Question 1

Traveler's checks 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 2

Which group within the Federal Reserve System meets to discuss changes in the economy and determine monetary policy?

Accepted Answer

A) the Board of Governors 
B) the FOMC 
C) the regional Federal Reserve Bank presidents 
D) the Central Bank Policy Commission 
A) the Board of Governors 
B) the FOMC 
C) the regional Federal Reserve Bank presidents 
D) the Central Bank Policy Commission

Question 3

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 loaned the banks of Namdia 5 million dias. 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) 60 million dias 
B) 50 million dias 
C) 40 million dias 
D) None of the above is correct. 
A) 60 million dias 
B) 50 million dias 
C) 40 million dias 
D) None of the above is correct.

Question 4

The Fed can directly protect a bank during a bank run by

Accepted Answer

A) increasing reserve requirements. 
B) selling government bonds to the bank. 
C) lending reserves to the bank. 
D) doing any of the above. 
A) increasing reserve requirements. 
B) selling government bonds to the bank. 
C) lending reserves to the bank. 
D) doing any of the above.

Question 5

Members of the Board of Governors are appointed by the president of the U.S. and confirmed by the U.S. Senate.

Accepted Answer

A) True 
 B)False

Question 6

A problem that the Fed faces when it attempts to control the money supply is that

Accepted Answer

A) since the U.S. has a fractional-reserve banking system, the amount of money in the economy depends in part on the behavior of depositors and bankers. 
B) the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools. 
C) while the Fed has the ability to change the money supply by a large amount, it does not have the ability to change it by a small amount. 
D) federal legislation in the 1950s stripped the Fed of its power to act as a lender of last resort to banks. 
A) since the U.S. has a fractional-reserve banking system, the amount of money in the economy depends in part on the behavior of depositors and bankers. 
B) the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools. 
C) while the Fed has the ability to change the money supply by a large amount, it does not have the ability to change it by a small amount. 
D) federal legislation in the 1950s stripped the Fed of its power to act as a lender of last resort to banks.

Question 7

Which of the following is not included in either M1 or M2?

Accepted Answer

A) U.S. Treasury bills 
B) small time deposits 
C) demand deposits 
D) money market mutual funds 
A) U.S. Treasury bills 
B) small time deposits 
C) demand deposits 
D) money market mutual funds

Question 8

Table 16-5.  
-Refer to Table 16-5. If the Fed's reserve requirement is 9 percent, then what quantity of excess reserves does the Bank of Pleasantville now hold?

Accepted Answer

A) $200 
B) $250 
C) $400 
D) $1,000 
A) $200 
B) $250 
C) $400 
D) $1,000

Question 9

A bank has a 10 percent reserve requirement, $4,000 in deposits, and has loaned out all it can given the reserve requirement.

Accepted Answer

A) It has $40 in reserves and $3,960 in loans. 
B) It has $400 in reserves and $3,600 in loans. 
C) It has $444 in reserves and $3,556 in loans. 
D) None of the above is correct. 
A) It has $40 in reserves and $3,960 in loans. 
B) It has $400 in reserves and $3,600 in loans. 
C) It has $444 in reserves and $3,556 in loans. 
D) None of the above is correct.

Question 10

Over one time horizon or another, Fed policy decisions influence

Accepted Answer

A) inflation and employment. 
B) inflation but not employment. 
C) employment but not inflation. 
D) neither inflation nor employment. 
A) inflation and employment. 
B) inflation but not employment. 
C) employment but not inflation. 
D) neither inflation nor employment.

Question 11

Values of Assets
 $\begin{array}{lc}
\text { Asset } & \text { Amount in } \$ \text { Billions } \
\text { Small time deposits } & 780 \
\text { Large time deposits } & 1,700 \
\text { Demand deposits } & 450 \
\text { Other checkable deposits } & 370 \
\text { Savings deposits } & 4950 \
\text { Traveler's checks } & 5 \
\text { Money market mutual funds } & 740 \
\text { Currency } & 880 \
\text { Miscellaneous categories of M2 } & 50
\end{array}$

-Refer to Value of Assets. What is the value of M1 in billions of dollars?

Accepted Answer

A) 1705 
B) 2485 
C) 6295 
D) 7075 
A) 1705 
B) 2485 
C) 6295 
D) 7075

Question 12

Which of the following is an asset of a bank and a liability for its customers?

Accepted Answer

A) deposits of its customers and loans to it customers 
B) deposits of its customers but not loans to its customers 
C) loans of its customers but not the deposits of its customers 
D) neither the deposits of its customers nor the loans to its customers 
A) deposits of its customers and loans to it customers 
B) deposits of its customers but not loans to its customers 
C) loans of its customers but not the deposits of its customers 
D) neither the deposits of its customers nor the loans to its customers

Question 13

The Fed's control of the money supply is not precise because

Accepted Answer

A) Congress can also make changes to the money supply. 
B) there are not always government bonds available for purchase when the Fed wants to perform open-market operations. 
C) the Fed does not know where all U.S. currency is located. 
D) the amount of money in the economy depends in part on the behavior of depositors and bankers. 
A) Congress can also make changes to the money supply. 
B) there are not always government bonds available for purchase when the Fed wants to perform open-market operations. 
C) the Fed does not know where all U.S. currency is located. 
D) the amount of money in the economy depends in part on the behavior of depositors and bankers.

