Question 1

If a customer deposits $1,000 cash into her checking account,the bank's

Accepted Answer

A) assets rise by $1,000 and liabilities fall by $1,000. 
B) assets fall by $1,000 and liabilities rise by $1,000. 
C) assets and liabilities both fall by $1,000. 
D) assets and liabilities both rise by $1,000. 
E) profits rise by $1,000. 
A) assets rise by $1,000 and liabilities fall by $1,000. 
B) assets fall by $1,000 and liabilities rise by $1,000. 
C) assets and liabilities both fall by $1,000. 
D) assets and liabilities both rise by $1,000. 
E) profits rise by $1,000.

Question 2

Under current policy,the Fed ties the discount rate to the

Accepted Answer

A) prime rate. 
B) AAA corporate bond rate. 
C) federal funds rate. 
D) long-term government bond rate. 
A) prime rate. 
B) AAA corporate bond rate. 
C) federal funds rate. 
D) long-term government bond rate.

Question 3

The federal funds market is the market where

Accepted Answer

A) the federal government raises funds to cover its budget deficit. 
B) the Federal Reserve System makes loans to commercial banks. 
C) commercial banks with excess reserves make loans to commercial banks seeking reserves. 
D) commercial banks make loans to the Federal Reserve. 
A) the federal government raises funds to cover its budget deficit. 
B) the Federal Reserve System makes loans to commercial banks. 
C) commercial banks with excess reserves make loans to commercial banks seeking reserves. 
D) commercial banks make loans to the Federal Reserve.

Question 4

Checking account deposits are counted as part of the M1 money supply because

Accepted Answer

A) they earn interest income for the depositor. 
B) they are widely used as a means of making payment. 
C) banks hold currency equal to the value of their outstanding checking account deposits. 
D) they are ultimately the obligations of the Treasury. 
A) they earn interest income for the depositor. 
B) they are widely used as a means of making payment. 
C) banks hold currency equal to the value of their outstanding checking account deposits. 
D) they are ultimately the obligations of the Treasury.

Question 5

Are outstanding credit card balances counted as part of the money supply?

Accepted Answer

A) Yes;they are used to purchase things,and therefore,they are included in the money supply figures. 
B) No;money is an asset,while the credit card balances are a liability.Thus,they are not included in the money supply figures. 
C) Partly;credit card balances of $100 or less are included in the M1 money supply,but the money supply figures do not include balances in excess of $100. 
D) Partly;credit card balances are included in the M1 money supply,but not the M2 money supply. 
A) Yes;they are used to purchase things,and therefore,they are included in the money supply figures. 
B) No;money is an asset,while the credit card balances are a liability.Thus,they are not included in the money supply figures. 
C) Partly;credit card balances of $100 or less are included in the M1 money supply,but the money supply figures do not include balances in excess of $100. 
D) Partly;credit card balances are included in the M1 money supply,but not the M2 money supply.

Question 6

Table 13-2
  
-Refer to Table 13-2.If the reserve requirement is 20 percent,this bank

Accepted Answer

A) has $10,000 of excess reserves. 
B) needs $10,000 more reserves to meet its reserve requirements. 
C) needs $5,000 more reserves to meet its reserve requirements. 
D) just meets its reserve requirement. 
A) has $10,000 of excess reserves. 
B) needs $10,000 more reserves to meet its reserve requirements. 
C) needs $5,000 more reserves to meet its reserve requirements. 
D) just meets its reserve requirement.

Question 7

The conduct of monetary policy is the responsibility of

Accepted Answer

A) commercial banks. 
B) the U.S.Treasury. 
C) the Federal Reserve System. 
D) the Congress and the president. 
A) commercial banks. 
B) the U.S.Treasury. 
C) the Federal Reserve System. 
D) the Congress and the president.

Question 8

When the interest rate decreases,the opportunity cost of holding money

Accepted Answer

A) increases,so the quantity of money demanded increases. 
B) increases,so the quantity of money demanded decreases. 
C) decreases,so the quantity of money demanded increases. 
D) decreases,so the quantity of money demanded decreases. 
A) increases,so the quantity of money demanded increases. 
B) increases,so the quantity of money demanded decreases. 
C) decreases,so the quantity of money demanded increases. 
D) decreases,so the quantity of money demanded decreases.

