Question 1

If the required reserve ratio is 0.2 and the Fed buys $3,000 of U.S. government securities, the maximum amount by which the money supply can increase is _____

Accepted Answer

A)  $200. 
B)  $2,000. 
C)  $600. 
D)  $15,000. 
E)  $1,500. 
A)  $200. 
B)  $2,000. 
C)  $600. 
D)  $15,000. 
E)  $1,500.

Question 2

Open-market operations involve _____

Accepted Answer

A)  opening the discount window. 
B)  buying stocks in the stock market. 
C)  buying and selling government securities in the open market. 
D)  opening new markets for commodities. 
E)  selling failed banks to other banks. 
A)  opening the discount window. 
B)  buying stocks in the stock market. 
C)  buying and selling government securities in the open market. 
D)  opening new markets for commodities. 
E)  selling failed banks to other banks.

Question 3

In the federal funds market, _____

Accepted Answer

A)  banks make loans to the Fed. 
B)  banks make short-term loans to other banks. 
C)  banks make long-term loans to other banks. 
D)  the Fed makes short-term loans to private borrowers. 
E)  the Fed makes long-term loans to commercial banks. 
A)  banks make loans to the Fed. 
B)  banks make short-term loans to other banks. 
C)  banks make long-term loans to other banks. 
D)  the Fed makes short-term loans to private borrowers. 
E)  the Fed makes long-term loans to commercial banks.

Question 4

In commercial banking operations, there is a trade-off between liquidity and profitability.

Accepted Answer

A) True 
 B)False

Question 5

The narrow definition of the money supply includes only currency held by the nonbanking public.

Accepted Answer

A) True 
 B)False

Question 6

If the Fed buys a $1,000 U.S. government bond from a bank, it pays for it by giving the bank $1,000 in reserves-reserves that it simply creates out of thin air.

Accepted Answer

A) True 
 B)False

Question 7

If a bank receives $1,000 in currency as a new deposit, its ability to make loans increases by $1,000.

Accepted Answer

A) True 
 B)False

Question 8

If you returned a $5 Federal Reserve note to the Fed, you could receive _____

Accepted Answer

A)  $5 in silver. 
B)  $5 in gold. 
C)  5 one-dollar bills. 
D)  10 one-dollar bills. 
E)  a small gold bar. 
A)  $5 in silver. 
B)  $5 in gold. 
C)  5 one-dollar bills. 
D)  10 one-dollar bills. 
E)  a small gold bar.

Question 9

Suppose you borrow $1,000 to purchase a car. Which of the following correctly represents the changes in your personal balance sheet after the bank lends the money, but before you spend it?

Accepted Answer

A)  Assets: loan, +$1,000; Liabilities and net worth: checking deposit, +$1,000 
B)  Assets: loan, $- \$ 1,000$ , checking deposit, +$1,000; Liabilities and net worth: no change 
C)  Assets: loan, +$1,000, checking deposit, $- \$ 1,000$ ; Liabilities and net worth: no change 
D)  Assets: checking deposit, +$1,000; Liabilities and net worth: loan, +$1,000 
E)  Assets: checking deposit, +$1,000; Liabilities and net worth: loan, $- \$ 1,000$ 
A)  Assets: loan, +$1,000; Liabilities and net worth: checking deposit, +$1,000 
B)  Assets: loan, $- \$ 1,000$ , checking deposit, +$1,000; Liabilities and net worth: no change 
C)  Assets: loan, +$1,000, checking deposit, $- \$ 1,000$ ; Liabilities and net worth: no change 
D)  Assets: checking deposit, +$1,000; Liabilities and net worth: loan, +$1,000 
E)  Assets: checking deposit, +$1,000; Liabilities and net worth: loan, $- \$ 1,000$

Question 10

By holding highly liquid assets to guard against sudden large withdrawals, banks _____

Accepted Answer

A)  sacrifice safety. 
B)  sacrifice profitability. 
C)  increase profitability. 
D)  diversify their portfolio. 
E)  earn more interest than they could on business loans. 
A)  sacrifice safety. 
B)  sacrifice profitability. 
C)  increase profitability. 
D)  diversify their portfolio. 
E)  earn more interest than they could on business loans.

Question 11

Decreasing the required reserve ratio is an expansionary policy because it increases the amount of excess reserves in the banking system.

Accepted Answer

A) True 
 B)False

Question 12

Lowering the discount rate _____

Accepted Answer

A)  encourages banks to borrow from the Fed so they can more easily accommodate their customers' needs for loans. 
B)  encourages business customers to borrow directly from the Fed. 
C)  reduces the amount of reserves banks are required to keep. 
D)  automatically reduces excess reserves. 
E)  encourages banks to sell U.S. government securities and increase their cash reserves. 
A)  encourages banks to borrow from the Fed so they can more easily accommodate their customers' needs for loans. 
B)  encourages business customers to borrow directly from the Fed. 
C)  reduces the amount of reserves banks are required to keep. 
D)  automatically reduces excess reserves. 
E)  encourages banks to sell U.S. government securities and increase their cash reserves.

Question 13

To ensure the banking system had sufficient liquidity after the terrorist attacks in September 11, 2001, the Fed bought all the government securities offered for sale, purchasing a record _____ worth in two days.

