Question 1

Members of the Board of Governors

Accepted Answer

A)  are appointed by the U.S.president,while presidents of the regional Federal Reserve Banks are appointed by those banks' boards of directors. 
B)  are appointed by the regional Federal Reserve Banks' boards of directors while the presidents of the regional Federal Reserve Banks are appointed by the U.S.president. 
C)  and the presidents of the regional Federal Reserve Banks are appointed by the U.S.president. 
D)  and the presidents of the regional Federal Reserve Banks are appointed by the regional Federal Reserve Banks' boards of directors. 
A)  are appointed by the U.S.president,while presidents of the regional Federal Reserve Banks are appointed by those banks' boards of directors. 
B)  are appointed by the regional Federal Reserve Banks' boards of directors while the presidents of the regional Federal Reserve Banks are appointed by the U.S.president. 
C)  and the presidents of the regional Federal Reserve Banks are appointed by the U.S.president. 
D)  and the presidents of the regional Federal Reserve Banks are appointed by the regional Federal Reserve Banks' boards of directors.

Question 2

Imagine that the federal funds rate was below the level the Federal Reserve had targeted.To move the rate back towards it's target the Federal Reserve could

Accepted Answer

A)  buy bonds.This buying would increase the money supply. 
B)  buy bonds.This buying would reduce the money supply. 
C)  sell bonds.This selling would increase the money supply. 
D)  sell bonds.This selling would reduce the money supply. 
A)  buy bonds.This buying would increase the money supply. 
B)  buy bonds.This buying would reduce the money supply. 
C)  sell bonds.This selling would increase the money supply. 
D)  sell bonds.This selling would reduce the money supply.

Question 3

Just after the terrorist attack on September 11,2001,the Fed stood ready to lend financial institutions funds.When the Fed did this,it was acting in its role of lender of last resort.

Accepted Answer

A) True 
 B)False

Question 4

In order for currency to be widely used as a medium of exchange,it is sufficient for the government to designate it as legal tender.

Accepted Answer

A) True 
 B)False

Question 5

Money market mutual funds are included in

Accepted Answer

A)  M1 but not M2. 
B)  M1 and M2. 
C)  M2 but not M1. 
D)  neither M1 nor M2. 
A)  M1 but not M2. 
B)  M1 and M2. 
C)  M2 but not M1. 
D)  neither M1 nor M2.

Question 6

Table 29-5.
Bank of Kopeka
  
-Refer to Table 29-5.From the table it follows that Bank of Kopeka operates in a

Accepted Answer

A)  fractional-reserve banking system,since its reserves are less than its deposits. 
B)  fractional-reserve banking system,since its reserves are less than its loans. 
C)  100-percent-reserve banking system,since its assets are equal to its liabilities. 
D)  100-percent-reserve banking system if the Fed's reserve requirement is 10 percent;otherwise,it operates in a fractional-reserve banking system. 
A)  fractional-reserve banking system,since its reserves are less than its deposits. 
B)  fractional-reserve banking system,since its reserves are less than its loans. 
C)  100-percent-reserve banking system,since its assets are equal to its liabilities. 
D)  100-percent-reserve banking system if the Fed's reserve requirement is 10 percent;otherwise,it operates in a fractional-reserve banking system.

Question 7

The reserve requirement ratio is 10 percent.Which of the following pairs of changes would both allow a bank to lend out an additional $10,000?

Accepted Answer

A)  the Fed buys a $10,000 bond from the bank or someone deposits $10,000 in the bank 
B)  the Fed buys a $10,000 bond from the bank or the Fed lends the bank $10,000 
C)  the Fed sells a $10,000 bond to the bank or someone deposits $10,000 in the bank 
D)  the Fed sells a $10,000 bond to the bank or the Fed lends the bank $10,000 
A)  the Fed buys a $10,000 bond from the bank or someone deposits $10,000 in the bank 
B)  the Fed buys a $10,000 bond from the bank or the Fed lends the bank $10,000 
C)  the Fed sells a $10,000 bond to the bank or someone deposits $10,000 in the bank 
D)  the Fed sells a $10,000 bond to the bank or the Fed lends the bank $10,000

Question 8

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 9

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 10

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 11

Assume that when $100 of new reserves enter the banking system,the money supply ultimately increases by $800.Assume also that no banks hold excess reserves and that the entire money supply consists of bank deposits.If,at a point in time,reserves for all banks amount to $750,then at that same point in time,loans for all banks amount to $6,000.

