Question 1

A bank has a 5 percent reserve requirement, $5,000 in deposits, and has loaned out all it can given the reserve requirement.

Accepted Answer

A) It has $25 in reserves and $4,975 in loans. 
B) It has $250 in reserves and $4,750 in loans. 
C) It has $1,000 in reserves and $4,000 in loans. 
D) None of the above is correct. 
A) It has $25 in reserves and $4,975 in loans. 
B) It has $250 in reserves and $4,750 in loans. 
C) It has $1,000 in reserves and $4,000 in loans. 
D) None of the above is correct.

Question 2

If the reserve ratio is 12 percent, then the money multiplier is

Accepted Answer

A) 9.3. 
B) 8.3. 
C) 7.3. 
D) 12. 
A) 9.3. 
B) 8.3. 
C) 7.3. 
D) 12.

Question 3

A bank has $500,000 in deposits and $475,000 in loans. It has loaned out all it can. It has a reserve ratio of

Accepted Answer

A) 2.5 percent. 
B) 5 percent. 
C) 9.5 percent. 
D) 25 percent. 
A) 2.5 percent. 
B) 5 percent. 
C) 9.5 percent. 
D) 25 percent.

Question 4

The money supply increases when the Fed

Accepted Answer

A) lowers the discount rate. The increase will be larger the smaller the reserve ratio is. 
B) lowers the discount rate. The increase will be larger the larger the reserve ratio is. 
C) raises the discount rate. The increase will be larger the smaller the reserve ratio is. 
D) raises the discount rate. The increase will be larger the larger the reserve ratio is. 
A) lowers the discount rate. The increase will be larger the smaller the reserve ratio is. 
B) lowers the discount rate. The increase will be larger the larger the reserve ratio is. 
C) raises the discount rate. The increase will be larger the smaller the reserve ratio is. 
D) raises the discount rate. The increase will be larger the larger the reserve ratio is.

Question 5

The Fed increases the reserve requirement, but it wants to offset the effects on the money supply. Which of the following should it do?

Accepted Answer

A) sell bonds to increase reserves 
B) sell bonds to decrease reserves 
C) buy bonds to increase reserves 
D) buy bonds to decrease reserves 
A) sell bonds to increase reserves 
B) sell bonds to decrease reserves 
C) buy bonds to increase reserves 
D) buy bonds to decrease reserves

Question 6

John and Jane decide to go on a vacation. As a result, they withdraw $2,500 from their savings account to purchase $2,500 worth of traveler's checks. As a result of these changes,

Accepted Answer

A) M1 increases by $2,500 and M2 decreases by $2,500. 
B) M1 increases by $2,500 and M2 stays the same. 
C) M1 and M2 stay the same. 
D) M1 decreases by $2,500 and M2 increases by $2,500. 
A) M1 increases by $2,500 and M2 decreases by $2,500. 
B) M1 increases by $2,500 and M2 stays the same. 
C) M1 and M2 stay the same. 
D) M1 decreases by $2,500 and M2 increases by $2,500.

Question 7

​The Fed wants to increase the quantity of funds available through the Term Auction Facility. The Fed sets the

Accepted Answer

A) ​price of the loan, and money supply increases. 
B) ​quantity of borrowing, and money supply increases. 
C) ​price of the loan, and money supply decreases. 
D) ​quantity of borrowing, and money supply decreases. 
A) ​price of the loan, and money supply increases. 
B) ​quantity of borrowing, and money supply increases. 
C) ​price of the loan, and money supply decreases. 
D) ​quantity of borrowing, and money supply decreases.

Question 8

Suppose banks decide to hold fewer 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 9

What is meant by the term "lender of last resort?" In what circumstances might the Fed be a lender of last resort?

Accepted Answer

A "lender of last resort" is a lender to

Question 10

You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate?

Accepted Answer

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

Question 11

The banking system currently has $100 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 lowers the reserve requirement to 5 percent and at the same time buys $10 billion worth of bonds, then by how much does the money supply change?

Accepted Answer

A) It rises by $200 billion. 
B) It rises by $800 billion. 
C) It rises by $1,200 billion. 
D) None of the above is correct. 
A) It rises by $200 billion. 
B) It rises by $800 billion. 
C) It rises by $1,200 billion. 
D) None of the above is correct.

