Question 1

Which of the following is true of M1?

Accepted Answer

A)  It is equal to M2. 
B)  It consists of all near-monies. 
C)  It consists of certificates of deposit. 
D)  It is the broader definition of money. 
E)  It is only a fraction of M2. 
A)  It is equal to M2. 
B)  It consists of all near-monies. 
C)  It consists of certificates of deposit. 
D)  It is the broader definition of money. 
E)  It is only a fraction of M2.

Question 2

Distinctions between M1 and M2 are becoming _____

Accepted Answer

A)  more meaningful as banks allow depositors to transfer funds from one account to another. 
B)  less meaningful as banks allow depositors to transfer funds from one account to another. 
C)  more meaningful as banks do not allow depositors to transfer funds from one account to another. 
D)  less meaningful as banks do not allow depositors to transfer funds from one account to another. 
E)  confusing and not necessary. 
A)  more meaningful as banks allow depositors to transfer funds from one account to another. 
B)  less meaningful as banks allow depositors to transfer funds from one account to another. 
C)  more meaningful as banks do not allow depositors to transfer funds from one account to another. 
D)  less meaningful as banks do not allow depositors to transfer funds from one account to another. 
E)  confusing and not necessary.

Question 3

If the required reserve ratio is 20 percent and the Fed buys a $10,000 security from a depository institution that currently has no excess reserves, the money supply _____

Accepted Answer

A)  decreases by $10,000. 
B)  increases by $100,000. 
C)  decreases by $100,000. 
D)  increases by $50,000. 
E)  decreases by $50,000. 
A)  decreases by $10,000. 
B)  increases by $100,000. 
C)  decreases by $100,000. 
D)  increases by $50,000. 
E)  decreases by $50,000.

Question 4

Securities bought during the financial crises still account for nearly _____ of the Fed's assets.

Accepted Answer

A)  20 percent 
B)  25 percent 
C)  30 percent 
D)  35 percent 
E)  40 percent 
A)  20 percent 
B)  25 percent 
C)  30 percent 
D)  35 percent 
E)  40 percent

Question 5

Which of the following statements is correct?

Accepted Answer

A)  To control the money supply, the Fed relies primarily on the reserve requirement. 
B)  The discount rate is the rate of interest banks charge to their best customers. 
C)  The Fed changes the reserve requirement frequently. 
D)  Because the Fed has no way to earn income, it is dependent upon Congress for appropriations. 
E)  Banks can turn a borrower's IOU into money. 
A)  To control the money supply, the Fed relies primarily on the reserve requirement. 
B)  The discount rate is the rate of interest banks charge to their best customers. 
C)  The Fed changes the reserve requirement frequently. 
D)  Because the Fed has no way to earn income, it is dependent upon Congress for appropriations. 
E)  Banks can turn a borrower's IOU into money.

Question 6

A fall in the discount rate will usually encourage banks to borrow from the Fed and therefore reduce the money supply.

Accepted Answer

A) True 
 B)False

Question 7

If the required reserve ratio is 10 percent, the simple money multiplier must be equal to _____

Accepted Answer

A)  5. 
B)  10. 
C)  20. 
D)  40. 
E)  50. 
A)  5. 
B)  10. 
C)  20. 
D)  40. 
E)  50.

Question 8

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 Eubank is holding no excess reserves, its required reserve ratio must be _____

Accepted Answer

A)  5 percent. 
B)  4 percent. 
C)  8 percent. 
D)  20 percent. 
E)  2 percent. 
A)  5 percent. 
B)  4 percent. 
C)  8 percent. 
D)  20 percent. 
E)  2 percent.

Question 9

Table 14.3
  
-Refer to Table 14.3 for the balance sheet of Leftbank. Which of the following transactions has just taken place at Leftbank?

Accepted Answer

A)  The bank received a shipment of cash from the Fed. 
B)  A customer deposited $10,000 cash in his account. 
C)  The bank sold a security to the Fed. 
D)  The Fed sold a security to the bank. 
E)  The bank borrowed $10,000 from the Fed. 
A)  The bank received a shipment of cash from the Fed. 
B)  A customer deposited $10,000 cash in his account. 
C)  The bank sold a security to the Fed. 
D)  The Fed sold a security to the bank. 
E)  The bank borrowed $10,000 from the Fed.

