Question 1

If a bank's deposits at the Fed increase by $10 million, then

Accepted Answer

A) both the bank's assets and the Fed's assets increase by $10 million. 
B) both the bank's liabilities and the Fed's liabilities increase by $10 million. 
C) the bank's assets increase by $10 million and the Fed's liabilities increase by $10 million. 
D) the bank's assets increase by $10 million, but there is no change at the Fed since it does not really have assets or liabilities. 
A) both the bank's assets and the Fed's assets increase by $10 million. 
B) both the bank's liabilities and the Fed's liabilities increase by $10 million. 
C) the bank's assets increase by $10 million and the Fed's liabilities increase by $10 million. 
D) the bank's assets increase by $10 million, but there is no change at the Fed since it does not really have assets or liabilities.

Question 2

Which of the following is NOT an asset of a bank?

Accepted Answer

A) cash 
B) loans 
C) total reserves 
D) transaction deposits 
A) cash 
B) loans 
C) total reserves 
D) transaction deposits

Question 3

Which of the following statements about the FDIC is correct?
I. The deposit insurance premiums charged by the FDIC to a member bank fully reflect the riskiness of that bank's assets
II. The manner in which the FDIC is set up helps protect depository institutions from the rigors of true market competition

Accepted Answer

A) I only 
B) II only 
C) Both I and II 
D) Neither I nor II 
A) I only 
B) II only 
C) Both I and II 
D) Neither I nor II

Question 4

When the Fed buys a U.S. bond in the open market

Accepted Answer

A) total reserves will increase. 
B) total reserves will decrease. 
C) total reserves do not change but the money supply increases. 
D) total reserves do not change but the money supply decreases. 
A) total reserves will increase. 
B) total reserves will decrease. 
C) total reserves do not change but the money supply increases. 
D) total reserves do not change but the money supply decreases.

Question 5

Which of the following is NOT included using the transactions approach to measuring the money supply (M1)?

Accepted Answer

A) currency 
B) certificates of deposit 
C) transaction deposits 
D) traveler's checks 
A) currency 
B) certificates of deposit 
C) transaction deposits 
D) traveler's checks

Question 6

The function of money that provides for a commonly recognized measure of value for the price system is a(n)

Accepted Answer

A) medium of exchange. 
B) unit of accounting. 
C) store of value. 
D) standard of deferred payment. 
A) medium of exchange. 
B) unit of accounting. 
C) store of value. 
D) standard of deferred payment.

Question 7

In addition to insuring accounts, the FDIC today has the additional power of

Accepted Answer

A) setting reserve requirements. 
B) establishing FOMC goals. 
C) establishing the discount rate. 
D) establishing higher capital requirements for banks. 
A) setting reserve requirements. 
B) establishing FOMC goals. 
C) establishing the discount rate. 
D) establishing higher capital requirements for banks.

Question 8

Which one of the following is NOT a part of the M1 definition of money?

Accepted Answer

A) paper currency (i.e., Federal Reserve notes) 
B) coins 
C) savings accounts 
D) checkable and debitable accounts 
A) paper currency (i.e., Federal Reserve notes) 
B) coins 
C) savings accounts 
D) checkable and debitable accounts

Question 9

The potential for a financial breakdown at one financial institution to spread throughout the financial system is known as a

Accepted Answer

A) lending risk. 
B) moral hazard. 
C) liquidity risk. 
D) systemic risk. 
A) lending risk. 
B) moral hazard. 
C) liquidity risk. 
D) systemic risk.

Question 10

Given the list of assets below, which is the most liquid?

Accepted Answer

A) $500 worth of General Motors common stock 
B) $500 worth of General Motors bonds 
C) A $500 travelers check 
D) A one-ounce gold coin 
A) $500 worth of General Motors common stock 
B) $500 worth of General Motors bonds 
C) A $500 travelers check 
D) A one-ounce gold coin

Question 11

Bank X had a reputation for asking few questions when it provided loans. Five years later, the majority of the loans were not repaid. This is because the bank had failed to address the

Accepted Answer

A) adverse selection problem. 
B) moral hazard problem. 
C) contrary selection problem. 
D) free-rider problem. 
A) adverse selection problem. 
B) moral hazard problem. 
C) contrary selection problem. 
D) free-rider problem.

