Question 1

Which of the following is TRUE regarding the Federal Open Market Committee (FOMC)?

Accepted Answer

A)  It is the main policy-making group of the Congress. 
B)  Representatives from each state control its operation. 
C)  It meets about every six weeks to decide on monetary policy. 
D)  Both answers A and C are correct. 
A)  It is the main policy-making group of the Congress. 
B)  Representatives from each state control its operation. 
C)  It meets about every six weeks to decide on monetary policy. 
D)  Both answers A and C are correct.

Question 2

On the Fed's balance sheet,assets include

Accepted Answer

A)  depository institutions deposits at the Federal Reserve and loans to depository institutions. 
B)  U.S. government securities and loans to depository institutions. 
C)  Federal Reserve notes and depository institutions' deposits at the Federal Reserve. 
D)  Federal Reserve notes and loans to depository institutions. 
A)  depository institutions deposits at the Federal Reserve and loans to depository institutions. 
B)  U.S. government securities and loans to depository institutions. 
C)  Federal Reserve notes and depository institutions' deposits at the Federal Reserve. 
D)  Federal Reserve notes and loans to depository institutions.

Question 3

Describe how actual reserves are calculated and explain the difference between desired reserves and excess reserves.How do reserves affect the amount of loans a bank can make?

Accepted Answer

Actual reserves are equal to the bank's

Question 4

-In the above figure,suppose the economy is initially on the demand for money curve MD₁.What is the effect of increased use of credit cards?

Accepted Answer

A)  The demand for money curve would shift rightward to MD₂. 
B)  The demand for money curve would shift leftward to MD₀. 
C)  There would be a movement upward along the demand for money curve MD₁. 
D)  There would be a movement downward along the demand for money curve MD₁. 
A)  The demand for money curve would shift rightward to MD₂. 
B)  The demand for money curve would shift leftward to MD₀. 
C)  There would be a movement upward along the demand for money curve MD₁. 
D)  There would be a movement downward along the demand for money curve MD₁.

Question 5

When part of the quantity of money is held in currency,then

Accepted Answer

A)  a currency drain occurs. 
B)  there is a higher level of excess reserves. 
C)  the money multiplier will increase in value. 
D)  the Fed will find it beneficial to increase the discount rate. 
A)  a currency drain occurs. 
B)  there is a higher level of excess reserves. 
C)  the money multiplier will increase in value. 
D)  the Fed will find it beneficial to increase the discount rate.

Question 6

If there is an excess quantity of money,people will buy bonds.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is true regarding money market mutual funds?
I. Money market mutual funds buy highly liquid assets like Treasury bills.
II. Shareholders can obtain loans from money market mutual funds.

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 8

Suppose that the money multiplier is 3.If the monetary base increases by $1 million,the quantity of money will

Accepted Answer

A)  increase by $3 million. 
B)  increase by $300,000. 
C)  decrease by $3 million. 
D)  decrease by $300,000. 
A)  increase by $3 million. 
B)  increase by $300,000. 
C)  decrease by $3 million. 
D)  decrease by $300,000.

Question 9

Checks are NOT money because they

Accepted Answer

A)  are issued by banks, not by the government. 
B)  are merely instructions to transfer money. 
C)  have value in exchange but little intrinsic value. 
D)  are not backed by either gold or silver. 
A)  are issued by banks, not by the government. 
B)  are merely instructions to transfer money. 
C)  have value in exchange but little intrinsic value. 
D)  are not backed by either gold or silver.

Question 10

If you use $500 of currency to make a deposit in a saving deposit,

Accepted Answer

A)  M1 decreases, but M2 is unchanged 
B)  M1 decreases and M2 increases 
C)  M1 is unchanged, but M2 increases 
D)  M1 and M2 both increase 
A)  M1 decreases, but M2 is unchanged 
B)  M1 decreases and M2 increases 
C)  M1 is unchanged, but M2 increases 
D)  M1 and M2 both increase

Question 11

Which of the following is an example of using money as a store of value?

