Question 1

If the Fed wanted to use all four of its major monetary control tools to decrease the money supply,it would

Accepted Answer

A) buy bonds,reduce the discount rate,reduce reserve requirements,and reduce the interest rate paid on excess reserves. 
B) sell bonds,reduce the discount rate,reduce reserve requirements,and reduce the interest rate paid on excess reserves. 
C) sell bonds,increase the discount rate,increase reserve requirements,and increase the interest rate paid on excess reserves. 
D) buy bonds,increase the discount rate,increase reserve requirements,and increase the interest rate paid on excess reserves. 
A) buy bonds,reduce the discount rate,reduce reserve requirements,and reduce the interest rate paid on excess reserves. 
B) sell bonds,reduce the discount rate,reduce reserve requirements,and reduce the interest rate paid on excess reserves. 
C) sell bonds,increase the discount rate,increase reserve requirements,and increase the interest rate paid on excess reserves. 
D) buy bonds,increase the discount rate,increase reserve requirements,and increase the interest rate paid on excess reserves.

Question 2

In recent years,the Fed has generally set the discount rate

Accepted Answer

A) lower than the federal funds rate to help financially troubled banks get more solvent. 
B) higher than the interest rate on 30-year fixed-rate mortgage loans. 
C) higher than the federal funds rate for most banks. 
D) equal to the rate of inflation. 
A) lower than the federal funds rate to help financially troubled banks get more solvent. 
B) higher than the interest rate on 30-year fixed-rate mortgage loans. 
C) higher than the federal funds rate for most banks. 
D) equal to the rate of inflation.

Question 3

Which of the following indicates the primary mechanism by which the money supply expands?

Accepted Answer

A) The U.S.Treasury prints additional currency. 
B) The Fed purchases additional bonds,which increases the reserves available to the banking system. 
C) The public decides to hold more currency rather than checking deposits. 
D) The U.S.government purchases additional gold. 
A) The U.S.Treasury prints additional currency. 
B) The Fed purchases additional bonds,which increases the reserves available to the banking system. 
C) The public decides to hold more currency rather than checking deposits. 
D) The U.S.government purchases additional gold.

Question 4

When the required reserve ratio is lowered,

Accepted Answer

A) the money multiplier increases,and the amount of excess reserves increases in the banking system. 
B) the money multiplier decreases,and the amount of excess reserves increases in the banking system. 
C) the money multiplier decreases,and the amount of excess reserves decreases in the banking system. 
D) the money multiplier increases,and the amount of excess reserves decreases in the banking system. 
E) there is no change in either the money multiplier or the amount of excess reserves in the banking system. 
A) the money multiplier increases,and the amount of excess reserves increases in the banking system. 
B) the money multiplier decreases,and the amount of excess reserves increases in the banking system. 
C) the money multiplier decreases,and the amount of excess reserves decreases in the banking system. 
D) the money multiplier increases,and the amount of excess reserves decreases in the banking system. 
E) there is no change in either the money multiplier or the amount of excess reserves in the banking system.

Question 5

Table 13-2
  
-Refer to Table 13-2.If the Last Bank of Cedar Bend is holding $10,000 in excess reserves,then the reserve requirement is

Accepted Answer

A) 2 percent. 
B) 5 percent. 
C) 7 percent. 
D) 10 percent. 
A) 2 percent. 
B) 5 percent. 
C) 7 percent. 
D) 10 percent.

Question 6

Suppose you transfer $1,000 from your checking account to your savings account.How does this action affect the M1 and M2 money supplies?

Accepted Answer

A) M1 and M2 are both unchanged. 
B) M1 falls by $1,000,and M2 rises by $1,000. 
C) M1 is unchanged,and M2 rises by $1,000. 
D) M1 falls by $1,000,and M2 is unchanged. 
A) M1 and M2 are both unchanged. 
B) M1 falls by $1,000,and M2 rises by $1,000. 
C) M1 is unchanged,and M2 rises by $1,000. 
D) M1 falls by $1,000,and M2 is unchanged.

Question 7

In its conduct of open market operations,the Fed now buys and sells

Accepted Answer

A) only U.S.government securities. 
B) only mortgage-backed securities issued by large investment banks. 
C) a wide range of assets including the stock shares of large banks,domestic automobile manufacturers,and high-technology business firms. 
D) a wide range of assets including corporate bonds and mortgage-backed securities. 
A) only U.S.government securities. 
B) only mortgage-backed securities issued by large investment banks. 
C) a wide range of assets including the stock shares of large banks,domestic automobile manufacturers,and high-technology business firms. 
D) a wide range of assets including corporate bonds and mortgage-backed securities.

Question 8

The money multiplier will be

Accepted Answer

A) larger if banks hold on to excess reserves but smaller if private citizens hold on to cash. 
B) smaller if banks hold on to excess reserves but larger if private citizens hold on to cash. 
C) smaller if either banks hold on to excess reserves or private citizens hold on to cash. 
D) larger if either banks hold on to excess reserves or private citizens hold on to cash. 
E) constant whether or not banks and citizens try to alter their holdings of excess reserves and cash. 
A) larger if banks hold on to excess reserves but smaller if private citizens hold on to cash. 
B) smaller if banks hold on to excess reserves but larger if private citizens hold on to cash. 
C) smaller if either banks hold on to excess reserves or private citizens hold on to cash. 
D) larger if either banks hold on to excess reserves or private citizens hold on to cash. 
E) constant whether or not banks and citizens try to alter their holdings of excess reserves and cash.

Question 9

Which of the following will increase the excess reserves of commercial banks?

Accepted Answer

A) a reduction in the reserve requirement ratio 
B) an increase in the discount rate 
C) the sale of government bonds by the Fed to the public 
D) the sale of government bonds by the Treasury to the public 
A) a reduction in the reserve requirement ratio 
B) an increase in the discount rate 
C) the sale of government bonds by the Fed to the public 
D) the sale of government bonds by the Treasury to the public

Question 10

In order for barter trades to occur,there must be a

Accepted Answer

A) singularity of interests. 
B) bargaining intermediary. 
C) double coincidence of wants. 
D) sufficient supply of cash. 
A) singularity of interests. 
B) bargaining intermediary. 
C) double coincidence of wants. 
D) sufficient supply of cash.

Question 11

During the period following 1995,many individuals shifted funds from interest-earning checking accounts to money market deposit accounts.How did these shifts impact the M1 and M2 money supply figures?

Accepted Answer

A) They reduced the growth rate of M1 but exerted little impact on M2. 
B) They reduced the growth rate of M2 but exerted little impact on M1. 
C) They reduced the growth rate of both M1 and M2. 
D) They did not affect the growth rate of either M1 or M2. 
A) They reduced the growth rate of M1 but exerted little impact on M2. 
B) They reduced the growth rate of M2 but exerted little impact on M1. 
C) They reduced the growth rate of both M1 and M2. 
D) They did not affect the growth rate of either M1 or M2.

Question 12

Which of the following is correct?

Accepted Answer

A) Federal Reserve purchases of securities will increase the reserves available to commercial banks. 
B) Federal Reserve purchases of securities exert upward pressure on interest rates in the short run. 
C) The Federal Reserve System determines the ratio of currency held by the public to the money supply (M1). 
D) Federal Reserve purchases of securities will decrease the reserves available to commercial banks. 
A) Federal Reserve purchases of securities will increase the reserves available to commercial banks. 
B) Federal Reserve purchases of securities exert upward pressure on interest rates in the short run. 
C) The Federal Reserve System determines the ratio of currency held by the public to the money supply (M1). 
D) Federal Reserve purchases of securities will decrease the reserves available to commercial banks.

Question 13

Why did the monetary base increase rapidly during the economic crisis of 2008?

Accepted Answer

A) The Fed sold financial assets and extended fewer loans. 
B) The Fed increased both its purchase of assets and quantity of loans extended. 
C) The Fed increased its purchases of assets,but offset this with an increase in the reserve requirement. 
D) The Fed sold financial assets,but offset this with a reduction in the reserve requirement. 
A) The Fed sold financial assets and extended fewer loans. 
B) The Fed increased both its purchase of assets and quantity of loans extended. 
C) The Fed increased its purchases of assets,but offset this with an increase in the reserve requirement. 
D) The Fed sold financial assets,but offset this with a reduction in the reserve requirement.

Question 14

If the Fed injects additional reserves into the banking system,why will banks generally want to expand their loans and investments?

Accepted Answer

A) Banks are legally required to expand loans when the Fed creates excess reserves. 
B) Maintaining reserves in excess of demand deposits is against the law. 
C) Banks fear the Fed will remove the excess reserves. 
D) Loans and investments generally earn more interest income for the banks than excess reserves. 
A) Banks are legally required to expand loans when the Fed creates excess reserves. 
B) Maintaining reserves in excess of demand deposits is against the law. 
C) Banks fear the Fed will remove the excess reserves. 
D) Loans and investments generally earn more interest income for the banks than excess reserves.

Question 15

Suppose you withdraw $1,000 from your checking account.If the reserve requirement is 20 percent,how does this transaction affect the supply of money and the excess reserves of your bank?

Accepted Answer

A) There is no change in the supply of money;your bank's excess reserves are reduced by $800. 
B) There is no change in the supply of money;your bank's excess reserves are reduced by $200. 
C) The money supply increases by $1,000,and the excess reserves of your bank are reduced by $800. 
D) The money supply increases by $1,000,and the excess reserves of your bank are reduced by $200. 
A) There is no change in the supply of money;your bank's excess reserves are reduced by $800. 
B) There is no change in the supply of money;your bank's excess reserves are reduced by $200. 
C) The money supply increases by $1,000,and the excess reserves of your bank are reduced by $800. 
D) The money supply increases by $1,000,and the excess reserves of your bank are reduced by $200.

Question 16

If the Fed wanted to expand the money supply as part of an antirecession strategy,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 17

The value (purchasing power)of each unit of money:

Accepted Answer

A) is largely independent of the money supply. 
B) tends to increase as the money supply expands. 
C) increases as prices rise. 
D) tends to decline as the money supply expands in relation to the availability of goods and services. 
A) is largely independent of the money supply. 
B) tends to increase as the money supply expands. 
C) increases as prices rise. 
D) tends to decline as the money supply expands in relation to the availability of goods and services.

Question 18

The sale of government securities by the Fed will cause

Accepted Answer

A) a decrease in both the monetary base and the money supply. 
B) an increase in both the monetary base and the money supply. 
C) an increase in the monetary base but no change in the money supply. 
D) a decrease in the monetary base but no change in the money supply. 
A) a decrease in both the monetary base and the money supply. 
B) an increase in both the monetary base and the money supply. 
C) an increase in the monetary base but no change in the money supply. 
D) a decrease in the monetary base but no change in the money supply.

Question 19

Which of the following actions would the Fed undertake if it wants to follow a more restrictive monetary policy?

Accepted Answer

A) sell some of its holdings of government bonds 
B) decrease government expenditures 
C) urge the Treasury to sell more U.S.securities 
D) reduce the reserve requirements 
A) sell some of its holdings of government bonds 
B) decrease government expenditures 
C) urge the Treasury to sell more U.S.securities 
D) reduce the reserve requirements

Question 20

In the modern U.S.economy,most transactions are made with

Accepted Answer

A) cash. 
B) gold and silver. 
C) credit cards. 
D) checking deposits. 
A) cash. 
B) gold and silver. 
C) credit cards. 
D) checking deposits.

Exam 13: Amoney and the Banking System

If the Fed wanted to use all four of its major monetary control tools to decrease the money supply,it would

In recent years,the Fed has generally set the discount rate

Which of the following indicates the primary mechanism by which the money supply expands?

When the required reserve ratio is lowered,

Table 13-2 -Refer to Table 13-2.If the Last Bank of Cedar Bend is holding $10,000 in excess reserves,then the reserve requirement is

Suppose you transfer $1,000 from your checking account to your savings account.How does this action affect the M1 and M2 money supplies?

In its conduct of open market operations,the Fed now buys and sells

The money multiplier will be

Which of the following will increase the excess reserves of commercial banks?

In order for barter trades to occur,there must be a

During the period following 1995,many individuals shifted funds from interest-earning checking accounts to money market deposit accounts.How did these shifts impact the M1 and M2 money supply figures?

Which of the following is correct?

Why did the monetary base increase rapidly during the economic crisis of 2008?

If the Fed injects additional reserves into the banking system,why will banks generally want to expand their loans and investments?

Suppose you withdraw $1,000 from your checking account.If the reserve requirement is 20 percent,how does this transaction affect the supply of money and the excess reserves of your bank?

If the Fed wanted to expand the money supply as part of an antirecession strategy,it could

The value (purchasing power)of each unit of money:

The sale of government securities by the Fed will cause

Which of the following actions would the Fed undertake if it wants to follow a more restrictive monetary policy?

In the modern U.S.economy,most transactions are made with

The Economic Approach

Asome Tools of the Economist

Asupply,demand,and the Market Process

Asupply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Ataking the Nations Economic Pulse

Economic Fluctuations, unemployment, and Inflation

Aan Introduction to Basic Macroeconomic Markets

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

Fiscal Policy: the Keynesian View and Historical Perspective

Fiscal Policy, incentives, and Secondary Effects

Modern Macroeconomics and Monetary Policy

Stabilization Policy, output, and Employment

Creating an Environment for Growth and Prosperity

Institutions,policies,and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Consumer Choice and Elasticity

Acosts and the Supply of Goods

Aprice Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Aprice-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Government Spending and Taxation

The Economics of Social Security

The Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Great Debates in Economics: Keynes Versus Hayek

The Crisis of 2008: Causes and Lessons for the Future

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

Earnings Differences Between Men and Women

Do Labor Unions Increase the Wages of Workers

The Question of Resource Exhaustion

Difficult Environmental Cases and the Role of Government

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