Question 1

Roughly _____ of the Fed's liabilities consist of Federal Reserve notes.

Accepted Answer

A)  one-tenth 
B)  one-fifth 
C)  one-third 
D)  quarter 
E)  half 
A)  one-tenth 
B)  one-fifth 
C)  one-third 
D)  quarter 
E)  half

Question 2

Deposits that earn a fixed rate of interest if held for a specified period ranging from several months to several years are called _____

Accepted Answer

A)  cash in bank vaults. 
B)  savings deposits. 
C)  money market mutual fund accounts. 
D)  time deposits. 
E)  checkable deposits. 
A)  cash in bank vaults. 
B)  savings deposits. 
C)  money market mutual fund accounts. 
D)  time deposits. 
E)  checkable deposits.

Question 3

If a bank receives $2,500 of reserves by selling a government bond to the Fed, its ability to make loans increases by $2,500.

Accepted Answer

A) True 
 B)False

Question 4

To reduce the money supply, the New York Fed is directed to carry out _____

Accepted Answer

A)  an open-market purchase. 
B)  an open-market sale. 
C)  discretionary lending. 
D)  quantitative tightening. 
E)  quantitative easing. 
A)  an open-market purchase. 
B)  an open-market sale. 
C)  discretionary lending. 
D)  quantitative tightening. 
E)  quantitative easing.

Question 5

The buying or selling of U.S. government bonds in the open market is called _____

Accepted Answer

A)  discount window lending. 
B)  providing liquidity. 
C)  open-market operations. 
D)  quantitative tightening. 
E)  quantitative easing. 
A)  discount window lending. 
B)  providing liquidity. 
C)  open-market operations. 
D)  quantitative tightening. 
E)  quantitative easing.

Question 6

Which of the following is not included in the narrow definition of the money supply?

Accepted Answer

A)  cash in bank vaults 
B)  savings deposits 
C)  money market mutual fund accounts 
D)  negotiable certificates of deposit 
E)  checkable deposits 
A)  cash in bank vaults 
B)  savings deposits 
C)  money market mutual fund accounts 
D)  negotiable certificates of deposit 
E)  checkable deposits

Question 7

If a bank sells a $1,000 security to the Fed and the required reserve ratio is 20 percent, _____

Accepted Answer

A)  the bank has $1,000 in additional reserves, of which it can lend $800. 
B)  the bank has $1,000 in additional reserves, of which it can lend $900. 
C)  the bank has lost an asset and must reduce its loans. 
D)  the bank has lost a liability. 
E)  there is no change in excess reserves, since net assets do not change. 
A)  the bank has $1,000 in additional reserves, of which it can lend $800. 
B)  the bank has $1,000 in additional reserves, of which it can lend $900. 
C)  the bank has lost an asset and must reduce its loans. 
D)  the bank has lost a liability. 
E)  there is no change in excess reserves, since net assets do not change.

Question 8

When a customer deposits $100 into a checking account, it _____

Accepted Answer

A)  increases the bank's liabilities only. 
B)  decreases the bank's liabilities only. 
C)  increases the bank's assets only. 
D)  decreases both the bank's liabilities and its assets. 
E)  increases both the bank's liabilities and its assets. 
A)  increases the bank's liabilities only. 
B)  decreases the bank's liabilities only. 
C)  increases the bank's assets only. 
D)  decreases both the bank's liabilities and its assets. 
E)  increases both the bank's liabilities and its assets.

Question 9

Suppose the required reserve ratio is 0.2 and the Fed buys $100,000 in government securities from Big Bank. The commercial banking system creates _____ as a result of this initial injection by the Fed.

Accepted Answer

A)  $1,000,000 
B)  $500,000 
C)  $100,000 
D)  $80,000 
E)  $200,000 
A)  $1,000,000 
B)  $500,000 
C)  $100,000 
D)  $80,000 
E)  $200,000

Question 10

Banks help to overcome the problem of asymmetric information by _____

Accepted Answer

A)  lending to a single rich borrower and not diversifying their portfolio. 
B)  acquiring expertise in evaluating the credit histories of borrowers. 
C)  threatening borrowers. 
D)  offering only one type of loan. 
E)  providing information to lenders. 
A)  lending to a single rich borrower and not diversifying their portfolio. 
B)  acquiring expertise in evaluating the credit histories of borrowers. 
C)  threatening borrowers. 
D)  offering only one type of loan. 
E)  providing information to lenders.

