Question 1

The reserve requirement is 4 percent, banks hold no excess reserves and people hold no currency. If the Fed sells $10,000 worth of bonds, what happens to the money supply?

Accepted Answer

A) it increases by $250,000 
B) it increases by $200,000 
C) it decreases by $200,000 
D) it decreases by $250,000 
A) it increases by $250,000 
B) it increases by $200,000 
C) it decreases by $200,000 
D) it decreases by $250,000

Question 2

M1 includes

Accepted Answer

A) currency. 
B) demand deposits. 
C) traveler's checks. 
D) All of the above are correct. 
A) currency. 
B) demand deposits. 
C) traveler's checks. 
D) All of the above are correct.

Question 3

What are the functions of money?

Accepted Answer

Medium of exchange,

Question 4

If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

Accepted Answer

A) buying bonds. This buying would increase the money supply. 
B) buying bonds. This buying would reduce the money supply. 
C) selling bonds. This selling would increase the money supply. 
D) selling bonds. This selling would reduce the money supply. 
A) buying bonds. This buying would increase the money supply. 
B) buying bonds. This buying would reduce the money supply. 
C) selling bonds. This selling would increase the money supply. 
D) selling bonds. This selling would reduce the money supply.

Question 5

Which of the following items is included in M2?

Accepted Answer

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

Question 6

Which of the following is included in M1 and M2?

Accepted Answer

A) traveler's checks 
B) savings deposits 
C) money market mutual funds 
D) small time deposits 
A) traveler's checks 
B) savings deposits 
C) money market mutual funds 
D) small time deposits

Question 7

The Federal Reserve

Accepted Answer

A) is responsible for conducting the nation's monetary policy, and it plays a role in regulating banks. 
B) is responsible for conducing the nation's monetary policy, but it plays no role in regulating banks. 
C) is not responsible for conducting the nation's monetary policy, and it plays a role in regulating banks. 
D) is not responsible for conducing the nation's monetary policy, and it plays no role in regulating banks. 
A) is responsible for conducting the nation's monetary policy, and it plays a role in regulating banks. 
B) is responsible for conducing the nation's monetary policy, but it plays no role in regulating banks. 
C) is not responsible for conducting the nation's monetary policy, and it plays a role in regulating banks. 
D) is not responsible for conducing the nation's monetary policy, and it plays no role in regulating banks.

Question 8

Liquidity refers to

Accepted Answer

A) the ease with which an asset is converted to the medium of exchange. 
B) the measurement of the intrinsic value of commodity money. 
C) the measurement of the durability of a good. 
D) how many time a dollar circulates in a given year. 
A) the ease with which an asset is converted to the medium of exchange. 
B) the measurement of the intrinsic value of commodity money. 
C) the measurement of the durability of a good. 
D) how many time a dollar circulates in a given year.

Question 9

If the Federal Open Market Committee decides to increase the money supply, then the Federal Reserve

Accepted Answer

A) creates dollars and uses them to purchase government bonds from the public. 
B) sells government bonds from its portfolio to the public. 
C) creates dollars and uses them to purchase various types of stocks and bonds from the public. 
D) sells various types of stocks and bonds from its portfolio to the public. 
A) creates dollars and uses them to purchase government bonds from the public. 
B) sells government bonds from its portfolio to the public. 
C) creates dollars and uses them to purchase various types of stocks and bonds from the public. 
D) sells various types of stocks and bonds from its portfolio to the public.

Question 10

When you purchase school supplies at the book store using cash, you are using money as a medium of exchange.

Accepted Answer

A) True 
 B)False

Question 11

​If the reserve ratio increased from 5 percent to 10 percent, then the money multiplier would

Accepted Answer

A) ​rise from 5 to 10. 
B) ​rise from 10 to 20. 
C) ​fall from 20 to 10. 
D) ​fall from 10 to 5. 
A) ​rise from 5 to 10. 
B) ​rise from 10 to 20. 
C) ​fall from 20 to 10. 
D) ​fall from 10 to 5.

Question 12

If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

Accepted Answer

A) buying bonds. This buying would reduce reserves. 
B) buying bonds. This buying would increase reserves. 
C) selling bonds. This selling would reduce reserves. 
D) selling bonds. This selling would increase reserves. 
A) buying bonds. This buying would reduce reserves. 
B) buying bonds. This buying would increase reserves. 
C) selling bonds. This selling would reduce reserves. 
D) selling bonds. This selling would increase reserves.

