Question 1

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 2

A bank's assets equal its liabilities under

Accepted Answer

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

Question 3

Writing in The New York Times in 2004,economist Hal R.Varian asserted that dollars are valuable as a result of

Accepted Answer

A)  the fact that they are backed by gold. 
B)  the cost incurred by the government when it prints paper currency. 
C)  "network effects." 
D)  "commodity effects." 
A)  the fact that they are backed by gold. 
B)  the cost incurred by the government when it prints paper currency. 
C)  "network effects." 
D)  "commodity effects."

Question 4

Scenario 29-1.
The monetary policy of Salidiva is determined by the Salidivian Central Bank.The local currency is the salido.Salidivian banks collectively hold 100 million salidos of required reserves,25 million salidos of excess reserves,250 million salidos of Salidivian Treasury Bonds,and their customers hold 1,000 million salidos of deposits.Salidivians prefer to use only demand deposits and so the money supply consists of demand deposits.
-Refer to Scenario 29-1 .Suppose the Central Bank of Salidiva purchases 25 million salidos of Salidivian Treasury Bonds from banks.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 Salidiva change?

Accepted Answer

A)  200 million salidos 
B)  150 million salidos 
C)  100 million salidos 
D)  None of the above is correct. 
A)  200 million salidos 
B)  150 million salidos 
C)  100 million salidos 
D)  None of the above is correct.

Question 5

If people decide to hold more currency relative to deposits,the money supply

Accepted Answer

A)  falls.The larger the reserve ratio is,the more the money supply falls. 
B)  falls.The larger the reserve ratio is,the less the money supply falls. 
C)  rises.The larger the reserve ratio is,the more the money supply rises. 
D)  rises.The larger the reserve ratio is,the less the money supply rises. 
A)  falls.The larger the reserve ratio is,the more the money supply falls. 
B)  falls.The larger the reserve ratio is,the less the money supply falls. 
C)  rises.The larger the reserve ratio is,the more the money supply rises. 
D)  rises.The larger the reserve ratio is,the less the money supply rises.

Question 6

Scenario 29-2.
The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi.The local unit of currency is the Taz.Aggregate banking statistics show that collectively the banks of Tazi hold 300 million Tazes of required reserves,75 million Tazes of excess reserves,have issued 7,500 million Tazes of deposits,and hold 225 million Tazes of Tazian Treasury bonds.Tazians prefer to use only demand deposits and so all money is on deposit at the bank.
-Refer to Scenario 29-2.Assuming the only other thing Tazian banks have on their balance sheets is loans,what is the value of existing loans made by Tazian banks?

Accepted Answer

A)  6,900 million Tazes 
B)  7,125 million Tazes 
C)  7,350 million Tazes 
D)  None of the above is correct. 
A)  6,900 million Tazes 
B)  7,125 million Tazes 
C)  7,350 million Tazes 
D)  None of the above is correct.

Question 7

Which of the following best illustrates the unit of account function of money?

Accepted Answer

A)  You list prices for candy sold on your Web site,www.sweettooth.com,in dollars. 
B)  You pay for your theater tickets with dollars. 
C)  You keep 6 ounces of gold in your safe-deposit box at the bank for emergencies. 
D)  None of the above is correct. 
A)  You list prices for candy sold on your Web site,www.sweettooth.com,in dollars. 
B)  You pay for your theater tickets with dollars. 
C)  You keep 6 ounces of gold in your safe-deposit box at the bank for emergencies. 
D)  None of the above is correct.

Question 8

In a system of 100-percent-reserve banking,

Accepted Answer

A)  banks do not accept deposits. 
B)  banks do not influence the supply of money. 
C)  loans are the only asset item for banks. 
D)  All of the above are correct. 
A)  banks do not accept deposits. 
B)  banks do not influence the supply of money. 
C)  loans are the only asset item for banks. 
D)  All of the above are correct.

Question 9

The New York Federal Reserve Bank

Accepted Answer

A)  president always gets to vote at the FOMC meetings. 
B)  conducts open market transactions. 
C)  is one of 12 regional Federal Reserve Banks. 
D)  All of the above are correct. 
A)  president always gets to vote at the FOMC meetings. 
B)  conducts open market transactions. 
C)  is one of 12 regional Federal Reserve Banks. 
D)  All of the above are correct.

Question 10

If the reserve ratio for all banks is 10 percent,$1,000 of additional reserves can create up to

Accepted Answer

A)  $100 of new money. 
B)  $1,000 of new money. 
C)  $10,000 of new money. 
D)  None of the above is correct. 
A)  $100 of new money. 
B)  $1,000 of new money. 
C)  $10,000 of new money. 
D)  None of the above is correct.

Question 11

Table 29-6.
Bank of Springfield
  
-Refer to Table 29-6.If the Fed requires a reserve ratio of 6 percent,then what quantity of excess reserves does the Bank of Springfield now hold?

