Question 1

The Federal Reserve can alter the size of the money supply by changing reserves or changing reserve requirements.

Accepted Answer

A) True 
 B)False

Question 2

If the reserve ratio increased from 10 percent to 20 percent, the money multiplier would

Accepted Answer

A) rise from 10 to 20. 
B) rise from 5 to 10. 
C) fall from 10 to 5. 
D) not change. 
A) rise from 10 to 20. 
B) rise from 5 to 10. 
C) fall from 10 to 5. 
D) not change.

Question 3

Table 29-6.  
-Refer to Table 29-6. The Bank of Pleasantville's reserve ratio is

Accepted Answer

A) 6.4 percent. 
B) 16.7 percent. 
C) 6.0 percent. 
D) 15.7 percent. 
A) 6.4 percent. 
B) 16.7 percent. 
C) 6.0 percent. 
D) 15.7 percent.

Question 4

Table 29-9
Metropolis National Bank is currently holding 2% of its deposits as excess reserves.  
-Refer to Table 29-9. Metropolis National Bank is currently holding 2% of deposits as excess reserves. Assume that no banks in the economy want to hold excess reserves and that people only hold deposits and no currency. How much does the money supply ultimately increase when Metropolis National Bank lends out its excess reserves?

Accepted Answer

A) $100,000 
B) $110,000 
C) $120,000 
D) None of the above are correct. 
A) $100,000 
B) $110,000 
C) $120,000 
D) None of the above are correct.

Question 5

​In a system of 100-percent-reserve banking, changes in the money supply depend on the decisions of the Fed as well as the behavior of depositors and bankers.

Accepted Answer

A) True 
 B)False

Question 6

The Federal Reserve

Accepted Answer

A) was created in 1836. 
B) serves as a lender of last resort. 
C) was created to facilitate the federal government's collection of taxes as well as its expenditures. 
D) All of the above are correct. 
A) was created in 1836. 
B) serves as a lender of last resort. 
C) was created to facilitate the federal government's collection of taxes as well as its expenditures. 
D) All of the above are correct.

Question 7

When we say that trade is roundabout we mean that

Accepted Answer

A) people sometimes trade goods for goods. 
B) trades require a double coincidence of wants. 
C) currency is accepted primarily to make further trades. 
D) people must spend time searching for the products they wish to purchase. 
A) people sometimes trade goods for goods. 
B) trades require a double coincidence of wants. 
C) currency is accepted primarily to make further trades. 
D) people must spend time searching for the products they wish to purchase.

Question 8

Given the following information, what are the values of M1 and M2?

Accepted Answer

A) M1 = $650 billion, M2 = $2,830 billion. 
B) M1 = $400 billion, M2 = $3,080 billion. 
C) M1 = $680 billion, M2 = $2,800 billion. 
D) M1 = $680 billion, M2 = $3,200 billion. 
A) M1 = $650 billion, M2 = $2,830 billion. 
B) M1 = $400 billion, M2 = $3,080 billion. 
C) M1 = $680 billion, M2 = $2,800 billion. 
D) M1 = $680 billion, M2 = $3,200 billion.

Question 9

One of the features of money is its store of value. However, most people do not hold their wealth as currency. Given that currency is the most liquid type of asset, why don't people hold all their wealth as currency?

Accepted Answer

Currency is not a perfect store of value

Question 10

If the reserve ratio is 5 percent, then $1,000 of additional reserves can create up to

Accepted Answer

A) $5,500 of new money. 
B) $5,000 of new money. 
C) $4,000 of new money. 
D) None of the above is correct. 
A) $5,500 of new money. 
B) $5,000 of new money. 
C) $4,000 of new money. 
D) None of the above is correct.

Question 11

The interest rate the Fed charges on loans it makes to banks is called

Accepted Answer

A) the prime rate. 
B) the federal funds rate. 
C) the discount rate. 
D) the LIBOR. 
A) the prime rate. 
B) the federal funds rate. 
C) the discount rate. 
D) the LIBOR.

Question 12

Which of the following functions of money is also a common function of most other financial assets?

Accepted Answer

A) a unit of account 
B) a store of value 
C) medium of exchange 
D) None of the above is correct. 
A) a unit of account 
B) a store of value 
C) medium of exchange 
D) None of the above is correct.

Question 13

If the reserve requirement is 10 percent, which of the following pairs of changes would both allow a bank to lend out an additional $10,000?

