Question 1

Which of the following is responsible for decision making regarding the purchase and sale of bonds by the Fed?

Accepted Answer

A) the chairman of the Board of Governors of the Federal Reserve System 
B) the Federal Open Market Operations Committee 
C) the U.S.Secretary of Treasury 
D) the president, with the advice and consent of the chairman of the Council of Economic Advisers. 
A) the chairman of the Board of Governors of the Federal Reserve System 
B) the Federal Open Market Operations Committee 
C) the U.S.Secretary of Treasury 
D) the president, with the advice and consent of the chairman of the Council of Economic Advisers.

Question 2

The legal requirement that commercial banks hold reserves equal to some fraction of their deposits

Accepted Answer

A) limits the ability of banks to expand the money supply by extending additional loans. 
B) prevents the Fed from controlling the money supply since commercial banks can always offset the actions of the Fed. 
C) prevents runs on banks by depositors who fear that banks have insufficient assets to meet the claims of their depositors. 
D) limits the ability of the Treasury to expand the national debt. 
A) limits the ability of banks to expand the money supply by extending additional loans. 
B) prevents the Fed from controlling the money supply since commercial banks can always offset the actions of the Fed. 
C) prevents runs on banks by depositors who fear that banks have insufficient assets to meet the claims of their depositors. 
D) limits the ability of the Treasury to expand the national debt.

Question 3

If the Federal Reserve is engaging in open market operations designed to expand the money supply, it is probably

Accepted Answer

A) selling government securities to banks. 
B) selling government securities to the public. 
C) buying government securities from the public. 
D) encouraging banks to exchange their Fed deposits for currency. 
A) selling government securities to banks. 
B) selling government securities to the public. 
C) buying government securities from the public. 
D) encouraging banks to exchange their Fed deposits for currency.

Question 4

The foreign holdings of U.S. dollars

Accepted Answer

A) reduce the living standards of Americans. 
B) are not included in the M1 money supply. 
C) account for approximately half of all U.S.currency issued by the Fed. 
D) are hard to explain since the dollar is not legal tender outside the United States. 
A) reduce the living standards of Americans. 
B) are not included in the M1 money supply. 
C) account for approximately half of all U.S.currency issued by the Fed. 
D) are hard to explain since the dollar is not legal tender outside the United States.

Question 5

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

Accepted Answer

A) the Fed buys bonds and lowers the discount rate. 
B) the Fed buys bonds and raises the discount rate. 
C) the Fed sells bonds and lowers the discount rate. 
D) the Fed sells bonds and raises the discount rate. 
A) the Fed buys bonds and lowers the discount rate. 
B) the Fed buys bonds and raises the discount rate. 
C) the Fed sells bonds and lowers the discount rate. 
D) the Fed sells bonds and raises the discount rate.

Question 6

Which of the following would lead to a rapid growth of the money supply in the future?

Accepted Answer

A) the use of large excess reserves by banks to extend additional loans 
B) a reduction in government expenditures to reduce the size of the federal deficit 
C) an increase in government expenditures financed by taxes 
D) an increase in the interest rate the Fed pays banks holding excess reserves 
A) the use of large excess reserves by banks to extend additional loans 
B) a reduction in government expenditures to reduce the size of the federal deficit 
C) an increase in government expenditures financed by taxes 
D) an increase in the interest rate the Fed pays banks holding excess reserves

Question 7

Table 13-2
  
-Refer to Table 13-2. If the reserve requirement is 20 percent, this bank

Accepted Answer

A) has $10,000 of excess reserves. 
B) needs $10,000 more reserves to meet its reserve requirements. 
C) needs $5,000 more reserves to meet its reserve requirements. 
D) just meets its reserve requirement. 
A) has $10,000 of excess reserves. 
B) needs $10,000 more reserves to meet its reserve requirements. 
C) needs $5,000 more reserves to meet its reserve requirements. 
D) just meets its reserve requirement.

Question 8

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 prices rise. 
D) tends to decline as the money supply expands in relation to the availability of goods and services. 
A) is largely independent of the money supply. 
B) tends to increase as the money supply expands. 
C) increases as prices rise. 
D) tends to decline as the money supply expands in relation to the availability of goods and services.

Question 9

Suppose that during a period of inflation, the Fed reduced its holdings of U.S. securities from $600 billion to $580 billion. This indicates that the Fed was

Accepted Answer

A) seeking to reduce the money supply to decrease inflation. 
B) trying to force Congress to decrease taxes. 
C) expanding the money supply and stimulating employment. 
D) expanding the money supply, even though the existing inflation suggested a restrictive policy would be more appropriate. 
A) seeking to reduce the money supply to decrease inflation. 
B) trying to force Congress to decrease taxes. 
C) expanding the money supply and stimulating employment. 
D) expanding the money supply, even though the existing inflation suggested a restrictive policy would be more appropriate.

