Question 1

The Fed's use of the interest rate it pays banks on their excess reserves

Accepted Answer

A)  is a tool the Fed has used effectively over the past several decades to control the money supply. 
B)  is a tool that can be used to reduce the supply of money, but it cannot be used to expand it. 
C)  is a monetary tool that the Fed introduced in 2008. 
D)  is a tool that  could be used to expand the money supply, but it could not be used to reduce it. 
A)  is a tool the Fed has used effectively over the past several decades to control the money supply. 
B)  is a tool that can be used to reduce the supply of money, but it cannot be used to expand it. 
C)  is a monetary tool that the Fed introduced in 2008. 
D)  is a tool that  could be used to expand the money supply, but it could not be used to reduce it. C

Question 2

In defining the money supply (M1), economists exclude savings deposits because

Accepted Answer

A)  the purchasing power of savings deposits is much less stable than that of checkable deposits and currency. 
B)  savings deposits are a form of investment and, thus, a better store of value than money. 
C)  savings deposits are liabilities of commercial banks, whereas checkable deposits are assets of the banks. 
D)  savings deposits are not generally used as a means of payment. 
A)  the purchasing power of savings deposits is much less stable than that of checkable deposits and currency. 
B)  savings deposits are a form of investment and, thus, a better store of value than money. 
C)  savings deposits are liabilities of commercial banks, whereas checkable deposits are assets of the banks. 
D)  savings deposits are not generally used as a means of payment. D

Question 3

Which of the following would cause the money supply in the United States to decrease?

Accepted Answer

A)  An increase in reserve requirements. 
B)  A decrease in the discount rate. 
C)  A purchase of bonds by the Federal Reserve. 
D)  An increase in the world supply of gold. 
A)  An increase in reserve requirements. 
B)  A decrease in the discount rate. 
C)  A purchase of bonds by the Federal Reserve. 
D)  An increase in the world supply of gold. A

Question 4

The value (purchasing power) of each unit of money

Accepted Answer

A)  is largely independent of the money supply. 
B)  tends to increase as the money supply expands. 
C)  increases as the general level of prices rise. 
D)  is inversely related to the general level of prices. 
A)  is largely independent of the money supply. 
B)  tends to increase as the money supply expands. 
C)  increases as the general level of prices rise. 
D)  is inversely related to the general level of prices.

Question 5

On a certain date, the banking system had $40 billion in excess reserves. The legally required reserve ratio was 20 percent. Potentially, if these funds were loaned and eventually the entire amount re-deposited with a bank, the banking system as a whole could increase the money supply by

Accepted Answer

A)  a maximum of $40 billion. 
B)  a maximum of $160 billion. 
C)  a maximum of $200 billion. 
D)  more than $200 billion. 
A)  a maximum of $40 billion. 
B)  a maximum of $160 billion. 
C)  a maximum of $200 billion. 
D)  more than $200 billion.

Question 6

Which of the following provides the best explanation of why money is valuable?

Accepted Answer

A)  Money is valuable because it is declared legal tender by the government issuing it. 
B)  Money is valuable because it is scarce relative to the demand for the services it provides. 
C)  Money is valuable because it is backed by precious metals, primarily gold and silver. 
D)  Money is valuable because it has intrinsic value, independent of its use as a means of exchange. 
A)  Money is valuable because it is declared legal tender by the government issuing it. 
B)  Money is valuable because it is scarce relative to the demand for the services it provides. 
C)  Money is valuable because it is backed by precious metals, primarily gold and silver. 
D)  Money is valuable because it has intrinsic value, independent of its use as a means of exchange.

Question 7

Banks are considered a safer place to deposit money now than they were prior to 1933 because

Accepted Answer

A)  gold reserves have increased. 
B)  reserve requirements are higher. 
C)  the creation of the FDIC reduced the likelihood of bank runs. 
D)  the commercial banks are no longer permitted to extend loans to the Federal Government. 
A)  gold reserves have increased. 
B)  reserve requirements are higher. 
C)  the creation of the FDIC reduced the likelihood of bank runs. 
D)  the commercial banks are no longer permitted to extend loans to the Federal Government.

