Question 1

Checking account deposits are counted as part of the M1 money supply because

Accepted Answer

A)  they earn interest income for the depositor. 
B)  they are widely used as a means of making payment. 
C)  banks hold currency equal to the value of their outstanding checking account deposits. 
D)  they are ultimately the obligations of the Treasury. 
A)  they earn interest income for the depositor. 
B)  they are widely used as a means of making payment. 
C)  banks hold currency equal to the value of their outstanding checking account deposits. 
D)  they are ultimately the obligations of the Treasury.

Question 2

Money is used as a unit of account. This means

Accepted Answer

A)  money cannot store value for use in the future. 
B)  money is used to measure the exchange value and costs of goods, services, assets and resources. 
C)  money has little or no intrinsic value. 
D)  money is dependent on the quantity of gold held by the Federal Reserve. 
A)  money cannot store value for use in the future. 
B)  money is used to measure the exchange value and costs of goods, services, assets and resources. 
C)  money has little or no intrinsic value. 
D)  money is dependent on the quantity of gold held by the Federal Reserve.

Question 3

If the Fed raises the discount rate, what happens to reserves and the money supply?

Accepted Answer

A)  Reserves increase and the money supply decreases. 
B)  Both increase. 
C)  Reserves decrease and the money supply increases. 
D)  Both decrease. 
A)  Reserves increase and the money supply decreases. 
B)  Both increase. 
C)  Reserves decrease and the money supply increases. 
D)  Both decrease.

Question 4

Which of the following would appear on the liability side of the balance sheet of a commercial bank?

Accepted Answer

A)  demand and other transaction deposits 
B)  loans outstanding 
C)  U.S. government securities 
D)  vault cash 
A)  demand and other transaction deposits 
B)  loans outstanding 
C)  U.S. government securities 
D)  vault cash

Question 5

In practice, money supply and short-term interest rates are determined by the

Accepted Answer

A)  Treasury and Commerce departments. 
B)  Federal Open Market Committee. 
C)  Board of Governors. 
D)  House and Senate. 
A)  Treasury and Commerce departments. 
B)  Federal Open Market Committee. 
C)  Board of Governors. 
D)  House and Senate.

Question 6

Which of the following is correct about the operations of the Federal Reserve?

Accepted Answer

A)  Federal Reserve purchases of securities will increase the reserves available to commercial banks. 
B)  Federal Reserve purchases of securities exert upward pressure on interest rates in the short run. 
C)  The Federal Reserve System determines the ratio of currency held by the public to the money supply (M1). 
D)  Federal Reserve purchases of securities will decrease the reserves available to commercial banks. 
A)  Federal Reserve purchases of securities will increase the reserves available to commercial banks. 
B)  Federal Reserve purchases of securities exert upward pressure on interest rates in the short run. 
C)  The Federal Reserve System determines the ratio of currency held by the public to the money supply (M1). 
D)  Federal Reserve purchases of securities will decrease the reserves available to commercial banks.

Question 7

Which of the following guarantees the deposits in almost all banks up to a $250,000 limit per account?

Accepted Answer

A)  the Federal Reserve 
B)  the FDIC 
C)  the U.S. Treasury 
D)  Bank of America Corporation 
A)  the Federal Reserve 
B)  the FDIC 
C)  the U.S. Treasury 
D)  Bank of America Corporation

Question 8

If the Fed wanted to shift to a restrictive monetary policy and reduce the money supply, it could

Accepted Answer

A)  increase the interest rate paid on excess reserves encouraging banks to extend more loans. 
B)  decrease the interest rate paid on excess reserves encouraging banks to extend more loans. 
C)  decrease the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans. 
D)  increase the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans. 
A)  increase the interest rate paid on excess reserves encouraging banks to extend more loans. 
B)  decrease the interest rate paid on excess reserves encouraging banks to extend more loans. 
C)  decrease the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans. 
D)  increase the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans.

Question 9

Which of the following assets can a commercial bank count as reserves?

Accepted Answer

A)  its holdings of U.S. Treasury bills 
B)  its vault cash and deposits with the Fed 
C)  its outstanding loans 
D)  the savings accounts of its depositors 
A)  its holdings of U.S. Treasury bills 
B)  its vault cash and deposits with the Fed 
C)  its outstanding loans 
D)  the savings accounts of its depositors

Question 10

Which of the following is the primary tool the Fed uses to control the supply of money?

Accepted Answer

A)  The discount rate. 
B)  The reserve requirements. 
C)  Open market operations. 
D)  The 30-year home-mortgage interest rate. 
A)  The discount rate. 
B)  The reserve requirements. 
C)  Open market operations. 
D)  The 30-year home-mortgage interest rate.

