Question 1

Financial intermediaries are important because

Accepted Answer

A)  they bring lenders and borrowers together in a way that lowers transaction costs. 
B)  they provide large funds to the stock market. 
C)  they employ large numbers of people. 
D)  they increase costs for banks. 
A)  they bring lenders and borrowers together in a way that lowers transaction costs. 
B)  they provide large funds to the stock market. 
C)  they employ large numbers of people. 
D)  they increase costs for banks.

Question 2

When the Fed sells a U.S. bond in the open market

Accepted Answer

A)  total reserves will increase. 
B)  total reserves will decrease. 
C)  total reserves do not change but the money supply increases. 
D)  total reserves do not change but the money supply decreases. 
A)  total reserves will increase. 
B)  total reserves will decrease. 
C)  total reserves do not change but the money supply increases. 
D)  total reserves do not change but the money supply decreases.

Question 3

Which one of the following is NOT a part of the M1 definition of money?

Accepted Answer

A)  Paper currency (i.e., Federal Reserve notes) 
B)  Coins 
C)  Savings accounts 
D)  Checkable and debitable accounts 
A)  Paper currency (i.e., Federal Reserve notes) 
B)  Coins 
C)  Savings accounts 
D)  Checkable and debitable accounts

Question 4

The fiscal agent for the federal government is

Accepted Answer

A)  the United States Treasury. 
B)  the United States Treasurer. 
C)  the Comptroller of Currency. 
D)  the Federal Reserve System. 
A)  the United States Treasury. 
B)  the United States Treasurer. 
C)  the Comptroller of Currency. 
D)  the Federal Reserve System.

Question 5

Possession of information by one party in a financial transaction but not by the other party is

Accepted Answer

A)  asymmetric information. 
B)  symmetric information. 
C)  informational hazard. 
D)  financial intermediation. 
A)  asymmetric information. 
B)  symmetric information. 
C)  informational hazard. 
D)  financial intermediation.

Question 6

Under a fractional reserve banking system,

Accepted Answer

A)  banks keep a fraction of their deposits on hand as reserves. 
B)  banks keep a fraction of their reserves on hand as deposits. 
C)  banks keep all of their deposits on hand as reserves. 
D)  banks keep all of their reserves on hand as deposits. 
A)  banks keep a fraction of their deposits on hand as reserves. 
B)  banks keep a fraction of their reserves on hand as deposits. 
C)  banks keep all of their deposits on hand as reserves. 
D)  banks keep all of their reserves on hand as deposits.

Question 7

What is the typical role of a central bank?

Accepted Answer

A)  It serves as a bank for the national treasury. 
B)  It regulates depository institutions. 
C)  It serves as a lender of last resort. 
D)  All of the above. 
A)  It serves as a bank for the national treasury. 
B)  It regulates depository institutions. 
C)  It serves as a lender of last resort. 
D)  All of the above.

Question 8

Without an accepted medium of exchange

Accepted Answer

A)  there would be no trade. 
B)  people would have to rely on gold or silver in order to exchange goods and services. 
C)  goods and services would be exchanged by barter. 
D)  prices are very difficult to determine. 
A)  there would be no trade. 
B)  people would have to rely on gold or silver in order to exchange goods and services. 
C)  goods and services would be exchanged by barter. 
D)  prices are very difficult to determine.

Question 9

A purchase of U.S. government securities by the Fed causes

Accepted Answer

A)  a multiple contraction of the money supply because deposits fall by more than the amount of the securities purchased. 
B)  a contraction of the money supply equal to the amount of the securities because all other transactions occur within the banking system. 
C)  a multiple expansion of the money supply because the reserve ratio is less than one. 
D)  an expansion of the money supply equal to the amount of the securities because all other transactions occur within the banking system. 
A)  a multiple contraction of the money supply because deposits fall by more than the amount of the securities purchased. 
B)  a contraction of the money supply equal to the amount of the securities because all other transactions occur within the banking system. 
C)  a multiple expansion of the money supply because the reserve ratio is less than one. 
D)  an expansion of the money supply equal to the amount of the securities because all other transactions occur within the banking system.

Question 10

The reserve ratio is 20 percent. A check for $1 million is deposited in Bank A, written on an account from Bank B. After the check clears what are the new excess reserves at Bank A, and by how much does the money supply change if all banks make loans so that they have zero excess reserves?

Accepted Answer

A)  $200,000; $800,000 
B)  $800,000; $1 million 
C)  $800,000; $800,000 
D)  $800,000; 0 
A)  $200,000; $800,000 
B)  $800,000; $1 million 
C)  $800,000; $800,000 
D)  $800,000; 0

Question 11

-Based on the information in the above table, the value of M1 is

Accepted Answer

A)  $2,100. 
B)  $1,700. 
C)  $3,000. 
D)  $3,100. 
A)  $2,100. 
B)  $1,700. 
C)  $3,000. 
D)  $3,100.

Question 12

If a bank's deposits at the Fed increase by $10 million, then

Accepted Answer

A)  both the bank's assets and the Fed's assets increase by $10 million. 
B)  both the bank's liabilities and the Fed's liabilities increase by $10 million. 
C)  the bank's assets increase by $10 million and the Fed's liabilities increase by $10 million. 
D)  the bank's assets increase by $10 million, but there is no change at the Fed since it does not really have assets or liabilities. 
A)  both the bank's assets and the Fed's assets increase by $10 million. 
B)  both the bank's liabilities and the Fed's liabilities increase by $10 million. 
C)  the bank's assets increase by $10 million and the Fed's liabilities increase by $10 million. 
D)  the bank's assets increase by $10 million, but there is no change at the Fed since it does not really have assets or liabilities.

