Question 1

In a system of 100-percent-reserve banking,

Accepted Answer

A) banks do not make loans. 
B) currency is the only form of money. 
C) deposits are banks' only assets. 
D) All of the above are correct. 
A) banks do not make loans. 
B) currency is the only form of money. 
C) deposits are banks' only assets. 
D) All of the above are correct.

Question 2

Which of the following is correct?

Accepted Answer

A) The Fed can control the money supply precisely. 
B) The amount of money in the economy does not depend on the behavior of depositors. 
C) The amount of money in the economy depends in part on the behavior of banks. 
D) None of the above is correct. 
A) The Fed can control the money supply precisely. 
B) The amount of money in the economy does not depend on the behavior of depositors. 
C) The amount of money in the economy depends in part on the behavior of banks. 
D) None of the above is correct.

Question 3

The Federal Reserve

Accepted Answer

A) is responsible for conducting the nation's monetary policy, and it plays a role in regulating banks. 
B) is responsible for conducing the nation's monetary policy, but it plays no role in regulating banks. 
C) is not responsible for conducting the nation's monetary policy, and it plays a role in regulating banks. 
D) is not responsible for conducing the nation's monetary policy, and it plays no role in regulating banks. 
A) is responsible for conducting the nation's monetary policy, and it plays a role in regulating banks. 
B) is responsible for conducing the nation's monetary policy, but it plays no role in regulating banks. 
C) is not responsible for conducting the nation's monetary policy, and it plays a role in regulating banks. 
D) is not responsible for conducing the nation's monetary policy, and it plays no role in regulating banks.

Question 4

In the 19th century, when crop failures often led to bank runs, banks would make relatively fewer loans and hold relatively more excess reserves. By itself, these actions by the banks should have

Accepted Answer

A) increased the money multiplier and the money supply. 
B) decreased the money multiplier and increased the money supply. 
C) increased the money multiplier and decreased the money supply. 
D) decreased both the money multiplier and the money supply. 
A) increased the money multiplier and the money supply. 
B) decreased the money multiplier and increased the money supply. 
C) increased the money multiplier and decreased the money supply. 
D) decreased both the money multiplier and the money supply.

Question 5

Table 16-7
Metropolis National Bank is currently holding 2% of its deposits as excess reserves.  
-Refer to Balance Sheet of Metropolis National Bank. Metropolis National Bank is currently holding 2% of deposits as excess reserves. Assume that no banks in the economy want to hold excess reserves and that people only hold deposits and no currency. How much does the money supply ultimately increase when Metropolis National Bank lends out its excess reserves?

Accepted Answer

A) $100,000 
B) $110,000 
C) $120,000 
D) None of the above are correct. 
A) $100,000 
B) $110,000 
C) $120,000 
D) None of the above are correct.

Question 6

An increase in the money supply might indicate that the Fed had

Accepted Answer

A) purchased bonds in an attempt to increase the federal funds rate. 
B) purchased bonds in an attempt to reduce the federal funds rate. 
C) sold bonds in an attempt to increase the federal funds rate. 
D) sold bonds in an attempt to reduce the federal funds rate. 
A) purchased bonds in an attempt to increase the federal funds rate. 
B) purchased bonds in an attempt to reduce the federal funds rate. 
C) sold bonds in an attempt to increase the federal funds rate. 
D) sold bonds in an attempt to reduce the federal funds rate.

Question 7

As opposed to a payments system based on barter, a payments system based on money

Accepted Answer

A) requires a double coincidence of wants. 
B) leads to less specialization. 
C) makes trades less costly. 
D) None of the above is correct. 
A) requires a double coincidence of wants. 
B) leads to less specialization. 
C) makes trades less costly. 
D) None of the above is correct.

Question 8

Monetary policy affects employment

Accepted Answer

A) only in the long run. 
B) only in the short run. 
C) in both the long run and the short run. 
D) in neither the long run nor the short run. 
A) only in the long run. 
B) only in the short run. 
C) in both the long run and the short run. 
D) in neither the long run nor the short run.

Question 9

When a bank loans out $1,000, the money supply

Accepted Answer

A) does not change. 
B) decreases. 
C) increases. 
D) may do any of the above. 
A) does not change. 
B) decreases. 
C) increases. 
D) may do any of the above.

Question 10

Explain why banks can influence the money supply if the required reserve ratio is less than 100 percent.

Accepted Answer

When the reserve requirement is less tha

Question 11

Suppose banks decide to hold more excess reserves relative to deposits. Other things the same, this action will cause the

Accepted Answer

A) money supply to fall. To reduce the impact of this the Fed could lower the discount rate. 
B) money supply to fall. To reduce the impact of this the Fed could raise the discount rate. 
C) money supply to rise. To reduce the impact of this the Fed could lower the discount rate. 
D) money supply to rise. To reduce the impact of this the Fed could raise the discount rate. 
A) money supply to fall. To reduce the impact of this the Fed could lower the discount rate. 
B) money supply to fall. To reduce the impact of this the Fed could raise the discount rate. 
C) money supply to rise. To reduce the impact of this the Fed could lower the discount rate. 
D) money supply to rise. To reduce the impact of this the Fed could raise the discount rate.