Question 11

If a bank has $50,000 in excess reserves at the end of a business day and the required reserve ratio is 20 percent, the bank can increase its profits by _____

Accepted Answer

A)  keeping the excess reserves. 
B)  loaning out $40,000. 
C)  loaning out $50,000 to another bank. 
D)  borrowing $50,000 to remove the excess reserves. 
E)  keeping $10,000 and depositing $40,000 with the Fed. 
A)  keeping the excess reserves. 
B)  loaning out $40,000. 
C)  loaning out $50,000 to another bank. 
D)  borrowing $50,000 to remove the excess reserves. 
E)  keeping $10,000 and depositing $40,000 with the Fed.

Question 12

The distinction between M1 and M2 has blurred over time because _____

Accepted Answer

A)  M1 is now larger than M2. 
B)  depositors can transfer funds between accounts easily. 
C)  the Federal Reserve has defined them less precisely. 
D)  M1 is becoming less liquid. 
E)  banks are now offering time deposits. 
A)  M1 is now larger than M2. 
B)  depositors can transfer funds between accounts easily. 
C)  the Federal Reserve has defined them less precisely. 
D)  M1 is becoming less liquid. 
E)  banks are now offering time deposits.

Question 13

Banks are required to hold reserves against the total value of all their assets.

Accepted Answer

A) True 
 B)False

Question 14

If the required reserve ratio is 10 percent and the Fed buys a $1,000 security from a depository institution, the money supply _____

Accepted Answer

A)  increases by $15,000. 
B)  increases by $10,000. 
C)  decreases by $15,000. 
D)  decreases by $10,000. 
E)  decreases by $50,000. 
A)  increases by $15,000. 
B)  increases by $10,000. 
C)  decreases by $15,000. 
D)  decreases by $10,000. 
E)  decreases by $50,000.

Question 15

Banks create money when they make loans.

Accepted Answer

A) True 
 B)False

Question 16

Debit cards are safer than credit cards because debit cards generally require a PIN number.

Accepted Answer

A) True 
 B)False

Question 17

Table 14.1
 Table $14.1$
EUBANK
$\begin{array}{|l|r|l|r|}
\hline \text { Assets } & & \text { Liabilities and Net Worth } & \
\hline & & & \
\hline \text { Deposits at the Fed } & \$ 40,000 & \text { Checkable Deposits } & \$ 500,000 \
\hline \text { Cash } & \$ 10,000 & \text { Net Worth } & \$ 20,000 \
\hline \text { Loans } & \$ 300,000 & & \
\hline \text { Securities } & \$ 150,000 & & \
\hline \text { Fed Stock } & \$ 20,000 & & \
\hline
\end{array}$
-Refer to Table 14.1 for the balance sheet of Eubank. If the interest rate on loans is 10 percent, the annual cost to Eubank of holding excess reserves is _____

Accepted Answer

A)  10 percent of $500,000. 
B)  10 percent of net worth. 
C)  10 percent of excess reserves. 
D)  $10,000. 
E)  0. 
A)  10 percent of $500,000. 
B)  10 percent of net worth. 
C)  10 percent of excess reserves. 
D)  $10,000. 
E)  0.

Question 18

M2 is the narrow measure of the money supply.

Accepted Answer

A) True 
 B)False

Question 19

Most of the Fed's liabilities are in the form of _____

Accepted Answer

A)  Federal Reserve notes. 
B)  checkable deposits. 
C)  U.S. Treasury deposits. 
D)  loans to member banks. 
E)  certificates of deposit. 
A)  Federal Reserve notes. 
B)  checkable deposits. 
C)  U.S. Treasury deposits. 
D)  loans to member banks. 
E)  certificates of deposit.

Question 20

If the Fed increases the required reserve ratio at a time when banks are holding excess reserves, then _____

Accepted Answer

A)  the Fed's aim is to increase the money supply. 
B)  banks are likely to lend out more money than they would if the Fed left the reserve ratio alone. 
C)  banks are likely to earn higher profits than they would if the Fed left the reserve ratio alone. 
D)  the money supply will not increase as much as it would if the Fed left the reserve ratio alone. 
E)  the Fed's aim is to conduct open market operations without changing the money supply. 
A)  the Fed's aim is to increase the money supply. 
B)  banks are likely to lend out more money than they would if the Fed left the reserve ratio alone. 
C)  banks are likely to earn higher profits than they would if the Fed left the reserve ratio alone. 
D)  the money supply will not increase as much as it would if the Fed left the reserve ratio alone. 
E)  the Fed's aim is to conduct open market operations without changing the money supply.