Question 14

Suppose the Federal Reserve increases bank reserves and banks lend out some of these reserves, but at some point banks still have $5 million more they wish to lend out. If the reserve requirement is 10 percent, how much more money can banks create if they lend out the remaining amount?

Accepted Answer

A) $55 million 
B) $50 million 
C) $45 million 
D) $40 million 
A) $55 million 
B) $50 million 
C) $45 million 
D) $40 million

Question 15

If the reserve requirement is 15 percent a bank desires to hold no excess reserves and it receives a new deposit of $10, then this bank

Accepted Answer

A) must increase its required reserves by $10. 
B) will initially see its total reserves increase by $15. 
C) will be able to make new loans up to a maximum of $8.50. 
D) All of the above are correct. 
A) must increase its required reserves by $10. 
B) will initially see its total reserves increase by $15. 
C) will be able to make new loans up to a maximum of $8.50. 
D) All of the above are correct.

Question 16

In a system of 100-percent-reserve banking, the purpose of a bank is to

Accepted Answer

A) make loans to households. 
B) influence the money supply. 
C) give depositors a safe place to keep their money. 
D) buy and sell gold. 
A) make loans to households. 
B) influence the money supply. 
C) give depositors a safe place to keep their money. 
D) buy and sell gold.

Question 17

Today, bank runs are not a major problem for the U.S. banking system because

Accepted Answer

A) bank runs are now illegal. 
B) banks now hold 100 percent of their deposits in reserve. 
C) banks are now all government-operated. 
D) the federal government now guarantees the safety of deposits at most banks. 
A) bank runs are now illegal. 
B) banks now hold 100 percent of their deposits in reserve. 
C) banks are now all government-operated. 
D) the federal government now guarantees the safety of deposits at most banks.

Question 18

In a fractional-reserve banking system, a bank

Accepted Answer

A) does not make loans. 
B) does not accept deposits. 
C) keeps only a fraction of its deposits in reserve. 
D) None of the above is correct. 
A) does not make loans. 
B) does not accept deposits. 
C) keeps only a fraction of its deposits in reserve. 
D) None of the above is correct.

Question 19

There is a

Accepted Answer

A) short-run tradeoff between inflation and unemployment. 
B) short-run tradeoff between an increase in the money supply and inflation. 
C) long-run tradeoff between inflation and unemployment. 
D) long-run tradeoff between an increase in the money supply and inflation. 
A) short-run tradeoff between inflation and unemployment. 
B) short-run tradeoff between an increase in the money supply and inflation. 
C) long-run tradeoff between inflation and unemployment. 
D) long-run tradeoff between an increase in the money supply and inflation.

Question 20

During the early 1930s there were a number of bank failures in the United States. What did this do to the money supply? The New York Federal Reserve Bank advocated open market purchases. Would these purchases have reversed the change in the money supply and helped banks? Explain.

Accepted Answer

Bank failures cause people to lose confi

Exam 16: The Monetary System

Traveler's checks are included in

Which group within the Federal Reserve System meets to discuss changes in the economy and determine monetary policy?

The Fed can directly protect a bank during a bank run by

Members of the Board of Governors are appointed by the president of the U.S. and confirmed by the U.S. Senate.

A problem that the Fed faces when it attempts to control the money supply is that

Which of the following is not included in either M1 or M2?

Table 16-5. -Refer to Table 16-5. If the Fed's reserve requirement is 9 percent, then what quantity of excess reserves does the Bank of Pleasantville now hold?

A bank has a 10 percent reserve requirement, $4,000 in deposits, and has loaned out all it can given the reserve requirement.

Over one time horizon or another, Fed policy decisions influence

Which of the following is an asset of a bank and a liability for its customers?

The Fed's control of the money supply is not precise because

Suppose the Federal Reserve increases bank reserves and banks lend out some of these reserves, but at some point banks still have $5 million more they wish to lend out. If the reserve requirement is 10 percent, how much more money can banks create if they lend out the remaining amount?

If the reserve requirement is 15 percent a bank desires to hold no excess reserves and it receives a new deposit of $10, then this bank

In a system of 100-percent-reserve banking, the purpose of a bank is to

Today, bank runs are not a major problem for the U.S. banking system because

In a fractional-reserve banking system, a bank

There is a

During the early 1930s there were a number of bank failures in the United States. What did this do to the money supply? The New York Federal Reserve Bank advocated open market purchases. Would these purchases have reversed the change in the money supply and helped banks? Explain.

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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