Question 1

The value (purchasing power) of each unit of money

Accepted Answer

A) is largely independent of the money supply. 
B) tends to increase as the money supply expands. 
C) increases as the general level of prices rise. 
D) is inversely related to the general level of prices. 
A) is largely independent of the money supply. 
B) tends to increase as the money supply expands. 
C) increases as the general level of prices rise. 
D) is inversely related to the general level of prices.

Question 2

Why is there more than one definition of the money supply? What is the difference between them?

Accepted Answer

There is no one "correct" definition of

Question 3

If the Fed purchases government securities from the public, the

Accepted Answer

A) money supply will decrease. 
B) reserves of commercial banks will decrease. 
C) required reserves ratio will increase. 
D) monetary base will increase. 
A) money supply will decrease. 
B) reserves of commercial banks will decrease. 
C) required reserves ratio will increase. 
D) monetary base will increase.

Question 4

If the banking system has $50 billion in excess reserves, and the required reserve ratio is 25 percent, what is the maximum amount by which the money supply can be increased?

Accepted Answer

A) $250 billion 
B) $200 billion 
C) $50 billion 
D) $25 billion 
A) $250 billion 
B) $200 billion 
C) $50 billion 
D) $25 billion

Question 5

Which of the following is not a component of the M1 money supply?

Accepted Answer

A) demand deposits 
B) large-denomination (more than $100) bills 
C) interest-earning checking deposits 
D) outstanding balances on credit cards 
A) demand deposits 
B) large-denomination (more than $100) bills 
C) interest-earning checking deposits 
D) outstanding balances on credit cards

Question 6

If the Fed injects additional reserves into the banking system, why will banks generally want to expand their loans and investments?

Accepted Answer

A) Banks are legally required to expand loans when the Fed creates excess reserves. 
B) Maintaining reserves in excess of demand deposits is against the law. 
C) Banks fear the Fed will remove the excess reserves. 
D) Loans and investments generally earn more interest income for the banks than excess reserves. 
A) Banks are legally required to expand loans when the Fed creates excess reserves. 
B) Maintaining reserves in excess of demand deposits is against the law. 
C) Banks fear the Fed will remove the excess reserves. 
D) Loans and investments generally earn more interest income for the banks than excess reserves.

Question 7

Which of the following would be most appropriate if the Federal Reserve wanted to increase the money supply in order to stimulate the economy?

Accepted Answer

A) buy U.S.securities 
B) force the Treasury to reduce the national debt 
C) raise the discount rate 
D) increase the reserve requirements 
A) buy U.S.securities 
B) force the Treasury to reduce the national debt 
C) raise the discount rate 
D) increase the reserve requirements

Question 8

Suppose you withdraw $1,000 from your checking account. If the reserve requirement is 20 percent, how does this transaction affect the supply of money and the excess reserves of your bank?

Accepted Answer

A) There is no change in the supply of money; your bank's excess reserves are reduced by $800. 
B) There is no change in the supply of money; your bank's excess reserves are reduced by $200. 
C) The money supply increases by $1,000, and the excess reserves of your bank are reduced by $800. 
D) The money supply increases by $1,000, and the excess reserves of your bank are reduced by $200. 
A) There is no change in the supply of money; your bank's excess reserves are reduced by $800. 
B) There is no change in the supply of money; your bank's excess reserves are reduced by $200. 
C) The money supply increases by $1,000, and the excess reserves of your bank are reduced by $800. 
D) The money supply increases by $1,000, and the excess reserves of your bank are reduced by $200.

Question 9

Historically, the excess reserves of banks have been ________ relative to checkable deposits, but during the crisis of 2008 the excess reserves of banks ________. (Fill in the blanks)

Accepted Answer

A) large; declined sharply 
B) small; fell sharply 
C) small; increased sharply 
D) large; increased sharply 
A) large; declined sharply 
B) small; fell sharply 
C) small; increased sharply 
D) large; increased sharply

Question 10

On a certain date, the banking system had $40 billion in excess reserves. The legally required reserve ratio was 20 percent. Potentially, if these funds were loaned and eventually the entire amount re-deposited with a bank, the banking system as a whole could increase the money supply by

Accepted Answer

A) a maximum of $40 billion. 
B) a maximum of $160 billion. 
C) a maximum of $200 billion. 
D) more than $200 billion. 
A) a maximum of $40 billion. 
B) a maximum of $160 billion. 
C) a maximum of $200 billion. 
D) more than $200 billion.