Question 13

The chair of the Board of Governors regularly testifies to Congress about Fed policy.

Accepted Answer

A) True 
 B)False

Question 14

Why is the president of the New York Fed always a voting member of the FOMC?

Accepted Answer

New York is the financial capitol of the

Question 15

The federal funds rate is a long-term interest rate banks charge one another for loans.

Accepted Answer

A) True 
 B)False

Question 16

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

Accepted Answer

A) fewer reserves, so the money multiplier will fall. 
B) fewer reserves, so the money multiplier will rise. 
C) more reserves, so the money multiplier will fall. 
D) more reserves, so the money multiplier will rise. 
A) fewer reserves, so the money multiplier will fall. 
B) fewer reserves, so the money multiplier will rise. 
C) more reserves, so the money multiplier will fall. 
D) more reserves, so the money multiplier will rise.

Question 17

Paper dollars

Accepted Answer

A) are commodity money and gold coins are fiat money. 
B) are fiat money and gold coins are commodity money. 
C) and gold coins are both commodity monies. 
D) and gold coins are both fiat monies. 
A) are commodity money and gold coins are fiat money. 
B) are fiat money and gold coins are commodity money. 
C) and gold coins are both commodity monies. 
D) and gold coins are both fiat monies.

Question 18

In measuring the stock of money in the U.S., M1 includes

Accepted Answer

A) traveler's checks. 
B) savings deposits. 
C) credit cards 
D) none of the above. 
A) traveler's checks. 
B) savings deposits. 
C) credit cards 
D) none of the above.

Question 19

Scenario 29-1.
The monetary policy of Namdian is determined by the Namdian Central Bank. The local currency is the dia. Namdian banks collectively hold 100 million dias of required reserves, 25 million dias of excess reserves, 250 million dias of Namdian Treasury Bonds, and their customers hold 1,000 million dias of deposits. Namdians prefer to use only demand deposits and so the money supply consists of demand deposits.
-Refer to Scenario 29-1. Assume that banks desire to continue holding the same ratio of excess reserves to deposits. What is the reserve requirement and what is the reserve ratio?

Accepted Answer

A) 2 percent, 8 percent 
B) 8 percent, 10 percent 
C) 10 percent, 12.5 percent 
D) None of the above is correct. 
A) 2 percent, 8 percent 
B) 8 percent, 10 percent 
C) 10 percent, 12.5 percent 
D) None of the above is correct.

Question 20

Other things the same if reserve requirements are decreased, the reserve ratio

Accepted Answer

A) decreases, the money multiplier increases, and the money supply decreases. 
B) increases, the money multiplier increases, and the money supply increases. 
C) decreases, the money multiplier increases, and the money supply increases. 
D) increases, the money multiplier increases, and the money supply decreases. 
A) decreases, the money multiplier increases, and the money supply decreases. 
B) increases, the money multiplier increases, and the money supply increases. 
C) decreases, the money multiplier increases, and the money supply increases. 
D) increases, the money multiplier increases, and the money supply decreases.

Exam 29: The Monetary System

The reserve requirement is 4 percent, banks hold no excess reserves and people hold no currency. If the Fed sells $10,000 worth of bonds, what happens to the money supply?

M1 includes

What are the functions of money?

If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

Which of the following items is included in M2?

Which of the following is included in M1 and M2?

The Federal Reserve

Liquidity refers to

If the Federal Open Market Committee decides to increase the money supply, then the Federal Reserve

When you purchase school supplies at the book store using cash, you are using money as a medium of exchange.

​If the reserve ratio increased from 5 percent to 10 percent, then the money multiplier would

If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

The chair of the Board of Governors regularly testifies to Congress about Fed policy.

Why is the president of the New York Fed always a voting member of the FOMC?

The federal funds rate is a long-term interest rate banks charge one another for loans.

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

Paper dollars

In measuring the stock of money in the U.S., M1 includes

Other things the same if reserve requirements are decreased, the reserve ratio

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

If the reserve ratio increased from 5 percent to 10 percent, then the money multiplier would