Question 1

If $300 of new reserves generates $800 of new money in the economy, then the reserve ratio is

Accepted Answer

A) 2.7 percent. 
B) 12.5 percent. 
C) 37.5 percent. 
D) 40 percent. 
A) 2.7 percent. 
B) 12.5 percent. 
C) 37.5 percent. 
D) 40 percent.

Question 2

M2 is both larger and less liquid than M1.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is not included in M1?

Accepted Answer

A) currency 
B) demand deposits 
C) traveler's checks 
D) credit cards 
A) currency 
B) demand deposits 
C) traveler's checks 
D) credit cards

Question 4

If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by

Accepted Answer

A) $64 of new reserves. 
B) $448 of new reserves. 
C) $700 of new reserves. 
D) $800 of new reserves. 
A) $64 of new reserves. 
B) $448 of new reserves. 
C) $700 of new reserves. 
D) $800 of new reserves.

Question 5

Consider five individuals with different occupations.   If this economy has money

Accepted Answer

A) Allen will buy from Betty 
B) Betty will buy from Calvin 
C) Eric will buy from Allen 
D) None of the above are correct. 
A) Allen will buy from Betty 
B) Betty will buy from Calvin 
C) Eric will buy from Allen 
D) None of the above are correct.

Question 6

The banking system currently has $200 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 4 percent. If the Fed raises the reserve requirement to 10 percent and at the same time buys $50 billion worth of bonds, then by how much does the money supply change?

Accepted Answer

A) It rises by $600 billion. 
B) It rises by $125 billion. 
C) It falls by $2,500 billion. 
D) None of the above is correct. 
A) It rises by $600 billion. 
B) It rises by $125 billion. 
C) It falls by $2,500 billion. 
D) None of the above is correct.

Question 7

​When prices rise,

Accepted Answer

A) real estate is a better unit of account than money. 
B) money is a worse medium of exchange than real estate. 
C) ​money is a better store of value than real estate. 
D) ​real estate is a better store of value than money. 
A) real estate is a better unit of account than money. 
B) money is a worse medium of exchange than real estate. 
C) ​money is a better store of value than real estate. 
D) ​real estate is a better store of value than money.

Question 8

The Fed began paying interest on reserves in October 2008. Holding all else constant, what effect would this have on the money supply?

Accepted Answer

This would

Question 9

Any item that people can use to transfer purchasing power from the present to the future is called

Accepted Answer

A) a medium of exchange. 
B) a unit of account. 
C) a store of value. 
D) None of the above is correct. 
A) a medium of exchange. 
B) a unit of account. 
C) a store of value. 
D) None of the above is correct.

Question 10

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

Accepted Answer

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

Question 11

What is the difference between money and wealth?

Accepted Answer

Money is defined as the set of

Question 12

According to the article "Why Gold?', silver may be used as money. One problem with using silver as money is that

Accepted Answer

A) silver is too abundant. 
B) silver tarnishes over time. 
C) it is not a precious metal. 
D) it has a high melting point. 
A) silver is too abundant. 
B) silver tarnishes over time. 
C) it is not a precious metal. 
D) it has a high melting point.

Question 13

Which of the following is an asset of a bank and a liability for its customers?

Accepted Answer

A) deposits of its customers and loans to its customers 
B) deposits of its customers but not loans to its customers 
C) loans to its customers but not the deposits of its customers 
D) neither the deposits of its customers nor the loans to its customers 
A) deposits of its customers and loans to its customers 
B) deposits of its customers but not loans to its customers 
C) loans to its customers but not the deposits of its customers 
D) neither the deposits of its customers nor the loans to its customers

Question 14

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 an increase in reserves of $150 for this bank has the potential to increase deposits for all banks by

Accepted Answer

A) $287.25. 
B) $1,614.71. 
C) $1,764.71. 
D) $2,000 or more. 
A) $287.25. 
B) $1,614.71. 
C) $1,764.71. 
D) $2,000 or more.

Question 15

What does the Fed auction at the Term-Auction Facility?

Accepted Answer

A) government bonds of a quantity it sets 
B) government bonds with the quantity determined at the auction 
C) loans of a quantity it sets 
D) loans with the quantity determined at the auction 
A) government bonds of a quantity it sets 
B) government bonds with the quantity determined at the auction 
C) loans of a quantity it sets 
D) loans with the quantity determined at the auction

Question 16

Which of the following statements regarding the Federal Open Market Committee is correct?

Accepted Answer

A) Only the five voting regional Fed presidents attend the meetings. 
B) All regional Fed presidents attend and vote at the meetings. 
C) All regional Fed presidents attend the meetings, but only five get to vote. 
D) Regional Fed presidents may neither attend nor vote the meetings. 
A) Only the five voting regional Fed presidents attend the meetings. 
B) All regional Fed presidents attend and vote at the meetings. 
C) All regional Fed presidents attend the meetings, but only five get to vote. 
D) Regional Fed presidents may neither attend nor vote the meetings.

Question 17

The manager of the bank where you work tells you that the bank has $300 million in deposits and $255 million dollars in loans. If the reserve requirement is 8.5 percent, how much is the bank holding in excess reserves?

Accepted Answer

A) $15 million 
B) $19.5 million 
C) $25.5 million 
D) $0 million 
A) $15 million 
B) $19.5 million 
C) $25.5 million 
D) $0 million

Question 18

The Fed can influence unemployment in

Accepted Answer

A) the short run and in the long run. 
B) the short run, but not in the long run. 
C) the long run, but not in the short run. 
D) neither the short nor the long run. 
A) the short run and in the long run. 
B) the short run, but not in the long run. 
C) the long run, but not in the short run. 
D) neither the short nor the long run.

Question 19

Suppose a bank is operating with a leverage ratio of 10. A 6 percent increase in the value of assets

Accepted Answer

A) will reduce liabilities by 6 percent. 
B) will result in a 60 percent increase in owner's equity. 
C) will result in a 60 percent decrease in owner's equity. 
D) will reduce liabilities by 10 percent. 
A) will reduce liabilities by 6 percent. 
B) will result in a 60 percent increase in owner's equity. 
C) will result in a 60 percent decrease in owner's equity. 
D) will reduce liabilities by 10 percent.

Question 20

When the Fed makes open-market sales bank

Accepted Answer

A) withdrawals and lending increase. 
B) withdrawals increase and lending decreases. 
C) deposits and lending increase. 
D) deposits increase and lending decreases. 
A) withdrawals and lending increase. 
B) withdrawals increase and lending decreases. 
C) deposits and lending increase. 
D) deposits increase and lending decreases.

Exam 29: The Monetary System

If $300 of new reserves generates $800 of new money in the economy, then the reserve ratio is

M2 is both larger and less liquid than M1.

Which of the following is not included in M1?

If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by

Consider five individuals with different occupations. If this economy has money

​When prices rise,

The Fed began paying interest on reserves in October 2008. Holding all else constant, what effect would this have on the money supply?

Any item that people can use to transfer purchasing power from the present to the future is called

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

What is the difference between money and wealth?

According to the article "Why Gold?', silver may be used as money. One problem with using silver as money is that

Which of the following is an asset of a bank and a liability for its customers?

What does the Fed auction at the Term-Auction Facility?

Which of the following statements regarding the Federal Open Market Committee is correct?

The manager of the bank where you work tells you that the bank has $300 million in deposits and $255 million dollars in loans. If the reserve requirement is 8.5 percent, how much is the bank holding in excess reserves?

The Fed can influence unemployment in

Suppose a bank is operating with a leverage ratio of 10. A 6 percent increase in the value of assets

When the Fed makes open-market sales bank

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

When prices rise,