Accepted Answer

A)  paying for a new dress with a credit card 
B)  paying cash for a new automobile 
C)  paying rent with a check on a demand deposit 
D)  keeping $200 on hand for an emergency 
A)  paying for a new dress with a credit card 
B)  paying cash for a new automobile 
C)  paying rent with a check on a demand deposit 
D)  keeping $200 on hand for an emergency

Question 12

Which of the following is a service of depository institutions?

Accepted Answer

A)  decreasing the liquidity drain of funds in the banking system 
B)  monitoring the Federal Reserve 
C)  pooling risk 
D)  loaning funds to other depository institutions at the discount rate 
A)  decreasing the liquidity drain of funds in the banking system 
B)  monitoring the Federal Reserve 
C)  pooling risk 
D)  loaning funds to other depository institutions at the discount rate

Question 13

The table below shows the data (in millions) for Wells Fargo Bank in September 2007 and September 2008.Suppose that the required reserve ratio is 3 percent. $$\begin{array} { | c | c | c | } 
\hline & 2007 & 2008 \
\hline \text { Loans } & 79 & 100 \
\hline \text { Reserves } & 11 & 11 \
\hline \text { Deposits } & 247 & 266 \
\hline
\end{array}$$
The data show that

Accepted Answer

A)  the currency drain ratio increased. 
B)  the Federal Reserve must have increased the required reserve ratio. 
C)  Wells Fargo had excess reserves and could create money in 2007. 
D)  Wells Fargo was only able to make more loans in 2008 because it gained more deposits. 
A)  the currency drain ratio increased. 
B)  the Federal Reserve must have increased the required reserve ratio. 
C)  Wells Fargo had excess reserves and could create money in 2007. 
D)  Wells Fargo was only able to make more loans in 2008 because it gained more deposits.

Question 14

$$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Interest rate } \
\text { (percent) }
\end{array} & \begin{array} { c } 
\text { Quantity of } \
\text { money } \
\text { (billions of } \
\text { dollars) }
\end{array} & \begin{array} { c } 
\text { Money demand } \
\text { (billions of } \
\text { dollars) }
\end{array} \
\hline 2 & 500 & 575 \
\hline 3 & 500 & 550 \
\hline 4 & 500 & 525 \
\hline 5 & 500 & 500 \
\hline 6 & 500 & 475 \
\hline 7 & 500 & 450 \
\hline
\end{array}$$
-The table above gives the quantity of money and money demand schedules.Suppose that the interest rate is equal to 6 percent.The effect of this interest rate in the money market is that

Accepted Answer

A)  the money market is in equilibrium. 
B)  people buy bonds and the interest rate falls. 
C)  people sell bonds and the interest rate falls. 
D)  bond prices fall and so the interest rate falls. 
A)  the money market is in equilibrium. 
B)  people buy bonds and the interest rate falls. 
C)  people sell bonds and the interest rate falls. 
D)  bond prices fall and so the interest rate falls.

Question 15

The Fed's purchase of government securities could

Accepted Answer

A)  increase loans made by banks. 
B)  be an effective anti-inflationary policy. 
C)  decrease the price level and have no effect on real GDP. 
D)  decrease bank reserves. 
A)  increase loans made by banks. 
B)  be an effective anti-inflationary policy. 
C)  decrease the price level and have no effect on real GDP. 
D)  decrease bank reserves.

Question 16

Describe how financial innovation has affected the demand for money.

Accepted Answer

Financial innovation is the development

Question 17

Which of the following is NOT included in the M1 measure of money?

Accepted Answer

A)  checking deposits 
B)  currency 
C)  traveler's checks 
D)  savings deposits 
A)  checking deposits 
B)  currency 
C)  traveler's checks 
D)  savings deposits

Question 18

Credit cards are

Accepted Answer

A)  not a part of money because they are not a means of payment. 
B)  a part of M1 but not of M2. 
C)  a part of money because they are used to purchase goods and services. 
D)  a part of M2 but not a part of M1. 
A)  not a part of money because they are not a means of payment. 
B)  a part of M1 but not of M2. 
C)  a part of money because they are used to purchase goods and services. 
D)  a part of M2 but not a part of M1.

