Question 1

Which of the following tends to reduce bank failures as the result of bank runs by depositors?

Accepted Answer

A)  The Federal Deposit Insurance Corporation 
B)  The Federal Open Market Operations Committee 
C)  The comptroller of the currency 
D)  The Senate Banking Committee 
A)  The Federal Deposit Insurance Corporation 
B)  The Federal Open Market Operations Committee 
C)  The comptroller of the currency 
D)  The Senate Banking Committee

Question 2

A bank receives a demand deposit of $1,000. The bank loans out $600 of this deposit and increases its excess reserves by $300. What is the legal reserve requirement?

Accepted Answer

A)  10 percent 
B)  20 percent 
C)  30 percent 
D)  60 percent 
A)  10 percent 
B)  20 percent 
C)  30 percent 
D)  60 percent

Question 3

The M1 money supply

Accepted Answer

A)  is composed of assets that reflect the medium of exchange function of money. 
B)  is larger than the M2 money supply. 
C)  includes credit card balances since they are used to purchase things. 
D)  is composed of only currency. 
A)  is composed of assets that reflect the medium of exchange function of money. 
B)  is larger than the M2 money supply. 
C)  includes credit card balances since they are used to purchase things. 
D)  is composed of only currency.

Question 4

If debit cards become more widely used by consumers and businesses, which of the following is most likely to happen?

Accepted Answer

A)  Currency holdings will remain the same, but the M1 money supply will fall. 
B)  The amount of currency held by the public will increase. 
C)  Less money will be held as currency and more money will be held in bank accounts, which will increase the reserves of banks unless the Fed takes offsetting actions. 
D)  The money supply will be unaffected because debit card expenditures are considered the equivalent of cash. 
A)  Currency holdings will remain the same, but the M1 money supply will fall. 
B)  The amount of currency held by the public will increase. 
C)  Less money will be held as currency and more money will be held in bank accounts, which will increase the reserves of banks unless the Fed takes offsetting actions. 
D)  The money supply will be unaffected because debit card expenditures are considered the equivalent of cash.

Question 5

During the financial crisis of 2008-2010, the Fed increased its purchases of securities and extended more loans, which caused the monetary base to

Accepted Answer

A)  increase rapidly, but the  M1 money supply declined because the banks loaned out most of the additional reserves to businesses. 
B)  fall, but the M1 money supply still expanded rapidly because the banks increased their loans to businesses. 
C)  increase rapidly, but the M1 money supply expanded at a much slower rate because the banks enlarged their excess reserves. 
D)  fall, and this led to a sharp decline in the M1 money supply. 
A)  increase rapidly, but the  M1 money supply declined because the banks loaned out most of the additional reserves to businesses. 
B)  fall, but the M1 money supply still expanded rapidly because the banks increased their loans to businesses. 
C)  increase rapidly, but the M1 money supply expanded at a much slower rate because the banks enlarged their excess reserves. 
D)  fall, and this led to a sharp decline in the M1 money supply.

Question 6

Suppose the Fed purchases $40,000 of U.S. Treasury bonds from Benjamin, who deposits the money with First National Bank. If the required reserve ratio is 20 percent, this transaction will increase the excess reserves of First National Bank by

Accepted Answer

A)  $8,000. 
B)  $32,000. 
C)  $40,000. 
D)  $200,000. 
A)  $8,000. 
B)  $32,000. 
C)  $40,000. 
D)  $200,000.

Question 7

In recent years, the Fed has generally set the discount rate

Accepted Answer

A)  lower than the federal funds rate to help financially troubled banks get more solvent. 
B)  higher than the interest rate on 30-year fixed-rate mortgage loans. 
C)  higher than the federal funds rate for most banks. 
D)  equal to the rate of inflation. 
A)  lower than the federal funds rate to help financially troubled banks get more solvent. 
B)  higher than the interest rate on 30-year fixed-rate mortgage loans. 
C)  higher than the federal funds rate for most banks. 
D)  equal to the rate of inflation.

Question 8

Why is there more than one definition of the money supply? What is the difference between them?

Accepted Answer

There is no one "correct" definition of

Question 9

Which of the following would lead to a rapid growth of the money supply in the future?

Accepted Answer

A)  The use of large excess reserves by banks to extend additional loans. 
B)  A reduction in government expenditures to reduce the size of the federal deficit. 
C)  An increase in government expenditures financed by taxes. 
D)  An increase in the interest rate the Fed pays banks holding excess reserves. 
A)  The use of large excess reserves by banks to extend additional loans. 
B)  A reduction in government expenditures to reduce the size of the federal deficit. 
C)  An increase in government expenditures financed by taxes. 
D)  An increase in the interest rate the Fed pays banks holding excess reserves.