Question 10

Compared to M1, M2 is nearly _____

Accepted Answer

A)  half. 
B)  double. 
C)  three times larger. 
D)  four times larger. 
E)  equal. 
A)  half. 
B)  double. 
C)  three times larger. 
D)  four times larger. 
E)  equal.

Question 11

Suppose the First National Bank acquires $1,000,000 in new deposits. Which of the following is true?

Accepted Answer

A)  Assets and liabilities increase by $1,000,000. 
B)  Excess reserves on the new deposits are $500,000. 
C)  Required reserves on the new deposits are $60,000. 
D)  Excess reserves on the new deposits are $12,000. 
E)  Total reserves on the new deposits are $440,000. 
A)  Assets and liabilities increase by $1,000,000. 
B)  Excess reserves on the new deposits are $500,000. 
C)  Required reserves on the new deposits are $60,000. 
D)  Excess reserves on the new deposits are $12,000. 
E)  Total reserves on the new deposits are $440,000.

Question 12

Which of the following is not money?

Accepted Answer

A)  checks 
B)  coins 
C)  federal reserve notes 
D)  debit cards 
E)  credit cards 
A)  checks 
B)  coins 
C)  federal reserve notes 
D)  debit cards 
E)  credit cards

Question 13

The economy is more efficient because:

Accepted Answer

A)  savers develop expertise in evaluating creditworthiness. 
B)  borrowers develop expertise in structuring loans. 
C)  banks develop expertise in enforcing loan contracts. 
D)  banks reduce the transaction costs of channeling savings to creditworthy savers. 
E)  banks increase the transaction costs of channeling savings to creditworthy borrowers. 
A)  savers develop expertise in evaluating creditworthiness. 
B)  borrowers develop expertise in structuring loans. 
C)  banks develop expertise in enforcing loan contracts. 
D)  banks reduce the transaction costs of channeling savings to creditworthy savers. 
E)  banks increase the transaction costs of channeling savings to creditworthy borrowers.

Question 14

The huge jump in depository institutions' reserves at the Fed in recent years can be attributed to _____

Accepted Answer

A)  the Fed paying a small amount of interest on its excess bank reserves. 
B)  the Fed charging a small amount of interest on its excess bank reserves. 
C)  the Fed purchasing securities from the banks. 
D)  the banks feeling insecure about creating new loans. 
E)  the uncertainty of banks about their ability to manage their funds. 
A)  the Fed paying a small amount of interest on its excess bank reserves. 
B)  the Fed charging a small amount of interest on its excess bank reserves. 
C)  the Fed purchasing securities from the banks. 
D)  the banks feeling insecure about creating new loans. 
E)  the uncertainty of banks about their ability to manage their funds.

Question 15

Which of the following measures did the Fed take during the financial crisis of 2008?

Accepted Answer

A)  The Fed lowered the discount rate and paid interest on reserves held at the Fed. 
B)  The Fed increased the reserve requirement ratio. 
C)  The Fed sold all government securities. 
D)  The Fed decreased its spending. 
E)  The Fed increased the discount rate. 
A)  The Fed lowered the discount rate and paid interest on reserves held at the Fed. 
B)  The Fed increased the reserve requirement ratio. 
C)  The Fed sold all government securities. 
D)  The Fed decreased its spending. 
E)  The Fed increased the discount rate.

Question 16

If a bank has $1,000,000 in assets and $50,000 in net worth, its liabilities must equal _____

Accepted Answer

A)  $50,000. 
B)  $1,050,000. 
C)  $50,000,000. 
D)  $1,000,000. 
E)  $950,000. 
A)  $50,000. 
B)  $1,050,000. 
C)  $50,000,000. 
D)  $1,000,000. 
E)  $950,000.

