of the following most clearly limits the ability of the commercial banking industry to expand the money supply?

Accepted Answer

A) the reserve requirements mandated by the Fed 
B) the number of commercial bank charters issued by the Fed 
C) the dollar value of the bonds issued by the U.S.Treasury 
D) the federal funds interest rate that commercial banks pay (and receive) for short-term loanable funds 
A) the reserve requirements mandated by the Fed 
B) the number of commercial bank charters issued by the Fed 
C) the dollar value of the bonds issued by the U.S.Treasury 
D) the federal funds interest rate that commercial banks pay (and receive) for short-term loanable funds

Question 5

Though many assets can be used as a store of value, money is a particularly attractive method to store value because

Accepted Answer

A) it increases in value as prices rise. 
B) its purchasing power does not decline when prices rise. 
C) it is the most liquid of all assets. 
D) it is backed by gold. 
A) it increases in value as prices rise. 
B) its purchasing power does not decline when prices rise. 
C) it is the most liquid of all assets. 
D) it is backed by gold.

Question 6

Briefly explain the three functions of money.

Accepted Answer

Money serves as a medium of exchange, wh

Question 7

Which of the following would cause the money supply in the United States to expand?

Accepted Answer

A) a decrease in reserve requirements 
B) an increase in the discount rate 
C) the sale of bonds by a Federal Reserve bank 
D) an increase in the world supply of gold 
A) a decrease in reserve requirements 
B) an increase in the discount rate 
C) the sale of bonds by a Federal Reserve bank 
D) an increase in the world supply of gold

Question 8

Suppose the Fed purchases $10 million of U.S. securities from the public. 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 a

Accepted Answer

A) $10 million decrease in the money supply. 
B) $10 million increase in the money supply. 
C) $100 million decrease in the money supply. 
D) $100 million increase in the money supply. 
A) $10 million decrease in the money supply. 
B) $10 million increase in the money supply. 
C) $100 million decrease in the money supply. 
D) $100 million increase in the money supply.

Question 9

If the Fed lends to member banks, what happens to reserves and the money supply?

Accepted Answer

A) Reserves increase and the money supply decreases. 
B) Both increase. 
C) Reserves decrease and the money supply increases. 
D) Both decrease. 
A) Reserves increase and the money supply decreases. 
B) Both increase. 
C) Reserves decrease and the money supply increases. 
D) Both decrease.

Question 10

Modern bankers

Accepted Answer

A) expand the money supply by printing currency when they need it. 
B) decrease the supply of money when they extend additional loans. 
C) hold only a fraction of their assets in the form of reserves against their deposits. 
D) can increase their profits by increasing their holdings of excess reserves. 
A) expand the money supply by printing currency when they need it. 
B) decrease the supply of money when they extend additional loans. 
C) hold only a fraction of their assets in the form of reserves against their deposits. 
D) can increase their profits by increasing their holdings of excess reserves.

Question 11

A bank finds itself short of required reserves and therefore borrows from another commercial bank. The interest rate on this loan is

Accepted Answer

A) zero. 
B) the prime rate. 
C) the discount rate. 
D) the federal funds rate. 
E) the required reserve ratio. 
A) zero. 
B) the prime rate. 
C) the discount rate. 
D) the federal funds rate. 
E) the required reserve ratio.

Question 12

Which of the following compose the reserves of a commercial bank?

Accepted Answer

A) demand deposits and time deposits 
B) vault cash and deposits of the bank with the Federal Reserve 
C) U.S.securities and stock equity 
D) cash and U.S.securities 
A) demand deposits and time deposits 
B) vault cash and deposits of the bank with the Federal Reserve 
C) U.S.securities and stock equity 
D) cash and U.S.securities

Question 13

If a sizeable amount of U.S. currency is held outside of the United States,

Accepted Answer

A) the accuracy of the M2 money supply figures will be improved, but there will be no impact on M1. 
B) the accuracy of the M1 money supply figures will be improved, but there will be no impact on M2. 
C) the money supply figures, particularly those for M1, will be less reliable. 
D) the money supply figures of the U.S.will not be affected because the funds are held outside the U.S. 
A) the accuracy of the M2 money supply figures will be improved, but there will be no impact on M1. 
B) the accuracy of the M1 money supply figures will be improved, but there will be no impact on M2. 
C) the money supply figures, particularly those for M1, will be less reliable. 
D) the money supply figures of the U.S.will not be affected because the funds are held outside the U.S.

Question 14

Which of the following actions of the Fed would increase the money supply?

Accepted Answer

A) The purchase of U.S.government securities. 
B) A reduction in the discount rate. 
C) A reduction in the required reserve ratio. 
D) All of the above are correct. 
A) The purchase of U.S.government securities. 
B) A reduction in the discount rate. 
C) A reduction in the required reserve ratio. 
D) All of the above are correct.

Question 15

A barter economy is one in which

Accepted Answer

A) money serves as a medium of exchange. 
B) only precious metals are accepted as money. 
C) goods are traded directly for other goods. 
D) paper money is backed by gold. 
A) money serves as a medium of exchange. 
B) only precious metals are accepted as money. 
C) goods are traded directly for other goods. 
D) paper money is backed by gold.

