Question 1

When the Fed buys government bonds,

Accepted Answer

A)  the money supply increases and the federal funds rate increases. 
B)  the money supply increases and the federal funds rate decreases. 
C)  the money supply decreases and the federal funds rate increases. 
D)  the money supply decreases and the federal funds rate decreases. 
A)  the money supply increases and the federal funds rate increases. 
B)  the money supply increases and the federal funds rate decreases. 
C)  the money supply decreases and the federal funds rate increases. 
D)  the money supply decreases and the federal funds rate decreases.

Question 2

The money supply of Hooba is $10,000 in a 100-percent-reserve banking system.If Hooba decreases the reserve requirement to 10 percent,the money supply could increase by no more than $9,000.

Accepted Answer

A) True 
 B)False

Question 3

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 4

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits.As a result,bank reserves will

Accepted Answer

A)  decrease and the money supply will eventually decrease. 
B)  decrease and the money supply will eventually increase. 
C)  increase and the money supply will eventually decrease. 
D)  increase and the money supply will eventually increase. 
A)  decrease and the money supply will eventually decrease. 
B)  decrease and the money supply will eventually increase. 
C)  increase and the money supply will eventually decrease. 
D)  increase and the money supply will eventually increase.

Question 5

Which of the following is not a tool of monetary policy?

Accepted Answer

A)  open market operations 
B)  reserve requirements 
C)  changing the discount rate 
D)  increasing the government budget deficit 
A)  open market operations 
B)  reserve requirements 
C)  changing the discount rate 
D)  increasing the government budget deficit

Question 6

You receive money as payment for babysitting your neighbors' children.This best illustrates which function of money?

Accepted Answer

A)  medium of exchange 
B)  unit of account 
C)  store of value 
D)  liquidity 
A)  medium of exchange 
B)  unit of account 
C)  store of value 
D)  liquidity

Question 7

When the Fed conducts open market purchases,reserves

Accepted Answer

A)  increase and banks can increase lending. 
B)  increase and banks must decrease lending. 
C)  decrease and banks can increase lending. 
D)  decrease and banks must decrease lending. 
A)  increase and banks can increase lending. 
B)  increase and banks must decrease lending. 
C)  decrease and banks can increase lending. 
D)  decrease and banks must decrease lending.

Question 8

During recessions,banks typically choose to hold more excess reserves relative to their deposits.This action

Accepted Answer

A)  increases the money multiplier and increases the money supply. 
B)  decreases the money multiplier and decreases the money supply. 
C)  does not change the money multiplier,but increases the money supply. 
D)  does not change the money multiplier,but decreases the money supply. 
A)  increases the money multiplier and increases the money supply. 
B)  decreases the money multiplier and decreases the money supply. 
C)  does not change the money multiplier,but increases the money supply. 
D)  does not change the money multiplier,but decreases the money supply.

Question 9

Banks cannot influence the money supply if they hold all deposits in reserve.

Accepted Answer

A) True 
 B)False

Question 10

In the early 1990s,the inflation rate in southern Iraq averaged about

Accepted Answer

A)  3 percent a year,with the U.S.dollar serving as the official currency in southern Iraq at that time. 
B)  20 percent a year,with a new currency,the "Saddam dinar," serving as the official currency in southern Iraq at that time. 
C)  250 percent a year,with a new currency,the "Saddam dinar," serving as the official currency in southern Iraq at that time. 
D)  250 percent a year,with an established currency,the "Swiss dinar," serving as the official currency in southern Iraq at that time. 
A)  3 percent a year,with the U.S.dollar serving as the official currency in southern Iraq at that time. 
B)  20 percent a year,with a new currency,the "Saddam dinar," serving as the official currency in southern Iraq at that time. 
C)  250 percent a year,with a new currency,the "Saddam dinar," serving as the official currency in southern Iraq at that time. 
D)  250 percent a year,with an established currency,the "Swiss dinar," serving as the official currency in southern Iraq at that time.

Question 11

If banks desire to hold no excess reserves,the reserve ratio is 10 percent,and a bank that was previously just meeting its reserve requirement receives a new deposit of $400,then initially the bank has a

Accepted Answer

A)  $400 increase in excess reserves and no increase in required reserves. 
B)  $400 increase in required reserves and no increase in excess reserves. 
C)  $360 increase in excess reserves and $40 increase in required reserves. 
D)  $40 increase in excess reserves and $360 increase in required reserves. 
A)  $400 increase in excess reserves and no increase in required reserves. 
B)  $400 increase in required reserves and no increase in excess reserves. 
C)  $360 increase in excess reserves and $40 increase in required reserves. 
D)  $40 increase in excess reserves and $360 increase in required reserves.

Question 12

Which list ranks assets from most to least liquid?

Accepted Answer

A)  currency,fine art,stocks 
B)  currency,stocks,fine art 
C)  fine art,currency,stocks 
D)  fine art,stocks,currency 
A)  currency,fine art,stocks 
B)  currency,stocks,fine art 
C)  fine art,currency,stocks 
D)  fine art,stocks,currency

Question 13

Suppose the Federal Reserve increases bank reserves and banks lend out some of these reserves,but at some point banks still have $5 million more they wish to lend out.If the reserve requirement is 10 percent,how much more money can banks create if they lend out the remaining amount?