Question 10

If the Fed purchases government securities from the public, the

Accepted Answer

A)  money supply will decrease. 
B)  reserves of commercial banks will decrease. 
C)  required reserves ratio will increase. 
D)  monetary base will increase. 
A)  money supply will decrease. 
B)  reserves of commercial banks will decrease. 
C)  required reserves ratio will increase. 
D)  monetary base will increase.

Question 11

Modern bankers

Accepted Answer

A)  expand the money supply by printing currency when they need it. 
B)  decrease the supply of money when they extend additional loans. 
C)  hold only a fraction of their assets in the form of reserves against their deposits. 
D)  can increase their profits by increasing their holdings of excess reserves. 
A)  expand the money supply by printing currency when they need it. 
B)  decrease the supply of money when they extend additional loans. 
C)  hold only a fraction of their assets in the form of reserves against their deposits. 
D)  can increase their profits by increasing their holdings of excess reserves.

Question 12

A barter economy is one in which

Accepted Answer

A)  money serves as a medium of exchange. 
B)  only precious metals are accepted as money. 
C)  goods are traded directly for other goods. 
D)  paper money is backed by gold. 
A)  money serves as a medium of exchange. 
B)  only precious metals are accepted as money. 
C)  goods are traded directly for other goods. 
D)  paper money is backed by gold.

Question 13

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 prices rise. 
D)  tends to decline as the money supply expands in relation to the availability of goods and services. 
A)  is largely independent of the money supply. 
B)  tends to increase as the money supply expands. 
C)  increases as prices rise. 
D)  tends to decline as the money supply expands in relation to the availability of goods and services.

Question 14

If the required reserve ratio were decreased,

Accepted Answer

A)  the money supply would tend to decrease, but the outstanding loans of banks would tend to increase. 
B)  both the money supply and the outstanding loans of banks would tend to decrease. 
C)  the money supply would tend to increase, but the outstanding loans of banks would tend to decrease. 
D)  both the money supply and the outstanding loans of banks would tend to increase. 
A)  the money supply would tend to decrease, but the outstanding loans of banks would tend to increase. 
B)  both the money supply and the outstanding loans of banks would tend to decrease. 
C)  the money supply would tend to increase, but the outstanding loans of banks would tend to decrease. 
D)  both the money supply and the outstanding loans of banks would tend to increase.

Question 15

Which of the following is responsible for decision making regarding the purchase and sale of bonds by the Fed?

Accepted Answer

A)  The chairman of the Board of Governors of the Federal Reserve System. 
B)  The Federal Open Market Operations Committee. 
C)  The U.S. Secretary of Treasury. 
D)  The president, with the advice and consent of the chairman of the Council of Economic Advisers. 
A)  The chairman of the Board of Governors of the Federal Reserve System. 
B)  The Federal Open Market Operations Committee. 
C)  The U.S. Secretary of Treasury. 
D)  The president, with the advice and consent of the chairman of the Council of Economic Advisers.

Question 16

During the financial crisis of 2008-2010, the Fed

Accepted Answer

A)  increased its purchases of securities and other financial assets and extended more loans, which expanded the monetary base. 
B)  increased its purchases of securities and other financial assets and extended more loans, which reduced the monetary base. 
C)  reduced its purchases of securities and other financial assets and extended fewer loans, which expanded the monetary base. 
D)  reduced its purchases of securities and other financial assets and extended fewer loans, which caused the monetary base to decline. 
A)  increased its purchases of securities and other financial assets and extended more loans, which expanded the monetary base. 
B)  increased its purchases of securities and other financial assets and extended more loans, which reduced the monetary base. 
C)  reduced its purchases of securities and other financial assets and extended fewer loans, which expanded the monetary base. 
D)  reduced its purchases of securities and other financial assets and extended fewer loans, which caused the monetary base to decline.

Question 17

The fraction that banks must, by law, hold as reserves against the checking deposits of their customers is called the

Accepted Answer

A)  federal deposit insurance premium. 
B)  vault cash quota. 
C)  excess reserve requirement. 
D)  required reserve ratio. 
A)  federal deposit insurance premium. 
B)  vault cash quota. 
C)  excess reserve requirement. 
D)  required reserve ratio.