Accepted Answer

A)  $10 billion 
B)  $25 billion 
C)  $50 billion 
D)  $100 billion 
E)  $150 billion 
A)  $10 billion 
B)  $25 billion 
C)  $50 billion 
D)  $100 billion 
E)  $150 billion

Question 14

Which of the following countries has a reserve requirement?

Accepted Answer

A)  Australia 
B)  Canada 
C)  United Kingdom 
D)  the United States 
E)  Hong Kong 
A)  Australia 
B)  Canada 
C)  United Kingdom 
D)  the United States 
E)  Hong Kong

Question 15

Money supply would expand if people chose to hold borrowed funds in cash rather than in checking accounts.

Accepted Answer

A) True 
 B)False

Question 16

M2 consists of _____

Accepted Answer

A)  M1 plus savings accounts, small-time deposits, money market mutual funds, and miscellaneous near-monies. 
B)  coins, currency, and checkable deposits only. 
C)  only near-monies. 
D)  M1 plus time deposits only. 
E)  M1 plus money market mutual funds only. 
A)  M1 plus savings accounts, small-time deposits, money market mutual funds, and miscellaneous near-monies. 
B)  coins, currency, and checkable deposits only. 
C)  only near-monies. 
D)  M1 plus time deposits only. 
E)  M1 plus money market mutual funds only.

Question 17

All of the following are part of M2 except one. Which is the exception?

Accepted Answer

A)  money market deposit accounts 
B)  coins 
C)  traveler's checks 
D)  large-denomination time deposits 
E)  savings deposits 
A)  money market deposit accounts 
B)  coins 
C)  traveler's checks 
D)  large-denomination time deposits 
E)  savings deposits

Question 18

The current reserve requirement is _____ on checkable deposits and zero on other deposits.

Accepted Answer

A)  5 percent 
B)  10 percent 
C)  15 percent 
D)  20 percent 
E)  25 percent 
A)  5 percent 
B)  10 percent 
C)  15 percent 
D)  20 percent 
E)  25 percent

Question 19

A higher discount rate generally decreases excess reserves.

Accepted Answer

A) True 
 B)False

Question 20

In the United States, paper money is redeemable for gold.

Accepted Answer

A) True 
 B)False

If the required reserve ratio is 0.2 and the Fed buys $3,000 of U.S. government securities, the maximum amount by which the money supply can increase is _____

Open-market operations involve _____

In the federal funds market, _____

In commercial banking operations, there is a trade-off between liquidity and profitability.

The narrow definition of the money supply includes only currency held by the nonbanking public.

If the Fed buys a $1,000 U.S. government bond from a bank, it pays for it by giving the bank $1,000 in reserves-reserves that it simply creates out of thin air.

If a bank receives $1,000 in currency as a new deposit, its ability to make loans increases by $1,000.

If you returned a $5 Federal Reserve note to the Fed, you could receive _____

Suppose you borrow $1,000 to purchase a car. Which of the following correctly represents the changes in your personal balance sheet after the bank lends the money, but before you spend it?

By holding highly liquid assets to guard against sudden large withdrawals, banks _____

Decreasing the required reserve ratio is an expansionary policy because it increases the amount of excess reserves in the banking system.

Lowering the discount rate _____

To ensure the banking system had sufficient liquidity after the terrorist attacks in September 11, 2001, the Fed bought all the government securities offered for sale, purchasing a record _____ worth in two days.

Which of the following countries has a reserve requirement?

Money supply would expand if people chose to hold borrowed funds in cash rather than in checking accounts.

M2 consists of _____

All of the following are part of M2 except one. Which is the exception?

The current reserve requirement is _____ on checkable deposits and zero on other deposits.

A higher discount rate generally decreases excess reserves.

In the United States, paper money is redeemable for gold.

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.

If the required reserve ratio is 0.2 and the Fed buys $3,000 of U.S. government securities, the maximum amount by which the money supply can increase is _____

Open-market operations involve _____

In the federal funds market, _____

In commercial banking operations, there is a trade-off between liquidity and profitability.

The narrow definition of the money supply includes only currency held by the nonbanking public.

If the Fed buys a $1,000 U.S. government bond from a bank, it pays for it by giving the bank $1,000 in reserves-reserves that it simply creates out of thin air.

If a bank receives $1,000 in currency as a new deposit, its ability to make loans increases by $1,000.

If you returned a $5 Federal Reserve note to the Fed, you could receive _____

Suppose you borrow $1,000 to purchase a car. Which of the following correctly represents the changes in your personal balance sheet after the bank lends the money, but before you spend it?

By holding highly liquid assets to guard against sudden large withdrawals, banks _____

Decreasing the required reserve ratio is an expansionary policy because it increases the amount of excess reserves in the banking system.

Lowering the discount rate _____

To ensure the banking system had sufficient liquidity after the terrorist attacks in September 11, 2001, the Fed bought all the government securities offered for sale, purchasing a record _____ worth in two days.

Which of the following countries has a reserve requirement?

Money supply would expand if people chose to hold borrowed funds in cash rather than in checking accounts.

M2 consists of _____

All of the following are part of M2 except one. Which is the exception?

The current reserve requirement is _____ on checkable deposits and zero on other deposits.

A higher discount rate generally decreases excess reserves.

In the United States, paper money is redeemable for gold.

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