Question 1

Are "smart cards" or E-cash cards part of the money supply?

Accepted Answer

A) Yes,because they can be given away to make a payment. 
B) Yes,because they will soon completely replace cash. 
C) No,because they are not issued by banks. 
D) No,because they are merely means to transfer checking deposits. 
A) Yes,because they can be given away to make a payment. 
B) Yes,because they will soon completely replace cash. 
C) No,because they are not issued by banks. 
D) No,because they are merely means to transfer checking deposits.

Question 2

Which of the following correctly indicates how the Fed could use the interest rate it pays commercial banks on their excess reserves to influence the money supply?

Accepted Answer

A) If the Fed wanted to increase the money supply,it could increase the interest rate it pays banks on their excess reserves. 
B) When the Fed reduces the interest rate paid on excess reserves,it increases the incentive of commercial banks to hold excess reserves. 
C) If the Fed wanted to decrease the money supply,it could increase the interest rate paid on excess reserves. 
D) When the Fed increases the interest rate it pays on excess reserves,this encourages banks to extend more loans and thereby increase the money supply. 
A) If the Fed wanted to increase the money supply,it could increase the interest rate it pays banks on their excess reserves. 
B) When the Fed reduces the interest rate paid on excess reserves,it increases the incentive of commercial banks to hold excess reserves. 
C) If the Fed wanted to decrease the money supply,it could increase the interest rate paid on excess reserves. 
D) When the Fed increases the interest rate it pays on excess reserves,this encourages banks to extend more loans and thereby increase the money supply.

Question 3

Table 13-1
  
-Refer to Table 13-1.If $1,000 is deposited into the First Bank of Mason City,and the bank takes no other actions,it's

Accepted Answer

A) total reserves will increase by $200. 
B) liabilities will decrease by $1,000. 
C) assets will increase by $1,000. 
D) required reserves will increase by $800. 
A) total reserves will increase by $200. 
B) liabilities will decrease by $1,000. 
C) assets will increase by $1,000. 
D) required reserves will increase by $800.

Question 4

Reserves that banks are required by law to keep on hand to back up their deposits are called:

Accepted Answer

A) required reserves. 
B) borrowed reserves. 
C) actual reserves. 
D) excess reserves. 
A) required reserves. 
B) borrowed reserves. 
C) actual reserves. 
D) excess reserves.

Question 5

Table 13-2
  
-Refer to Table 13-2.If the reserve requirement is 10 percent,then this bank

Accepted Answer

A) is in a position to make a new loan of $15,000. 
B) has less reserves than required. 
C) has excess reserves of less than $15,000. 
D) none of the above is correct. 
A) is in a position to make a new loan of $15,000. 
B) has less reserves than required. 
C) has excess reserves of less than $15,000. 
D) none of the above is correct.

Question 6

Why is there more than one definition of the money supply? What is the difference between them?

Accepted Answer

There is no one "correct" definition of

Question 7

Suppose the Fed buys $10 million of U.S.securities from the public.Assume a reserve requirement of 5 percent and that all banks hold no excess reserves.The total impact of this action on the money supply will be

Accepted Answer

A) an increase of $200 million. 
B) a decrease of $200 million. 
C) a decrease of $10 million. 
D) an increase of $10 million. 
A) an increase of $200 million. 
B) a decrease of $200 million. 
C) a decrease of $10 million. 
D) an increase of $10 million.

Question 8

The primary source of earnings of commercial banks is income derived from

Accepted Answer

A) the checking account services provided to customers. 
B) the use of deposits to extend loans and undertake investments. 
C) vault cash and deposits held with the Fed. 
D) services provided to the U.S.Treasury. 
A) the checking account services provided to customers. 
B) the use of deposits to extend loans and undertake investments. 
C) vault cash and deposits held with the Fed. 
D) services provided to the U.S.Treasury.

Question 9

Prior to 2008,the primary tool used by the Fed to control the money supply was

Accepted Answer

A) the manipulation of the required reserve ratio banks must hold against their checking deposits. 
B) the extension of loans to financial institutions. 
C) the buying and selling of stocks and corporate bonds. 
D) the buying and selling of U.S.Treasury securities. 
A) the manipulation of the required reserve ratio banks must hold against their checking deposits. 
B) the extension of loans to financial institutions. 
C) the buying and selling of stocks and corporate bonds. 
D) the buying and selling of U.S.Treasury securities.

Question 10

During the three years following the financial crisis of 2008,

Accepted Answer

A) the monetary base more than doubled and the M1 money supply increased even more rapidly. 
B) the monetary base more than doubled,but the M1 money supply increased much less rapidly. 
C) the monetary base fell by almost 50 percent,but the M1 money supply continued to grow at a steady rate. 
D) the monetary base fell by almost 50 percent,causing a sharp reduction in the M1 money supply. 
A) the monetary base more than doubled and the M1 money supply increased even more rapidly. 
B) the monetary base more than doubled,but the M1 money supply increased much less rapidly. 
C) the monetary base fell by almost 50 percent,but the M1 money supply continued to grow at a steady rate. 
D) the monetary base fell by almost 50 percent,causing a sharp reduction in the M1 money supply.

Question 11

You deposit a $1,000 scholarship check in the bank.If the required reserve ratio is 10 percent,explain how the banking system will create new money and how much money can potentially be created.

Accepted Answer

Once the $1,000 is deposited,the bank is

Question 12

Historically,the excess reserves of banks have been ________ relative to checkable deposits,but during the crisis of 2008 the excess reserves of banks ________.(Fill in the blanks)

Accepted Answer

A) large;declined sharply 
B) small;fell sharply 
C) small;increased sharply 
D) large;increased sharply 
A) large;declined sharply 
B) small;fell sharply 
C) small;increased sharply 
D) large;increased sharply

Question 13

What are the advantages of a fractional reserve banking system compared to a system that requires 100 percent of deposits to be kept on reserve?

