Question 1

Bank runs

Accepted Answer

A) will affect neither the money supply nor the money multiplier. 
B) increase the money supply. 
C) can be neither prevented nor mitigated by the Federal Reserve. 
D) are a problem because banks only hold a fraction of deposits as reserves. 
A) will affect neither the money supply nor the money multiplier. 
B) increase the money supply. 
C) can be neither prevented nor mitigated by the Federal Reserve. 
D) are a problem because banks only hold a fraction of deposits as reserves.

Question 2

Economists equate money with

Accepted Answer

A) individual wealth. 
B) income regularly earned. 
C) assets people use regularly to buy goods and services. 
D) individual saving. 
A) individual wealth. 
B) income regularly earned. 
C) assets people use regularly to buy goods and services. 
D) individual saving.

Question 3

When the Fed decreases the discount rate, banks will

Accepted Answer

A) borrow more from the Fed and lend more to the public. The money supply increases. 
B) borrow more from the Fed and lend less to the public. The money supply decreases. 
C) borrow less from the Fed and lend more to the public. The money supply increases. 
D) borrow less from the Fed and lend less to the public. The money supply decreases. 
A) borrow more from the Fed and lend more to the public. The money supply increases. 
B) borrow more from the Fed and lend less to the public. The money supply decreases. 
C) borrow less from the Fed and lend more to the public. The money supply increases. 
D) borrow less from the Fed and lend less to the public. The money supply decreases.

Question 4

The use of money allows trade to be roundabout.

Accepted Answer

A) True 
 B)False

Question 5

In a system of 100-percent-reserve banking,

Accepted Answer

A) banks do not accept deposits. 
B) banks do not influence the supply of money. 
C) loans are the only asset item for banks. 
D) All of the above are correct. 
A) banks do not accept deposits. 
B) banks do not influence the supply of money. 
C) loans are the only asset item for banks. 
D) All of the above are correct.

Question 6

Scenario 29-2.
The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi. The local unit of currency is the taz. Aggregate banking statistics show that collectively the banks of Tazi hold 300 million tazes of required reserves, 75 million tazes of excess reserves, have issued 7,500 million tazes of deposits, and hold 225 million tazes of Tazian Treasury bonds. Tazians prefer to use only demand deposits and so all money is on deposit at the bank.
-Refer to Scenario 29-2. Suppose that the Bank of Tazi changes the reserve requirement to 3 percent. Assuming that the banks still want to hold the same percentage of excess reserves what is the value of the money supply after banks adjust to the change in the reserve requirement?

Accepted Answer

A) 9,375 million tazes 
B) 10,000 million tazes 
C) 12,500 million tazes 
D) None of the above is correct to the nearest million tazes. 
A) 9,375 million tazes 
B) 10,000 million tazes 
C) 12,500 million tazes 
D) None of the above is correct to the nearest million tazes.

Question 7

What does it mean for the Fed to be the "lender of last resort?"

Accepted Answer

When banks can not borrow in the market

Question 8

A bank has a 20 percent reserve requirement, $8,000 in loans, and has loaned out all it can given the reserve requirement.

Accepted Answer

A) It has $6,400 in deposits. 
B) It has $10,000 in deposits. 
C) It has $9,600 in deposits. 
D) It has $1,600 in deposits. 
A) It has $6,400 in deposits. 
B) It has $10,000 in deposits. 
C) It has $9,600 in deposits. 
D) It has $1,600 in deposits.

Question 9

Bank regulators impose capital requirements in order to

Accepted Answer

A) increase the amount of leverage in the economy. 
B) provide an incentive for banks to hold risky assets. 
C) ensure banks can pay off depositors. 
D) increase the probability of a credit crunch. 
A) increase the amount of leverage in the economy. 
B) provide an incentive for banks to hold risky assets. 
C) ensure banks can pay off depositors. 
D) increase the probability of a credit crunch.

Question 10

In 1991, the Federal Reserve lowered the reserve requirement from 12 percent to 10 percent. Other things the same this should have

Accepted Answer

A) increased both the money multiplier and the money supply. 
B) decreased both the money multiplier and the money supply. 
C) increased the money multiplier and decreased the money supply. 
D) decreased the money multiplier and increased the money supply. 
A) increased both the money multiplier and the money supply. 
B) decreased both the money multiplier and the money supply. 
C) increased the money multiplier and decreased the money supply. 
D) decreased the money multiplier and increased the money supply.