Question 8

During the three years following the financial crisis of 2008,

Accepted Answer

A)  the monetary base more than doubled and the M1 money supply increased even more rapidly. 
B)  the monetary base more than doubled, but the M1 money supply increased much less rapidly. 
C)  the monetary base fell by almost 50 percent, but the M1 money supply continued to  grow at a steady rate. 
D)  the monetary base fell by almost 50 percent, causing a sharp reduction in the M1 money supply. 
A)  the monetary base more than doubled and the M1 money supply increased even more rapidly. 
B)  the monetary base more than doubled, but the M1 money supply increased much less rapidly. 
C)  the monetary base fell by almost 50 percent, but the M1 money supply continued to  grow at a steady rate. 
D)  the monetary base fell by almost 50 percent, causing a sharp reduction in the M1 money supply.

Question 9

What advantages does a money economy have over a barter economy?

Accepted Answer

The existence of money substantially red

Question 10

In the United States, the money supply (M1) consists of

Accepted Answer

A)  paper currency, coins and traveler's checks. 
B)  government bonds, currency, demand deposits, other checkable deposits, and traveler's checks. 
C)  paper currency, coins, demand deposits, and savings deposits. 
D)  coins, paper currency, demand deposits, other checkable deposits, and traveler's checks. 
A)  paper currency, coins and traveler's checks. 
B)  government bonds, currency, demand deposits, other checkable deposits, and traveler's checks. 
C)  paper currency, coins, demand deposits, and savings deposits. 
D)  coins, paper currency, demand deposits, other checkable deposits, and traveler's checks.

Question 11

Which of the following will limit the money creation process to an amount less than the potential amount?

Accepted Answer

A)  Bank pursuit of profits. 
B)  Increase in currency holdings by the public. 
C)  Business demand for loans. 
D)  Increased use of credit cards. 
A)  Bank pursuit of profits. 
B)  Increase in currency holdings by the public. 
C)  Business demand for loans. 
D)  Increased use of credit cards.

Question 12

Are "smart cards" or E-cash cards part of the money supply?

Accepted Answer

A)  Yes, because they can be given away to make a payment. 
B)  Yes, because they will soon completely replace cash. 
C)  No, because they are not issued by banks. 
D)  No, because they are merely means to transfer checking deposits. 
A)  Yes, because they can be given away to make a payment. 
B)  Yes, because they will soon completely replace cash. 
C)  No, because they are not issued by banks. 
D)  No, because they are merely means to transfer checking deposits.

Question 13

Which of the following items are counted in M2?

Accepted Answer

A)  stock mutual funds 
B)  money-market mutual funds 
C)  bond mutual funds 
D)  all of the above 
A)  stock mutual funds 
B)  money-market mutual funds 
C)  bond mutual funds 
D)  all of the above

Question 14

An increase in the discount rate impacts the money supply because it

Accepted Answer

A)  makes it more attractive for commercial banks to borrow from the Federal Reserve. 
B)  decreases the interest yield on new issues of U.S. securities. 
C)  reduces the incentive of commercial banks to borrow from the Federal Reserve. 
D)  increases the Federal Reserve's earnings and, thereby, expands the money supply. 
A)  makes it more attractive for commercial banks to borrow from the Federal Reserve. 
B)  decreases the interest yield on new issues of U.S. securities. 
C)  reduces the incentive of commercial banks to borrow from the Federal Reserve. 
D)  increases the Federal Reserve's earnings and, thereby, expands the money supply.

Question 15

Fiat money is money

Accepted Answer

A)  that has little intrinsic value and is not backed by a commodity. 
B)  that is not included as part of the M1 money supply. 
C)  that is backed by gold or silver held on reserve by the government. 
D)  such as coins that are made from metal. 
A)  that has little intrinsic value and is not backed by a commodity. 
B)  that is not included as part of the M1 money supply. 
C)  that is backed by gold or silver held on reserve by the government. 
D)  such as coins that are made from metal.

Question 16

Discuss the changes that have and will in the future affect the usefulness of the M1 and M2 money supply figures as indicators of monetary policy.

Accepted Answer

During the 1980s, the increasing popular

Question 17

When the monetary authorities expand the supply of money rapidly,

Accepted Answer

A)  its purchasing power tends to increase. 
B)  holding money is a poor method of storing value. 
C)  the long-run sustainable real growth rate of the economy will tend to increase. 
D)  the prices of goods and services will generally decline. 
A)  its purchasing power tends to increase. 
B)  holding money is a poor method of storing value. 
C)  the long-run sustainable real growth rate of the economy will tend to increase. 
D)  the prices of goods and services will generally decline.