Accepted Answer

If a bank must keep all of its deposits

Question 14

If the Fed wanted to shift to a restrictive monetary policy and reduce the money supply,it could

Accepted Answer

A) increase the interest rate paid on excess reserves encouraging banks to extend more loans. 
B) decrease the interest rate paid on excess reserves encouraging banks to extend more loans. 
C) decrease the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans. 
D) increase the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans. 
A) increase the interest rate paid on excess reserves encouraging banks to extend more loans. 
B) decrease the interest rate paid on excess reserves encouraging banks to extend more loans. 
C) decrease the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans. 
D) increase the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans.

Question 15

Which of the following assets can a commercial bank count as reserves?

Accepted Answer

A) its holdings of U.S.Treasury bills 
B) its vault cash and deposits with the Fed 
C) its outstanding loans 
D) the savings accounts of its depositors 
A) its holdings of U.S.Treasury bills 
B) its vault cash and deposits with the Fed 
C) its outstanding loans 
D) the savings accounts of its depositors

Question 16

In practice,money supply and short-term interest rates are determined by the

Accepted Answer

A) Treasury and Commerce departments. 
B) Federal Open Market Committee. 
C) Board of Governors. 
D) House and Senate. 
A) Treasury and Commerce departments. 
B) Federal Open Market Committee. 
C) Board of Governors. 
D) House and Senate.

Question 17

Suppose the U.S.Treasury issues and sells $100 million of U.S.government securities (bonds)to the public.How will this affect the money supply and the national debt?

Accepted Answer

A) The money supply will increase;the national debt will decrease. 
B) The money supply will decrease;the national debt will increase. 
C) The money supply will be unaffected;the national debt will increase. 
D) The money supply will be unaffected;the national debt will decrease. 
A) The money supply will increase;the national debt will decrease. 
B) The money supply will decrease;the national debt will increase. 
C) The money supply will be unaffected;the national debt will increase. 
D) The money supply will be unaffected;the national debt will decrease.

Question 18

Comparing how many dollars it takes you to run your car each year to annual earnings on a job instead of keeping track of costs in terms of gallons of gasoline and quarts of oil represents the use of money as

Accepted Answer

A) means of payment. 
B) unit of account. 
C) store of purchasing power. 
D) form of plastic money. 
A) means of payment. 
B) unit of account. 
C) store of purchasing power. 
D) form of plastic money.

Question 19

In order to increase the money supply,the banking system must have

Accepted Answer

A) required reserves. 
B) the authority to buy corporate stocks. 
C) the authority to print U.S.currency. 
D) excess reserves. 
E) the authority to engage in interstate banking. 
A) required reserves. 
B) the authority to buy corporate stocks. 
C) the authority to print U.S.currency. 
D) excess reserves. 
E) the authority to engage in interstate banking.

Question 20

The funds that banks are required by law to hold in the form of either vault cash or deposits with the Fed are called

Accepted Answer

A) excess reserves. 
B) fractional reserves. 
C) required reserves. 
D) certificates of deposit. 
A) excess reserves. 
B) fractional reserves. 
C) required reserves. 
D) certificates of deposit.

Exam 13: Amoney and the Banking System

Are "smart cards" or E-cash cards part of the money supply?

Which of the following correctly indicates how the Fed could use the interest rate it pays commercial banks on their excess reserves to influence the money supply?

Table 13-1 -Refer to Table 13-1.If $1,000 is deposited into the First Bank of Mason City,and the bank takes no other actions,it's

Reserves that banks are required by law to keep on hand to back up their deposits are called:

Table 13-2 -Refer to Table 13-2.If the reserve requirement is 10 percent,then this bank

Why is there more than one definition of the money supply? What is the difference between them?

Suppose the Fed buys $10 million of U.S.securities from the public.Assume a reserve requirement of 5 percent and that all banks hold no excess reserves.The total impact of this action on the money supply will be

The primary source of earnings of commercial banks is income derived from

Prior to 2008,the primary tool used by the Fed to control the money supply was

During the three years following the financial crisis of 2008,

You deposit a $1,000 scholarship check in the bank.If the required reserve ratio is 10 percent,explain how the banking system will create new money and how much money can potentially be created.

Historically,the excess reserves of banks have been ________ relative to checkable deposits,but during the crisis of 2008 the excess reserves of banks ________.(Fill in the blanks)

What are the advantages of a fractional reserve banking system compared to a system that requires 100 percent of deposits to be kept on reserve?

If the Fed wanted to shift to a restrictive monetary policy and reduce the money supply,it could

Which of the following assets can a commercial bank count as reserves?

In practice,money supply and short-term interest rates are determined by the

Suppose the U.S.Treasury issues and sells $100 million of U.S.government securities (bonds)to the public.How will this affect the money supply and the national debt?

Comparing how many dollars it takes you to run your car each year to annual earnings on a job instead of keeping track of costs in terms of gallons of gasoline and quarts of oil represents the use of money as

In order to increase the money supply,the banking system must have

The funds that banks are required by law to hold in the form of either vault cash or deposits with the Fed are called

The Economic Approach

Asome Tools of the Economist

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Asupply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

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Dynamic Change, economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and Historical Perspective

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Great Debates in Economics: Keynes Versus Hayek

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Lessons From the Great Depression

Lessons From Japan and Canada

The Federal Budget and the National Debt

The Economics of Healthcare

Education: Problems and Performance

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Historically,the excess reserves of banks have been relative to checkable deposits,but during the crisis of 2008 the excess reserves of banks .(Fill in the blanks)