Question 12

When the Fed buys U.S. government securities, the money supply

Accepted Answer

A) increases because there is an increase in transaction deposits at the bank of the bond dealer but there is no decrease in transaction deposits at any other bank. 
B) decreases because there is an increase in the reserves of the bond dealer's bank. 
C) remains unchanged because the increase in transaction deposits at the bond dealer's bank is offset by a reduction in transaction deposits at the Fed. 
D) remains unchanged because the increase in transaction deposits at the bond dealer's bank is offset by a fall in transaction deposits at another bank. 
A) increases because there is an increase in transaction deposits at the bank of the bond dealer but there is no decrease in transaction deposits at any other bank. 
B) decreases because there is an increase in the reserves of the bond dealer's bank. 
C) remains unchanged because the increase in transaction deposits at the bond dealer's bank is offset by a reduction in transaction deposits at the Fed. 
D) remains unchanged because the increase in transaction deposits at the bond dealer's bank is offset by a fall in transaction deposits at another bank.

Question 13

To the extent that the value of money is less predictable, it becomes

Accepted Answer

A) more acceptable as a standard of deferred payment. 
B) more acceptable as a unit of account. 
C) more acceptable as a store of value. 
D) less acceptable as a medium of exchange. 
A) more acceptable as a standard of deferred payment. 
B) more acceptable as a unit of account. 
C) more acceptable as a store of value. 
D) less acceptable as a medium of exchange.

Question 14

When the Fed sells a U.S. bond in the open market

Accepted Answer

A) total reserves will increase. 
B) total reserves will decrease. 
C) total reserves do not change but the money supply increases. 
D) total reserves do not change but the money supply decreases. 
A) total reserves will increase. 
B) total reserves will decrease. 
C) total reserves do not change but the money supply increases. 
D) total reserves do not change but the money supply decreases.

Question 15

All of the following are functions of the Federal Reserve System (the Fed)EXCEPT

Accepted Answer

A) supplying currency. 
B) check clearing. 
C) regulation of the money supply. 
D) lender of last resort for consumers. 
A) supplying currency. 
B) check clearing. 
C) regulation of the money supply. 
D) lender of last resort for consumers.

Question 16

The reserve ratio is 10 percent. Depositors regularly keep 10 percent of their deposits as cash. If the Fed buys $1 million of U.S. government securities, excess reserves

Accepted Answer

A) increase by $800,000. 
B) increase by $810,000. 
C) increase by $900,000. 
D) increase by $1 million. 
A) increase by $800,000. 
B) increase by $810,000. 
C) increase by $900,000. 
D) increase by $1 million.

Question 17

The Fed sells a U.S. government security and a bank dealer writes a check for the amount. When the check clears

Accepted Answer

A) reserves remain unchanged because the decrease of reserves at the dealer's bank is offset by an increase in the reserves at the Fed. 
B) reserves have fallen by the amount of the check because the Fed clears the check by reducing the bank's deposits at the Fed. 
C) reserves increase by the amount of the check because the Fed clears the check by increasing the amount of the bank's deposits with the Fed. 
D) reserves have fallen by the amount of the reserves times the reserve ratio, and the money supply falls by the difference between the amount of the check and the fall in the reserves. 
A) reserves remain unchanged because the decrease of reserves at the dealer's bank is offset by an increase in the reserves at the Fed. 
B) reserves have fallen by the amount of the check because the Fed clears the check by reducing the bank's deposits at the Fed. 
C) reserves increase by the amount of the check because the Fed clears the check by increasing the amount of the bank's deposits with the Fed. 
D) reserves have fallen by the amount of the reserves times the reserve ratio, and the money supply falls by the difference between the amount of the check and the fall in the reserves.