Accepted Answer

A)  $1,200 
B)  $2,400 
C)  $2,880 
D)  $4,800 
A)  $1,200 
B)  $2,400 
C)  $2,880 
D)  $4,800

Question 12

In the United States,currency holdings per person average about

Accepted Answer

A)  $60;one explanation for this relatively small average is that many people use credit and debit cards to make transactions. 
B)  $60;one explanation for this relatively small average is that U.S.citizens hold a lot of foreign currency. 
C)  $3,300;one explanation for this relatively large amount is that criminals probably prefer currency as a medium of exchange. 
D)  $3,300;one explanation for this relatively large average is that U.S.citizens hold a lot of foreign currency. 
A)  $60;one explanation for this relatively small average is that many people use credit and debit cards to make transactions. 
B)  $60;one explanation for this relatively small average is that U.S.citizens hold a lot of foreign currency. 
C)  $3,300;one explanation for this relatively large amount is that criminals probably prefer currency as a medium of exchange. 
D)  $3,300;one explanation for this relatively large average is that U.S.citizens hold a lot of foreign currency.

Question 13

The money multiplier equals

Accepted Answer

A)  1/R,where R represents the quantity of reserves in the economy. 
B)  1/R,where R represents the reserve ratio for all banks in the economy. 
C)  1/(1+R),where R represents the reserve ratio for all banks in the economy. 
D)  1/(1+R),where R represents the largest reserve ratio among all banks in the economy. 
A)  1/R,where R represents the quantity of reserves in the economy. 
B)  1/R,where R represents the reserve ratio for all banks in the economy. 
C)  1/(1+R),where R represents the reserve ratio for all banks in the economy. 
D)  1/(1+R),where R represents the largest reserve ratio among all banks in the economy.

Question 14

The Federal Reserve was created in 1913 after a series of bank failures in 1907.

Accepted Answer

A) True 
 B)False

Question 15

The federal funds rate is the interest rate that

Accepted Answer

A)  banks charge one another for loans. 
B)  banks charge the Fed for loans. 
C)  the Fed charges banks for loans. 
D)  the Fed charges Congress for loans. 
A)  banks charge one another for loans. 
B)  banks charge the Fed for loans. 
C)  the Fed charges banks for loans. 
D)  the Fed charges Congress for loans.

Question 16

Assume that when $100 of new reserves enter the banking system,the money supply ultimately increases by $625.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 $500,then at that same point in time,loans for all banks amount to $2,625.

Accepted Answer

A) True 
 B)False

Question 17

Speaking at a conference in 2002 as a member of the Board of Governors,Ben Bernanke

Accepted Answer

A)  acknowledged that the Fed had been responsible for the Great Depression of the 1930s. 
B)  asserted that the Fed was in no way responsible for the Great Depression of the 1930s. 
C)  asserted that the Fed should abandon,in the not-too-distant future,its reliance on open-market operations for control of the money supply. 
D)  asserted that the Fed should abandon,in the not-too-distant future,its fixation on the federal funds rate. 
A)  acknowledged that the Fed had been responsible for the Great Depression of the 1930s. 
B)  asserted that the Fed was in no way responsible for the Great Depression of the 1930s. 
C)  asserted that the Fed should abandon,in the not-too-distant future,its reliance on open-market operations for control of the money supply. 
D)  asserted that the Fed should abandon,in the not-too-distant future,its fixation on the federal funds rate.

Question 18

If the reserve ratio for all banks is 8 percent,then an additional $1,000 of reserves can increase the money supply by as much as

Accepted Answer

A)  $6,400. 
B)  $8,000. 
C)  $12,500. 
D)  $20,000. 
A)  $6,400. 
B)  $8,000. 
C)  $12,500. 
D)  $20,000.

Question 19

The banking system currently has $200 billion of reserves,none of which are excess.People hold only deposits and no currency,and the reserve requirement is 4 percent.If the Fed raises the reserve requirement to 10 percent and at the same time buys $50 billion of bonds,then by how much does the money supply change?

Accepted Answer

A)  It rises by $600 billion. 
B)  It rises by $125 billion. 
C)  It falls by $2,500 billion. 
D)  None of the above is correct. 
A)  It rises by $600 billion. 
B)  It rises by $125 billion. 
C)  It falls by $2,500 billion. 
D)  None of the above is correct.

Question 20

Travelers 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.

Exam 29: The Monetary System

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

A bank's assets equal its liabilities under

Writing in The New York Times in 2004,economist Hal R.Varian asserted that dollars are valuable as a result of

If people decide to hold more currency relative to deposits,the money supply

Which of the following best illustrates the unit of account function of money?

In a system of 100-percent-reserve banking,

The New York Federal Reserve Bank

If the reserve ratio for all banks is 10 percent,$1,000 of additional reserves can create up to

Table 29-6. Bank of Springfield -Refer to Table 29-6.If the Fed requires a reserve ratio of 6 percent,then what quantity of excess reserves does the Bank of Springfield now hold?

In the United States,currency holdings per person average about

The money multiplier equals

The Federal Reserve was created in 1913 after a series of bank failures in 1907.

The federal funds rate is the interest rate that

Speaking at a conference in 2002 as a member of the Board of Governors,Ben Bernanke

If the reserve ratio for all banks is 8 percent,then an additional $1,000 of reserves can increase the money supply by as much as

Travelers checks are included in

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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