Question 1

When the Fed conducts open-market purchases,

Accepted Answer

A) it buys Treasury securities, which increases the money supply. 
B) it buys Treasury securities, which decreases the money supply. 
C) it borrows money from member banks, which increases the money supply. 
D) it lends money to member banks, which decreases the money supply. 
A) it buys Treasury securities, which increases the money supply. 
B) it buys Treasury securities, which decreases the money supply. 
C) it borrows money from member banks, which increases the money supply. 
D) it lends money to member banks, which decreases the money supply.

Question 2

The money supply decreases if the Fed

Accepted Answer

A) sells Treasury bonds. The larger the reserve requirement, the larger the decrease will be. 
B) sells Treasury bonds. The smaller the reserve requirement, the larger the decrease will be. 
C) buys Treasury bonds. The larger the reserve requirement, the larger the decrease will be. 
D) buys Treasury bonds. The smaller the reserve requirement, the larger the decrease will be. 
A) sells Treasury bonds. The larger the reserve requirement, the larger the decrease will be. 
B) sells Treasury bonds. The smaller the reserve requirement, the larger the decrease will be. 
C) buys Treasury bonds. The larger the reserve requirement, the larger the decrease will be. 
D) buys Treasury bonds. The smaller the reserve requirement, the larger the decrease will be.

Question 3

The Fed can influence unemployment in

Accepted Answer

A) the short run and in the long run. 
B) the short run, but not in the long run. 
C) the long run, but not in the short run. 
D) neither the short nor the long run. 
A) the short run and in the long run. 
B) the short run, but not in the long run. 
C) the long run, but not in the short run. 
D) neither the short nor the long run.

Question 4

Because of the multiple tools at its disposal, the Fed can control the money supply very precisely.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following best illustrates the concept of a store of value?

Accepted Answer

A) You are a precious-metals dealer, and you are always aware of how many ounces of platinum trade for an ounce of gold. 
B) You sell items on eBay, and your prices are stated in terms of dollars. 
C) You keep 6 ounces of gold in your safe-deposit box at the bank for emergencies. 
D) None of the above is correct. 
A) You are a precious-metals dealer, and you are always aware of how many ounces of platinum trade for an ounce of gold. 
B) You sell items on eBay, and your prices are stated in terms of dollars. 
C) You keep 6 ounces of gold in your safe-deposit box at the bank for emergencies. 
D) None of the above is correct.

Question 6

The Federal Reserve can alter the size of the money supply by changing reserves or changing reserve requirements.

Accepted Answer

A) True 
 B)False

Question 7

The manager of the bank where you work tells you that the bank has $300 million in deposits and $255 million dollars in loans. If the reserve requirement is 10 percent, how much is the bank holding in excess reserves?

Accepted Answer

A) $15 million 
B) $19.5 million 
C) $25.5 million 
D) $30 million 
A) $15 million 
B) $19.5 million 
C) $25.5 million 
D) $30 million

Question 8

When the Fed makes open-market sales bank

Accepted Answer

A) withdrawals and lending increase. 
B) withdrawals increase and lending decreases. 
C) deposits and lending increase. 
D) deposits increase and lending decreases. 
A) withdrawals and lending increase. 
B) withdrawals increase and lending decreases. 
C) deposits and lending increase. 
D) deposits increase and lending decreases.

Question 9

The Federal Reserve

Accepted Answer

A) was created in 1836. 
B) serves as a lender of last resort. 
C) was created to facilitate the federal government's collection of taxes as well as its expenditures. 
D) All of the above are correct. 
A) was created in 1836. 
B) serves as a lender of last resort. 
C) was created to facilitate the federal government's collection of taxes as well as its expenditures. 
D) All of the above are correct.

Question 10

Money is the most liquid asset available because

Accepted Answer

A) it is a store of value. 
B) it is a medium of exchange. 
C) it is a unit of account. 
D) it has intrinsic value. 
A) it is a store of value. 
B) it is a medium of exchange. 
C) it is a unit of account. 
D) it has intrinsic value.

