Question 1

If traveler's checks were $500 higher and saving deposits were $1,000 higher, M1 would be

Accepted Answer

A) $500 higher and M2 would be $1,000 higher 
B) $500 higher and M2 would be $1,500 higher 
C) M2 and M1 would be $1,500 higher 
D) None of the above are correct. 
A) $500 higher and M2 would be $1,000 higher 
B) $500 higher and M2 would be $1,500 higher 
C) M2 and M1 would be $1,500 higher 
D) None of the above are correct.

Question 2

Describe the two things that limit the precision of the Fed's control of the money supply and explain how each limits that control.

Accepted Answer

First, the Fed does not control the amou

Question 3

Imagine an economy in which: (1) pieces of paper called yollars are the only thing that buyers give to sellers when they buy goods and services, so it would be common to use, say, 50 yollars to buy a pair of shoes; (2) prices are posted in terms of yardsticks, so you might walk into a grocery store and see that, today, an apple is worth 2 yardsticks; and (3) yardsticks disintegrate overnight, so no yardstick has any value for more than 24 hours. In this economy,

Accepted Answer

A) the yardstick is a medium of exchange but it cannot serve as a unit of account. 
B) the yardstick is a unit of account but it cannot serve as a store of value. 
C) the yardstick is a medium of exchange but it cannot serve as a store of value, and the yollar is a unit of account. 
D) the yollar is a unit of account, but it is not a medium of exchange and it is not a liquid asset. 
A) the yardstick is a medium of exchange but it cannot serve as a unit of account. 
B) the yardstick is a unit of account but it cannot serve as a store of value. 
C) the yardstick is a medium of exchange but it cannot serve as a store of value, and the yollar is a unit of account. 
D) the yollar is a unit of account, but it is not a medium of exchange and it is not a liquid asset.

Question 4

The reserve requirement is 4%, banks hold no excess reserves and people hold no currency. If the Fed sells $10,000 of bonds what happens to the money supply?

Accepted Answer

A) it increases by $250,000 
B) it increases by $200,000 
C) it decreases by $200,000 
D) it decreases by $250,000 
A) it increases by $250,000 
B) it increases by $200,000 
C) it decreases by $200,000 
D) it decreases by $250,000

Question 5

Currently, U.S. currency is

Accepted Answer

A) fiat money with intrinsic value. 
B) fiat money with no intrinsic value. 
C) commodity money with intrinsic value. 
D) commodity money with no intrinsic value. 
A) fiat money with intrinsic value. 
B) fiat money with no intrinsic value. 
C) commodity money with intrinsic value. 
D) commodity money with no intrinsic value.

Question 6

A bank's assets equal its liabilities under

Accepted Answer

A) both 100-percent-reserve banking and fractional-reserve banking. 
B) 100-percent-reserve banking but not under fractional-reserve banking. 
C) fractional-reserve banking but not under 100-percent-reserve banking. 
D) neither 100-percent-reserve banking nor fractional-reserve banking. 
A) both 100-percent-reserve banking and fractional-reserve banking. 
B) 100-percent-reserve banking but not under fractional-reserve banking. 
C) fractional-reserve banking but not under 100-percent-reserve banking. 
D) neither 100-percent-reserve banking nor fractional-reserve banking.

Question 7

The ease with which an asset can be

Accepted Answer

A) traded for another asset determines whether or not that asset is a unit of account. 
B) transported from one place to another determines whether or not that asset could serve as fiat money. 
C) converted into a store of value determines the liquidity of that asset. 
D) converted into the economy's medium of exchange determines the liquidity of that asset. 
A) traded for another asset determines whether or not that asset is a unit of account. 
B) transported from one place to another determines whether or not that asset could serve as fiat money. 
C) converted into a store of value determines the liquidity of that asset. 
D) converted into the economy's medium of exchange determines the liquidity of that asset.

Question 8

If the discount rate is lowered, banks borrow

Accepted Answer

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

Question 9

Which of the following both increase the money supply?

Accepted Answer

A) an increase in the discount rate and an increase in the interest rate on reserves 
B) an increase in the discount rate and a decrease in the interest rate on reserves 
C) a decrease in the discount rate and an increase in the interest rate on reserves 
D) a decrease in the discount rate and a decrease in the interest rate on reserves 
A) an increase in the discount rate and an increase in the interest rate on reserves 
B) an increase in the discount rate and a decrease in the interest rate on reserves 
C) a decrease in the discount rate and an increase in the interest rate on reserves 
D) a decrease in the discount rate and a decrease in the interest rate on reserves

Question 10

A bank has $200,000 in deposits and $190,000 in loans. It has loaned out all it can. It has a reserve ratio of

Accepted Answer

A) 2.5 percent. 
B) 5 percent. 
C) 9.5 percent. 
D) 10 percent. 
A) 2.5 percent. 
B) 5 percent. 
C) 9.5 percent. 
D) 10 percent.