Accepted Answer

A) True 
 B)False

Question 12

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 13

Which of the following lists two things that both increase the money supply?

Accepted Answer

A)  lower the discount rate,raise the reserve requirement 
B)  lower the discount rate,lower the reserve requirement 
C)  raise the discount rate,raise the reserve requirement 
D)  raise the discount rate,lower the reserve requirement 
A)  lower the discount rate,raise the reserve requirement 
B)  lower the discount rate,lower the reserve requirement 
C)  raise the discount rate,raise the reserve requirement 
D)  raise the discount rate,lower the reserve requirement

Question 14

A bank's

Accepted Answer

A)  reserves and the deposits of its customers are both assets. 
B)  reserves and the deposits of its customers are both liabilities. 
C)  reserves are assets and the deposits of its customers are liabilities. 
D)  reserves are liabilities and the deposits of its customers are assets. 
A)  reserves and the deposits of its customers are both assets. 
B)  reserves and the deposits of its customers are both liabilities. 
C)  reserves are assets and the deposits of its customers are liabilities. 
D)  reserves are liabilities and the deposits of its customers are assets.

Question 15

Which of the following statements is correct?

Accepted Answer

A)  In the special case of 100-percent-reserve banking,the reserve ratio is 1,the money multiplier is 2,and banks create money. 
B)  In the special case of 100-percent-reserve banking,the reserve ratio is 1,the money multiplier is 1,and banks do not create money. 
C)  When the reserve ratio is 0.5,then the money multiplier is 1 and banks do not create money. 
D)  When the reserve ratio is 0.125,then the money multiplier is 8,and each bank loans $8 for every $1 that it accept in deposits. 
A)  In the special case of 100-percent-reserve banking,the reserve ratio is 1,the money multiplier is 2,and banks create money. 
B)  In the special case of 100-percent-reserve banking,the reserve ratio is 1,the money multiplier is 1,and banks do not create money. 
C)  When the reserve ratio is 0.5,then the money multiplier is 1 and banks do not create money. 
D)  When the reserve ratio is 0.125,then the money multiplier is 8,and each bank loans $8 for every $1 that it accept in deposits.

Question 16

Which of the following best illustrates the medium of exchange function of money?

Accepted Answer

A)  You keep some money hidden in your shoe. 
B)  You keep track of the value of your assets in terms of currency. 
C)  You pay for your oil change using currency. 
D)  None of the above is correct. 
A)  You keep some money hidden in your shoe. 
B)  You keep track of the value of your assets in terms of currency. 
C)  You pay for your oil change using currency. 
D)  None of the above is correct.

Question 17

The Federal Reserve

Accepted Answer

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

Question 18

M2 is both larger and more liquid than M1.

Accepted Answer

A) True 
 B)False

Question 19

Compare the Board of Governors and the Federal Open Market Committee.

Accepted Answer

The Board of Governors runs the Federal

Question 20

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.

Exam 29: The Monetary System

Members of the Board of Governors

Imagine that the federal funds rate was below the level the Federal Reserve had targeted.To move the rate back towards it's target the Federal Reserve could

Just after the terrorist attack on September 11,2001,the Fed stood ready to lend financial institutions funds.When the Fed did this,it was acting in its role of lender of last resort.

In order for currency to be widely used as a medium of exchange,it is sufficient for the government to designate it as legal tender.

Money market mutual funds are included in

Table 29-5. Bank of Kopeka -Refer to Table 29-5.From the table it follows that Bank of Kopeka operates in a

The reserve requirement ratio is 10 percent.Which of the following pairs of changes would both allow a bank to lend out an additional $10,000?

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

The money supply decreases if the Fed

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

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

Which of the following lists two things that both increase the money supply?

A bank's

Which of the following statements is correct?

Which of the following best illustrates the medium of exchange function of money?

The Federal Reserve

M2 is both larger and more liquid than M1.

Compare the Board of Governors and the Federal Open Market Committee.

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

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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

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 Macroeconomics: Basic Concepts

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

Five Debates Over Macroeconomic Policy

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