Question 11

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

Accepted Answer

A) savings deposits 
B) demand deposits 
C) small time deposits 
D) money market mutual funds 
A) savings deposits 
B) demand deposits 
C) small time deposits 
D) money market mutual funds

Question 12

If the discount rate is raised then banks borrow

Accepted Answer

A) more from the Fed so reserves increase. 
B) more from the Fed so reserves decrease. 
C) less from the Fed so reserves increase. 
D) less from the Fed so reserves decrease. 
A) more from the Fed so reserves increase. 
B) more from the Fed so reserves decrease. 
C) less from the Fed so reserves increase. 
D) less from the Fed so reserves decrease.

Question 13

Explain how each of the following changes the money supply.
a.the Fed buys bonds
b.the Fed auctions credit
c.the Fed raises the discount rate
d.the Fed raises the reserve requirement

Accepted Answer

a.If the Fed buys bonds, it pays for the

Question 14

Which of the following individuals serve a four-year term?

Accepted Answer

A) the members of the Board of Governors 
B) the Chair of the Board of Governors 
C) the members of the FOMC 
D) All of the above are correct. 
A) the members of the Board of Governors 
B) the Chair of the Board of Governors 
C) the members of the FOMC 
D) All of the above are correct.

Question 15

If the Fed buys bonds in the open market, the money supply decreases.

Accepted Answer

A) True 
 B)False

Question 16

If the reserve ratio is 5 percent, then $2,500 of additional reserves can create up to

Accepted Answer

A) $62,500 of new money. 
B) $50,000 of new money. 
C) $45,600 of new money. 
D) $37,500 of new money. 
A) $62,500 of new money. 
B) $50,000 of new money. 
C) $45,600 of new money. 
D) $37,500 of new money.

Question 17

The Fed can decrease the money supply by conducting open-market

Accepted Answer

A) sales or by raising the discount rate. 
B) sales or by lowering the discount rate. 
C) purchases or by raising the discount rate. 
D) purchases or by lowering the discount rate. 
A) sales or by raising the discount rate. 
B) sales or by lowering the discount rate. 
C) purchases or by raising the discount rate. 
D) purchases or by lowering the discount rate.

Question 18

If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

Accepted Answer

A) buying bonds. This buying would reduce reserves. 
B) buying bonds. This buying would increase reserves. 
C) selling bonds. This selling would reduce reserves. 
D) selling bonds. This selling would increase reserves. 
A) buying bonds. This buying would reduce reserves. 
B) buying bonds. This buying would increase reserves. 
C) selling bonds. This selling would reduce reserves. 
D) selling bonds. This selling would increase reserves.

Question 19

According to economists, "money" means the same thing as "wealth".

Accepted Answer

A) True 
 B)False

Question 20

The federal funds rate is a long-term interest rate banks charge one another for loans.

Accepted Answer

A) True 
 B)False

Exam 16: The Monetary System

When the Fed conducts open-market purchases,

The money supply decreases if the Fed

The Fed can influence unemployment in

Because of the multiple tools at its disposal, the Fed can control the money supply very precisely.

Which of the following best illustrates the concept of a store of value?

The Federal Reserve can alter the size of the money supply by changing reserves or changing reserve requirements.

The manager of the bank where you work tells you that the bank has $300 million in deposits and $255 million dollars in loans. If the reserve requirement is 10 percent, how much is the bank holding in excess reserves?

When the Fed makes open-market sales bank

The Federal Reserve

Money is the most liquid asset available because

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

If the discount rate is raised then banks borrow

Explain how each of the following changes the money supply. a.the Fed buys bonds b.the Fed auctions credit c.the Fed raises the discount rate d.the Fed raises the reserve requirement

Which of the following individuals serve a four-year term?

If the Fed buys bonds in the open market, the money supply decreases.

If the reserve ratio is 5 percent, then $2,500 of additional reserves can create up to

The Fed can decrease the money supply by conducting open-market

If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

According to economists, "money" means the same thing as "wealth".

The federal funds rate is a long-term interest rate banks charge one another for loans.

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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