Question 1

If the reserve ratio is 9 percent, then a decrease in reserves of $6,000 can cause the money supply to fall by as much as

Accepted Answer

A) $60,000.00. 
B) $66,666.67. 
C) $90,900.00. 
D) $100,555.56. 
A) $60,000.00. 
B) $66,666.67. 
C) $90,900.00. 
D) $100,555.56.

Question 2

Table 16-3.  
-Refer to Table 16-3. Starting from the situation as depicted by the T-account, if someone deposits $500 into the First Bank of Fairfield, and if the bank makes new loans so as to keep its reserve ratio unchanged, then the amount of new loans that it makes will be

Accepted Answer

A) $320. 
B) $400. 
C) $680. 
D) $750. 
A) $320. 
B) $400. 
C) $680. 
D) $750.

Question 3

Under a fractional-reserve banking system, banks

Accepted Answer

A) hold more reserves than deposits. 
B) generally lend out a majority of the funds deposited. 
C) cause the money supply to fall by lending out reserves. 
D) All of the above are correct. 
A) hold more reserves than deposits. 
B) generally lend out a majority of the funds deposited. 
C) cause the money supply to fall by lending out reserves. 
D) All of the above are correct.

Question 4

Which of the following might explain why the United States has so much currency per person?

Accepted Answer

A) U.S. citizens are holding a lot of foreign currency. 
B) Currency may be a preferable store of wealth for criminals. 
C) People use credit and debit cards more frequently. 
D) All of the above help explain the abundance of currency. 
A) U.S. citizens are holding a lot of foreign currency. 
B) Currency may be a preferable store of wealth for criminals. 
C) People use credit and debit cards more frequently. 
D) All of the above help explain the abundance of currency.

Question 5

Demand deposits are included in

Accepted Answer

A) M1 but not M2. 
B) M2 but not M1. 
C) M1 and M2. 
D) neither M1 nor M2. 
A) M1 but not M2. 
B) M2 but not M1. 
C) M1 and M2. 
D) neither M1 nor M2.

Question 6

Scenario 16-1.The monetary policy of Namdian is determined by the Namdian Central Bank. The local currency is the dia. Namdian banks collectively hold 100 million dias of required reserves, 25 million dias of excess reserves, 250 million dias of Namdian Treasury Bonds, and their customers hold 1,000 million dias of deposits. Namdians prefer to use only demand deposits and so the money supply consists of demand deposits.
-Refer to Scenario 16-1 . Suppose the Central Bank of Namdia purchases 25 million dias of Namdian Treasury Bonds from banks. Suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the same. By how much would the money supply of Namdia change?

Accepted Answer

A) 200 million dias 
B) 150 million dias 
C) 100 million dias 
D) None of the above is correct. 
A) 200 million dias 
B) 150 million dias 
C) 100 million dias 
D) None of the above is correct.

Question 7

Table 16-5.  
-Refer to Table 16-5. From the table it follows that the Bank of Pleasantville operates in a

Accepted Answer

A) fractional-reserve banking system, since its reserves are less than its deposits. 
B) fractional-reserve banking system, since its reserves are less than its loans. 
C) 100-percent-reserve banking system, since its assets are equal to its liabilities. 
D) 100-percent-reserve banking system if the Fed's reserve requirement is 10 percent; otherwise, it operates in a fractional-reserve banking system. 
A) fractional-reserve banking system, since its reserves are less than its deposits. 
B) fractional-reserve banking system, since its reserves are less than its loans. 
C) 100-percent-reserve banking system, since its assets are equal to its liabilities. 
D) 100-percent-reserve banking system if the Fed's reserve requirement is 10 percent; otherwise, it operates in a fractional-reserve banking system.

Question 8

Money

Accepted Answer

A) is a perfect store of value. 
B) is the most liquid asset. 
C) has intrinsic value, regardless of which form it takes. 
D) All of the above are correct. 
A) is a perfect store of value. 
B) is the most liquid asset. 
C) has intrinsic value, regardless of which form it takes. 
D) All of the above are correct.

Question 9

If $300 of new reserves generates $800 of new money in the economy, then the reserve ratio is

Accepted Answer

A) 2.7 percent. 
B) 12.5 percent. 
C) 37.5 percent. 
D) 40 percent. 
A) 2.7 percent. 
B) 12.5 percent. 
C) 37.5 percent. 
D) 40 percent.

Question 10

Any item that people can use to transfer purchasing power from the present to the future is called

Accepted Answer

A) a medium of exchange. 
B) a unit of account. 
C) a store of value. 
D) None of the above is correct. 
A) a medium of exchange. 
B) a unit of account. 
C) a store of value. 
D) None of the above is correct.

Question 11

When the Fed decreases the discount rate, banks will

Accepted Answer

A) borrow more from the Fed and lend more to the public. The money supply increases. 
B) borrow more from the Fed and lend less to the public. The money supply decreases. 
C) borrow less from the Fed and lend more to the public. The money supply increases. 
D) borrow less from the Fed and lend less to the public. The money supply decreases. 
A) borrow more from the Fed and lend more to the public. The money supply increases. 
B) borrow more from the Fed and lend less to the public. The money supply decreases. 
C) borrow less from the Fed and lend more to the public. The money supply increases. 
D) borrow less from the Fed and lend less to the public. The money supply decreases.

Question 12

If the reserve ratio is 4 percent, then $81,250 of new money can be generated by

Accepted Answer

A) $325 of new reserves. 
B) $3,250 of new reserves. 
C) $20,312.50 of new reserves. 
D) $2,031,250 of new reserves. 
A) $325 of new reserves. 
B) $3,250 of new reserves. 
C) $20,312.50 of new reserves. 
D) $2,031,250 of new reserves.

Question 13

If a bank desires to hold no excess reserves, the reserve requirement is 5 percent, and it receives a new deposit of $1,000

Accepted Answer

A) its required reserves increase by $50. 
B) its total reserves initially increase by $1,000. 
C) it will be able to make a new loan of up to $950. 
D) All of the above are correct. 
A) its required reserves increase by $50. 
B) its total reserves initially increase by $1,000. 
C) it will be able to make a new loan of up to $950. 
D) All of the above are correct.

Question 14

Commodity money is

Accepted Answer

A) backed by gold. 
B) the principal type of money in use today. 
C) money with intrinsic value. 
D) receipts created in international trade that are used as a medium of exchange. 
A) backed by gold. 
B) the principal type of money in use today. 
C) money with intrinsic value. 
D) receipts created in international trade that are used as a medium of exchange.

Question 15

Which of the following is a store of value?

Accepted Answer

A) cash and stocks 
B) cash but not stocks 
C) stocks but not cash 
D) neither cash nor stocks 
A) cash and stocks 
B) cash but not stocks 
C) stocks but not cash 
D) neither cash nor stocks

Question 16

If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by

Accepted Answer

A) $64 of new reserves. 
B) $448 of new reserves. 
C) $700 of new reserves. 
D) $800 of new reserves. 
A) $64 of new reserves. 
B) $448 of new reserves. 
C) $700 of new reserves. 
D) $800 of new reserves.

Question 17

If the reserve requirement is 5 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $400, it

Accepted Answer

A) must increase required reserves by $20. 
B) will initially see reserves increase by $400. 
C) will be able to use this deposit to make new loans amounting to $380. 
D) All of the above are correct. 
A) must increase required reserves by $20. 
B) will initially see reserves increase by $400. 
C) will be able to use this deposit to make new loans amounting to $380. 
D) All of the above are correct.

Question 18

Which of the following is included in both M1 and M2?

Accepted Answer

A) currency 
B) demand deposits 
C) other checkable deposits 
D) All of the above are correct. 
A) currency 
B) demand deposits 
C) other checkable deposits 
D) All of the above are correct.

Question 19

Consider five individuals with different occupations. $$\begin{array} { | l | l | l | } 
\hline \text { Allen } & \text { praparas taxes } & \text { wants ribs } \
\hline \text { Betty } & \text { does dry cleaning } & \text { wants campute fixed } \
\hline \text { Cakin } & \text { fixas canguters } & \text { wants bread } \
\hline \text { Diedre } & \text { bakes bread } & \text { wants taxes pregared } \
\hline \text { Eric } & \text { Garbecues ribs } & \text { wants dry cleaning } \
\hline
\end{array}$$ In a barter system which of the following pairs has a double coincidence of wants?

Accepted Answer

A) Allen and Eric 
B) Diedre and Calvin 
C) Both A and B are correct. 
D) None of the above are correct. 
A) Allen and Eric 
B) Diedre and Calvin 
C) Both A and B are correct. 
D) None of the above are correct.

Question 20

Liquidity refers to

Accepted Answer

A) the ease with which an asset is converted to the medium of exchange. 
B) the measurement of the intrinsic value of commodity money. 
C) the measurment of the durability of a good. 
D) how many time a dollar circulates in a given year. 
A) the ease with which an asset is converted to the medium of exchange. 
B) the measurement of the intrinsic value of commodity money. 
C) the measurment of the durability of a good. 
D) how many time a dollar circulates in a given year.

Exam 16: The Monetary System

If the reserve ratio is 9 percent, then a decrease in reserves of $6,000 can cause the money supply to fall by as much as

Table 16-3. -Refer to Table 16-3. Starting from the situation as depicted by the T-account, if someone deposits $500 into the First Bank of Fairfield, and if the bank makes new loans so as to keep its reserve ratio unchanged, then the amount of new loans that it makes will be

Under a fractional-reserve banking system, banks

Which of the following might explain why the United States has so much currency per person?

Demand deposits are included in

Table 16-5. -Refer to Table 16-5. From the table it follows that the Bank of Pleasantville operates in a

Money

If $300 of new reserves generates $800 of new money in the economy, then the reserve ratio is

Any item that people can use to transfer purchasing power from the present to the future is called

When the Fed decreases the discount rate, banks will

If the reserve ratio is 4 percent, then $81,250 of new money can be generated by

If a bank desires to hold no excess reserves, the reserve requirement is 5 percent, and it receives a new deposit of $1,000

Commodity money is

Which of the following is a store of value?

If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by

If the reserve requirement is 5 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $400, it

Which of the following is included in both M1 and M2?

Liquidity refers to

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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