Question 12

Which of the following is correct concerning the FOMC?

Accepted Answer

A) the members of the Board of Governors have the majority of the votes 
B) the New York Federal Reserve Bank District President is always a voting member 
C) all Federal Reserve Bank presidents attend the meetings 
D) All of the above are correct. 
A) the members of the Board of Governors have the majority of the votes 
B) the New York Federal Reserve Bank District President is always a voting member 
C) all Federal Reserve Bank presidents attend the meetings 
D) All of the above are correct.

Question 13

Money

Accepted Answer

A) is more efficient than barter. 
B) makes trades easier. 
C) allows greater specialization. 
D) All of the above are correct. 
A) is more efficient than barter. 
B) makes trades easier. 
C) allows greater specialization. 
D) All of the above are correct.

Question 14

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

Accepted Answer

A) fewer reserves, so the reserve ratio will fall. 
B) fewer reserves, so the reserve ratio will rise. 
C) more reserves, so the reserve ratio will fall. 
D) more reserves, so the reserve ratio will rise. 
A) fewer reserves, so the reserve ratio will fall. 
B) fewer reserves, so the reserve ratio will rise. 
C) more reserves, so the reserve ratio will fall. 
D) more reserves, so the reserve ratio will rise.

Question 15

The discount rate is the rate the Federal Reserve charges banks for loans. By lowering this rate, the Fed provides banks with a greater incentive to borrow from it.

Accepted Answer

A) True 
 B)False

Question 16

What is the difference between money and wealth?

Accepted Answer

Money is defined as the set of

Question 17

If you deposit $100 of currency into a demand deposit at a bank, this action by itself

Accepted Answer

A) does not change the money supply. 
B) increases the money supply. 
C) decreases the money supply. 
D) has an indeterminate effect on the money supply. 
A) does not change the money supply. 
B) increases the money supply. 
C) decreases the money supply. 
D) has an indeterminate effect on the money supply.

Question 18

Table 16-2. An economy starts with $10,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $9,250. The T-account of the bank is shown below.  
-Refer to Table 16-2. The bank's reserve ratio is

Accepted Answer

A) 7.50 percent. 
B) 8.12 percent. 
C) 92.50 percent. 
D) 100 percent. 
A) 7.50 percent. 
B) 8.12 percent. 
C) 92.50 percent. 
D) 100 percent.

Question 19

Table 16-4.  
-Refer to Table 16-4. If the bank is holding $4,000 in excess reserves, then the reserve requirement with which it must comply is

Accepted Answer

A) 4 percent. 
B) 6 percent. 
C) 12 percent. 
D) 14 percent. 
A) 4 percent. 
B) 6 percent. 
C) 12 percent. 
D) 14 percent.

Question 20

If an economy used gold as money, its money would be

Accepted Answer

A) commodity money, but not fiat money. 
B) fiat money, but not commodity money. 
C) both fiat and commodity money. 
D) functioning as a store of value and as a unit of account, but not as a medium of exchange. 
A) commodity money, but not fiat money. 
B) fiat money, but not commodity money. 
C) both fiat and commodity money. 
D) functioning as a store of value and as a unit of account, but not as a medium of exchange.

Exam 16: The Monetary System

In a system of 100-percent-reserve banking,

Which of the following is correct?

The Federal Reserve

In the 19th century, when crop failures often led to bank runs, banks would make relatively fewer loans and hold relatively more excess reserves. By itself, these actions by the banks should have

An increase in the money supply might indicate that the Fed had

As opposed to a payments system based on barter, a payments system based on money

Monetary policy affects employment

When a bank loans out $1,000, the money supply

Explain why banks can influence the money supply if the required reserve ratio is less than 100 percent.

Suppose banks decide to hold more excess reserves relative to deposits. Other things the same, this action will cause the

Which of the following is correct concerning the FOMC?

Money

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

The discount rate is the rate the Federal Reserve charges banks for loans. By lowering this rate, the Fed provides banks with a greater incentive to borrow from it.

What is the difference between money and wealth?

If you deposit $100 of currency into a demand deposit at a bank, this action by itself

Table 16-2. An economy starts with $10,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $9,250. The T-account of the bank is shown below. -Refer to Table 16-2. The bank's reserve ratio is

Table 16-4. -Refer to Table 16-4. If the bank is holding $4,000 in excess reserves, then the reserve requirement with which it must comply is

If an economy used gold as money, its money would be

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

Filters