Question 1

The Fed relies primarily on the discount rate to control the money supply.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is the largest component of the assets of the Federal Reserve?

Accepted Answer

A)  U.S. Treasury deposits 
B)  U.S. government securities 
C)  foreign exchange 
D)  time deposits 
E)  checkable deposits 
A)  U.S. Treasury deposits 
B)  U.S. government securities 
C)  foreign exchange 
D)  time deposits 
E)  checkable deposits

Question 3

If a bank sells a $1,000 security to the Fed and the required reserve ratio is 10 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 4

Which of the following is included in the M1 money supply?

Accepted Answer

A)  savings deposits 
B)  certificates of deposit 
C)  miscellaneous near-monies 
D)  checkable deposits 
E)  money market mutual fund accounts 
A)  savings deposits 
B)  certificates of deposit 
C)  miscellaneous near-monies 
D)  checkable deposits 
E)  money market mutual fund accounts

Question 5

If the simple money multiplier is 5, the required reserve ratio must be equal to _____

Accepted Answer

A)  5 percent. 
B)  0 percent. 
C)  10 percent. 
D)  50 percent. 
E)  20 percent. 
A)  5 percent. 
B)  0 percent. 
C)  10 percent. 
D)  50 percent. 
E)  20 percent.

Question 6

Assume that there are no excess reserves in the banking system when the reserve requirement is 20%. The purchase of $10,000 in U.S. government securities by the Fed from Academy National Bank has the potential to ultimately increase the money supply by _____

Accepted Answer

A)  $2,000. 
B)  $8,000. 
C)  $10,000. 
D)  $20,000. 
E)  $50,000. 
A)  $2,000. 
B)  $8,000. 
C)  $10,000. 
D)  $20,000. 
E)  $50,000.

Question 7

If the required reserve ratio in the banking system is 10% and the Fed sells $1,000 in U.S. bonds, what will happen to supply?

Accepted Answer

A)  It will increase by as much as $5,000. 
B)  It will decrease by as much as $5,000. 
C)  It will increase by as much as $10,000. 
D)  It will decrease by as much as $10,000. 
E)  It will remain unchanged. 
A)  It will increase by as much as $5,000. 
B)  It will decrease by as much as $5,000. 
C)  It will increase by as much as $10,000. 
D)  It will decrease by as much as $10,000. 
E)  It will remain unchanged.

Question 8

A 2005 quarter is called token money because _____

Accepted Answer

A)  it is legal tender. 
B)  its metal value exceeds its face value. 
C)  there is less than a quarter's worth of metal in it. 
D)  it can be used in the subway. 
E)  it is generally not accepted in exchange. 
A)  it is legal tender. 
B)  its metal value exceeds its face value. 
C)  there is less than a quarter's worth of metal in it. 
D)  it can be used in the subway. 
E)  it is generally not accepted in exchange.

Question 9

When a customer deposits $1,000 in a bank, the deposit is _____

Accepted Answer

A)  an asset of the Federal Reserve. 
B)  included in M1 if it is currently in the bank's vault. 
C)  a liability to the customer. 
D)  an asset to the bank if it is currently in the bank's vault. 
E)  a liability for the bank, as the bank owes it to the customer. 
A)  an asset of the Federal Reserve. 
B)  included in M1 if it is currently in the bank's vault. 
C)  a liability to the customer. 
D)  an asset to the bank if it is currently in the bank's vault. 
E)  a liability for the bank, as the bank owes it to the customer.

Question 10

Which of the following is true of credit cards?

Accepted Answer

A)  They have eliminated the use of money. 
B)  They are currently the most popular means of payment in the United States. 
C)  They are included in the narrow definition of money, M1. 
D)  They are near-monies. 
E)  They are used to postpone the payment of money. 
A)  They have eliminated the use of money. 
B)  They are currently the most popular means of payment in the United States. 
C)  They are included in the narrow definition of money, M1. 
D)  They are near-monies. 
E)  They are used to postpone the payment of money.

Question 11

If each bank in the United States had to keep 100 percent of checkable deposits as reserves, each $1 the Fed injected into new reserves could increase the money supply by _____

Accepted Answer

A)  $1. 
B)  $2. 
C)  $100. 
D)  $5. 
E)  a penny. 
A)  $1. 
B)  $2. 
C)  $100. 
D)  $5. 
E)  a penny.

Question 12

If an increase of $10 million in excess reserves increases checkable deposits in the banking system by a maximum of $100 million, the required reserve ratio would be _____

Accepted Answer

A)  0 percent. 
B)  5 percent. 
C)  10 percent. 
D)  20 percent. 
E)  2 percent. 
A)  0 percent. 
B)  5 percent. 
C)  10 percent. 
D)  20 percent. 
E)  2 percent.

Question 13

The Fed primarily uses the reserve requirement to control the money supply.

Accepted Answer

A) True 
 B)False

Question 14

On a bank's balance sheet, the value of its liabilities must equal the value of its _____

Accepted Answer

A)  net worth only. 
B)  liabilities only. 
C)  its revenues plus costs. 
D)  its assets minus net worth. 
E)  its revenues minus costs. 
A)  net worth only. 
B)  liabilities only. 
C)  its revenues plus costs. 
D)  its assets minus net worth. 
E)  its revenues minus costs.

