Question 1

If the Fed buys a $1,000 U.S.government bond from a bank,it pays for it by giving the bank $1,000 in reserves-reserves that it simply creates out of thin air.

Accepted Answer

A) True 
 B)False

Question 2

By reducing the required reserve ratio,the Fed can not only create excess reserves but also increase the money multiplier.

Accepted Answer

A) True 
 B)False

Question 3

Open market operations involve:

Accepted Answer

A) opening the discount window. 
B) buying stocks in the stock market. 
C) buying and selling government securities in the open market. 
D) opening new markets for commodities. 
E) selling failed banks to other banks. 
A) opening the discount window. 
B) buying stocks in the stock market. 
C) buying and selling government securities in the open market. 
D) opening new markets for commodities. 
E) selling failed banks to other banks.

Question 4

The Fed's purchase of U.S.government securities constitutes a(n):

Accepted Answer

A) contractionary policy because it lowers the amount of total reserves in the banking system. 
B) contractionary policy because it lowers the amount of excess reserves in the banking system. 
C) expansionary policy because it raises the amount of total reserves in the banking system. 
D) expansionary policy because it lowers the amount of total reserves in the banking system. 
E) expansionary policy because it raises the amount of required reserves in the banking system. 
A) contractionary policy because it lowers the amount of total reserves in the banking system. 
B) contractionary policy because it lowers the amount of excess reserves in the banking system. 
C) expansionary policy because it raises the amount of total reserves in the banking system. 
D) expansionary policy because it lowers the amount of total reserves in the banking system. 
E) expansionary policy because it raises the amount of required reserves in the banking system.

Question 5

Which of the following is true of banks?

Accepted Answer

A) Banks reduce the opportunity cost of holding idle cash. 
B) Banks act as intermediaries between the government and private investors. 
C) Banks can reduce risk by lending to rich borrowers. 
D) Banks reduce the transaction costs of borrowing and lending money. 
E) Banks can reduce risks by extending more loans. 
A) Banks reduce the opportunity cost of holding idle cash. 
B) Banks act as intermediaries between the government and private investors. 
C) Banks can reduce risk by lending to rich borrowers. 
D) Banks reduce the transaction costs of borrowing and lending money. 
E) Banks can reduce risks by extending more loans.

Question 6

When a customer deposits $1,000 in a bank,the deposit is:

Accepted Answer

A) an asset of the Federal Reserve. 
B) included in M1 if it is currently in a commercial bank's vault. 
C) a liability to the customer. 
D) an asset to a commercial bank if it is currently in the bank's vault. 
E) a liability for the bank as the bank owes it to the customer. 
A) an asset of the Federal Reserve. 
B) included in M1 if it is currently in a commercial bank's vault. 
C) a liability to the customer. 
D) an asset to a commercial bank if it is currently in the bank's vault. 
E) a liability for the bank as the bank owes it to the customer.

Question 7

If a bank has $50,000 in excess reserves at the end of a business day and the required reserve ratio is 20 percent,the bank can increase its profits by:

Accepted Answer

A) keeping the excess reserves. 
B) loaning out $40,000. 
C) loaning out $50,000 to another bank. 
D) borrowing $50,000 to remove the excess reserves. 
E) keeping $10,000 and depositing $40,000 with the Fed. 
A) keeping the excess reserves. 
B) loaning out $40,000. 
C) loaning out $50,000 to another bank. 
D) borrowing $50,000 to remove the excess reserves. 
E) keeping $10,000 and depositing $40,000 with the Fed.

Question 8

If the required reserve ratio is 20 percent and a bank has $100,000 in checkable deposits,then its:​

Accepted Answer

A) required reserves are $500,000. 
B) required reserves are $20,000. 
C) assets are $500,000. 
D) liabilities are $500,000. 
E) net worth is $500,000. 
A) required reserves are $500,000. 
B) required reserves are $20,000. 
C) assets are $500,000. 
D) liabilities are $500,000. 
E) net worth is $500,000.