Question 11

Excess reserves of banks equal

Accepted Answer

A) actual reserves minus required reserves. 
B) actual reserves minus demand deposits. 
C) assets minus the liabilities of the banks. 
D) required reserves minus actual reserves. 
A) actual reserves minus required reserves. 
B) actual reserves minus demand deposits. 
C) assets minus the liabilities of the banks. 
D) required reserves minus actual reserves.

Question 12

Which of the following was true of the actions of the Federal Reserve in response to the recession of 2008?

Accepted Answer

A) The Fed shifted toward a highly restrictive monetary policy in 2008, which was a major cause of the recession. 
B) The Fed continued to focus only on price stability and therefore it expanded the money supply at a slow and steady rate throughout the recession. 
C) The Fed introduced several new procedures for the conduct of monetary policy and it increased the monetary base rapidly as the recession worsened. 
D) The Fed continued to purchase and sell only U.S.Treasury bonds when conducting open market operations to control the money supply. 
A) The Fed shifted toward a highly restrictive monetary policy in 2008, which was a major cause of the recession. 
B) The Fed continued to focus only on price stability and therefore it expanded the money supply at a slow and steady rate throughout the recession. 
C) The Fed introduced several new procedures for the conduct of monetary policy and it increased the monetary base rapidly as the recession worsened. 
D) The Fed continued to purchase and sell only U.S.Treasury bonds when conducting open market operations to control the money supply.

Question 13

Which of the following is true?

Accepted Answer

A) The FDIC sets the reserve requirements for commercial banks. 
B) The Federal Reserve System guarantees the deposits in almost all banks up to a $250,000 limit per account. 
C) Since the Federal Reserve System was established in 1913, bank failures due to panic withdrawals have been virtually eliminated. 
D) If a bank should fail, the FDIC guarantees that depositors can get their funds up to a $250,000 limit per account. 
A) The FDIC sets the reserve requirements for commercial banks. 
B) The Federal Reserve System guarantees the deposits in almost all banks up to a $250,000 limit per account. 
C) Since the Federal Reserve System was established in 1913, bank failures due to panic withdrawals have been virtually eliminated. 
D) If a bank should fail, the FDIC guarantees that depositors can get their funds up to a $250,000 limit per account.

Question 14

People are likely to want to hold more money if the interest rate

Accepted Answer

A) increases making the opportunity cost of holding money rise. 
B) increases making the opportunity cost of holding money fall. 
C) decreases making the opportunity cost of holding money rise. 
D) decreases making the opportunity cost of holding money fall. 
A) increases making the opportunity cost of holding money rise. 
B) increases making the opportunity cost of holding money fall. 
C) decreases making the opportunity cost of holding money rise. 
D) decreases making the opportunity cost of holding money fall.

Question 15

Which of the following will be classified as a liability on the balance sheet of a commercial bank?

Accepted Answer

A) vault cash 
B) loans extended to customers 
C) checking deposits of customers 
D) deposits held at a Federal Reserve bank 
A) vault cash 
B) loans extended to customers 
C) checking deposits of customers 
D) deposits held at a Federal Reserve bank

Question 16

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

Accepted Answer

A) The Fed sold financial assets and extended fewer loans. 
B) The Fed increased both its purchase of assets and quantity of loans extended. 
C) The Fed increased its purchases of assets, but offset this with an increase in the reserve requirement. 
D) The Fed sold financial assets, but offset this with a reduction in the reserve requirement. 
A) The Fed sold financial assets and extended fewer loans. 
B) The Fed increased both its purchase of assets and quantity of loans extended. 
C) The Fed increased its purchases of assets, but offset this with an increase in the reserve requirement. 
D) The Fed sold financial assets, but offset this with a reduction in the reserve requirement.

Question 17

In its conduct of open market operations, the Fed now buys and sells

Accepted Answer

A) only U.S.government securities. 
B) only mortgage-backed securities issued by large investment banks. 
C) a wide range of assets including the stock shares of large banks, domestic automobile manufacturers, and high-technology business firms. 
D) a wide range of assets including corporate bonds and mortgage-backed securities. 
A) only U.S.government securities. 
B) only mortgage-backed securities issued by large investment banks. 
C) a wide range of assets including the stock shares of large banks, domestic automobile manufacturers, and high-technology business firms. 
D) a wide range of assets including corporate bonds and mortgage-backed securities.

Question 18

Suppose all banks are subject to a uniform reserve requirement of 20 percent and that the Union Bank has no excess reserves. If a new customer deposits $50,000, the bank could extend new loans up to a maximum of

Accepted Answer

A) $10,000. 
B) $40,000. 
C) $50,000. 
D) $250,000. 
A) $10,000. 
B) $40,000. 
C) $50,000. 
D) $250,000.

Question 19

Which of the following is correct?