Roughly _____ of the Fed's liabilities consist of Federal Reserve notes.

Deposits that earn a fixed rate of interest if held for a specified period ranging from several months to several years are called _____

If a bank receives $2,500 of reserves by selling a government bond to the Fed, its ability to make loans increases by $2,500.

To reduce the money supply, the New York Fed is directed to carry out _____

The buying or selling of U.S. government bonds in the open market is called _____

Which of the following is not included in the narrow definition of the money supply?

If a bank sells a $1,000 security to the Fed and the required reserve ratio is 20 percent, _____

When a customer deposits $100 into a checking account, it _____

Suppose the required reserve ratio is 0.2 and the Fed buys $100,000 in government securities from Big Bank. The commercial banking system creates _____ as a result of this initial injection by the Fed.

Banks help to overcome the problem of asymmetric information by _____

If a bank has $50,000 in excess reserves at the end of a business day and the required reserve ratio is 20 percent, the bank can increase its profits by _____

The distinction between M1 and M2 has blurred over time because _____

Banks are required to hold reserves against the total value of all their assets.

If the required reserve ratio is 10 percent and the Fed buys a $1,000 security from a depository institution, the money supply _____

Banks create money when they make loans.

Debit cards are safer than credit cards because debit cards generally require a PIN number.

M2 is the narrow measure of the money supply.

Most of the Fed's liabilities are in the form of _____

If the Fed increases the required reserve ratio at a time when banks are holding excess reserves, then _____

The Art and Science of Economic Analysis.

Economic Tools and Economic Systems.

Economic Decision Makers.

Demand, Supply, and Markets.

Introduction to Macroeconomics.

Tracking the U. S. Economy.

Unemployment and Inflation.

Productivity and Growth.

Aggregate Demand.

Aggregate Supply.

Fiscal Policy.

Federal Budgets and Public Policy.

Money and the Financial System.

Monetary Theory and Policy.

Macro Policy Debate: Active or Passive?

International Trade.

International Finance.

Economic Development.

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Exam 14: Banking and the Money Supply.

Roughly _____ of the Fed's liabilities consist of Federal Reserve notes.

Deposits that earn a fixed rate of interest if held for a specified period ranging from several months to several years are called _____

If a bank receives $2,500 of reserves by selling a government bond to the Fed, its ability to make loans increases by $2,500.

To reduce the money supply, the New York Fed is directed to carry out _____

The buying or selling of U.S. government bonds in the open market is called _____

Which of the following is not included in the narrow definition of the money supply?

If a bank sells a $1,000 security to the Fed and the required reserve ratio is 20 percent, _____

When a customer deposits $100 into a checking account, it _____

Suppose the required reserve ratio is 0.2 and the Fed buys $100,000 in government securities from Big Bank. The commercial banking system creates _____ as a result of this initial injection by the Fed.

Banks help to overcome the problem of asymmetric information by _____

If a bank has $50,000 in excess reserves at the end of a business day and the required reserve ratio is 20 percent, the bank can increase its profits by _____

The distinction between M1 and M2 has blurred over time because _____

Banks are required to hold reserves against the total value of all their assets.

If the required reserve ratio is 10 percent and the Fed buys a $1,000 security from a depository institution, the money supply _____

Banks create money when they make loans.

Debit cards are safer than credit cards because debit cards generally require a PIN number.

M2 is the narrow measure of the money supply.

Most of the Fed's liabilities are in the form of _____

If the Fed increases the required reserve ratio at a time when banks are holding excess reserves, then _____

The Art and Science of Economic Analysis.

Economic Tools and Economic Systems.

Economic Decision Makers.

Demand, Supply, and Markets.

Introduction to Macroeconomics.

Tracking the U. S. Economy.

Unemployment and Inflation.

Productivity and Growth.

Aggregate Demand.

Aggregate Supply.

Fiscal Policy.

Federal Budgets and Public Policy.

Money and the Financial System.

Monetary Theory and Policy.

Macro Policy Debate: Active or Passive?

International Trade.

International Finance.

Economic Development.

Filters