Question 15

The liquidity of an asset indicates _____

Accepted Answer

A)  its buying power. 
B)  the ease with which it can be converted into cash without a significant loss of value. 
C)  the ease with which it can be converted into another asset. 
D)  how likely people are to trade it internationally. 
E)  its intrinsic value. 
A)  its buying power. 
B)  the ease with which it can be converted into cash without a significant loss of value. 
C)  the ease with which it can be converted into another asset. 
D)  how likely people are to trade it internationally. 
E)  its intrinsic value.

Question 16

The narrow definition of money is _____

Accepted Answer

A)  M0 
B)  M1 
C)  M2 
D)  M3 
E)  Mn 
A)  M0 
B)  M1 
C)  M2 
D)  M3 
E)  Mn

Question 17

Credit cards are included in M2.

Accepted Answer

A) True 
 B)False

Question 18

The higher the required reserve ratio, _____

Accepted Answer

A)  the larger the money multiplier. 
B)  the smaller the money multiplier. 
C)  the more the excess reserves after each round of the money-creation process. 
D)  the more the money that can be lent in each round of the money-creation process. 
E)  the lower the demand for cash by the non-banking public. 
A)  the larger the money multiplier. 
B)  the smaller the money multiplier. 
C)  the more the excess reserves after each round of the money-creation process. 
D)  the more the money that can be lent in each round of the money-creation process. 
E)  the lower the demand for cash by the non-banking public.

Question 19

A bank finds itself short of required reserves and therefore borrows from another commercial bank. The interest rate on this loan is _____

Accepted Answer

A)  zero. 
B)  the prime rate. 
C)  the discount rate. 
D)  the federal funds rate. 
E)  the required reserve ratio. 
A)  zero. 
B)  the prime rate. 
C)  the discount rate. 
D)  the federal funds rate. 
E)  the required reserve ratio.

Question 20

Which of the following is a disadvantage of using debit cards?

Accepted Answer

A)  Debit cards are unsafe for use. 
B)  Debit cards do not provide a grace period between a purchase and required payment. 
C)  Debit cards delay payments. 
D)  Debit cards are not easy to use. 
E)  Debit cards make purchases more expensive than they actually are. 
A)  Debit cards are unsafe for use. 
B)  Debit cards do not provide a grace period between a purchase and required payment. 
C)  Debit cards delay payments. 
D)  Debit cards are not easy to use. 
E)  Debit cards make purchases more expensive than they actually are.

The Fed relies primarily on the discount rate to control the money supply.

Which of the following is the largest component of the assets of the Federal Reserve?

If a bank sells a $1,000 security to the Fed and the required reserve ratio is 10 percent, _____

Which of the following is included in the M1 money supply?

If the simple money multiplier is 5, the required reserve ratio must be equal to _____

Assume that there are no excess reserves in the banking system when the reserve requirement is 20%. The purchase of $10,000 in U.S. government securities by the Fed from Academy National Bank has the potential to ultimately increase the money supply by _____

If the required reserve ratio in the banking system is 10% and the Fed sells $1,000 in U.S. bonds, what will happen to supply?

A 2005 quarter is called token money because _____

When a customer deposits $1,000 in a bank, the deposit is _____

Which of the following is true of credit cards?

If each bank in the United States had to keep 100 percent of checkable deposits as reserves, each $1 the Fed injected into new reserves could increase the money supply by _____

If an increase of $10 million in excess reserves increases checkable deposits in the banking system by a maximum of $100 million, the required reserve ratio would be _____

The Fed primarily uses the reserve requirement to control the money supply.

On a bank's balance sheet, the value of its liabilities must equal the value of its _____

The liquidity of an asset indicates _____

The narrow definition of money is _____

Credit cards are included in M2.

The higher the required reserve ratio, _____

A bank finds itself short of required reserves and therefore borrows from another commercial bank. The interest rate on this loan is _____

Which of the following is a disadvantage of using debit cards?

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

Exam 14: Banking and the Money Supply.

The Fed relies primarily on the discount rate to control the money supply.

Which of the following is the largest component of the assets of the Federal Reserve?

If a bank sells a $1,000 security to the Fed and the required reserve ratio is 10 percent, _____

Which of the following is included in the M1 money supply?

If the simple money multiplier is 5, the required reserve ratio must be equal to _____

Assume that there are no excess reserves in the banking system when the reserve requirement is 20%. The purchase of $10,000 in U.S. government securities by the Fed from Academy National Bank has the potential to ultimately increase the money supply by _____

If the required reserve ratio in the banking system is 10% and the Fed sells $1,000 in U.S. bonds, what will happen to supply?

A 2005 quarter is called token money because _____

When a customer deposits $1,000 in a bank, the deposit is _____

Which of the following is true of credit cards?

If each bank in the United States had to keep 100 percent of checkable deposits as reserves, each $1 the Fed injected into new reserves could increase the money supply by _____

If an increase of $10 million in excess reserves increases checkable deposits in the banking system by a maximum of $100 million, the required reserve ratio would be _____

The Fed primarily uses the reserve requirement to control the money supply.

On a bank's balance sheet, the value of its liabilities must equal the value of its _____

The liquidity of an asset indicates _____

The narrow definition of money is _____

Credit cards are included in M2.

The higher the required reserve ratio, _____

A bank finds itself short of required reserves and therefore borrows from another commercial bank. The interest rate on this loan is _____

Which of the following is a disadvantage of using debit cards?

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