Question 9

The M1 money supply consists of:

Accepted Answer

A) only coins and currency held by the nonbank public. 
B) certificates of deposit only. 
C) coins and currency held by the nonbank public,checkable deposits,and traveler's checks. 
D) money market mutual fund accounts,savings accounts,and other miscellaneous near-monies. 
E) only paper currency. 
A) only coins and currency held by the nonbank public. 
B) certificates of deposit only. 
C) coins and currency held by the nonbank public,checkable deposits,and traveler's checks. 
D) money market mutual fund accounts,savings accounts,and other miscellaneous near-monies. 
E) only paper currency.

Question 10

A 2005 quarter is called token money because:

Accepted Answer

A) it is legal tender. 
B) its metal value exceeds its face value. 
C) there is less than a quarter's worth of metal in it. 
D) it can be used in the subway. 
E) it is generally not accepted in exchange. 
A) it is legal tender. 
B) its metal value exceeds its face value. 
C) there is less than a quarter's worth of metal in it. 
D) it can be used in the subway. 
E) it is generally not accepted in exchange.

Question 11

From a bank's point of view,its deposits are liabilities.

Accepted Answer

A) True 
 B)False

Question 12

If you know the required reserve ratio,then you know how much each bank is holding in reserves.

Accepted Answer

A) True 
 B)False

Question 13

To increase the money supply,the Fed might:

Accepted Answer

A) increase the discount rate and sell bonds in the open market. 
B) decrease the reserve requirement and buy bonds in the open market. 
C) increase the reserve requirement and sell bonds in the open market. 
D) increase the discount rate and lower the reserve requirement. 
E) sell government securities and increase the discount rate. 
A) increase the discount rate and sell bonds in the open market. 
B) decrease the reserve requirement and buy bonds in the open market. 
C) increase the reserve requirement and sell bonds in the open market. 
D) increase the discount rate and lower the reserve requirement. 
E) sell government securities and increase the discount rate.

Question 14

All of the following are part of M2 except one.Which is the exception?

Accepted Answer

A) Money market deposit accounts 
B) Coins 
C) Traveler's checks 
D) Large-denomination time deposits 
E) Savings deposits 
A) Money market deposit accounts 
B) Coins 
C) Traveler's checks 
D) Large-denomination time deposits 
E) Savings deposits

Question 15

Debit cards are safer than credit cards because debit cards generally require a PIN number.

Accepted Answer

A) True 
 B)False

Question 16

Banks have more expertise than individual households in making loans because banks:

Accepted Answer

A) lend smaller amounts of money. 
B) are regulated by the government. 
C) also pay interest to savers. 
D) are subject to severe penalties if they make bad loans. 
E) make many more loans than individual households do. 
A) lend smaller amounts of money. 
B) are regulated by the government. 
C) also pay interest to savers. 
D) are subject to severe penalties if they make bad loans. 
E) make many more loans than individual households do.

Question 17

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

Accepted Answer

A) increase in that bank's required reserves. 
B) decrease in that bank's required reserves. 
C) increase in that bank's excess reserves. 
D) decrease in that bank's excess reserves. 
E) decrease in the Fed's assets. 
A) increase in that bank's required reserves. 
B) decrease in that bank's required reserves. 
C) increase in that bank's excess reserves. 
D) decrease in that bank's excess reserves. 
E) decrease in the Fed's assets.

Question 18

Suppose the First National Bank acquires $500,000 in new deposits and the required reserve ratio is 12 percent.Which of the following is true?

Accepted Answer

A) Required reserves on the new deposits are $12,000. 
B) Excess reserves on the new deposits are $500,000. 
C) Required reserves on the new deposits are $60,000. 
D) Excess reserves on the new deposits are $12,000. 
E) Total reserves on the new deposits are $440,000. 
A) Required reserves on the new deposits are $12,000. 
B) Excess reserves on the new deposits are $500,000. 
C) Required reserves on the new deposits are $60,000. 
D) Excess reserves on the new deposits are $12,000. 
E) Total reserves on the new deposits are $440,000.

Question 19

The Fed tries to prevent major financial crises through its control of financial markets.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is true of credit cards?