Question 10

A system that permits banks to hold less than 100 percent of their deposits as reserves is called a

Accepted Answer

A) federal reserve system. 
B) fractional reserve banking system. 
C) partially funded deposit insurance system. 
D) gold standard banking system. 
A) federal reserve system. 
B) fractional reserve banking system. 
C) partially funded deposit insurance system. 
D) gold standard banking system.

Question 11

During the second half of 2008, the Fed approximately doubled the reserves of the commercial banking system. As a result, the M1 money supply

Accepted Answer

A) fell sharply, because the banks used the excess reserves to extend additional loans. 
B) also approximately doubled. 
C) was unchanged, because bank reserves will not affect the M1 money supply. 
D) increased, but by a much smaller amount, because the banks used only a small portion of their excess reserves to extend additional loans. 
A) fell sharply, because the banks used the excess reserves to extend additional loans. 
B) also approximately doubled. 
C) was unchanged, because bank reserves will not affect the M1 money supply. 
D) increased, but by a much smaller amount, because the banks used only a small portion of their excess reserves to extend additional loans.

Question 12

In response to the recession of 2008-2009, the Fed doubled its asset holdings from $925 billion at mid-year 2008 to more than $2 trillion by mid-year 2009. This policy

Accepted Answer

A) reduced the reserves available to banks, leading to a larger money supply. 
B) reduced the reserves available to banks, causing the money supply to decline. 
C) increased the reserves available to banks, leading to a larger money supply. 
D) increased the reserves available to banks, causing the money supply to decline. 
A) reduced the reserves available to banks, leading to a larger money supply. 
B) reduced the reserves available to banks, causing the money supply to decline. 
C) increased the reserves available to banks, leading to a larger money supply. 
D) increased the reserves available to banks, causing the money supply to decline.

Question 13

The term "open market operations" refers to the

Accepted Answer

A) loan-making activities of commercial banks. 
B) effect of expansionary monetary policy on interest rates. 
C) operation of competitive markets in the banking industry as the result of deregulation. 
D) buying and selling of government securities by the Federal Reserve. 
A) loan-making activities of commercial banks. 
B) effect of expansionary monetary policy on interest rates. 
C) operation of competitive markets in the banking industry as the result of deregulation. 
D) buying and selling of government securities by the Federal Reserve.

Question 14

One advantage of a money system compared to a barter system is that

Accepted Answer

A) barter never works. 
B) money creates the need for banks. 
C) money is more efficient. 
D) everyone has money. 
A) barter never works. 
B) money creates the need for banks. 
C) money is more efficient. 
D) everyone has money.

Question 15

When commercial banks extend loans, they are able to expand the supply of money in the United States because the U.S. has

Accepted Answer

A) a fiat supply of money. 
B) money that is backed by gold. 
C) a fractional reserve banking system. 
D) a system of federal deposit insurance. 
A) a fiat supply of money. 
B) money that is backed by gold. 
C) a fractional reserve banking system. 
D) a system of federal deposit insurance.

Question 16

Marquis decides to bank with First National Bank (FNB). He opens a checking account by depositing $1,000. According to the FNB balance sheet, after this initial $1,000 checkable deposit, there are $1,000 in

Accepted Answer

A) reserves and $1,000 in checkable deposits. 
B) liabilities and $2,000 in checkable deposits. 
C) checkable deposits and $0 in assets. 
D) assets and $0 in liabilities. 
E) reserves and $0 in liabilities. 
A) reserves and $1,000 in checkable deposits. 
B) liabilities and $2,000 in checkable deposits. 
C) checkable deposits and $0 in assets. 
D) assets and $0 in liabilities. 
E) reserves and $0 in liabilities.

Question 17

Which of the following would cause the actual deposit expansion multiplier to be less than its potential?

Accepted Answer

A) the general public holding of funds in the form of currency rather than bank deposits 
B) the holding of excess reserves by commercial banks 
C) the general public holding of funds in the form of coins rather than bills 
D) both a and b 
A) the general public holding of funds in the form of currency rather than bank deposits 
B) the holding of excess reserves by commercial banks 
C) the general public holding of funds in the form of coins rather than bills 
D) both a and b

Question 18

The interest rate in the federal funds market

Accepted Answer

A) is determined by the imposition of price controls imposed by the Fed. 
B) will tend to rise when the quantity of funds demanded by banks seeking additional reserves exceeds the quantity supplied by banks with excess reserves. 
C) will tend to fall if the Fed sells bonds and, thereby, reduces the reserves available to banks. 
D) is an interest rate that is largely unaffected by the policies of the Fed. 
A) is determined by the imposition of price controls imposed by the Fed. 
B) will tend to rise when the quantity of funds demanded by banks seeking additional reserves exceeds the quantity supplied by banks with excess reserves. 
C) will tend to fall if the Fed sells bonds and, thereby, reduces the reserves available to banks. 
D) is an interest rate that is largely unaffected by the policies of the Fed.