Question 13

-Using the information in the above table, the value of M2 is

Accepted Answer

A)  $3,500. 
B)  $3,600. 
C)  $4,500. 
D)  $5,500. 
A)  $3,500. 
B)  $3,600. 
C)  $4,500. 
D)  $5,500.

Question 14

Which of the following is NOT a function of the Federal Reserve System?

Accepted Answer

A)  Regulating the money supply 
B)  Making loans to households and businesses 
C)  Acting as the fiscal agent of the federal government 
D)  Supervising member banks 
A)  Regulating the money supply 
B)  Making loans to households and businesses 
C)  Acting as the fiscal agent of the federal government 
D)  Supervising member banks

Question 15

Suppose the Fed purchases $1 million in bonds in the open market. Explain how the money supply can increase by more than $1 million.

Accepted Answer

Transaction deposits and reserves increa

Question 16

Other things being equal, if the reserve ratio is raised from 10 percent to 20 percent,

Accepted Answer

A)  minimum potential value of the money multiplier rises from 0.10 to 0.20. 
B)  minimum potential value of the money multiplier falls from 100 to 50. 
C)  maximum potential value of the money multiplier rises from 10 to 20. 
D)  maximum potential value of the money multiplier falls from 10 to 5. 
A)  minimum potential value of the money multiplier rises from 0.10 to 0.20. 
B)  minimum potential value of the money multiplier falls from 100 to 50. 
C)  maximum potential value of the money multiplier rises from 10 to 20. 
D)  maximum potential value of the money multiplier falls from 10 to 5.

Question 17

The members of the Federal Open Market Committee are

Accepted Answer

A)  the Treasury secretary, the head of the Federal Deposit Insurance Corporation, and the Comptroller of the Currency. 
B)  the seven members of the Fed's Board of Governors and five of the Federal Reserve bank presidents. 
C)  the President, the Speaker of the House of Representatives, and the Senate Majority Leader. 
D)  the five top officials at the Federal Reserve Bank of New York's Trading Desk. 
A)  the Treasury secretary, the head of the Federal Deposit Insurance Corporation, and the Comptroller of the Currency. 
B)  the seven members of the Fed's Board of Governors and five of the Federal Reserve bank presidents. 
C)  the President, the Speaker of the House of Representatives, and the Senate Majority Leader. 
D)  the five top officials at the Federal Reserve Bank of New York's Trading Desk.

Question 18

The part of the Federal Reserve System that determines monetary policy actions is the

Accepted Answer

A)  District Bank Board. 
B)  Federal Deposit Insurance Corporation (FDI
C) . 
C)  Federal Open Market Committee. 
D)  Comptroller's Office. 
A)  District Bank Board. 
B)  Federal Deposit Insurance Corporation (FDI
C) . 
C)  Federal Open Market Committee. 
D)  Comptroller's Office.

Question 19

Stock market price quotations are an example of money serving as a

Accepted Answer

A)  store of value. 
B)  medium of exchange. 
C)  unit of accounting. 
D)  economic value. 
A)  store of value. 
B)  medium of exchange. 
C)  unit of accounting. 
D)  economic value.

Question 20

What differentiates a savings deposit from a small-denomination certificate of deposit (CD)?

Accepted Answer

A)  A CD has a fixed maturity date; a savings deposit can be withdrawn at any time. 
B)  A savings deposit cannot be withdrawn before its maturity date without incurring a penalty; funds in a CD are available at any time with no interest penalty. 
C)  Only a savings deposit is a time deposit. 
D)  All depository institutions accept savings deposits, whereas only a thrift institution can issue a CD. 
A)  A CD has a fixed maturity date; a savings deposit can be withdrawn at any time. 
B)  A savings deposit cannot be withdrawn before its maturity date without incurring a penalty; funds in a CD are available at any time with no interest penalty. 
C)  Only a savings deposit is a time deposit. 
D)  All depository institutions accept savings deposits, whereas only a thrift institution can issue a CD.

Exam 15: Money, Banking, and Central Banking

Financial intermediaries are important because

When the Fed sells a U.S. bond in the open market

Which one of the following is NOT a part of the M1 definition of money?

The fiscal agent for the federal government is

Possession of information by one party in a financial transaction but not by the other party is

Under a fractional reserve banking system,

What is the typical role of a central bank?

Without an accepted medium of exchange

A purchase of U.S. government securities by the Fed causes

The reserve ratio is 20 percent. A check for $1 million is deposited in Bank A, written on an account from Bank B. After the check clears what are the new excess reserves at Bank A, and by how much does the money supply change if all banks make loans so that they have zero excess reserves?

-Based on the information in the above table, the value of M1 is

If a bank's deposits at the Fed increase by $10 million, then

-Using the information in the above table, the value of M2 is

Which of the following is NOT a function of the Federal Reserve System?

Suppose the Fed purchases $1 million in bonds in the open market. Explain how the money supply can increase by more than $1 million.

Other things being equal, if the reserve ratio is raised from 10 percent to 20 percent,

The members of the Federal Open Market Committee are

The part of the Federal Reserve System that determines monetary policy actions is the

Stock market price quotations are an example of money serving as a

What differentiates a savings deposit from a small-denomination certificate of deposit (CD)?

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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