Accepted Answer

A) They have eliminated the use of money. 
B) They are currently the most popular means of payment in the United States. 
C) They are included in the narrow definition of money,M1. 
D) They are near-monies. 
E) They are used to postpone the payment of money. 
A) They have eliminated the use of money. 
B) They are currently the most popular means of payment in the United States. 
C) They are included in the narrow definition of money,M1. 
D) They are near-monies. 
E) They are used to postpone the payment of money.

If the Fed buys a $1,000 U.S.government bond from a bank,it pays for it by giving the bank $1,000 in reserves-reserves that it simply creates out of thin air.

By reducing the required reserve ratio,the Fed can not only create excess reserves but also increase the money multiplier.

Open market operations involve:

The Fed's purchase of U.S.government securities constitutes a(n):

Which of the following is true of banks?

When a customer deposits $1,000 in a bank,the deposit is:

If a bank has $50,000 in excess reserves at the end of a business day and the required reserve ratio is 20 percent,the bank can increase its profits by:

If the required reserve ratio is 20 percent and a bank has $100,000 in checkable deposits,then its:

The M1 money supply consists of:

A 2005 quarter is called token money because:

From a bank's point of view,its deposits are liabilities.

If you know the required reserve ratio,then you know how much each bank is holding in reserves.

To increase the money supply,the Fed might:

All of the following are part of M2 except one.Which is the exception?

Debit cards are safer than credit cards because debit cards generally require a PIN number.

Banks have more expertise than individual households in making loans because banks:

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

Suppose the First National Bank acquires $500,000 in new deposits and the required reserve ratio is 12 percent.Which of the following is true?

The Fed tries to prevent major financial crises through its control of financial markets.

Which of the following is true of credit cards?

The Art and Science of Economic Analysis

Some Tools of Economic Analysis

Economic Decision Makers

Demand, Supply, and Markets

Introduction to Macroeconomics

Tracking the U S Economy

Unemployment and Inflation

Us Productivity and Growth

Aggregate Demand

Aggregate Supply

Fiscal Policy

Federal Budgets and Public Policy

Money and the Financial System

Monetary Theory and Policy

The Policy Debate: Active or Passive

International Trade

International Finance

Economic Development

Filters

Exam 14: Banking and the Money Supply

If the Fed buys a $1,000 U.S.government bond from a bank,it pays for it by giving the bank $1,000 in reserves-reserves that it simply creates out of thin air.

By reducing the required reserve ratio,the Fed can not only create excess reserves but also increase the money multiplier.

Open market operations involve:

The Fed's purchase of U.S.government securities constitutes a(n):

Which of the following is true of banks?

When a customer deposits $1,000 in a bank,the deposit is:

If a bank has $50,000 in excess reserves at the end of a business day and the required reserve ratio is 20 percent,the bank can increase its profits by:

If the required reserve ratio is 20 percent and a bank has $100,000 in checkable deposits,then its:​

The M1 money supply consists of:

A 2005 quarter is called token money because:

From a bank's point of view,its deposits are liabilities.

If you know the required reserve ratio,then you know how much each bank is holding in reserves.

To increase the money supply,the Fed might:

All of the following are part of M2 except one.Which is the exception?

Debit cards are safer than credit cards because debit cards generally require a PIN number.

Banks have more expertise than individual households in making loans because banks:

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

Suppose the First National Bank acquires $500,000 in new deposits and the required reserve ratio is 12 percent.Which of the following is true?

The Fed tries to prevent major financial crises through its control of financial markets.

Which of the following is true of credit cards?

The Art and Science of Economic Analysis

Some Tools of Economic Analysis

Economic Decision Makers

Demand, Supply, and Markets

Introduction to Macroeconomics

Tracking the U S Economy

Unemployment and Inflation

Us Productivity and Growth

Aggregate Demand

Aggregate Supply

Fiscal Policy

Federal Budgets and Public Policy

Money and the Financial System

Monetary Theory and Policy

The Policy Debate: Active or Passive

International Trade

International Finance

Economic Development

Filters

If the required reserve ratio is 20 percent and a bank has $100,000 in checkable deposits,then its: