Question 1

Which of the following is included in M2 but not in M1?

Accepted Answer

A) demand deposits 
B) corporate bonds 
C) large time deposits 
D) money market mutual funds 
A) demand deposits 
B) corporate bonds 
C) large time deposits 
D) money market mutual funds

Question 2

When the Federal Reserve conducts open-market operations to increase the money supply, it

Accepted Answer

A) redeems Federal Reserve notes. 
B) buys government bonds from the public. 
C) raises the discount rate. 
D) decreases its lending to member banks. 
A) redeems Federal Reserve notes. 
B) buys government bonds from the public. 
C) raises the discount rate. 
D) decreases its lending to member banks.

Question 3

The prices of goods at a grocery store are listed in dollars. Which function of money does this illustrate?

Accepted Answer

The answer of The prices of goods at a grocery...

Question 4

If people decide to hold less currency relative to deposits, the money supply

Accepted Answer

A) falls. The Fed could lessen the impact of this by buying Treasury bonds. 
B) falls. The Fed could lessen the impact of this by selling Treasury bonds. 
C) rises. The Fed could lessen the impact of this by buying Treasury bonds. 
D) rises. The Fed could lessen the impact of this by selling Treasury bonds. 
A) falls. The Fed could lessen the impact of this by buying Treasury bonds. 
B) falls. The Fed could lessen the impact of this by selling Treasury bonds. 
C) rises. The Fed could lessen the impact of this by buying Treasury bonds. 
D) rises. The Fed could lessen the impact of this by selling Treasury bonds.

Question 5

In an economy that relies on barter, trade requires a double-coincidence of wants.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following can banks use to borrow from the Federal Reserve?

Accepted Answer

A) the discount window or the term auction facility 
B) the discount window but not the term auction facility 
C) the term auction facility but not the discount window 
D) Banks cannot borrow from the Federal Reserve, only the government can. 
A) the discount window or the term auction facility 
B) the discount window but not the term auction facility 
C) the term auction facility but not the discount window 
D) Banks cannot borrow from the Federal Reserve, only the government can.

Question 7

Suppose that in a country the total holdings of banks were as follows:
required reserves = $45 million
excess reserves = $15 million
deposits = $750 million
loans = $600 million
Treasury bonds = $90 million
Show that the balance sheet balances if these are the only assets and liabilities.
Assuming that people hold no currency, what happens to each of these values if the central bank changes the reserve requirement ratio to 2%, banks still want to hold the same percentage of excess reserves, and banks don't change their holdings of Treasury bonds? How much does the money supply change by?

Accepted Answer

The only liability is deposits which equ

Question 8

The money supply decreases if the Fed

Accepted Answer

A) sells Treasury bonds. The larger the reserve requirement, the larger the decrease will be. 
B) sells Treasury bonds. The smaller the reserve requirement, the larger the decrease will be. 
C) buys Treasury bonds. The larger the reserve requirement, the larger the decrease will be. 
D) buys Treasury bonds. The smaller the reserve requirement, the larger the decrease will be. 
A) sells Treasury bonds. The larger the reserve requirement, the larger the decrease will be. 
B) sells Treasury bonds. The smaller the reserve requirement, the larger the decrease will be. 
C) buys Treasury bonds. The larger the reserve requirement, the larger the decrease will be. 
D) buys Treasury bonds. The smaller the reserve requirement, the larger the decrease will be.

Question 9

In recent years the Federal Open Market Committee has focused on a target for

Accepted Answer

A) M1 growth. 
B) the federal funds rate. 
C) the number of Treasury Securities issued by the federal government. 
D) total reserves of banks. 
A) M1 growth. 
B) the federal funds rate. 
C) the number of Treasury Securities issued by the federal government. 
D) total reserves of banks.

Question 10

Which list ranks assets from most to least liquid?

Accepted Answer

A) money, bonds, cars, houses 
B) money, cars, houses, bonds 
C) bonds, money, cars, houses 
D) bonds, cars, money, houses 
A) money, bonds, cars, houses 
B) money, cars, houses, bonds 
C) bonds, money, cars, houses 
D) bonds, cars, money, houses

Question 11

If the reserve ratio is 12.5 percent, then $1,000 of additional reserves can create up to

Accepted Answer

A) $7,000 of new money. 
B) $8,000 of new money. 
C) $11,500 of new money. 
D) $12,500 of new money. 
A) $7,000 of new money. 
B) $8,000 of new money. 
C) $11,500 of new money. 
D) $12,500 of new money.

Question 12

The fractional reserve characteristic of the banking system allows banks to create money and also create wealth from bank deposits. Describe why this statement is or is not true.

Accepted Answer

This statement is not true.Banks can cre

Question 13

If the reserve ratio is 15 percent, and banks do not hold excess reserves, and people hold only deposits and no currency, then when the Fed sells $25.5 million worth of bonds to the public, bank reserves

Accepted Answer

A) increase by $25.5 million and the money supply eventually increases by $382.5 million. 
B) increase by $25.5 million and the money supply eventually increases by $170 million. 
C) decrease by $25.5 million and the money supply eventually decreases by $382.5 million. 
D) decrease by $25.5 million and the money supply eventually decreases by $170 million. 
A) increase by $25.5 million and the money supply eventually increases by $382.5 million. 
B) increase by $25.5 million and the money supply eventually increases by $170 million. 
C) decrease by $25.5 million and the money supply eventually decreases by $382.5 million. 
D) decrease by $25.5 million and the money supply eventually decreases by $170 million.

Question 14

Fractional reserve banking is a system where banks must hold an amount of cash based on a percentage of its loans.

Accepted Answer

A) True 
 B)False

Question 15

The rate at which the Fed lends money to banks is

Accepted Answer

A) the prime rate. 
B) fixed at 4%. 
C) the federal funds rate. 
D) the discount rate. 
A) the prime rate. 
B) fixed at 4%. 
C) the federal funds rate. 
D) the discount rate.

Question 16

Jim transfers money from his money market account to his savings account. This action

Accepted Answer

A) reduced M1 and increases M2. 
B) increases M1 and reduces M2. 
C) has no effect on M1 or M2. 
D) increases M1 and M2. 
A) reduced M1 and increases M2. 
B) increases M1 and reduces M2. 
C) has no effect on M1 or M2. 
D) increases M1 and M2.

Question 17

Which of the following will not help to prevent bank runs?

Accepted Answer

A) government insurance of deposits 
B) fractional reserve banking 
C) 100% reserve banking 
D) All of the above prevent bank runs. 
A) government insurance of deposits 
B) fractional reserve banking 
C) 100% reserve banking 
D) All of the above prevent bank runs.

Question 18

Why do Federal Reserve Board of Governors have long (14 year) terms?

Accepted Answer

Long terms allow Fed Board of

Question 19

Which of the following increase when the Fed makes open market purchases?

Accepted Answer

A) currency and reserves 
B) currency but not reserves 
C) reserves but not currency 
D) neither currency nor reserves 
A) currency and reserves 
B) currency but not reserves 
C) reserves but not currency 
D) neither currency nor reserves

Question 20

Name three actions the Fed can take to increase the money supply.

Accepted Answer

Open-market purchases (buy gov

Exam 29: The Monetary System

Which of the following is included in M2 but not in M1?

When the Federal Reserve conducts open-market operations to increase the money supply, it

The prices of goods at a grocery store are listed in dollars. Which function of money does this illustrate?

If people decide to hold less currency relative to deposits, the money supply

In an economy that relies on barter, trade requires a double-coincidence of wants.

Which of the following can banks use to borrow from the Federal Reserve?

The money supply decreases if the Fed

In recent years the Federal Open Market Committee has focused on a target for

Which list ranks assets from most to least liquid?

If the reserve ratio is 12.5 percent, then $1,000 of additional reserves can create up to

The fractional reserve characteristic of the banking system allows banks to create money and also create wealth from bank deposits. Describe why this statement is or is not true.

If the reserve ratio is 15 percent, and banks do not hold excess reserves, and people hold only deposits and no currency, then when the Fed sells $25.5 million worth of bonds to the public, bank reserves

Fractional reserve banking is a system where banks must hold an amount of cash based on a percentage of its loans.

The rate at which the Fed lends money to banks is

Jim transfers money from his money market account to his savings account. This action

Which of the following will not help to prevent bank runs?

Why do Federal Reserve Board of Governors have long (14 year) terms?

Which of the following increase when the Fed makes open market purchases?

Name three actions the Fed can take to increase the money supply.

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