Question 1

How are Federal Reserve Board Governors selected?

Accepted Answer

The Fed Governors are appointed by the p

Question 2

Which of the following best illustrates the medium of exchange function of money?

Accepted Answer

A) You keep some money hidden in your shoe. 
B) You keep track of the value of your assets in terms of currency. 
C) You pay for your oil change using currency. 
D) None of the above is correct. 
A) You keep some money hidden in your shoe. 
B) You keep track of the value of your assets in terms of currency. 
C) You pay for your oil change using currency. 
D) None of the above is correct.

Question 3

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 . Suppose the Central Bank of Namdia purchases 25 million dias of Namdian Treasury Bonds from banks. Suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the same. By how much would the money supply of Namdia change?

Accepted Answer

A) 200 million dias 
B) 150 million dias 
C) 100 million dias 
D) None of the above is correct. 
A) 200 million dias 
B) 150 million dias 
C) 100 million dias 
D) None of the above is correct.

Question 4

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 the Bank of Tazi purchased 50 million tazes of Tazian Treasury Bonds from the banks. Suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the same. By how much does the money supply change?

Accepted Answer

A) 625 million tazes 
B) 1,000 million tazes 
C) 1,250 million tazes 
D) None of the above is correct. 
A) 625 million tazes 
B) 1,000 million tazes 
C) 1,250 million tazes 
D) None of the above is correct.

Question 5

Money allows people to specialize in what they do best, thereby raising everyone's standard of living.

Accepted Answer

A) True 
 B)False

Question 6

On a bank's T-account, which are part of the bank's assets?

Accepted Answer

A) both deposits made by its customers and reserves 
B) deposits made by its customers but not reserves 
C) reserves but not deposits made by its customers 
D) neither deposits made by its customers nor reserves 
A) both deposits made by its customers and reserves 
B) deposits made by its customers but not reserves 
C) reserves but not deposits made by its customers 
D) neither deposits made by its customers nor reserves

Question 7

In an economy that relies upon barter,

Accepted Answer

A) trade does not require a double coincidence of wants. 
B) scarce resources are allocated just as easily as they are in economies that do not rely upon barter. 
C) there is no item in the economy that is widely accepted in exchange for goods and services. 
D) All of the above are correct. 
A) trade does not require a double coincidence of wants. 
B) scarce resources are allocated just as easily as they are in economies that do not rely upon barter. 
C) there is no item in the economy that is widely accepted in exchange for goods and services. 
D) All of the above are correct.

Question 8

In the nation of Wiknam, the money supply is $80,000 and reserves are $18,000. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

Accepted Answer

A) 29 percent. 
B) 22.5 percent. 
C) 16 percent. 
D) None of the above is correct. 
A) 29 percent. 
B) 22.5 percent. 
C) 16 percent. 
D) None of the above is correct.

Question 9

The discount rate is

Accepted Answer

A) the interest rate the Fed charges banks. 
B) one divided by the difference between one and the reserve ratio. 
C) the interest rate banks receive on reserve deposits with the Fed. 
D) the interest rate that banks charge on overnight loans to other banks. 
A) the interest rate the Fed charges banks. 
B) one divided by the difference between one and the reserve ratio. 
C) the interest rate banks receive on reserve deposits with the Fed. 
D) the interest rate that banks charge on overnight loans to other banks.

Question 10

The Fed's policy decisions have an important influence on

Accepted Answer

A) inflation in the long run and employment and production in the short run. 
B) inflation in the long run and employment and production in the long run. 
C) inflation in the short run and employment and production in the short run. 
D) inflation in the short run and employment and production in the long run. 
A) inflation in the long run and employment and production in the short run. 
B) inflation in the long run and employment and production in the long run. 
C) inflation in the short run and employment and production in the short run. 
D) inflation in the short run and employment and production in the long run.

Question 11

If the reserve ratio is 10 percent, the money multiplier is

Accepted Answer

A) 100. 
B) 10. 
C) 9/10. 
D) 1/10. 
A) 100. 
B) 10. 
C) 9/10. 
D) 1/10.

