Question 1

The Federal Reserve

Accepted Answer

A) is part of the executive branch of government. 
B) is only responsible for controlling the money supply. 
C) is the central bank of Canada. 
D) was created in 1913. 
A) is part of the executive branch of government. 
B) is only responsible for controlling the money supply. 
C) is the central bank of Canada. 
D) was created in 1913.

Question 2

When you list prices for necklaces sold on your website, www.sparklingjewels.com, in dollars, this best illustrates money's function as

Accepted Answer

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

Question 3

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) It has $8,000 in reserves and $2,000 in loans. 
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) It has $8,000 in reserves and $2,000 in loans.

Question 4

Because of the multiple tools at its disposal, the Fed can control the money supply very precisely.

Accepted Answer

A) True 
 B)False

Question 5

The money supply of Granov is $10,000 in a 100-percent-reserve banking system. If the Central Bank of Granov decreases the reserve requirement ratio to 10 percent, the money supply could increase by no more than $9,000.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following lists is included in what economists call "money"?

Accepted Answer

A) Cash 
B) Cash and stocks and bonds 
C) Cash and stocks and bonds and real estate 
D) Cash and stocks and bonds and real estate and all other assets 
A) Cash 
B) Cash and stocks and bonds 
C) Cash and stocks and bonds and real estate 
D) Cash and stocks and bonds and real estate and all other assets

Question 7

​Under a 100-percent-reserve banking system, banks do not influence the supply of money.

Accepted Answer

A) True 
 B)False

Question 8

Scenario 29-1
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 Tazian dollar. Aggregate banking statistics show that collectively the banks of Tazi hold $375 million of required reserves, $225 million of excess reserves, have issued $7,500 million of deposits, and hold $750 million of Tazian Treasury bonds. Tazians prefer to use only demand deposits and so all money is on deposit at the bank.
-Which of the following will help to prevent bank runs?

Accepted Answer

A) A 0% reserve requirement 
B) 100% reserve banking 
C) Lack of government insurance of deposits 
D) Fractional reserve banking 
A) A 0% reserve requirement 
B) 100% reserve banking 
C) Lack of government insurance of deposits 
D) Fractional reserve banking

Question 9

Gary's wealth is $1 million. Economists would say that Gary has $1 million worth of money.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following functions as both a store of value and a medium of exchange?

Accepted Answer

A) Cash and stocks 
B) Cash but not stocks 
C) Stocks but not cash 
D) Neither cash nor stocks 
A) Cash and stocks 
B) Cash but not stocks 
C) Stocks but not cash 
D) Neither cash nor stocks

Question 11

Table 29-3
​
 $$\begin{array}{l}
\text { The First Bank of Rosw ell }\
\begin{array} { l l | l l } 
& \text { Assets } & { \text { Liabilities } } \
\hline \text { Reserves } & \$ 30,000 & \text { Deposits } & \$ 200,000 \
\text { Loans } & 170,000 & &
\end{array}
\end{array}$$ ​
​
​
-Refer to Table 29-3. Suppose the bank faces a reserve requirement of 10 percent. Starting from the situation as depicted by the T-account, a customer deposits an additional $60,000 into his account at the bank. If the bank takes no other action it will

Accepted Answer

A) have $64,000 in excess reserves. 
B) have $4,000 in excess reserves. 
C) be in a position to make new loans equal to a maximum of $6,000. 
D) be unable to make any new loans. 
A) have $64,000 in excess reserves. 
B) have $4,000 in excess reserves. 
C) be in a position to make new loans equal to a maximum of $6,000. 
D) be unable to make any new loans.

Question 12

Money is the only asset that functions as a store of value.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

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

Question 14

If the Fed buys bonds in the open market, the money supply decreases.

Accepted Answer

A) True 
 B)False

Question 15

Table 29-5
​
  
-Refer to Table 29-5. This bank's leverage ratio is

Accepted Answer

A) 2. 
B) 50. 
C) 13.3. 
D) 7.5. 
A) 2. 
B) 50. 
C) 13.3. 
D) 7.5.

Question 16

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

Question 17

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

Accepted Answer

A) 0.04. 
B) 25. 
C) 2.5. 
D) 4. 
A) 0.04. 
B) 25. 
C) 2.5. 
D) 4.

Question 18

Federal Reserve governors are given long terms to insulate them from politics.

Accepted Answer

A) True 
 B)False

Question 19

Assume that when $100 of new reserves enter the banking system, the money supply ultimately increases by $800. Assume also that no banks hold excess reserves and that the entire money supply consists of bank deposits. If, at a point in time, reserves for all banks amount to $750, then at that same point in time, loans for all banks amount to $6,000.

Accepted Answer

A) True 
 B)False

Question 20

Demand deposits are balances in bank accounts that depositors can access by writing a check or using a debit card.

Accepted Answer

A) True 
 B)False

Exam 29: The Monetary System

The Federal Reserve

When you list prices for necklaces sold on your website, www.sparklingjewels.com, in dollars, this best illustrates money's function as

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

Because of the multiple tools at its disposal, the Fed can control the money supply very precisely.

The money supply of Granov is $10,000 in a 100-percent-reserve banking system. If the Central Bank of Granov decreases the reserve requirement ratio to 10 percent, the money supply could increase by no more than $9,000.

Which of the following lists is included in what economists call "money"?

​Under a 100-percent-reserve banking system, banks do not influence the supply of money.

Gary's wealth is $1 million. Economists would say that Gary has $1 million worth of money.

Which of the following functions as both a store of value and a medium of exchange?

Money is the only asset that functions as a store of value.

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

If the Fed buys bonds in the open market, the money supply decreases.

Table 29-5 ​ -Refer to Table 29-5. This bank's leverage ratio is

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

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

Federal Reserve governors are given long terms to insulate them from politics.

Demand deposits are balances in bank accounts that depositors can access by writing a check or using a debit card.

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 Nations 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

Under a 100-percent-reserve banking system, banks do not influence the supply of money.

Table 29-5 -Refer to Table 29-5. This bank's leverage ratio is