Question 11

Consider five individuals with different occupations. $$\begin{array} { | l | l | l | } 
\hline \text { Allen } & \text { praparas taxes } & \text { wants ribs } \
\hline \text { Betty } & \text { does dry cleaning } & \text { wants campute fixed } \
\hline \text { Cakin } & \text { fixas canguters } & \text { wants bread } \
\hline \text { Diedre } & \text { bakes bread } & \text { wants taxes pregared } \
\hline \text { Eric } & \text { Garbecues ribs } & \text { wants dry cleaning } \
\hline
\end{array}$$ If this economy has money

Accepted Answer

A) Allen will buy from Betty 
B) Betty will buy from Calvin 
C) Eric will buy from Allen 
D) None of the above are correct. 
A) Allen will buy from Betty 
B) Betty will buy from Calvin 
C) Eric will buy from Allen 
D) None of the above are correct.

Question 12

Which of the following increases when the Fed makes open-market sales?

Accepted Answer

A) currency and reserves 
B) currency but not reserves 
C) reserves but not currency 
D) neither currency nor reserves 
A) currency and reserves 
B) currency but not reserves 
C) reserves but not currency 
D) neither currency nor reserves

Question 13

What does the text mean by the question, "Where Is All the Currency?" How does it answer the question?

Accepted Answer

The amount of currency per person is nea

Question 14

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

Accepted Answer

A) money market deposit accounts 
B) large time deposit 
C) demand deposits 
D) money market mutual funds 
A) money market deposit accounts 
B) large time deposit 
C) demand deposits 
D) money market mutual funds

Question 15

Other things the same, if banks decide to hold a smaller part of their deposits as excess reserves, the money supply will fall.

Accepted Answer

A) True 
 B)False

Question 16

The manager of the bank where you work tells you that your bank has $10 million in excess reserves. She also tells you that the bank has $400 million in deposits and $355 million dollars in loans. Given this information you find that the reserve requirement must be

Accepted Answer

A) 35/355. 
B) 45/355. 
C) 35/400. 
D) 45/400. 
A) 35/355. 
B) 45/355. 
C) 35/400. 
D) 45/400.

Question 17

As the reserve ratio increases, the money multiplier

Accepted Answer

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

Question 18

Suppose the banking system currently has $300 billion in reserves; the reserve requirement is 10 percent; and excess reserves amount to $3 billion. What is the level of deposits?

Accepted Answer

A) $3,300 billion 
B) $2,970 billion 
C) $2,700 billion 
D) $2,673 billion 
A) $3,300 billion 
B) $2,970 billion 
C) $2,700 billion 
D) $2,673 billion

Question 19

In a 100-percent-reserve banking system, if people decided to decrease the amount of currency they held by increasing the amount they held in checkable deposits, then

Accepted Answer

A) M1 would increase. 
B) M1 would decrease. 
C) M1 would not change. 
D) M1 might rise or fall. 
A) M1 would increase. 
B) M1 would decrease. 
C) M1 would not change. 
D) M1 might rise or fall.

Question 20

Money is

Accepted Answer

A) the most liquid asset and a perfect store of value. 
B) the most liquid asset but an imperfect store of value. 
C) not the most liquid asset but a perfect store of value. 
D) neither the most liquid asset and nor a perfect store of value. 
A) the most liquid asset and a perfect store of value. 
B) the most liquid asset but an imperfect store of value. 
C) not the most liquid asset but a perfect store of value. 
D) neither the most liquid asset and nor a perfect store of value.

Exam 16: The Monetary System

If traveler's checks were $500 higher and saving deposits were $1,000 higher, M1 would be

Describe the two things that limit the precision of the Fed's control of the money supply and explain how each limits that control.

The reserve requirement is 4%, banks hold no excess reserves and people hold no currency. If the Fed sells $10,000 of bonds what happens to the money supply?

Currently, U.S. currency is

A bank's assets equal its liabilities under

The ease with which an asset can be

If the discount rate is lowered, banks borrow

Which of the following both increase the money supply?

A bank has $200,000 in deposits and $190,000 in loans. It has loaned out all it can. It has a reserve ratio of

Consider five individuals with different occupations. Allen praparas taxes wants ribs Betty does dry cleaning wants campute fixed Cakin fixas canguters wants bread Diedre bakes bread wants taxes pregared Eric Garbecues ribs wants dry cleaning If this economy has money

Which of the following increases when the Fed makes open-market sales?

What does the text mean by the question, "Where Is All the Currency?" How does it answer the question?

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

Other things the same, if banks decide to hold a smaller part of their deposits as excess reserves, the money supply will fall.

The manager of the bank where you work tells you that your bank has $10 million in excess reserves. She also tells you that the bank has $400 million in deposits and $355 million dollars in loans. Given this information you find that the reserve requirement must be

As the reserve ratio increases, the money multiplier

Suppose the banking system currently has $300 billion in reserves; the reserve requirement is 10 percent; and excess reserves amount to $3 billion. What is the level of deposits?

In a 100-percent-reserve banking system, if people decided to decrease the amount of currency they held by increasing the amount they held in checkable deposits, then

Money is

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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