Question 18

Suppose that the reserve ratio is 20 percent. A bank's customer deposits into her account $100,000 in funds from a check written on an account at another bank. The maximum potential increase in the money supply resulting from this transaction is equal to

Accepted Answer

A) $0. 
B) $20,000. 
C) $200,000. 
D) $500,000. 
A) $0. 
B) $20,000. 
C) $200,000. 
D) $500,000.

Question 19

The purchasing power of the dollar

Accepted Answer

A) varies directly with the price of gold. 
B) varies directly with the purchasing power of other major currencies such as the euro and the Japanese yen. 
C) varies directly with the price level. 
D) varies inversely with the price level. 
A) varies directly with the price of gold. 
B) varies directly with the purchasing power of other major currencies such as the euro and the Japanese yen. 
C) varies directly with the price level. 
D) varies inversely with the price level.

Question 20

The current chair of the Board of Governors of the Federal Reserve is

Accepted Answer

A) Alan Greenspan. 
B) John Snow. 
C) Janet Yellen. 
D) Henry Paulson. 
A) Alan Greenspan. 
B) John Snow. 
C) Janet Yellen. 
D) Henry Paulson.

If a bank's deposits at the Fed increase by $10 million, then

Which of the following is NOT an asset of a bank?

When the Fed buys a U.S. bond in the open market

Which of the following is NOT included using the transactions approach to measuring the money supply (M1)?

The function of money that provides for a commonly recognized measure of value for the price system is a(n)

In addition to insuring accounts, the FDIC today has the additional power of

Which one of the following is NOT a part of the M1 definition of money?

The potential for a financial breakdown at one financial institution to spread throughout the financial system is known as a

Given the list of assets below, which is the most liquid?

Bank X had a reputation for asking few questions when it provided loans. Five years later, the majority of the loans were not repaid. This is because the bank had failed to address the

When the Fed buys U.S. government securities, the money supply

To the extent that the value of money is less predictable, it becomes

When the Fed sells a U.S. bond in the open market

All of the following are functions of the Federal Reserve System (the Fed)EXCEPT

The reserve ratio is 10 percent. Depositors regularly keep 10 percent of their deposits as cash. If the Fed buys $1 million of U.S. government securities, excess reserves

The Fed sells a U.S. government security and a bank dealer writes a check for the amount. When the check clears

Suppose that the reserve ratio is 20 percent. A bank's customer deposits into her account $100,000 in funds from a check written on an account at another bank. The maximum potential increase in the money supply resulting from this transaction is equal to

The purchasing power of the dollar

The current chair of the Board of Governors of the Federal Reserve is

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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Exam 14: Money Banking and Central Banking

If a bank's deposits at the Fed increase by $10 million, then

Which of the following is NOT an asset of a bank?

When the Fed buys a U.S. bond in the open market

Which of the following is NOT included using the transactions approach to measuring the money supply (M1)?

The function of money that provides for a commonly recognized measure of value for the price system is a(n)

In addition to insuring accounts, the FDIC today has the additional power of

Which one of the following is NOT a part of the M1 definition of money?

The potential for a financial breakdown at one financial institution to spread throughout the financial system is known as a

Given the list of assets below, which is the most liquid?

Bank X had a reputation for asking few questions when it provided loans. Five years later, the majority of the loans were not repaid. This is because the bank had failed to address the

When the Fed buys U.S. government securities, the money supply

To the extent that the value of money is less predictable, it becomes

When the Fed sells a U.S. bond in the open market

All of the following are functions of the Federal Reserve System (the Fed)EXCEPT

The reserve ratio is 10 percent. Depositors regularly keep 10 percent of their deposits as cash. If the Fed buys $1 million of U.S. government securities, excess reserves

The Fed sells a U.S. government security and a bank dealer writes a check for the amount. When the check clears

Suppose that the reserve ratio is 20 percent. A bank's customer deposits into her account $100,000 in funds from a check written on an account at another bank. The maximum potential increase in the money supply resulting from this transaction is equal to

The purchasing power of the dollar

The current chair of the Board of Governors of the Federal Reserve is

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters