Question 1

The New York Federal Reserve Bank

Accepted Answer

A) president always gets to vote at the FOMC meetings. 
B) conducts open market transactions. 
C) is one of 12 regional Federal Reserve Banks. 
D) All of the above are correct. 
A) president always gets to vote at the FOMC meetings. 
B) conducts open market transactions. 
C) is one of 12 regional Federal Reserve Banks. 
D) All of the above are correct.

Question 2

Which of the following is correct?

Accepted Answer

A) The Federal Reserve has 14 regional banks. The Board of Governors has 12 members who serve 7-year terms. 
B) The Federal Reserve has 14 regional banks. The Board of Governors has 7 members who serve 14-year terms. 
C) The Federal Reserve has 12 regional banks. The Board of Governors has 12 members who serve 7-year terms. 
D) The Federal Reserve has 12 regional banks. The Board of Governors has 7 members who serve 14-year terms. 
A) The Federal Reserve has 14 regional banks. The Board of Governors has 12 members who serve 7-year terms. 
B) The Federal Reserve has 14 regional banks. The Board of Governors has 7 members who serve 14-year terms. 
C) The Federal Reserve has 12 regional banks. The Board of Governors has 12 members who serve 7-year terms. 
D) The Federal Reserve has 12 regional banks. The Board of Governors has 7 members who serve 14-year terms.

Question 3

All of the presidents of the regional Federal Reserve banks

Accepted Answer

A) attend each FOMC meeting. 
B) have voting rights at each FOMC meeting. 
C) are appointed by the president of the U.S. and confirmed by the U.S. Senate. 
D) All of the above are correct. 
A) attend each FOMC meeting. 
B) have voting rights at each FOMC meeting. 
C) are appointed by the president of the U.S. and confirmed by the U.S. Senate. 
D) All of the above are correct.

Question 4

Given the following information, what are the values of M1 and M2? Small time deposits
$650 billion
Demand deposits and other checkable deposits
$300 billion
Savings deposits
$750 billion
Money market mutual funds
$600 billion
Traveler's checks
$25 billion
Large time deposits
$600 billion
Currency
$100 billion
Miscellaneous categories in M2
$25 billion

Accepted Answer

A) M1 = $400 billion, M2 = $2,475 billion. 
B) M1 = $125 billion, M2 = $3,025 billion. 
C) M1 = $425 billion, M2 = $2, 450 billion. 
D) M1 = $425 billion, M2 = $1,875 billion. 
A) M1 = $400 billion, M2 = $2,475 billion. 
B) M1 = $125 billion, M2 = $3,025 billion. 
C) M1 = $425 billion, M2 = $2, 450 billion. 
D) M1 = $425 billion, M2 = $1,875 billion.

Question 5

The Federal Deposit Insurance Corporation

Accepted Answer

A) protects depositors in the event of bank failures. 
B) has become insolvent in recent years due to a large number of bank failures. 
C) is part of the Federal Reserve System. 
D) in practice has seldom been of much use. 
A) protects depositors in the event of bank failures. 
B) has become insolvent in recent years due to a large number of bank failures. 
C) is part of the Federal Reserve System. 
D) in practice has seldom been of much use.

Question 6

The money multiplier equals 1/(1 - R), where R represents the reserve ratio.

Accepted Answer

A) True 
 B)False

Question 7

Credit cards are a medium of exchange.

Accepted Answer

A) True 
 B)False

Question 8

Treasury Bonds are

Accepted Answer

A) both a store of value and a medium of exchange. 
B) a store of value, but not a medium of exchange 
C) a medium of exchange, but not a store of value. 
D) neither a store of value nor a medium of exchange. 
A) both a store of value and a medium of exchange. 
B) a store of value, but not a medium of exchange 
C) a medium of exchange, but not a store of value. 
D) neither a store of value nor a medium of exchange.

Question 9

If the reserve ratio is 5 percent, then $1,000 of additional reserves can create up to

Accepted Answer

A) $200 of new money. 
B) $2,000 of new money. 
C) $20,000 of new money. 
D) None of the above is correct. 
A) $200 of new money. 
B) $2,000 of new money. 
C) $20,000 of new money. 
D) None of the above is correct.

Question 10

Currency includes

Accepted Answer

A) paper bills and coins. 
B) demand deposits. 
C) credit cards. 
D) Both (a) and (b) are correct. 
A) paper bills and coins. 
B) demand deposits. 
C) credit cards. 
D) Both (a) and (b) are correct.

Question 11

When there is a reserve requirement, banks

Accepted Answer

A) must hold exactly the required quantity of reserves. 
B) may hold more than, but not less than, the required quantity of reserves. 
C) may hold less than, but not more than, the required quantity of reserves. 
D) must seek the Fed's permission whenever they wish to expand or contract their loans to customers. 
A) must hold exactly the required quantity of reserves. 
B) may hold more than, but not less than, the required quantity of reserves. 
C) may hold less than, but not more than, the required quantity of reserves. 
D) must seek the Fed's permission whenever they wish to expand or contract their loans to customers.

Question 12

The Fed sets the interest that borrowers pay on loans from

Accepted Answer

A) the discount window and the term auction facility 
B) the discount window but not the term auction facility 
C) the term auction facility but not the discount window 
D) neither the discount window nor the term auction facility 
A) the discount window and the term auction facility 
B) the discount window but not the term auction facility 
C) the term auction facility but not the discount window 
D) neither the discount window nor the term auction facility

Question 13

When the Fed conducts open-market purchases,

Accepted Answer

A) banks buy Treasury securities from Fed, which increases the money supply. 
B) banks buy Treasury securities from the Fed, which decreases the money supply. 
C) it buys Treasury securities, which increases the money supply. 
D) it buys Treasury securities, which decreases the money supply. 
A) banks buy Treasury securities from Fed, which increases the money supply. 
B) banks buy Treasury securities from the Fed, which decreases the money supply. 
C) it buys Treasury securities, which increases the money supply. 
D) it buys Treasury securities, which decreases the money supply.

Question 14

The money supply increases when the Fed

Accepted Answer

A) lowers the discount rate. The increase will be larger the smaller the reserve ratio is. 
B) lowers the discount rate. The increase will be larger the larger the reserve ratio is. 
C) raises the discount rate. The increase will be larger the smaller the reserve ratio is. 
D) raises the discount rate. The increase will be larger the larger the reserve ratio is. 
A) lowers the discount rate. The increase will be larger the smaller the reserve ratio is. 
B) lowers the discount rate. The increase will be larger the larger the reserve ratio is. 
C) raises the discount rate. The increase will be larger the smaller the reserve ratio is. 
D) raises the discount rate. The increase will be larger the larger the reserve ratio is.

Question 15

The Fed has the power to increase or decrease the number of dollars in the economy through the decisions of

Accepted Answer

A) the Board of Governors. 
B) the FOMC. 
C) the regional Federal Reserve Bank presidents. 
D) the U.S. Treasury. 
A) the Board of Governors. 
B) the FOMC. 
C) the regional Federal Reserve Bank presidents. 
D) the U.S. Treasury.

Question 16

Federal Reserve governors are given long terms to insulate them from politics.

Accepted Answer

A) True 
 B)False

Question 17

The banking system currently has $10 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed raises the reserve requirement to 20 percent and at the same time buys $1 billion worth of bonds, then by how much does the money supply change?

Accepted Answer

A) It falls by $45 billion. 
B) It falls by $52 billion. 
C) It falls by $55 billion. 
D) None of the above is correct. 
A) It falls by $45 billion. 
B) It falls by $52 billion. 
C) It falls by $55 billion. 
D) None of the above is correct.

Question 18

Table 16-4.  
-Refer to Table 16-4. If the bank faces a reserve requirement of 10 percent, then the bank

Accepted Answer

A) is in a position to make a new loan of $15,000. 
B) has fewer reserves than are required. 
C) has excess reserves of $10,000. 
D) None of the above is correct. 
A) is in a position to make a new loan of $15,000. 
B) has fewer reserves than are required. 
C) has excess reserves of $10,000. 
D) None of the above is correct.

Question 19

Which of the following lists is included in what economists call "money"?

Accepted Answer

A) cash 
B) cash and stocks and bonds 
C) cash and stocks and bonds and real estate 
D) cash and stocks and bonds and real estate and all other assets 
A) cash 
B) cash and stocks and bonds 
C) cash and stocks and bonds and real estate 
D) cash and stocks and bonds and real estate and all other assets

Question 20

Which of the following is an example of barter?

Accepted Answer

A) A parent gives a teenager a $10 bill in exchange for her babysitting services. 
B) A homeowner gives an exterminator a check for $50 in exchange for extermination services. 
C) A barber gives a plumber a haircut in exchange for the plumber fixing the barber's leaky faucet. 
D) All of the above are examples of barter. 
A) A parent gives a teenager a $10 bill in exchange for her babysitting services. 
B) A homeowner gives an exterminator a check for $50 in exchange for extermination services. 
C) A barber gives a plumber a haircut in exchange for the plumber fixing the barber's leaky faucet. 
D) All of the above are examples of barter.

Exam 16: The Monetary System

The New York Federal Reserve Bank

Which of the following is correct?

All of the presidents of the regional Federal Reserve banks

The Federal Deposit Insurance Corporation

The money multiplier equals 1/(1 - R), where R represents the reserve ratio.

Credit cards are a medium of exchange.

Treasury Bonds are

If the reserve ratio is 5 percent, then $1,000 of additional reserves can create up to

Currency includes

When there is a reserve requirement, banks

The Fed sets the interest that borrowers pay on loans from

When the Fed conducts open-market purchases,

The money supply increases when the Fed

The Fed has the power to increase or decrease the number of dollars in the economy through the decisions of

Federal Reserve governors are given long terms to insulate them from politics.

Table 16-4. -Refer to Table 16-4. If the bank faces a reserve requirement of 10 percent, then the bank

Which of the following lists is included in what economists call "money"?

Which of the following is an example of barter?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

Money Growth and Inflation

Open-Economy Macroeconomic Models

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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