Question 1

Which of the following is not a tool of monetary policy?

Accepted Answer

A) open market operations 
B) reserve requirements 
C) changing the discount rate 
D) increasing the deficit 
A) open market operations 
B) reserve requirements 
C) changing the discount rate 
D) increasing the deficit

Question 2

Which of the three functions of money are commonly met by each of the following assets in the U.S.economy?
a.paper dollar
b.precious metals
c.collectibles such as baseball cards, stamps, and antiques

Accepted Answer

a. medium of exchang

Question 3

The money supply increases when the Fed

Accepted Answer

A) buys bonds.The increase will be larger the smaller the reserve ratio is. 
B) buys bonds.The increase will be larger the larger the reserve ratio is. 
C) sells bonds.The increase will be larger the smaller the reserve ratio is. 
D) sells bonds.The increase will be larger the larger the reserve ratio is. 
A) buys bonds.The increase will be larger the smaller the reserve ratio is. 
B) buys bonds.The increase will be larger the larger the reserve ratio is. 
C) sells bonds.The increase will be larger the smaller the reserve ratio is. 
D) sells bonds.The increase will be larger the larger the reserve ratio is.

Question 4

Credit cards

Accepted Answer

A) defer payments. 
B) are a store of value. 
C) have led to wider use of currency. 
D) are part of the money supply. 
A) defer payments. 
B) are a store of value. 
C) have led to wider use of currency. 
D) are part of the money supply.

Question 5

Suppose the Fed requires banks to hold 10% of their deposits as reserves.A bank has $20,000 of excess reserves and then sells the Fed a Treasury bill for $9,000.How much does this bank now have to lend out if it decides to hold only required reserves?

Accepted Answer

A) $29,000 
B) $28,100 
C) $19,100 
D) $11,000 
A) $29,000 
B) $28,100 
C) $19,100 
D) $11,000

Question 6

The banking system currently has $50 billion of reserves,none of which are excess.People hold only deposits and no currency,and the reserve requirement is 10%.If the Fed raises the reserve requirement to 12.5% and at the same time sells $10 billion dollars of bonds,then by how much does the money supply change?

Accepted Answer

A) It falls by $20 billion. 
B) It falls by $110 billion. 
C) It falls by $180 billion. 
D) None of the above is correct. 
A) It falls by $20 billion. 
B) It falls by $110 billion. 
C) It falls by $180 billion. 
D) None of the above is correct.

Question 7

If people decide to hold more currency relative to deposits,the money supply

Accepted Answer

A) falls.The Fed could lessen the impact of this by buying Treasury bonds. 
B) falls.The Fed could lessen the impact of this by selling Treasury bonds. 
C) rises.The Fed could lessen the impact of this by buying Treasury bonds. 
D) rises.The Fed could lessen the impact of the by selling Treasury bonds. 
A) falls.The Fed could lessen the impact of this by buying Treasury bonds. 
B) falls.The Fed could lessen the impact of this by selling Treasury bonds. 
C) rises.The Fed could lessen the impact of this by buying Treasury bonds. 
D) rises.The Fed could lessen the impact of the by selling Treasury bonds.

Question 8

Explain how each of the following changes the money supply.
a.the Fed buys bonds
b.the Fed raises the discount rate
c.the Fed raises the reserve requirement

Accepted Answer

a. If the Fed buys bonds,it pays for the

Question 9

In the United States,per person

Accepted Answer

A) average currency holdings are about $800.One explanation for this relatively small average is that money people use credit and debit cards to make transactions. 
B) average currency holdings are about $800.One explanation for this relatively small average is that U.S.citizens hold a lot of foreign currency. 
C) average holdings of currency are about $3,100.One explanation for this relatively large amount is that criminals may prefer currency as a medium of exchange. 
D) average holdings are about $3,100.One explanation for this relatively large average is that U.S.citizens hold a lot of foreign currency. 
A) average currency holdings are about $800.One explanation for this relatively small average is that money people use credit and debit cards to make transactions. 
B) average currency holdings are about $800.One explanation for this relatively small average is that U.S.citizens hold a lot of foreign currency. 
C) average holdings of currency are about $3,100.One explanation for this relatively large amount is that criminals may prefer currency as a medium of exchange. 
D) average holdings are about $3,100.One explanation for this relatively large average is that U.S.citizens hold a lot of foreign currency.

Question 10

Imagine that the Federal Funds rate was above the level the Federal Reserve had targeted.To move the rate back towards it's target the Federal Reserve could

Accepted Answer

A) buy bonds.This buying would reduce reserves. 
B) buy bonds.This buying would increase reserves. 
C) sell bonds.This selling would reduce reserves. 
D) sell bonds.This selling would increase reserves. 
A) buy bonds.This buying would reduce reserves. 
B) buy bonds.This buying would increase reserves. 
C) sell bonds.This selling would reduce reserves. 
D) sell bonds.This selling would increase reserves.

Question 11

In a 100-percent reserve banking system,if people decided to decrease the amount of currency they held by increasing the amount they held in checkable deposits

Accepted Answer

A) M1 would increase. 
B) M1 would decrease. 
C) M1 would not change. 
D) M1 might rise or fall. 
A) M1 would increase. 
B) M1 would decrease. 
C) M1 would not change. 
D) M1 might rise or fall.