Question 19

If the Fed wanted to expand the money supply as part of an antirecession strategy, it could

Accepted Answer

A) increase the reserve requirements. 
B) buy U.S.securities on the open market. 
C) raise the discount rate. 
D) sell U.S.securities on the open market. 
A) increase the reserve requirements. 
B) buy U.S.securities on the open market. 
C) raise the discount rate. 
D) sell U.S.securities on the open market.

Question 20

Table 13-2
  
-Refer to Table 13-2. The reserve requirement is 10 percent and then someone deposits an additional $50,000 into the bank, then if the bank takes no other action it will

Accepted Answer

A) have $65,000 in excess reserves. 
B) have $55,000 in excess reserves. 
C) need to raise an additional $5,000 of reserves to meet the reserve requirement 
D) none of the above is correct. 
A) have $65,000 in excess reserves. 
B) have $55,000 in excess reserves. 
C) need to raise an additional $5,000 of reserves to meet the reserve requirement 
D) none of the above is correct.

Which of the following is responsible for decision making regarding the purchase and sale of bonds by the Fed?

The legal requirement that commercial banks hold reserves equal to some fraction of their deposits

If the Federal Reserve is engaging in open market operations designed to expand the money supply, it is probably

The foreign holdings of U.S. dollars

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

Which of the following would lead to a rapid growth of the money supply in the future?

Table 13-2 -Refer to Table 13-2. If the reserve requirement is 20 percent, this bank

The value (purchasing power) of each unit of money

Suppose that during a period of inflation, the Fed reduced its holdings of U.S. securities from $600 billion to $580 billion. This indicates that the Fed was

A system that permits banks to hold less than 100 percent of their deposits as reserves is called a

During the second half of 2008, the Fed approximately doubled the reserves of the commercial banking system. As a result, the M1 money supply

In response to the recession of 2008-2009, the Fed doubled its asset holdings from $925 billion at mid-year 2008 to more than $2 trillion by mid-year 2009. This policy

The term "open market operations" refers to the

One advantage of a money system compared to a barter system is that

When commercial banks extend loans, they are able to expand the supply of money in the United States because the U.S. has

Marquis decides to bank with First National Bank (FNB). He opens a checking account by depositing $1,000. According to the FNB balance sheet, after this initial $1,000 checkable deposit, there are $1,000 in

Which of the following would cause the actual deposit expansion multiplier to be less than its potential?

The interest rate in the federal funds market

If the Fed wanted to expand the money supply as part of an antirecession strategy, it could

Table 13-2 -Refer to Table 13-2. The reserve requirement is 10 percent and then someone deposits an additional $50,000 into the bank, then if the bank takes no other action it will

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 is responsible for decision making regarding the purchase and sale of bonds by the Fed?

The legal requirement that commercial banks hold reserves equal to some fraction of their deposits

If the Federal Reserve is engaging in open market operations designed to expand the money supply, it is probably

The foreign holdings of U.S. dollars

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

Which of the following would lead to a rapid growth of the money supply in the future?

Table 13-2 -Refer to Table 13-2. If the reserve requirement is 20 percent, this bank

The value (purchasing power) of each unit of money

Suppose that during a period of inflation, the Fed reduced its holdings of U.S. securities from $600 billion to $580 billion. This indicates that the Fed was

A system that permits banks to hold less than 100 percent of their deposits as reserves is called a

During the second half of 2008, the Fed approximately doubled the reserves of the commercial banking system. As a result, the M1 money supply

In response to the recession of 2008-2009, the Fed doubled its asset holdings from $925 billion at mid-year 2008 to more than $2 trillion by mid-year 2009. This policy

The term "open market operations" refers to the

One advantage of a money system compared to a barter system is that

When commercial banks extend loans, they are able to expand the supply of money in the United States because the U.S. has

Marquis decides to bank with First National Bank (FNB). He opens a checking account by depositing $1,000. According to the FNB balance sheet, after this initial $1,000 checkable deposit, there are $1,000 in

Which of the following would cause the actual deposit expansion multiplier to be less than its potential?

The interest rate in the federal funds market

If the Fed wanted to expand the money supply as part of an antirecession strategy, it could

Table 13-2 -Refer to Table 13-2. The reserve requirement is 10 percent and then someone deposits an additional $50,000 into the bank, then if the bank takes no other action it will

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