Question 12

Credit cards

Accepted Answer

A) ​are a method of deferring payment, and people who have credit cards hold less money on average. 
B) are a method of deferring payment, and people who have credit cards hold more money on average. 
C) ​are a medium of exchange, and people who have credit cards hold less money on average. 
D) are a medium of exchange, and people who have credit cards hold more money on average. 
A) ​are a method of deferring payment, and people who have credit cards hold less money on average. 
B) are a method of deferring payment, and people who have credit cards hold more money on average. 
C) ​are a medium of exchange, and people who have credit cards hold less money on average. 
D) are a medium of exchange, and people who have credit cards hold more money on average.

Question 13

Fiat money

Accepted Answer

A) is worthless. 
B) has no intrinsic value. 
C) may be used as a medium of exchange, but is not legal tender. 
D) refers to highly liquid assets that do not serve as a medium of exchange. 
A) is worthless. 
B) has no intrinsic value. 
C) may be used as a medium of exchange, but is not legal tender. 
D) refers to highly liquid assets that do not serve as a medium of exchange.

Question 14

M1 includes

Accepted Answer

A) small time deposits. 
B) savings deposits. 
C) other checkable deposits. 
D) money market mutual funds. 
A) small time deposits. 
B) savings deposits. 
C) other checkable deposits. 
D) money market mutual funds.

Question 15

The ease with which an asset can be converted into the economy's medium of exchange is known as _____.

Accepted Answer

The answer of The ease with which an asset can...

Question 16

The legal tender requirement means that

Accepted Answer

A) people are more likely to accept the dollar as a medium of exchange. 
B) the government must hold enough gold to redeem all currency. 
C) people may not make trades with anything else. 
D) All of the above are correct. 
A) people are more likely to accept the dollar as a medium of exchange. 
B) the government must hold enough gold to redeem all currency. 
C) people may not make trades with anything else. 
D) All of the above are correct.

Question 17

Marc puts prices on surfboards and skateboards at his sporting goods store. He is using money as a unit of account.

Accepted Answer

A) True 
 B)False

Question 18

A bank's reserve ratio is 8 percent and the bank has $1,000 in deposits. Its reserves amount to

Accepted Answer

A) $8. 
B) $80. 
C) $92. 
D) $920. 
A) $8. 
B) $80. 
C) $92. 
D) $920.

Question 19

Sam wants to trade eggs for sausage. Sally wants to trade sausage for eggs. Sam and Sally have a double-coincidence of wants.

Accepted Answer

A) True 
 B)False

Question 20

During the Great Depression in the early 1930s,

Accepted Answer

A) bank runs closed many banks. 
B) the money supply rose sharply. 
C) the Fed decreased reserve requirements. 
D) both a and b are correct. 
A) bank runs closed many banks. 
B) the money supply rose sharply. 
C) the Fed decreased reserve requirements. 
D) both a and b are correct.

Exam 29: The Monetary System

A bank has a 5 percent reserve requirement, $5,000 in deposits, and has loaned out all it can given the reserve requirement.

If the reserve ratio is 12 percent, then the money multiplier is

A bank has $500,000 in deposits and $475,000 in loans. It has loaned out all it can. It has a reserve ratio of

The money supply increases when the Fed

The Fed increases the reserve requirement, but it wants to offset the effects on the money supply. Which of the following should it do?

John and Jane decide to go on a vacation. As a result, they withdraw $2,500 from their savings account to purchase $2,500 worth of traveler's checks. As a result of these changes,

​The Fed wants to increase the quantity of funds available through the Term Auction Facility. The Fed sets the

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

What is meant by the term "lender of last resort?" In what circumstances might the Fed be a lender of last resort?

You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate?

Credit cards

Fiat money

M1 includes

The ease with which an asset can be converted into the economy's medium of exchange is known as _____.

The legal tender requirement means that

Marc puts prices on surfboards and skateboards at his sporting goods store. He is using money as a unit of account.

A bank's reserve ratio is 8 percent and the bank has $1,000 in deposits. Its reserves amount to

Sam wants to trade eggs for sausage. Sally wants to trade sausage for eggs. Sam and Sally have a double-coincidence of wants.

During the Great Depression in the early 1930s,

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

The Fed wants to increase the quantity of funds available through the Term Auction Facility. The Fed sets the