Question 11

Compare the Board of Governors and the Federal Open Market Committee.

Accepted Answer

The Board of Governors runs the Federal

Question 12

When the Soviet Union began breaking up in the late 1980s, cigarettes began replacing the ruble as the medium of exchange even though the ruble was legal tender. The cigarettes provide an example of commodity money.

Accepted Answer

A) True 
 B)False

Question 13

Under a fractional-reserve banking system, banks

Accepted Answer

A) hold more reserves than deposits. 
B) generally lend out a majority of the funds deposited. 
C) cause the money supply to fall by lending out reserves. 
D) All of the above are correct. 
A) hold more reserves than deposits. 
B) generally lend out a majority of the funds deposited. 
C) cause the money supply to fall by lending out reserves. 
D) All of the above are correct.

Question 14

The existence of money makes trade easier. How is it that money can also increase the standard of living?

Accepted Answer

The existence of money means the economy

Question 15

The New York Federal Reserve Bank

Accepted Answer

A) president always gets to vote at the FOMC meetings. 
B) conducts open market transactions. 
C) is one of 12 regional Federal Reserve Banks. 
D) All of the above are correct. 
A) president always gets to vote at the FOMC meetings. 
B) conducts open market transactions. 
C) is one of 12 regional Federal Reserve Banks. 
D) All of the above are correct.

Question 16

The banking system currently has $50 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed raises the reserve requirement to 12.5 percent and at the same time sells $10 billion worth of bonds, then by how much does the money supply change?

Accepted Answer

A) It falls by $20 billion. 
B) It falls by $110 billion. 
C) It falls by $180 billion. 
D) None of the above is correct. 
A) It falls by $20 billion. 
B) It falls by $110 billion. 
C) It falls by $180 billion. 
D) None of the above is correct.

Question 17

When the Fed conducts open-market sales,

Accepted Answer

A) it sells Treasury securities, which increases the money supply. 
B) it sells Treasury securities, which decreases the money supply. 
C) it auctions term loans, which increases the money supply. 
D) it auctions term loans, which decreases the money supply. 
A) it sells Treasury securities, which increases the money supply. 
B) it sells Treasury securities, which decreases the money supply. 
C) it auctions term loans, which increases the money supply. 
D) it auctions term loans, which decreases the money supply.

Question 18

If the reserve ratio is 4 percent, then the money multiplier is

Accepted Answer

A) 24. 
B) 25. 
C) 26. 
D) 4. 
A) 24. 
B) 25. 
C) 26. 
D) 4.

Question 19

The "yardstick" people use to post prices and record debts is called

Accepted Answer

A) a medium of exchange. 
B) a unit of account. 
C) a store of value. 
D) liquidity. 
A) a medium of exchange. 
B) a unit of account. 
C) a store of value. 
D) liquidity.

Question 20

Table 29-5.  
-Refer to Table 29-5. If the bank faces a reserve requirement of 20 percent, then it

Accepted Answer

A) has $10,000 of excess reserves. 
B) needs $10,000 more reserves to meet its reserve requirements. 
C) needs $20,000 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 $20,000 more reserves to meet its reserve requirements. 
D) just meets its reserve requirement.

Exam 29: The Monetary System

Bank runs

Economists equate money with

When the Fed decreases the discount rate, banks will

The use of money allows trade to be roundabout.

In a system of 100-percent-reserve banking,

What does it mean for the Fed to be the "lender of last resort?"

A bank has a 20 percent reserve requirement, $8,000 in loans, and has loaned out all it can given the reserve requirement.

Bank regulators impose capital requirements in order to

In 1991, the Federal Reserve lowered the reserve requirement from 12 percent to 10 percent. Other things the same this should have

Compare the Board of Governors and the Federal Open Market Committee.

When the Soviet Union began breaking up in the late 1980s, cigarettes began replacing the ruble as the medium of exchange even though the ruble was legal tender. The cigarettes provide an example of commodity money.

Under a fractional-reserve banking system, banks

The existence of money makes trade easier. How is it that money can also increase the standard of living?

The New York Federal Reserve Bank

When the Fed conducts open-market sales,

If the reserve ratio is 4 percent, then the money multiplier is

The "yardstick" people use to post prices and record debts is called

Table 29-5. -Refer to Table 29-5. If the bank faces a reserve requirement of 20 percent, then it

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

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