Question 18

The Federal Reserve System is owned by

Accepted Answer

A)  federal government agencies such as the Treasury. 
B)  the Congress of the United States. 
C)  the banks that are members of the Federal Reserve System. 
D)  anyone who buys stock over the counter. 
E)  people who have deposits in member banks. 
A)  federal government agencies such as the Treasury. 
B)  the Congress of the United States. 
C)  the banks that are members of the Federal Reserve System. 
D)  anyone who buys stock over the counter. 
E)  people who have deposits in member banks.

Question 19

Which of the following was true of the actions of the Federal Reserve in response to the recession of 2008?

Accepted Answer

A)  The Fed shifted toward a highly restrictive monetary policy in 2008, which was a major cause of the recession. 
B)  The Fed continued to focus only on price stability and therefore it expanded the money supply at a slow and steady rate throughout the recession. 
C)  The Fed introduced several new procedures for the conduct of monetary policy and it increased the monetary base rapidly as the recession worsened. 
D)  The Fed continued to purchase and sell only U.S. Treasury bonds when conducting open market operations to control the money supply. 
A)  The Fed shifted toward a highly restrictive monetary policy in 2008, which was a major cause of the recession. 
B)  The Fed continued to focus only on price stability and therefore it expanded the money supply at a slow and steady rate throughout the recession. 
C)  The Fed introduced several new procedures for the conduct of monetary policy and it increased the monetary base rapidly as the recession worsened. 
D)  The Fed continued to purchase and sell only U.S. Treasury bonds when conducting open market operations to control the money supply.

Question 20

Which of the following compose the M2 money supply?

Accepted Answer

A)  currency only 
B)  currency, demand deposits, other checkable deposits, and traveler's checks 
C)  M1 plus large denomination time deposits and Eurodollar deposits 
D)  M1 plus savings deposits, small-denomination time deposits, and money market mutual funds (retail) 
A)  currency only 
B)  currency, demand deposits, other checkable deposits, and traveler's checks 
C)  M1 plus large denomination time deposits and Eurodollar deposits 
D)  M1 plus savings deposits, small-denomination time deposits, and money market mutual funds (retail)

Which of the following tends to reduce bank failures as the result of bank runs by depositors?

A bank receives a demand deposit of $1,000. The bank loans out $600 of this deposit and increases its excess reserves by $300. What is the legal reserve requirement?

The M1 money supply

If debit cards become more widely used by consumers and businesses, which of the following is most likely to happen?

During the financial crisis of 2008-2010, the Fed increased its purchases of securities and extended more loans, which caused the monetary base to

Suppose the Fed purchases $40,000 of U.S. Treasury bonds from Benjamin, who deposits the money with First National Bank. If the required reserve ratio is 20 percent, this transaction will increase the excess reserves of First National Bank by

In recent years, the Fed has generally set the discount rate

Why is there more than one definition of the money supply? What is the difference between them?

Which of the following would lead to a rapid growth of the money supply in the future?

If the Fed purchases government securities from the public, the

Modern bankers

A barter economy is one in which

The value (purchasing power) of each unit of money

If the required reserve ratio were decreased,

Which of the following is responsible for decision making regarding the purchase and sale of bonds by the Fed?

During the financial crisis of 2008-2010, the Fed

The fraction that banks must, by law, hold as reserves against the checking deposits of their customers is called the

The Federal Reserve System is owned by

Which of the following was true of the actions of the Federal Reserve in response to the recession of 2008?

Which of the following compose the M2 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

Which of the following tends to reduce bank failures as the result of bank runs by depositors?

A bank receives a demand deposit of $1,000. The bank loans out $600 of this deposit and increases its excess reserves by $300. What is the legal reserve requirement?

The M1 money supply

If debit cards become more widely used by consumers and businesses, which of the following is most likely to happen?

During the financial crisis of 2008-2010, the Fed increased its purchases of securities and extended more loans, which caused the monetary base to

Suppose the Fed purchases $40,000 of U.S. Treasury bonds from Benjamin, who deposits the money with First National Bank. If the required reserve ratio is 20 percent, this transaction will increase the excess reserves of First National Bank by

In recent years, the Fed has generally set the discount rate

Why is there more than one definition of the money supply? What is the difference between them?

Which of the following would lead to a rapid growth of the money supply in the future?

If the Fed purchases government securities from the public, the

Modern bankers

A barter economy is one in which

The value (purchasing power) of each unit of money

If the required reserve ratio were decreased,

Which of the following is responsible for decision making regarding the purchase and sale of bonds by the Fed?

During the financial crisis of 2008-2010, the Fed

The fraction that banks must, by law, hold as reserves against the checking deposits of their customers is called the

The Federal Reserve System is owned by

Which of the following was true of the actions of the Federal Reserve in response to the recession of 2008?

Which of the following compose the M2 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