Question 11

Ordinary commercial banks can expand the supply of money by

Accepted Answer

A)  printing up currency when they need it. 
B)  buying and selling government bonds to the general public. 
C)  using a portion of their deposits to extend additional loans. 
D)  reducing their vault cash and increasing their deposits with the Fed. 
A)  printing up currency when they need it. 
B)  buying and selling government bonds to the general public. 
C)  using a portion of their deposits to extend additional loans. 
D)  reducing their vault cash and increasing their deposits with the Fed.

Question 12

During 2008-2013, the Fed initiated several rounds of "quantitative easing."  Under this policy, the Fed

Accepted Answer

A)  increased its purchases of financial assets and thereby injected additional reserves into the banking system. 
B)  increased its purchases of financial assets, which reduced the reserves available to the banking system. 
C)  reduced its purchases of financial assets and thereby injected additional reserves into the banking system. 
D)  reduced its purchases of financial assets and thereby reduced the quantity of reserves available to the banking system. 
A)  increased its purchases of financial assets and thereby injected additional reserves into the banking system. 
B)  increased its purchases of financial assets, which reduced the reserves available to the banking system. 
C)  reduced its purchases of financial assets and thereby injected additional reserves into the banking system. 
D)  reduced its purchases of financial assets and thereby reduced the quantity of reserves available to the banking system.

Question 13

If the banking system has $50 billion in excess reserves, and the required reserve ratio is 25 percent, what is the maximum amount by which the money supply can be increased?

Accepted Answer

A)  $250 billion 
B)  $200 billion 
C)  $50 billion 
D)  $25 billion 
A)  $250 billion 
B)  $200 billion 
C)  $50 billion 
D)  $25 billion

Question 14

The major overall purpose of the Federal Reserve System is to

Accepted Answer

A)  keep the discount rate flexible. 
B)  insure the deposits of persons holding funds with banking institutions. 
C)  regulate the money supply and, thereby, provide a monetary climate that is in the best interest of the economy. 
D)  regulate the levels of excess reserves held by member banking institutions. 
A)  keep the discount rate flexible. 
B)  insure the deposits of persons holding funds with banking institutions. 
C)  regulate the money supply and, thereby, provide a monetary climate that is in the best interest of the economy. 
D)  regulate the levels of excess reserves held by member banking institutions.

Question 15

Open market operations is the

Accepted Answer

A)  tool most often used by the Fed to alter the money supply. 
B)  least effective tool the Fed has to alter the money supply. 
C)  tool used by the Treasury to raise tax revenues. 
D)  tool used by the Fed to regulate stock market activities. 
A)  tool most often used by the Fed to alter the money supply. 
B)  least effective tool the Fed has to alter the money supply. 
C)  tool used by the Treasury to raise tax revenues. 
D)  tool used by the Fed to regulate stock market activities.

Question 16

What restricts the Fed's ability to write checks and purchase U.S. securities?

Accepted Answer

A)  Congress; the Fed must receive a budget allocation from Congress before it can write a check. 
B)  The gold requirement; the Fed cannot write a check unless it has a sufficient amount of gold to back the expenditure. 
C)  Reserve requirements; the Fed must maintain 20 percent of its assets in the form of cash against the deposits that it is holding for commercial banks. 
D)  Nothing; the Fed can create money simply by writing a check on itself. 
A)  Congress; the Fed must receive a budget allocation from Congress before it can write a check. 
B)  The gold requirement; the Fed cannot write a check unless it has a sufficient amount of gold to back the expenditure. 
C)  Reserve requirements; the Fed must maintain 20 percent of its assets in the form of cash against the deposits that it is holding for commercial banks. 
D)  Nothing; the Fed can create money simply by writing a check on itself.

Question 17

If the Fed wanted to expand the money supply as part of an antirecession strategy, it could

Accepted Answer

A)  increase the interest rate paid on excess reserves encouraging banks to extend more loans. 
B)  decrease the interest rate paid on excess reserves encouraging banks to extend more loans. 
C)  decrease the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans. 
D)  increase the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans. 
A)  increase the interest rate paid on excess reserves encouraging banks to extend more loans. 
B)  decrease the interest rate paid on excess reserves encouraging banks to extend more loans. 
C)  decrease the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans. 
D)  increase the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans.