Accepted Answer

A) the Fed buys a $10,000 bond from the bank or someone deposits $10,000 in the bank 
B) the Fed buys a $10,000 bond from the bank or the Fed lends the bank $10,000 
C) the Fed sells a $10,000 bond to the bank or someone deposits $10,000 in the bank 
D) the Fed sells a $10,000 bond to the bank or the Fed lends the bank $10,000 
A) the Fed buys a $10,000 bond from the bank or someone deposits $10,000 in the bank 
B) the Fed buys a $10,000 bond from the bank or the Fed lends the bank $10,000 
C) the Fed sells a $10,000 bond to the bank or someone deposits $10,000 in the bank 
D) the Fed sells a $10,000 bond to the bank or the Fed lends the bank $10,000

Question 14

Table 29-5.  
-Refer to Table 29-5. If the bank is holding $4,000 in excess reserves, then the reserve requirement with which it must comply is

Accepted Answer

A) 17 percent. 
B) 12 percent. 
C) 13 percent. 
D) 14 percent. 
A) 17 percent. 
B) 12 percent. 
C) 13 percent. 
D) 14 percent.

Question 15

When the Fed buys government bonds,

Accepted Answer

A) the money supply increases and the federal funds rate increases. 
B) the money supply increases and the federal funds rate decreases. 
C) the money supply decreases and the federal funds rate increases. 
D) the money supply decreases and the federal funds rate decreases. 
A) the money supply increases and the federal funds rate increases. 
B) the money supply increases and the federal funds rate decreases. 
C) the money supply decreases and the federal funds rate increases. 
D) the money supply decreases and the federal funds rate decreases.

Question 16

Just after the terrorist attack on September 11, 2001, the Fed stood ready to lend financial institutions funds. When the Fed did this, it was acting in its role of lender of last resort.

Accepted Answer

A) True 
 B)False

Question 17

A debit card is more similar to a credit card than to a check.

Accepted Answer

A) True 
 B)False

Question 18

Treasury Bonds are

Accepted Answer

A) liquid, but not a store of value. 
B) a store of value, but not liquid. 
C) both liquid and a store of value. 
D) neither liquid nor a store of value. 
A) liquid, but not a store of value. 
B) a store of value, but not liquid. 
C) both liquid and a store of value. 
D) neither liquid nor a store of value.

Question 19

The Federal Reserve primarily uses open-market operations to change the money supply.

Accepted Answer

A) True 
 B)False

Question 20

When the Fed sells government bonds,

Accepted Answer

A) the money supply increases and the federal funds rate increases. 
B) the money supply increases and the federal funds rate decreases. 
C) the money supply decreases and the federal funds rate increases. 
D) the money supply decreases and the federal funds rate decreases. 
A) the money supply increases and the federal funds rate increases. 
B) the money supply increases and the federal funds rate decreases. 
C) the money supply decreases and the federal funds rate increases. 
D) the money supply decreases and the federal funds rate decreases.

Exam 29: The Monetary System

The Federal Reserve can alter the size of the money supply by changing reserves or changing reserve requirements.

If the reserve ratio increased from 10 percent to 20 percent, the money multiplier would

Table 29-6. -Refer to Table 29-6. The Bank of Pleasantville's reserve ratio is

​In a system of 100-percent-reserve banking, changes in the money supply depend on the decisions of the Fed as well as the behavior of depositors and bankers.

The Federal Reserve

When we say that trade is roundabout we mean that

Given the following information, what are the values of M1 and M2?

One of the features of money is its store of value. However, most people do not hold their wealth as currency. Given that currency is the most liquid type of asset, why don't people hold all their wealth as currency?

If the reserve ratio is 5 percent, then $1,000 of additional reserves can create up to

The interest rate the Fed charges on loans it makes to banks is called

Which of the following functions of money is also a common function of most other financial assets?

If the reserve requirement is 10 percent, which of the following pairs of changes would both allow a bank to lend out an additional $10,000?

Table 29-5. -Refer to Table 29-5. If the bank is holding $4,000 in excess reserves, then the reserve requirement with which it must comply is

When the Fed buys government bonds,

Just after the terrorist attack on September 11, 2001, the Fed stood ready to lend financial institutions funds. When the Fed did this, it was acting in its role of lender of last resort.

A debit card is more similar to a credit card than to a check.

Treasury Bonds are

The Federal Reserve primarily uses open-market operations to change the money supply.

When the Fed sells government bonds,

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Applications: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Measuring a Nation S Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

In a system of 100-percent-reserve banking, changes in the money supply depend on the decisions of the Fed as well as the behavior of depositors and bankers.