Question 1

The money multiplier is higher when bankers are more cautious and hold excess reserves.

Accepted Answer

A) True 
 B)False

Question 2

A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can given the reserve requirement.

Accepted Answer

A) It has $80 in reserves and $9,920 in loans. 
B) It has $800 in reserves and $9,200 in loans. 
C) It has $1,250 in reserves and $8,750 in loans. 
D) None of the above is correct. 
A) It has $80 in reserves and $9,920 in loans. 
B) It has $800 in reserves and $9,200 in loans. 
C) It has $1,250 in reserves and $8,750 in loans. 
D) None of the above is correct.

Question 3

Currently, U.S. currency is

Accepted Answer

A) fiat money with intrinsic value. 
B) fiat money with no intrinsic value. 
C) commodity money with intrinsic value. 
D) commodity money with no intrinsic value. 
A) fiat money with intrinsic value. 
B) fiat money with no intrinsic value. 
C) commodity money with intrinsic value. 
D) commodity money with no intrinsic value.

Question 4

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 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

All U.S. paper dollars read "This note is legal tender for all debts, public and private." This statement represents which characteristic of US currency?

Accepted Answer

A) The U.S. operates under the gold standard. 
B) U.S. paper money is commodity money. 
C) U.S. paper money is fiat money. 
D) U.S. paper money is a convenient store of wealth. 
A) The U.S. operates under the gold standard. 
B) U.S. paper money is commodity money. 
C) U.S. paper money is fiat money. 
D) U.S. paper money is a convenient store of wealth.

Question 6

The tool most often used by the Fed to control the money supply is

Accepted Answer

A) changing reserve requirements. 
B) open market operations. 
C) buying and selling of equities. 
D) altering the discount rate. 
A) changing reserve requirements. 
B) open market operations. 
C) buying and selling of equities. 
D) altering the discount rate.

Question 7

Table 29-3. An economy starts with $50,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $45,750. The T-account of the bank is shown below.  
-Refer to Table 29-3. If all banks in the economy have the same reserve ratio as this bank, then the value of the economy's money multiplier is

Accepted Answer

A) 9.33. 
B) 1.09. 
C) 10.76. 
D) 11.76. 
A) 9.33. 
B) 1.09. 
C) 10.76. 
D) 11.76.

Question 8

If the money multiplier is 3 and the Fed buys $50,000 worth of bonds, what happens to the money supply?

Accepted Answer

A) it increases by $100,000 
B) it increases by $150,000 
C) it decreases by $100,000 
D) it decreases by $200,000 
A) it increases by $100,000 
B) it increases by $150,000 
C) it decreases by $100,000 
D) it decreases by $200,000

Question 9

Which of the following entities actually executes open-market operations?

Accepted Answer

A) the Board of Governors 
B) the New York Federal Reserve Bank 
C) the Federal Open Market Committee 
D) the Open Market Committees of the regional Federal Reserve Banks 
A) the Board of Governors 
B) the New York Federal Reserve Bank 
C) the Federal Open Market Committee 
D) the Open Market Committees of the regional Federal Reserve Banks

Question 10

An important function of the U.S. Federal Reserve is to

Accepted Answer

A) set the debt ceiling. 
B) fund Congressional spending. 
C) control the supply of money. 
D) mint coins. 
A) set the debt ceiling. 
B) fund Congressional spending. 
C) control the supply of money. 
D) mint coins.

Question 11

If the reserve ratio is 8 percent, then the money multiplier is

Accepted Answer

A) 12.5. 
B) 11.5. 
C) 13.5. 
D) 8. 
A) 12.5. 
B) 11.5. 
C) 13.5. 
D) 8.

Question 12

Which list ranks assets from most to least liquid?

Accepted Answer

A) currency, fine art, stocks 
B) currency, stocks, fine art 
C) fine art, currency, stocks 
D) fine art, stocks, currency 
A) currency, fine art, stocks 
B) currency, stocks, fine art 
C) fine art, currency, stocks 
D) fine art, stocks, currency

Question 13

Which of the following individuals serve a four-year term?

Accepted Answer

A) the members of the Board of Governors 
B) the Chair of the Board of Governors 
C) the members of the FOMC 
D) All of the above are correct. 
A) the members of the Board of Governors 
B) the Chair of the Board of Governors 
C) the members of the FOMC 
D) All of the above are correct.

Question 14

Which of the following is not a tool of monetary policy?

Accepted Answer

A) open market operations 
B) reserve requirements 
C) changing the discount rate 
D) increasing the government budget deficit 
A) open market operations 
B) reserve requirements 
C) changing the discount rate 
D) increasing the government budget deficit

Question 15

Treasury Bonds are

Accepted Answer

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

Question 16

Suppose banks decide to hold more excess reserves relative to deposits. Other things the same, this action will cause the

Accepted Answer

A) money supply to fall. To reduce the impact of this the Fed could sell Treasury bonds. 
B) money supply to fall. To reduce the impact of this the Fed could buy Treasury bonds. 
C) money supply to rise. To reduce the impact of this the Fed could sell Treasury bonds. 
D) money supply to rise. To reduce the impact of this the Fed could buy Treasury bonds. 
A) money supply to fall. To reduce the impact of this the Fed could sell Treasury bonds. 
B) money supply to fall. To reduce the impact of this the Fed could buy Treasury bonds. 
C) money supply to rise. To reduce the impact of this the Fed could sell Treasury bonds. 
D) money supply to rise. To reduce the impact of this the Fed could buy Treasury bonds.

Question 17

To decrease the money supply, the Fed can

Accepted Answer

A) buy government bonds or increase the discount rate. 
B) buy government bonds or decrease the discount rate. 
C) sell government bonds or increase the discount rate. 
D) sell government bonds or decrease the discount rate. 
A) buy government bonds or increase the discount rate. 
B) buy government bonds or decrease the discount rate. 
C) sell government bonds or increase the discount rate. 
D) sell government bonds or decrease the discount rate.

Question 18

The existence of money

Accepted Answer

A) reduces specialization. 
B) makes trade easier. 
C) allows for barter. 
D) hinders production. 
A) reduces specialization. 
B) makes trade easier. 
C) allows for barter. 
D) hinders production.

Question 19

List two examples of commodity money.

Accepted Answer

Commodity money refers to mone

Question 20

As banks create money, they create wealth.

Accepted Answer

A) True 
 B)False

Exam 29: The Monetary System

The money multiplier is higher when bankers are more cautious and hold excess reserves.

A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can given the reserve requirement.

Currently, U.S. currency is

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

All U.S. paper dollars read "This note is legal tender for all debts, public and private." This statement represents which characteristic of US currency?

The tool most often used by the Fed to control the money supply is

If the money multiplier is 3 and the Fed buys $50,000 worth of bonds, what happens to the money supply?

Which of the following entities actually executes open-market operations?

An important function of the U.S. Federal Reserve is to

If the reserve ratio is 8 percent, then the money multiplier is

Which list ranks assets from most to least liquid?

Which of the following individuals serve a four-year term?

Which of the following is not a tool of monetary policy?

Treasury Bonds are

Suppose banks decide to hold more excess reserves relative to deposits. Other things the same, this action will cause the

To decrease the money supply, the Fed can

The existence of money

List two examples of commodity money.

As banks create money, they create wealth.

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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