Question 12

A bank's assets equal its liabilities under

Accepted Answer

A) both 100-percent-reserve banking and fractional-reserve banking. 
B) 100-percent-reserve banking but not under fractional-reserve banking. 
C) fractional-reserve banking but not under 100-percent-reserve banking. 
D) neither 100-percent-reserve banking nor fractional-reserve banking. 
A) both 100-percent-reserve banking and fractional-reserve banking. 
B) 100-percent-reserve banking but not under fractional-reserve banking. 
C) fractional-reserve banking but not under 100-percent-reserve banking. 
D) neither 100-percent-reserve banking nor fractional-reserve banking.

Question 13

The set of items that serve as media of exchange clearly includes

Accepted Answer

A) demand deposits. 
B) short-term bonds. 
C) credit cards. 
D) All of the above are correct. 
A) demand deposits. 
B) short-term bonds. 
C) credit cards. 
D) All of the above are correct.

Question 14

Currently, bank runs are a major problem for the U.S. banking system and the Fed.

Accepted Answer

A) True 
 B)False

Question 15

The Soviet government in the 1980's never abandoned the ruble as the official currency. However, the people of Moscow preferred to accept

Accepted Answer

A) cigarettes in exchange for goods and services, because they were convinced that cigarettes were going to soon become hard to come by. 
B) American dollars in exchange for goods and services, because rubles were extremely hard to come by. 
C) goods such as cigarettes or American dollars in exchange for goods and services, reminding us of the fact that government decree by itself is not sufficient for the success of a commodity money. 
D) All of the above are correct. 
A) cigarettes in exchange for goods and services, because they were convinced that cigarettes were going to soon become hard to come by. 
B) American dollars in exchange for goods and services, because rubles were extremely hard to come by. 
C) goods such as cigarettes or American dollars in exchange for goods and services, reminding us of the fact that government decree by itself is not sufficient for the success of a commodity money. 
D) All of the above are correct.

Question 16

The interest rate that the Fed charges banks that borrow reserves from it is the

Accepted Answer

A) federal funds rate. 
B) discount rate. 
C) reserve requirement. 
D) prime rate. 
A) federal funds rate. 
B) discount rate. 
C) reserve requirement. 
D) prime rate.

Question 17

Money

Accepted Answer

A) is a perfect store of value. 
B) is the most liquid asset. 
C) has intrinsic value, regardless of which form it takes. 
D) All of the above are correct. 
A) is a perfect store of value. 
B) is the most liquid asset. 
C) has intrinsic value, regardless of which form it takes. 
D) All of the above are correct.

Question 18

If the reserve ratio is 20 percent, how much money can be created from $100 of reserves? Show your work.

Accepted Answer

(1/.20) @#IMG-DLM& $

Question 19

The manager of the bank where you work tells you that your bank has $6 million in excess reserves. She also tells you that the bank has $400 million in deposits and $362 million dollars in loans. Given this information you find that the reserve requirement must be

Accepted Answer

A) 44/400. 
B) 6/362. 
C) 38/400. 
D) 32/400. 
A) 44/400. 
B) 6/362. 
C) 38/400. 
D) 32/400.

Question 20

Other things the same, if banks decide to hold a smaller part of their deposits as excess reserves, the money supply will fall.

Accepted Answer

A) True 
 B)False

Exam 29: The Monetary System

How are Federal Reserve Board Governors selected?

Which of the following best illustrates the medium of exchange function of money?

Money allows people to specialize in what they do best, thereby raising everyone's standard of living.

On a bank's T-account, which are part of the bank's assets?

In an economy that relies upon barter,

In the nation of Wiknam, the money supply is $80,000 and reserves are $18,000. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

The discount rate is

The Fed's policy decisions have an important influence on

If the reserve ratio is 10 percent, the money multiplier is

A bank's assets equal its liabilities under

The set of items that serve as media of exchange clearly includes

Currently, bank runs are a major problem for the U.S. banking system and the Fed.

The Soviet government in the 1980's never abandoned the ruble as the official currency. However, the people of Moscow preferred to accept

The interest rate that the Fed charges banks that borrow reserves from it is the

Money

If the reserve ratio is 20 percent, how much money can be created from $100 of reserves? Show your work.

The manager of the bank where you work tells you that your bank has $6 million in excess reserves. She also tells you that the bank has $400 million in deposits and $362 million dollars in loans. Given this information you find that the reserve requirement must be

Other things the same, if banks decide to hold a smaller part of their deposits as excess reserves, the money supply will fall.

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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