Question 1

Reserves that banks are required by law to keep on hand to back up their deposits are called

Accepted Answer

A)  required reserves. 
B)  borrowed reserves. 
C)  actual reserves. 
D)  excess reserves. 
A)  required reserves. 
B)  borrowed reserves. 
C)  actual reserves. 
D)  excess reserves.

Question 2

If the public decides to hold more currency and fewer deposits in banks, bank reserves

Accepted Answer

A)  decrease and the money supply eventually decreases. 
B)  decrease but the money supply does not change. 
C)  increase and the money supply eventually increases. 
D)  increase but the money supply does not change. 
A)  decrease and the money supply eventually decreases. 
B)  decrease but the money supply does not change. 
C)  increase and the money supply eventually increases. 
D)  increase but the money supply does not change.

Question 3

A system that permits banks to hold less than 100 percent of their deposits as reserves is called a

Accepted Answer

A)  federal reserve system. 
B)  fractional reserve banking system. 
C)  partially funded deposit insurance system. 
D)  gold standard banking system. 
A)  federal reserve system. 
B)  fractional reserve banking system. 
C)  partially funded deposit insurance system. 
D)  gold standard banking system.

Question 4

If you have a checking account at a local bank, your bank account there is

Accepted Answer

A)  an asset to the bank and an asset to you. 
B)  a liability of the bank and a liability of yours. 
C)  a liability of the bank and an asset to you. 
D)  an asset to the bank and a liability of yours. 
A)  an asset to the bank and an asset to you. 
B)  a liability of the bank and a liability of yours. 
C)  a liability of the bank and an asset to you. 
D)  an asset to the bank and a liability of yours.

Question 5

If the Fed wanted to use all four of its major monetary control tools to decrease the money supply, it would

Accepted Answer

A)  buy bonds, reduce the discount rate, reduce reserve requirements, and reduce the interest rate paid on excess reserves. 
B)  sell bonds, reduce the discount rate, reduce reserve requirements, and reduce the interest rate paid on excess reserves. 
C)  sell bonds, increase the discount rate, increase reserve requirements, and increase the interest rate paid on excess reserves. 
D)  buy bonds, increase the discount rate, increase reserve requirements, and increase the interest rate paid on excess reserves. 
A)  buy bonds, reduce the discount rate, reduce reserve requirements, and reduce the interest rate paid on excess reserves. 
B)  sell bonds, reduce the discount rate, reduce reserve requirements, and reduce the interest rate paid on excess reserves. 
C)  sell bonds, increase the discount rate, increase reserve requirements, and increase the interest rate paid on excess reserves. 
D)  buy bonds, increase the discount rate, increase reserve requirements, and increase the interest rate paid on excess reserves.

Question 6

When the actual reserves held by a bank exceed the legal requirement, the bank

Accepted Answer

A)  will have to borrow from the Fed. 
B)  has excess reserves, which can be used to extend additional loans. 
C)  cannot extend additional loans. 
D)  will have to reduce its outstanding loans. 
A)  will have to borrow from the Fed. 
B)  has excess reserves, which can be used to extend additional loans. 
C)  cannot extend additional loans. 
D)  will have to reduce its outstanding loans.

Question 7

Economists who stress the store of value function of money generally

Accepted Answer

A)  argue that M1 is the best measure of the money supply. 
B)  prefer the M2 measure of the money supply to the M1 measure. 
C)  argue that M1 is too broad a definition of the money supply. 
D)  prefer the M1 measure of the money supply to the M2 measure. 
A)  argue that M1 is the best measure of the money supply. 
B)  prefer the M2 measure of the money supply to the M1 measure. 
C)  argue that M1 is too broad a definition of the money supply. 
D)  prefer the M1 measure of the money supply to the M2 measure.

Question 8

Suppose you withdraw $1,000 from your checking account. If the reserve requirement is 20 percent, how does this transaction affect the supply of money and the excess reserves of your bank?

Accepted Answer

A)  There is no change in the supply of money; your bank's excess reserves are reduced by $800. 
B)  There is no change in the supply of money; your bank's excess reserves are reduced by $200. 
C)  The money supply increases by $1,000, and the excess reserves of your bank are reduced by $800. 
D)  The money supply increases by $1,000, and the excess reserves of your bank are reduced by $200. 
A)  There is no change in the supply of money; your bank's excess reserves are reduced by $800. 
B)  There is no change in the supply of money; your bank's excess reserves are reduced by $200. 
C)  The money supply increases by $1,000, and the excess reserves of your bank are reduced by $800. 
D)  The money supply increases by $1,000, and the excess reserves of your bank are reduced by $200.