Question 19

The monetary policy-making body of the Federal Reserve is the

Accepted Answer

A)  the Federal Open Market Committee 
B)  the New York Federal Reserve Bank 
C)  regional Federal Reserve Banks 
D)  Board of Governors 
A)  the Federal Open Market Committee 
B)  the New York Federal Reserve Bank 
C)  regional Federal Reserve Banks 
D)  Board of Governors

Question 20

The interest rate banks charge other banks for overnight loans is

Accepted Answer

A)  the federal funds rate. 
B)  targeted by the FDIC 
C)  higher than interest rates for securities and loans. 
D)  lower than interest rates for loans, but higher than interest rates for securities. 
A)  the federal funds rate. 
B)  targeted by the FDIC 
C)  higher than interest rates for securities and loans. 
D)  lower than interest rates for loans, but higher than interest rates for securities.

Which of the following is TRUE regarding the Federal Open Market Committee (FOMC)?

On the Fed's balance sheet,assets include

Describe how actual reserves are calculated and explain the difference between desired reserves and excess reserves.How do reserves affect the amount of loans a bank can make?

-In the above figure,suppose the economy is initially on the demand for money curve MD₁.What is the effect of increased use of credit cards?

When part of the quantity of money is held in currency,then

If there is an excess quantity of money,people will buy bonds.

Which of the following is true regarding money market mutual funds? I. Money market mutual funds buy highly liquid assets like Treasury bills. II. Shareholders can obtain loans from money market mutual funds.

Suppose that the money multiplier is 3.If the monetary base increases by $1 million,the quantity of money will

Checks are NOT money because they

If you use $500 of currency to make a deposit in a saving deposit,

Which of the following is an example of using money as a store of value?

Which of the following is a service of depository institutions?

The table below shows the data (in millions) for Wells Fargo Bank in September 2007 and September 2008.Suppose that the required reserve ratio is 3 percent. 2007 2008 Loans 79 100 Reserves 11 11 Deposits 247 266 The data show that

The Fed's purchase of government securities could

Describe how financial innovation has affected the demand for money.

Which of the following is NOT included in the M1 measure of money?

Credit cards are

The monetary policy-making body of the Federal Reserve is the

The interest rate banks charge other banks for overnight loans is

What Is Economics

The Economic Problem

Demand and Supply

Measuring GDP and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

Inflation, Jobs, and the Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Introduction

Monitoring Macroeconomic Performance

Macroeconomic Trends

Macroeconomic Fluctuations

Macroeconomic Policy

Filters

Exam 8: Money, The Price Level, and Inflation

Which of the following is TRUE regarding the Federal Open Market Committee (FOMC)?

On the Fed's balance sheet,assets include

Describe how actual reserves are calculated and explain the difference between desired reserves and excess reserves.How do reserves affect the amount of loans a bank can make?

-In the above figure,suppose the economy is initially on the demand for money curve MD₁.What is the effect of increased use of credit cards?

When part of the quantity of money is held in currency,then

If there is an excess quantity of money,people will buy bonds.

Which of the following is true regarding money market mutual funds? I. Money market mutual funds buy highly liquid assets like Treasury bills. II. Shareholders can obtain loans from money market mutual funds.

Suppose that the money multiplier is 3.If the monetary base increases by $1 million,the quantity of money will

Checks are NOT money because they

If you use $500 of currency to make a deposit in a saving deposit,

Which of the following is an example of using money as a store of value?

Which of the following is a service of depository institutions?

The table below shows the data (in millions) for Wells Fargo Bank in September 2007 and September 2008.Suppose that the required reserve ratio is 3 percent. 2007 2008 Loans 79 100 Reserves 11 11 Deposits 247 266 The data show that

The Fed's purchase of government securities could

Describe how financial innovation has affected the demand for money.

Which of the following is NOT included in the M1 measure of money?

Credit cards are

The monetary policy-making body of the Federal Reserve is the

The interest rate banks charge other banks for overnight loans is

What Is Economics

The Economic Problem

Demand and Supply

Measuring GDP and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

Inflation, Jobs, and the Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Introduction

Monitoring Macroeconomic Performance

Macroeconomic Trends

Macroeconomic Fluctuations

Macroeconomic Policy

Filters