Question 9

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits,then bank reserves will

Accepted Answer

A) decrease and the money supply will eventually decrease. 
B) decrease and the money supply will eventually increase. 
C) increase and the money supply will eventually decrease. 
D) increase and the money supply will eventually increase. 
A) decrease and the money supply will eventually decrease. 
B) decrease and the money supply will eventually increase. 
C) increase and the money supply will eventually decrease. 
D) increase and the money supply will eventually increase.

Question 10

If the Fed wants to use "open market operations" to decrease the money supply,it would

Accepted Answer

A) increase the federal funds rate. 
B) issue more federal government debt. 
C) sell U.S.government securities (bonds)to the general public. 
D) increase the required reserve ratio. 
A) increase the federal funds rate. 
B) issue more federal government debt. 
C) sell U.S.government securities (bonds)to the general public. 
D) increase the required reserve ratio.

Question 11

A commercial bank has $1,000,000 of customer checking deposits and actual reserves of $300,000.If the reserve ratio is 20 percent,what is the maximum amount of new loans the bank can extend?

Accepted Answer

A) zero 
B) $100,000 
C) $300,000 
D) $500,000 
A) zero 
B) $100,000 
C) $300,000 
D) $500,000

Question 12

The M1 money supply

Accepted Answer

A) is composed of assets that reflect the medium of exchange function of money. 
B) is larger than the M2 money supply. 
C) includes credit card balances since they are used to purchase things. 
D) is composed of only currency. 
A) is composed of assets that reflect the medium of exchange function of money. 
B) is larger than the M2 money supply. 
C) includes credit card balances since they are used to purchase things. 
D) is composed of only currency.

Question 13

The nature and measurement of the money supply has become more difficult in recent years because of

Accepted Answer

A) the reduced use of pennies in transactions. 
B) actions of the U.S.Congress that have reduced the power of the Fed to control the money supply. 
C) legislation prohibiting the circulation of the dollar outside of the United States. 
D) financial innovations,such as the introduction of interest-earning checking accounts and money market mutual funds. 
A) the reduced use of pennies in transactions. 
B) actions of the U.S.Congress that have reduced the power of the Fed to control the money supply. 
C) legislation prohibiting the circulation of the dollar outside of the United States. 
D) financial innovations,such as the introduction of interest-earning checking accounts and money market mutual funds.

Question 14

When economists say that money serves as a unit of account,they mean that money

Accepted Answer

A) allows people to avoid barter (trading goods for other goods)by using money. 
B) is always issued in fixed denominations (for example $1,$5,$10,$20 bills). 
C) allows people to value all goods and services in terms of one commodity (money),rather than in terms of several commodities. 
D) makes it easier for people to maintain value across time by letting them save it in the form of money,rather than in the form of physical goods that might depreciate over time. 
A) allows people to avoid barter (trading goods for other goods)by using money. 
B) is always issued in fixed denominations (for example $1,$5,$10,$20 bills). 
C) allows people to value all goods and services in terms of one commodity (money),rather than in terms of several commodities. 
D) makes it easier for people to maintain value across time by letting them save it in the form of money,rather than in the form of physical goods that might depreciate over time.

Question 15

You withdraw $100 from your checking account.How does this affect the money supply and the reserves of your bank?

Accepted Answer

A) The money supply increases,and the reserves of your bank decline. 
B) Both money supply and the reserves of your bank increase. 
C) There is no change in the money supply,and the reserves of your bank decline. 
D) The money supply decreases,and the reserves of your bank increase. 
A) The money supply increases,and the reserves of your bank decline. 
B) Both money supply and the reserves of your bank increase. 
C) There is no change in the money supply,and the reserves of your bank decline. 
D) The money supply decreases,and the reserves of your bank increase.

Question 16

The federal funds rate is the interest rate

Accepted Answer

A) banks pay when they borrow money from each other for short periods of time. 
B) the federal government pays on the national debt. 
C) the Fed charges banks when banks need to borrow from the Fed. 
D) the federal government charges foreign banks. 
A) banks pay when they borrow money from each other for short periods of time. 
B) the federal government pays on the national debt. 
C) the Fed charges banks when banks need to borrow from the Fed. 
D) the federal government charges foreign banks.

Question 17

Excess reserves of banks equal

Accepted Answer

A) actual reserves minus required reserves. 
B) actual reserves minus demand deposits. 
C) assets minus the liabilities of the banks. 
D) required reserves minus actual reserves. 
A) actual reserves minus required reserves. 
B) actual reserves minus demand deposits. 
C) assets minus the liabilities of the banks. 
D) required reserves minus actual reserves.

Question 18

What restricts the Fed's ability to write checks and purchase U.S.securities?

Accepted Answer

A) Congress;the Fed must receive a budget allocation from Congress before it can write a check. 
B) The gold requirement;the Fed cannot write a check unless it has a sufficient amount of gold to back the expenditure. 
C) Reserve requirements;the Fed must maintain 20 percent of its assets in the form of cash against the deposits that it is holding for commercial banks. 
D) Nothing;the Fed can create money simply by writing a check on itself. 
A) Congress;the Fed must receive a budget allocation from Congress before it can write a check. 
B) The gold requirement;the Fed cannot write a check unless it has a sufficient amount of gold to back the expenditure. 
C) Reserve requirements;the Fed must maintain 20 percent of its assets in the form of cash against the deposits that it is holding for commercial banks. 
D) Nothing;the Fed can create money simply by writing a check on itself.

Question 19

The tool used most frequently by the Fed to control the money supply is

Accepted Answer

A) changes in the premiums charged for FDIC deposit insurance. 
B) open market operations. 
C) changes in the discount rate. 
D) changes in reserve requirements. 
A) changes in the premiums charged for FDIC deposit insurance. 
B) open market operations. 
C) changes in the discount rate. 
D) changes in reserve requirements.

Question 20

On a certain date,the banking system had $40 billion in excess reserves.The legally required reserve ratio was 20 percent.Potentially,if these funds were loaned and eventually the entire amount re-deposited with a bank,the banking system as a whole could increase the money supply by

Accepted Answer

A) a maximum of $40 billion. 
B) a maximum of $160 billion. 
C) a maximum of $200 billion. 
D) more than $200 billion. 
A) a maximum of $40 billion. 
B) a maximum of $160 billion. 
C) a maximum of $200 billion. 
D) more than $200 billion.

Exam 13: Amoney and the Banking System

If a customer deposits $1,000 cash into her checking account,the bank's

Under current policy,the Fed ties the discount rate to the

The federal funds market is the market where

Checking account deposits are counted as part of the M1 money supply because

Are outstanding credit card balances counted as part of the money supply?

Table 13-2 -Refer to Table 13-2.If the reserve requirement is 20 percent,this bank

The conduct of monetary policy is the responsibility of

When the interest rate decreases,the opportunity cost of holding money

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits,then bank reserves will

If the Fed wants to use "open market operations" to decrease the money supply,it would

A commercial bank has $1,000,000 of customer checking deposits and actual reserves of $300,000.If the reserve ratio is 20 percent,what is the maximum amount of new loans the bank can extend?

The M1 money supply

The nature and measurement of the money supply has become more difficult in recent years because of

When economists say that money serves as a unit of account,they mean that money

You withdraw $100 from your checking account.How does this affect the money supply and the reserves of your bank?

The federal funds rate is the interest rate

Excess reserves of banks equal

What restricts the Fed's ability to write checks and purchase U.S.securities?

The tool used most frequently by the Fed to control the money supply is

On a certain date,the banking system had $40 billion in excess reserves.The legally required reserve ratio was 20 percent.Potentially,if these funds were loaned and eventually the entire amount re-deposited with a bank,the banking system as a whole could increase the money supply by

The Economic Approach

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