Accepted Answer

A)  $55 million 
B)  $50 million 
C)  $45 million 
D)  $40 million 
A)  $55 million 
B)  $50 million 
C)  $45 million 
D)  $40 million

Question 14

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.Suppose the Bank of Tazi purchased 50 million Tazes of Tazian Treasury Bonds from the banks.Suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the same.By how much does the money supply change?

Accepted Answer

A)  625 million Tazes 
B)  1,000 million Tazes 
C)  1,250 million Tazes 
D)  None of the above is correct. 
A)  625 million Tazes 
B)  1,000 million Tazes 
C)  1,250 million Tazes 
D)  None of the above is correct.

Question 15

Which of the following is correct? When there is a reserve requirement,banks

Accepted Answer

A)  must hold exactly the required quantity of reserves. 
B)  may hold more than,but not less than,the required quantity of reserves. 
C)  may hold less than,but not more than,the required quantity of reserves. 
D)  must seek the Fed's permission whenever they wish to expand or contract their loans to customers. 
A)  must hold exactly the required quantity of reserves. 
B)  may hold more than,but not less than,the required quantity of reserves. 
C)  may hold less than,but not more than,the required quantity of reserves. 
D)  must seek the Fed's permission whenever they wish to expand or contract their loans to customers.

Question 16

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 17

Which of the following does the Federal Reserve not do?

Accepted Answer

A)  conduct monetary policy 
B)  act as a lender of last resort 
C)  convert Federal Reserve Notes into gold 
D)  serve as a bank regulator 
A)  conduct monetary policy 
B)  act as a lender of last resort 
C)  convert Federal Reserve Notes into gold 
D)  serve as a bank regulator

Question 18

The 12 regional Federal Reserve Banks

Accepted Answer

A)  are not allowed to make loans to banks in their districts. 
B)  regulate banks in their districts. 
C)  have more voting members on the FOMC than does the Board of Governors. 
D)  are each headed by a member of the Board of Governors. 
A)  are not allowed to make loans to banks in their districts. 
B)  regulate banks in their districts. 
C)  have more voting members on the FOMC than does the Board of Governors. 
D)  are each headed by a member of the Board of Governors.

Question 19

Which of the following is correct?

Accepted Answer

A)  The Federal Reserve has 14 regional banks.The Board of Governors has 12 members who serve 7-year terms. 
B)  The Federal Reserve has 14 regional banks.The Board of Governors has 7 members who serve 14-year terms. 
C)  The Federal Reserve has 12 regional banks.The Board of Governors has 12 members who serve 7-year terms. 
D)  The Federal Reserve has 12 regional banks.The Board of Governors has 7 members who serve 14-year terms. 
A)  The Federal Reserve has 14 regional banks.The Board of Governors has 12 members who serve 7-year terms. 
B)  The Federal Reserve has 14 regional banks.The Board of Governors has 7 members who serve 14-year terms. 
C)  The Federal Reserve has 12 regional banks.The Board of Governors has 12 members who serve 7-year terms. 
D)  The Federal Reserve has 12 regional banks.The Board of Governors has 7 members who serve 14-year terms.

Question 20

Reserve requirements are regulations concerning

Accepted Answer

A)  the amount banks are allowed to borrow from the Fed. 
B)  the amount of reserves banks must hold against deposits. 
C)  reserves banks must hold based on the number and type of loans they make. 
D)  the interest rate at which banks can borrow from the Fed. 
A)  the amount banks are allowed to borrow from the Fed. 
B)  the amount of reserves banks must hold against deposits. 
C)  reserves banks must hold based on the number and type of loans they make. 
D)  the interest rate at which banks can borrow from the Fed.

Exam 29: The Monetary System

When the Fed buys government bonds,

The money supply of Hooba is $10,000 in a 100-percent-reserve banking system.If Hooba decreases the reserve requirement to 10 percent,the money supply could increase by no more than $9,000.

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

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits.As a result,bank reserves will

Which of the following is not a tool of monetary policy?

You receive money as payment for babysitting your neighbors' children.This best illustrates which function of money?

When the Fed conducts open market purchases,reserves

During recessions,banks typically choose to hold more excess reserves relative to their deposits.This action

Banks cannot influence the money supply if they hold all deposits in reserve.

In the early 1990s,the inflation rate in southern Iraq averaged about

If banks desire to hold no excess reserves,the reserve ratio is 10 percent,and a bank that was previously just meeting its reserve requirement receives a new deposit of $400,then initially the bank has a

Which list ranks assets from most to least liquid?

Suppose the Federal Reserve increases bank reserves and banks lend out some of these reserves,but at some point banks still have $5 million more they wish to lend out.If the reserve requirement is 10 percent,how much more money can banks create if they lend out the remaining amount?

Which of the following is correct? When there is a reserve requirement,banks

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?

Which of the following does the Federal Reserve not do?

The 12 regional Federal Reserve Banks

Which of the following is correct?

Reserve requirements are regulations concerning

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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