Question 1

The money multiplier is equal to:

Accepted Answer

A) the ratio of the money supply to the monetary base. 
B) the ratio of the monetary base to the money supply. 
C) the money supply divided by the reserve ratio. 
D) about 3.9 in the United States. 
A) the ratio of the money supply to the monetary base. 
B) the ratio of the monetary base to the money supply. 
C) the money supply divided by the reserve ratio. 
D) about 3.9 in the United States. A

Question 2

A bond is considered:

Accepted Answer

A) an asset for the owner of the bond that is not part of the money supply. 
B) M1. 
C) M2. 
D) a liability for the owner of the bond that is part of the money supply. 
A) an asset for the owner of the bond that is not part of the money supply. 
B) M1. 
C) M2. 
D) a liability for the owner of the bond that is part of the money supply. A

Question 3

Use the following to answer questions :
Scenario: Money Supply Changes
The reserve requirement is 10% and Jack withdraws $5,000 travel money from his checkable deposit. Assume that banks do not hold any excess reserves and that the public holds no currency, only checkable bank deposits.
-(Scenario: Money Supply Changes) Look at the scenario Money Supply Changes. After the withdrawal reserves _____, and checkable deposits _____ by $5,000.

Accepted Answer

A) decrease by $5,000; decrease 
B) decrease by $5,000; increase 
C) increase by $5,000; decrease 
D) increase by $500; increase 
A) decrease by $5,000; decrease 
B) decrease by $5,000; increase 
C) increase by $5,000; decrease 
D) increase by $500; increase A

Question 4

Commodity-backed money is a medium of exchange with no intrinsic value, whose ultimate value is guaranteed by a promise that it can be converted to valuable goods.

Accepted Answer

A) True 
 B)False

Question 5

Money that the government has ordered to be accepted as money is:

Accepted Answer

A) fiat money. 
B) not usable in international transactions. 
C) convertible paper money. 
D) commodity money. 
A) fiat money. 
B) not usable in international transactions. 
C) convertible paper money. 
D) commodity money.

Question 6

Suppose a bank receives a $5,000 deposit and the reserve ratio is 25%. Based on this deposit alone, the bank can lend out:

Accepted Answer

A) $4,500. 
B) $4,000. 
C) $3,750. 
D) $3,500. 
A) $4,500. 
B) $4,000. 
C) $3,750. 
D) $3,500.

Question 7

The money multiplier and the required reserve ratio are:

Accepted Answer

A) independent of one another. 
B) directly related to one another. 
C) inversely related. 
D) both greater than 1. 
A) independent of one another. 
B) directly related to one another. 
C) inversely related. 
D) both greater than 1.

Question 8

Under the Glass-Steagall Act, commercial banks, which accept deposits and are covered by deposit insurance, were not allowed to trade in financial assets, such as stocks and bonds.

Accepted Answer

A) True 
 B)False

Question 9

Assume that the banks do not hold any excess reserves and the reserve ratio is 20%. If Sarah deposits $5,000 in cash in her checking account, the money supply can potentially increase by:

Accepted Answer

A) $20,000. 
B) $25,000. 
C) $5,000. 
D) $1,000. 
A) $20,000. 
B) $25,000. 
C) $5,000. 
D) $1,000.

Question 10

Eli receives $200 in cash for his birthday and deposits the money in his checking account at River Town Bank.
a. How does this deposit initially change the T-account of River Town Bank? How does it affect the money supply?
b. If the bank maintains a reserve ratio of 15%, how will River Town respond to the new deposit?
c. If every time River Town makes a loan, the loan results in a new checkable deposit in a different bank equal to the amount of the loan, by how much could the money supply in the economy expand in total?

Accepted Answer

a. On the asset side of the T-account, r

Question 11

Before the Revolutionary War, clamshells were used by some of the European settlers as commodity money.

Accepted Answer

A) True 
 B)False

Question 12

Explain how an increase in the reserve requirement by the Federal Reserve can lead to a decrease in real GDP.

Accepted Answer

If the Fed increases the reserve require

Question 13

Suppose that initially a bank has excess reserves of $800 and the reserve ratio is 30%. Then Andy deposits $1,000 of cash in his checking account and the bank lends $600 to Molly. That bank can lend an additional:

Accepted Answer

A) $100. 
B) $800. 
C) $900. 
D) $300. 
A) $100. 
B) $800. 
C) $900. 
D) $300.

Question 14

U.S. Treasury bills are a(n):

Accepted Answer

A) liability of the U.S. government but an asset to the Federal Reserve. 
B) asset of the U.S. government but a liability to the Federal Reserve. 
C) part of the net worth of the U.S. government. 
D) liability to both the U.S. government and the Federal Reserve. 
A) liability of the U.S. government but an asset to the Federal Reserve. 
B) asset of the U.S. government but a liability to the Federal Reserve. 
C) part of the net worth of the U.S. government. 
D) liability to both the U.S. government and the Federal Reserve.

Question 15

Which of the following about bank runs is FALSE?

Accepted Answer

A) They may start as a result of a rumor that a bank is in financial trouble. 
B) Many banks' depositors try to withdraw their funds because they fear a bank failure. 
C) Bank runs typically happen only to small banks with few financial assets. 
D) Bank runs often lead to a loss of faith in other banks, causing additional bank runs. 
A) They may start as a result of a rumor that a bank is in financial trouble. 
B) Many banks' depositors try to withdraw their funds because they fear a bank failure. 
C) Bank runs typically happen only to small banks with few financial assets. 
D) Bank runs often lead to a loss of faith in other banks, causing additional bank runs.