Question 18

When the required reserve ratio is lowered,

Accepted Answer

A)  the money multiplier increases, and the amount of excess reserves increases in the banking system. 
B)  the money multiplier decreases, and the amount of excess reserves increases in the banking system. 
C)  the money multiplier decreases, and the amount of excess reserves decreases in the banking system. 
D)  the money multiplier increases, and the amount of excess reserves decreases in the banking system. 
E)  there is no change in either the money multiplier or the amount of excess reserves in the banking system. 
A)  the money multiplier increases, and the amount of excess reserves increases in the banking system. 
B)  the money multiplier decreases, and the amount of excess reserves increases in the banking system. 
C)  the money multiplier decreases, and the amount of excess reserves decreases in the banking system. 
D)  the money multiplier increases, and the amount of excess reserves decreases in the banking system. 
E)  there is no change in either the money multiplier or the amount of excess reserves in the banking system.

Question 19

The funds that banks are required by law to hold in the form of either vault cash or deposits with the Fed are called

Accepted Answer

A)  excess reserves. 
B)  fractional reserves. 
C)  required reserves. 
D)  certificates of deposit. 
A)  excess reserves. 
B)  fractional reserves. 
C)  required reserves. 
D)  certificates of deposit.

Question 20

Which of the following is not a component of the M1 money supply?

Accepted Answer

A)  demand deposits 
B)  large-denomination (more than $100) bills 
C)  interest-earning checking deposits 
D)  outstanding balances on credit cards 
A)  demand deposits 
B)  large-denomination (more than $100) bills 
C)  interest-earning checking deposits 
D)  outstanding balances on credit cards

The Fed's use of the interest rate it pays banks on their excess reserves

In defining the money supply (M1), economists exclude savings deposits because

Which of the following would cause the money supply in the United States to decrease?

The value (purchasing power) of each unit of money

On a certain date, the banking system had $40 billion in excess reserves. The legally required reserve ratio was 20 percent. Potentially, if these funds were loaned and eventually the entire amount re-deposited with a bank, the banking system as a whole could increase the money supply by

Which of the following provides the best explanation of why money is valuable?

Banks are considered a safer place to deposit money now than they were prior to 1933 because

During the three years following the financial crisis of 2008,

What advantages does a money economy have over a barter economy?

In the United States, the money supply (M1) consists of

Which of the following will limit the money creation process to an amount less than the potential amount?

Are "smart cards" or E-cash cards part of the money supply?

Which of the following items are counted in M2?

An increase in the discount rate impacts the money supply because it

Fiat money is money

Discuss the changes that have and will in the future affect the usefulness of the M1 and M2 money supply figures as indicators of monetary policy.

When the monetary authorities expand the supply of money rapidly,

When the required reserve ratio is lowered,

The funds that banks are required by law to hold in the form of either vault cash or deposits with the Fed are called

Which of the following is not a component of the M1 money supply?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Special Topics

Filters

Exam 13: Money and the Banking System

The Fed's use of the interest rate it pays banks on their excess reserves

In defining the money supply (M1), economists exclude savings deposits because

Which of the following would cause the money supply in the United States to decrease?

The value (purchasing power) of each unit of money

On a certain date, the banking system had $40 billion in excess reserves. The legally required reserve ratio was 20 percent. Potentially, if these funds were loaned and eventually the entire amount re-deposited with a bank, the banking system as a whole could increase the money supply by

Which of the following provides the best explanation of why money is valuable?

Banks are considered a safer place to deposit money now than they were prior to 1933 because

During the three years following the financial crisis of 2008,

What advantages does a money economy have over a barter economy?

In the United States, the money supply (M1) consists of

Which of the following will limit the money creation process to an amount less than the potential amount?

Are "smart cards" or E-cash cards part of the money supply?

Which of the following items are counted in M2?

An increase in the discount rate impacts the money supply because it

Fiat money is money

Discuss the changes that have and will in the future affect the usefulness of the M1 and M2 money supply figures as indicators of monetary policy.

When the monetary authorities expand the supply of money rapidly,

When the required reserve ratio is lowered,

The funds that banks are required by law to hold in the form of either vault cash or deposits with the Fed are called

Which of the following is not a component of the M1 money supply?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Special Topics

Filters