Question 16

Which of the following will limit the money creation process to an amount less than the potential amount?

Accepted Answer

A) bank pursuit of profits 
B) increase in currency holdings by the public 
C) business demand for loans 
D) increased use of credit cards 
A) bank pursuit of profits 
B) increase in currency holdings by the public 
C) business demand for loans 
D) increased use of credit cards

Question 17

If the Fed raises the discount rate, what happens to reserves and the money supply?

Accepted Answer

A) Reserves increase and the money supply decreases. 
B) Both increase. 
C) Reserves decrease and the money supply increases. 
D) Both decrease. 
A) Reserves increase and the money supply decreases. 
B) Both increase. 
C) Reserves decrease and the money supply increases. 
D) Both decrease.

Question 18

If many people were to suddenly deposit into their checking accounts large sums of cash previously held in their homes and/or wallets, and there were no offsetting actions by the Fed or change in institutional policies, this would

Accepted Answer

A) decrease the M1 money supply but increase the M2 money supply. 
B) increase the excess reserves of banks and expand the money supply if these reserves are used to make additional loans. 
C) reduce the excess reserves of banks and indirectly decrease the M1 money supply. 
D) reduce the excess reserves of banks and indirectly increase the M1 money supply. 
A) decrease the M1 money supply but increase the M2 money supply. 
B) increase the excess reserves of banks and expand the money supply if these reserves are used to make additional loans. 
C) reduce the excess reserves of banks and indirectly decrease the M1 money supply. 
D) reduce the excess reserves of banks and indirectly increase the M1 money supply.

Question 19

Why did the monetary base increase rapidly during the economic crisis of 2008?

Accepted Answer

A) The Fed purchased more assets and extended more loans. 
B) The Fed sold financial assets and extended fewer loans. 
C) The Fed purchased more assets, but extended fewer loans. 
D) The Fed sold financial assets, but extended more loans. 
A) The Fed purchased more assets and extended more loans. 
B) The Fed sold financial assets and extended fewer loans. 
C) The Fed purchased more assets, but extended fewer loans. 
D) The Fed sold financial assets, but extended more loans.

Question 20

A bank that has $10,000 in excess reserves can extend new loans up to a maximum of

Accepted Answer

A) $1,000. 
B) $9,000. 
C) $10,000. 
D) $100,000. 
A) $1,000. 
B) $9,000. 
C) $10,000. 
D) $100,000.

Which of the following would cause the money supply in the United States to decrease?

The main source of profit for financial institutions is

Suppose you transfer $1,000 from your checking account to your savings account. How does this action affect the M1 and M2 money supplies?

Which of the following most clearly limits the ability of the commercial banking industry to expand the money supply?

Though many assets can be used as a store of value, money is a particularly attractive method to store value because

Briefly explain the three functions of money.

Which of the following would cause the money supply in the United States to expand?

Suppose the Fed purchases $10 million of U.S. securities from the public. 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 a

If the Fed lends to member banks, what happens to reserves and the money supply?

Modern bankers

A bank finds itself short of required reserves and therefore borrows from another commercial bank. The interest rate on this loan is

Which of the following compose the reserves of a commercial bank?

If a sizeable amount of U.S. currency is held outside of the United States,

Which of the following actions of the Fed would increase the money supply?

A barter economy is one in which

Which of the following will limit the money creation process to an amount less than the potential amount?

If the Fed raises the discount rate, what happens to reserves and the money supply?

If many people were to suddenly deposit into their checking accounts large sums of cash previously held in their homes and/or wallets, and there were no offsetting actions by the Fed or change in institutional policies, this would

Why did the monetary base increase rapidly during the economic crisis of 2008?

A bank that has $10,000 in excess reserves can extend new loans up to a maximum of

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

Which of the following would cause the money supply in the United States to decrease?

The main source of profit for financial institutions is

Suppose you transfer $1,000 from your checking account to your savings account. How does this action affect the M1 and M2 money supplies?

Which of the following most clearly limits the ability of the commercial banking industry to expand the money supply?

Though many assets can be used as a store of value, money is a particularly attractive method to store value because

Briefly explain the three functions of money.

Which of the following would cause the money supply in the United States to expand?

Suppose the Fed purchases $10 million of U.S. securities from the public. 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 a

If the Fed lends to member banks, what happens to reserves and the money supply?

Modern bankers

A bank finds itself short of required reserves and therefore borrows from another commercial bank. The interest rate on this loan is

Which of the following compose the reserves of a commercial bank?

If a sizeable amount of U.S. currency is held outside of the United States,

Which of the following actions of the Fed would increase the money supply?

A barter economy is one in which

Which of the following will limit the money creation process to an amount less than the potential amount?

If the Fed raises the discount rate, what happens to reserves and the money supply?

If many people were to suddenly deposit into their checking accounts large sums of cash previously held in their homes and/or wallets, and there were no offsetting actions by the Fed or change in institutional policies, this would

Why did the monetary base increase rapidly during the economic crisis of 2008?

A bank that has $10,000 in excess reserves can extend new loans up to a maximum of

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