Question 17

Suppose you bank at Bank A and you write a check to your friend, who banks at Bank B. After the check clears, _____

Accepted Answer

A)  both Bank A's and Bank B's assets increase. 
B)  both Bank A's and Bank B's assets decrease. 
C)  Bank A's assets increase and Bank B's assets decrease. 
D)  Bank A's assets decrease and Bank B's assets increase. 
E)  there is an increase in the Federal Reserve's assets. 
A)  both Bank A's and Bank B's assets increase. 
B)  both Bank A's and Bank B's assets decrease. 
C)  Bank A's assets increase and Bank B's assets decrease. 
D)  Bank A's assets decrease and Bank B's assets increase. 
E)  there is an increase in the Federal Reserve's assets.

Question 18

When using a debit card, a customer directly uses his or her checking account.

Accepted Answer

A) True 
 B)False

Question 19

The immediate effect of a member bank's sale of U.S. government securities to the Fed is a(n) _____

Accepted Answer

A)  increase in that bank's required reserves. 
B)  decrease in that bank's required reserves. 
C)  increase in that bank's excess reserves. 
D)  decrease in that bank's excess reserves. 
E)  decrease in the Fed's assets. 
A)  increase in that bank's required reserves. 
B)  decrease in that bank's required reserves. 
C)  increase in that bank's excess reserves. 
D)  decrease in that bank's excess reserves. 
E)  decrease in the Fed's assets.

Question 20

Suppose a bank lends you $1,000 to purchase a car. Which of the following correctly represents the changes in the bank's balance sheet before you spend the money?

Accepted Answer

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

Which of the following is true of M1?

Distinctions between M1 and M2 are becoming _____

If the required reserve ratio is 20 percent and the Fed buys a $10,000 security from a depository institution that currently has no excess reserves, the money supply _____

Securities bought during the financial crises still account for nearly _____ of the Fed's assets.

Which of the following statements is correct?

A fall in the discount rate will usually encourage banks to borrow from the Fed and therefore reduce the money supply.

If the required reserve ratio is 10 percent, the simple money multiplier must be equal to _____

Table 14.3 -Refer to Table 14.3 for the balance sheet of Leftbank. Which of the following transactions has just taken place at Leftbank?

Compared to M1, M2 is nearly _____

Suppose the First National Bank acquires $1,000,000 in new deposits. Which of the following is true?

Which of the following is not money?

The economy is more efficient because:

The huge jump in depository institutions' reserves at the Fed in recent years can be attributed to _____

Which of the following measures did the Fed take during the financial crisis of 2008?

If a bank has $1,000,000 in assets and $50,000 in net worth, its liabilities must equal _____

Suppose you bank at Bank A and you write a check to your friend, who banks at Bank B. After the check clears, _____

When using a debit card, a customer directly uses his or her checking account.

The immediate effect of a member bank's sale of U.S. government securities to the Fed is a(n) _____

Suppose a bank lends you $1,000 to purchase a car. Which of the following correctly represents the changes in the bank's balance sheet before you spend the money?

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.

Which of the following is true of M1?

Distinctions between M1 and M2 are becoming _____

If the required reserve ratio is 20 percent and the Fed buys a $10,000 security from a depository institution that currently has no excess reserves, the money supply _____

Securities bought during the financial crises still account for nearly _____ of the Fed's assets.

Which of the following statements is correct?

A fall in the discount rate will usually encourage banks to borrow from the Fed and therefore reduce the money supply.

If the required reserve ratio is 10 percent, the simple money multiplier must be equal to _____

Table 14.3 -Refer to Table 14.3 for the balance sheet of Leftbank. Which of the following transactions has just taken place at Leftbank?

Compared to M1, M2 is nearly _____

Suppose the First National Bank acquires $1,000,000 in new deposits. Which of the following is true?

Which of the following is not money?

The economy is more efficient because:

The huge jump in depository institutions' reserves at the Fed in recent years can be attributed to _____

Which of the following measures did the Fed take during the financial crisis of 2008?

If a bank has $1,000,000 in assets and $50,000 in net worth, its liabilities must equal _____

Suppose you bank at Bank A and you write a check to your friend, who banks at Bank B. After the check clears, _____

When using a debit card, a customer directly uses his or her checking account.

The immediate effect of a member bank's sale of U.S. government securities to the Fed is a(n) _____

Suppose a bank lends you $1,000 to purchase a car. Which of the following correctly represents the changes in the bank's balance sheet before you spend the money?

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