Question 18

Suppose the Fed sells $100 million of U.S. securities to the public. If the reserve requirement is 20 percent, the currency holdings of the public are unchanged, and banks have zero excess reserves both before and after the transaction, the total impact on the money supply will be a

Accepted Answer

A)  $100 million decrease. 
B)  $500 million increase. 
C)  $500 million decrease. 
D)  $100 million increase. 
A)  $100 million decrease. 
B)  $500 million increase. 
C)  $500 million decrease. 
D)  $100 million increase.

Question 19

If a number of people suddenly deposit into their checking accounts a great deal of cash previously kept in their pockets or at home, other things constant, their actions will

Accepted Answer

A)  create excess reserves and place banks in a position to extend additional loans, which will reduce the money supply. 
B)  create excess reserves and place banks in a position to extend additional loans, which will expand the money supply. 
C)  lead to higher interest rates. 
D)  force the Fed to reduce its discount rate. 
A)  create excess reserves and place banks in a position to extend additional loans, which will reduce the money supply. 
B)  create excess reserves and place banks in a position to extend additional loans, which will expand the money supply. 
C)  lead to higher interest rates. 
D)  force the Fed to reduce its discount rate.

Question 20

The foreign holdings of U.S. dollars

Accepted Answer

A)  reduce the living standards of Americans. 
B)  are not included in the M1 money supply. 
C)  account for approximately half of all U.S. currency issued by the Fed. 
D)  are hard to explain since the dollar is not legal tender outside the United States. 
A)  reduce the living standards of Americans. 
B)  are not included in the M1 money supply. 
C)  account for approximately half of all U.S. currency issued by the Fed. 
D)  are hard to explain since the dollar is not legal tender outside the United States.

Checking account deposits are counted as part of the M1 money supply because

Money is used as a unit of account. This means

If the Fed raises the discount rate, what happens to reserves and the money supply?

Which of the following would appear on the liability side of the balance sheet of a commercial bank?

In practice, money supply and short-term interest rates are determined by the

Which of the following is correct about the operations of the Federal Reserve?

Which of the following guarantees the deposits in almost all banks up to a $250,000 limit per account?

If the Fed wanted to shift to a restrictive monetary policy and reduce the money supply, it could

Which of the following assets can a commercial bank count as reserves?

Which of the following is the primary tool the Fed uses to control the supply of money?

Ordinary commercial banks can expand the supply of money by

During 2008-2013, the Fed initiated several rounds of "quantitative easing." Under this policy, the Fed

If the banking system has $50 billion in excess reserves, and the required reserve ratio is 25 percent, what is the maximum amount by which the money supply can be increased?

The major overall purpose of the Federal Reserve System is to

Open market operations is the

What restricts the Fed's ability to write checks and purchase U.S. securities?

If the Fed wanted to expand the money supply as part of an antirecession strategy, it could

Suppose the Fed sells $100 million of U.S. securities to the public. If the reserve requirement is 20 percent, the currency holdings of the public are unchanged, and banks have zero excess reserves both before and after the transaction, the total impact on the money supply will be a

If a number of people suddenly deposit into their checking accounts a great deal of cash previously kept in their pockets or at home, other things constant, their actions will

The foreign holdings of U.S. dollars

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

Checking account deposits are counted as part of the M1 money supply because

Money is used as a unit of account. This means

If the Fed raises the discount rate, what happens to reserves and the money supply?

Which of the following would appear on the liability side of the balance sheet of a commercial bank?

In practice, money supply and short-term interest rates are determined by the

Which of the following is correct about the operations of the Federal Reserve?

Which of the following guarantees the deposits in almost all banks up to a $250,000 limit per account?

If the Fed wanted to shift to a restrictive monetary policy and reduce the money supply, it could

Which of the following assets can a commercial bank count as reserves?

Which of the following is the primary tool the Fed uses to control the supply of money?

Ordinary commercial banks can expand the supply of money by

During 2008-2013, the Fed initiated several rounds of "quantitative easing." Under this policy, the Fed

If the banking system has $50 billion in excess reserves, and the required reserve ratio is 25 percent, what is the maximum amount by which the money supply can be increased?

The major overall purpose of the Federal Reserve System is to

Open market operations is the

What restricts the Fed's ability to write checks and purchase U.S. securities?

If the Fed wanted to expand the money supply as part of an antirecession strategy, it could

Suppose the Fed sells $100 million of U.S. securities to the public. If the reserve requirement is 20 percent, the currency holdings of the public are unchanged, and banks have zero excess reserves both before and after the transaction, the total impact on the money supply will be a

If a number of people suddenly deposit into their checking accounts a great deal of cash previously kept in their pockets or at home, other things constant, their actions will

The foreign holdings of U.S. dollars

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