Accepted Answer

A) The Federal Reserve is responsible for conducting monetary policy. 
B) The U.S.Treasury controls the money supply through its buying and selling of U.S.securities. 
C) The Treasury is a monetary agency with responsibilities very similar to those of the Fed. 
D) The Federal Reserve System issues U.S.securities. 
A) The Federal Reserve is responsible for conducting monetary policy. 
B) The U.S.Treasury controls the money supply through its buying and selling of U.S.securities. 
C) The Treasury is a monetary agency with responsibilities very similar to those of the Fed. 
D) The Federal Reserve System issues U.S.securities.

Question 20

How did the Fed's conduct of open market operations change during the economic crisis of 2008?

Accepted Answer

A) Open market operations are no longer the most common tool that the Fed utilizes. 
B) The Fed now buys and sells a broader range of assets than only government securities. 
C) The Federal Open Market Committee cannot act without the approval of the Treasury. 
D) The Fed now must have adequate funds available before purchasing government securities. 
A) Open market operations are no longer the most common tool that the Fed utilizes. 
B) The Fed now buys and sells a broader range of assets than only government securities. 
C) The Federal Open Market Committee cannot act without the approval of the Treasury. 
D) The Fed now must have adequate funds available before purchasing government securities.

The value (purchasing power) of each unit of money

Why is there more than one definition of the money supply? What is the difference between them?

If the Fed purchases government securities from the public, the

If the banking system has $50 billion in excess reserves, and the required reserve ratio is 25 percent, what is the maximum amount by which the money supply can be increased?

Which of the following is not a component of the M1 money supply?

If the Fed injects additional reserves into the banking system, why will banks generally want to expand their loans and investments?

Which of the following would be most appropriate if the Federal Reserve wanted to increase the money supply in order to stimulate the economy?

Suppose you withdraw $1,000 from your checking account. If the reserve requirement is 20 percent, how does this transaction affect the supply of money and the excess reserves of your bank?

Historically, the excess reserves of banks have been relative to checkable deposits, but during the crisis of 2008 the excess reserves of banks . (Fill in the blanks)

On a certain date, the banking system had $40 billion in excess reserves. The legally required reserve ratio was 20 percent. Potentially, if these funds were loaned and eventually the entire amount re-deposited with a bank, the banking system as a whole could increase the money supply by

Excess reserves of banks equal

Which of the following was true of the actions of the Federal Reserve in response to the recession of 2008?

Which of the following is true?

People are likely to want to hold more money if the interest rate

Which of the following will be classified as a liability on the balance sheet of a commercial bank?

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

In its conduct of open market operations, the Fed now buys and sells

Suppose all banks are subject to a uniform reserve requirement of 20 percent and that the Union Bank has no excess reserves. If a new customer deposits $50,000, the bank could extend new loans up to a maximum of

Which of the following is correct?

How did the Fed's conduct of open market operations change during the economic crisis of 2008?

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 value (purchasing power) of each unit of money

Why is there more than one definition of the money supply? What is the difference between them?

If the Fed purchases government securities from the public, the

If the banking system has $50 billion in excess reserves, and the required reserve ratio is 25 percent, what is the maximum amount by which the money supply can be increased?

Which of the following is not a component of the M1 money supply?

If the Fed injects additional reserves into the banking system, why will banks generally want to expand their loans and investments?

Which of the following would be most appropriate if the Federal Reserve wanted to increase the money supply in order to stimulate the economy?

Suppose you withdraw $1,000 from your checking account. If the reserve requirement is 20 percent, how does this transaction affect the supply of money and the excess reserves of your bank?

Historically, the excess reserves of banks have been ________ relative to checkable deposits, but during the crisis of 2008 the excess reserves of banks ________. (Fill in the blanks)

On a certain date, the banking system had $40 billion in excess reserves. The legally required reserve ratio was 20 percent. Potentially, if these funds were loaned and eventually the entire amount re-deposited with a bank, the banking system as a whole could increase the money supply by

Excess reserves of banks equal

Which of the following was true of the actions of the Federal Reserve in response to the recession of 2008?

Which of the following is true?

People are likely to want to hold more money if the interest rate

Which of the following will be classified as a liability on the balance sheet of a commercial bank?

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

In its conduct of open market operations, the Fed now buys and sells

Suppose all banks are subject to a uniform reserve requirement of 20 percent and that the Union Bank has no excess reserves. If a new customer deposits $50,000, the bank could extend new loans up to a maximum of

Which of the following is correct?

How did the Fed's conduct of open market operations change during the economic crisis of 2008?

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

Historically, the excess reserves of banks have been relative to checkable deposits, but during the crisis of 2008 the excess reserves of banks . (Fill in the blanks)