Question 12

In the nineteenth century when there were often bank runs caused by crop failures,banks would make relatively fewer loans and hold relatively more excess reserves.By itself,these actions by the banks should have

Accepted Answer

A) increased the money multiplier and the money supply. 
B) decreased the money multiplier and increased the money supply. 
C) increased the money multiplier and decreased the money supply. 
D) decreased both the money multiplier and the money supply. 
A) increased the money multiplier and the money supply. 
B) decreased the money multiplier and increased the money supply. 
C) increased the money multiplier and decreased the money supply. 
D) decreased both the money multiplier and the money supply.

Question 13

Economists argue that the move from barter to money increased trade and production.How is this possible?

Accepted Answer

The use of money allows people

Question 14

In a fractional reserve banking system,a decrease in reserve requirements

Accepted Answer

A) increases both the money multiplier and the money supply. 
B) decreases both the money multiplier and the money supply. 
C) increases the money multiplier, but decreases the money supply. 
D) decreases the money multiplier, but increases the money supply. 
A) increases both the money multiplier and the money supply. 
B) decreases both the money multiplier and the money supply. 
C) increases the money multiplier, but decreases the money supply. 
D) decreases the money multiplier, but increases the money supply.

Question 15

If the reserve ratio is 10 percent,the money multiplier is

Accepted Answer

A) 100. 
B) 10. 
C) 9/10. 
D) 1/10. 
A) 100. 
B) 10. 
C) 9/10. 
D) 1/10.

Question 16

Draw a simple T-account for First National Bank which has $5,000 of deposits,a required reserve ratio of 10 percent,and excess reserves of $300.Make sure you balance sheet balances.

Accepted Answer

The answer of Draw a simple T-account for First National...

Question 17

Which of the following is included in M2 but not in M1?

Accepted Answer

A) currency 
B) demand deposits 
C) savings deposits 
D) All of the above are included in both M1 and M2 
A) currency 
B) demand deposits 
C) savings deposits 
D) All of the above are included in both M1 and M2

Question 18

Table 29-4
  
-Refer to Table 29-4.If the Bank of Tampa has loaned out all the money it wants given its deposits,then its reserve ratio is

Accepted Answer

A) 1% 
B) 5% 
C) 10% 
D) 20% 
A) 1% 
B) 5% 
C) 10% 
D) 20%

Question 19

To increase the money supply,the Fed could

Accepted Answer

A) sell government bonds. 
B) decrease the discount rate. 
C) increase the reserve requirement. 
D) None of the above is correct. 
A) sell government bonds. 
B) decrease the discount rate. 
C) increase the reserve requirement. 
D) None of the above is correct.

Question 20

Table 29-5
  
-Refer to Table 29-5.If the Bank of Springfield has lent out all the money it can given its deposits,then what is its reserve ratio?

Accepted Answer

A) 1% 
B) 5% 
C) 10% 
D) 20% 
A) 1% 
B) 5% 
C) 10% 
D) 20%

Exam 29: The Monetary System

Which of the following is not a tool of monetary policy?

Which of the three functions of money are commonly met by each of the following assets in the U.S.economy? a.paper dollar b.precious metals c.collectibles such as baseball cards, stamps, and antiques

The money supply increases when the Fed

Credit cards

Suppose the Fed requires banks to hold 10% of their deposits as reserves.A bank has $20,000 of excess reserves and then sells the Fed a Treasury bill for $9,000.How much does this bank now have to lend out if it decides to hold only required reserves?

If people decide to hold more currency relative to deposits,the money supply

Explain how each of the following changes the money supply. a.the Fed buys bonds b.the Fed raises the discount rate c.the Fed raises the reserve requirement

In the United States,per person

Imagine that the Federal Funds rate was above the level the Federal Reserve had targeted.To move the rate back towards it's target the Federal Reserve could

In a 100-percent reserve banking system,if people decided to decrease the amount of currency they held by increasing the amount they held in checkable deposits

In the nineteenth century when there were often bank runs caused by crop failures,banks would make relatively fewer loans and hold relatively more excess reserves.By itself,these actions by the banks should have

Economists argue that the move from barter to money increased trade and production.How is this possible?

In a fractional reserve banking system,a decrease in reserve requirements

If the reserve ratio is 10 percent,the money multiplier is

Draw a simple T-account for First National Bank which has $5,000 of deposits,a required reserve ratio of 10 percent,and excess reserves of $300.Make sure you balance sheet balances.

Which of the following is included in M2 but not in M1?

Table 29-4 -Refer to Table 29-4.If the Bank of Tampa has loaned out all the money it wants given its deposits,then its reserve ratio is

To increase the money supply,the Fed could

Table 29-5 -Refer to Table 29-5.If the Bank of Springfield has lent out all the money it can given its deposits,then what is its reserve ratio?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Applications

Supply, demand, and Government Policies

Consumers, producers, and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Oligopoly

Monopolistic Competition

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

The Basic Tools of Finance

Unemployment

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short Run Trade Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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