Question 16

In the federal funds market, governments of different countries obtain long-term loans from the governments of other countries.

Accepted Answer

A) True 
 B)False

Question 17

The eurozone is

Accepted Answer

A) another name for Scandinavia. 
B) the only countries in Europe that engage in free trade with the United States. 
C) the countries that use the euro as their common currency. 
D) made up of the communist countries in eastern Europe. 
A) another name for Scandinavia. 
B) the only countries in Europe that engage in free trade with the United States. 
C) the countries that use the euro as their common currency. 
D) made up of the communist countries in eastern Europe.

Question 18

Which of the following is a component of BOTH the monetary base and the money supply?

Accepted Answer

A) bank reserves at the Fed 
B) currency in bank vaults 
C) demand deposits 
D) currency in circulation 
A) bank reserves at the Fed 
B) currency in bank vaults 
C) demand deposits 
D) currency in circulation

Question 19

If the Fed sells $250 million of Treasury bills to commercial banks, the banks pay with their reserves.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is a function of the Federal Reserve System?
I. conducting monetary policy
II. examining and supervising commercial banks in the Fed regions
III. providing liquidity to financial institutions

Accepted Answer

A) I only 
B) II only 
C) III only 
D) I, II, and III 
A) I only 
B) II only 
C) III only 
D) I, II, and III

The money multiplier is equal to:

A bond is considered:

Commodity-backed money is a medium of exchange with no intrinsic value, whose ultimate value is guaranteed by a promise that it can be converted to valuable goods.

Money that the government has ordered to be accepted as money is:

Suppose a bank receives a $5,000 deposit and the reserve ratio is 25%. Based on this deposit alone, the bank can lend out:

The money multiplier and the required reserve ratio are:

Under the Glass-Steagall Act, commercial banks, which accept deposits and are covered by deposit insurance, were not allowed to trade in financial assets, such as stocks and bonds.

Assume that the banks do not hold any excess reserves and the reserve ratio is 20%. If Sarah deposits $5,000 in cash in her checking account, the money supply can potentially increase by:

Before the Revolutionary War, clamshells were used by some of the European settlers as commodity money.

Explain how an increase in the reserve requirement by the Federal Reserve can lead to a decrease in real GDP.

Suppose that initially a bank has excess reserves of $800 and the reserve ratio is 30%. Then Andy deposits $1,000 of cash in his checking account and the bank lends $600 to Molly. That bank can lend an additional:

U.S. Treasury bills are a(n):

Which of the following about bank runs is FALSE?

In the federal funds market, governments of different countries obtain long-term loans from the governments of other countries.

The eurozone is

Which of the following is a component of BOTH the monetary base and the money supply?

If the Fed sells $250 million of Treasury bills to commercial banks, the banks pay with their reserves.

Which of the following is a function of the Federal Reserve System? I. conducting monetary policy II. examining and supervising commercial banks in the Fed regions III. providing liquidity to financial institutions

First Principles

Economic Models

Supply and Demand

International Trade 5

Macroeconomics: the Big Picture

Gdp and Cpi: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial System

Fiscal Policy Appendix Taxes and the Multiplier

Monetary Policy

Inflation, Disinflation, and Deflation

Crises and Consequences

Events and Ideas

Open-Economy Macroeconomics

Graphs in Economics

toward a Fuller Understanding of Present Value

Filters

Exam 14: Money, Banking, and the Federal Reserve System

The money multiplier is equal to:

A bond is considered:

Commodity-backed money is a medium of exchange with no intrinsic value, whose ultimate value is guaranteed by a promise that it can be converted to valuable goods.

Money that the government has ordered to be accepted as money is:

Suppose a bank receives a $5,000 deposit and the reserve ratio is 25%. Based on this deposit alone, the bank can lend out:

The money multiplier and the required reserve ratio are:

Under the Glass-Steagall Act, commercial banks, which accept deposits and are covered by deposit insurance, were not allowed to trade in financial assets, such as stocks and bonds.

Assume that the banks do not hold any excess reserves and the reserve ratio is 20%. If Sarah deposits $5,000 in cash in her checking account, the money supply can potentially increase by:

Before the Revolutionary War, clamshells were used by some of the European settlers as commodity money.

Explain how an increase in the reserve requirement by the Federal Reserve can lead to a decrease in real GDP.

Suppose that initially a bank has excess reserves of $800 and the reserve ratio is 30%. Then Andy deposits $1,000 of cash in his checking account and the bank lends $600 to Molly. That bank can lend an additional:

U.S. Treasury bills are a(n):

Which of the following about bank runs is FALSE?

In the federal funds market, governments of different countries obtain long-term loans from the governments of other countries.

The eurozone is

Which of the following is a component of BOTH the monetary base and the money supply?

If the Fed sells $250 million of Treasury bills to commercial banks, the banks pay with their reserves.

Which of the following is a function of the Federal Reserve System? I. conducting monetary policy II. examining and supervising commercial banks in the Fed regions III. providing liquidity to financial institutions

First Principles

Economic Models

Supply and Demand

International Trade 5

Macroeconomics: the Big Picture

Gdp and Cpi: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial System

Fiscal Policy Appendix Taxes and the Multiplier

Monetary Policy

Inflation, Disinflation, and Deflation

Crises and Consequences

Events and Ideas

Open-Economy Macroeconomics

Graphs in Economics

toward a Fuller Understanding of Present Value

Filters