Question 9

Why did the monetary base increase rapidly during the economic crisis of 2008?

Accepted Answer

A)  The Fed purchased more assets and extended more loans. 
B)  The Fed sold financial assets and extended fewer loans. 
C)  The Fed purchased more assets, but extended fewer loans. 
D)  The Fed sold financial assets, but extended more loans. 
A)  The Fed purchased more assets and extended more loans. 
B)  The Fed sold financial assets and extended fewer loans. 
C)  The Fed purchased more assets, but extended fewer loans. 
D)  The Fed sold financial assets, but extended more loans.

Question 10

The large increase in the excess reserves held by the commercial banking system during the second half of 2008,

Accepted Answer

A)  increases the likelihood of a sharp contraction in the money supply, which would increase the length and severity of the recession. 
B)  increases the likelihood of a rapid increase in the money supply, potentially leading to future inflation. 
C)  is merely a continuation of the trend present since 1990. 
D)  reduces the ability of banks to extend additional loans. 
A)  increases the likelihood of a sharp contraction in the money supply, which would increase the length and severity of the recession. 
B)  increases the likelihood of a rapid increase in the money supply, potentially leading to future inflation. 
C)  is merely a continuation of the trend present since 1990. 
D)  reduces the ability of banks to extend additional loans.

Question 11

If a bank has actual reserves of $40,000 and a 20 percent reserve requirement, then the maximum amount of checkable deposits the bank can have if excess reserves are zero is

Accepted Answer

A)  $100,000. 
B)  $80,000. 
C)  $300,000. 
D)  $20,000. 
E)  $200,000. 
A)  $100,000. 
B)  $80,000. 
C)  $300,000. 
D)  $20,000. 
E)  $200,000.

Question 12

Which of the following is primarily responsible for controlling the money supply in the United States?

Accepted Answer

A)  The U.S. Congress. 
B)  The Board of Governors of the Federal Reserve System. 
C)  The U.S. Treasury. 
D)  The Council of Economic Advisors. 
A)  The U.S. Congress. 
B)  The Board of Governors of the Federal Reserve System. 
C)  The U.S. Treasury. 
D)  The Council of Economic Advisors.

Question 13

Suppose the Fed bought $150 million of U.S. securities from the public. The reserve requirement is 20 percent, and there are no initial excess reserves. A few weeks later, if the public's holdings of currency are constant and the banks have loaned all excess reserves, the money supply will increase by

Accepted Answer

A)  $150 million. 
B)  $300 million. 
C)  $600 million. 
D)  $750 million. 
A)  $150 million. 
B)  $300 million. 
C)  $600 million. 
D)  $750 million.

Question 14

The federal funds market is the market where

Accepted Answer

A)  the federal government raises funds to cover its budget deficit. 
B)  the Federal Reserve System makes loans to commercial banks. 
C)  commercial banks with excess reserves make loans to commercial banks seeking reserves. 
D)  commercial banks make loans to the Federal Reserve. 
A)  the federal government raises funds to cover its budget deficit. 
B)  the Federal Reserve System makes loans to commercial banks. 
C)  commercial banks with excess reserves make loans to commercial banks seeking reserves. 
D)  commercial banks make loans to the Federal Reserve.

Question 15

If people decide to hold less money as currency and more as checking deposits, this will most likely cause

Accepted Answer

A)  a decrease in bank reserves. 
B)  a decrease in required reserves. 
C)  an increase in the discount rate. 
D)  an increase in the money supply. 
A)  a decrease in bank reserves. 
B)  a decrease in required reserves. 
C)  an increase in the discount rate. 
D)  an increase in the money supply.

Question 16

Which of the following lists two things that both decrease the money supply?

Accepted Answer

A)  Raise the discount rate and make open market purchases. 
B)  Raise the discount rate and make open market sales. 
C)  Lower the discount rate and make open market purchases. 
D)  Lower the discount rate and make open market sales. 
A)  Raise the discount rate and make open market purchases. 
B)  Raise the discount rate and make open market sales. 
C)  Lower the discount rate and make open market purchases. 
D)  Lower the discount rate and make open market sales.

Question 17

Table 13-2   Refer to Table 13-2. The reserve requirement is 10 percent and then someone deposits an additional $50,000 into the bank, then if the bank takes no other action it will

Accepted Answer

A)  have $65,000 in excess reserves. 
B)  have $55,000 in excess reserves. 
C)  need to raise an additional $5,000 of reserves to meet the reserve requirement 
D)  none of the above is correct. 
A)  have $65,000 in excess reserves. 
B)  have $55,000 in excess reserves. 
C)  need to raise an additional $5,000 of reserves to meet the reserve requirement 
D)  none of the above is correct.

Question 18

Table 13-2   Refer to Table 13-2. If the Hometown Bank is holding $10,000 in excess reserves, then the reserve requirement is

Accepted Answer

A)  2 percent. 
B)  5 percent. 
C)  7 percent. 
D)  10 percent. 
A)  2 percent. 
B)  5 percent. 
C)  7 percent. 
D)  10 percent.

Question 19

If you deposit $100 of currency into a demand deposit at a bank, this action by itself

Accepted Answer

A)  does not change the money supply. 
B)  increases the money supply. 
C)  decreases the money supply. 
D)  has an indeterminate effect on the money supply. 
A)  does not change the money supply. 
B)  increases the money supply. 
C)  decreases the money supply. 
D)  has an indeterminate effect on the money supply.

Question 20

In its conduct of open market operations, the Fed now buys and sells

Accepted Answer

A)  only U.S. government securities. 
B)  only mortgage-backed securities issued by large investment banks. 
C)  a wide range of assets including the stock shares of large banks, domestic automobile manufacturers, and high-technology business firms. 
D)  a wide range of assets including corporate bonds and mortgage-backed securities. 
A)  only U.S. government securities. 
B)  only mortgage-backed securities issued by large investment banks. 
C)  a wide range of assets including the stock shares of large banks, domestic automobile manufacturers, and high-technology business firms. 
D)  a wide range of assets including corporate bonds and mortgage-backed securities.

Reserves that banks are required by law to keep on hand to back up their deposits are called

If the public decides to hold more currency and fewer deposits in banks, bank reserves

A system that permits banks to hold less than 100 percent of their deposits as reserves is called a

If you have a checking account at a local bank, your bank account there is

If the Fed wanted to use all four of its major monetary control tools to decrease the money supply, it would

When the actual reserves held by a bank exceed the legal requirement, the bank

Economists who stress the store of value function of money generally

Suppose you withdraw $1,000 from your checking account. If the reserve requirement is 20 percent, how does this transaction affect the supply of money and the excess reserves of your bank?

Why did the monetary base increase rapidly during the economic crisis of 2008?

The large increase in the excess reserves held by the commercial banking system during the second half of 2008,

If a bank has actual reserves of $40,000 and a 20 percent reserve requirement, then the maximum amount of checkable deposits the bank can have if excess reserves are zero is

Which of the following is primarily responsible for controlling the money supply in the United States?

The federal funds market is the market where

If people decide to hold less money as currency and more as checking deposits, this will most likely cause

Which of the following lists two things that both decrease the money supply?

Table 13-2 Refer to Table 13-2. The reserve requirement is 10 percent and then someone deposits an additional $50,000 into the bank, then if the bank takes no other action it will

Table 13-2 Refer to Table 13-2. If the Hometown Bank is holding $10,000 in excess reserves, then the reserve requirement is

If you deposit $100 of currency into a demand deposit at a bank, this action by itself

In its conduct of open market operations, the Fed now buys and sells

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

Reserves that banks are required by law to keep on hand to back up their deposits are called

If the public decides to hold more currency and fewer deposits in banks, bank reserves

A system that permits banks to hold less than 100 percent of their deposits as reserves is called a

If you have a checking account at a local bank, your bank account there is

If the Fed wanted to use all four of its major monetary control tools to decrease the money supply, it would

When the actual reserves held by a bank exceed the legal requirement, the bank

Economists who stress the store of value function of money generally

Suppose you withdraw $1,000 from your checking account. If the reserve requirement is 20 percent, how does this transaction affect the supply of money and the excess reserves of your bank?

Why did the monetary base increase rapidly during the economic crisis of 2008?

The large increase in the excess reserves held by the commercial banking system during the second half of 2008,

If a bank has actual reserves of $40,000 and a 20 percent reserve requirement, then the maximum amount of checkable deposits the bank can have if excess reserves are zero is

Which of the following is primarily responsible for controlling the money supply in the United States?

The federal funds market is the market where

If people decide to hold less money as currency and more as checking deposits, this will most likely cause

Which of the following lists two things that both decrease the money supply?

Table 13-2 Refer to Table 13-2. The reserve requirement is 10 percent and then someone deposits an additional $50,000 into the bank, then if the bank takes no other action it will

Table 13-2 Refer to Table 13-2. If the Hometown Bank is holding $10,000 in excess reserves, then the reserve requirement is

If you deposit $100 of currency into a demand deposit at a bank, this action by itself

In its conduct of open market operations, the Fed now buys and sells

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