Question 1

To be considered money,an asset must be:

Accepted Answer

A)  backed by gold or other precious metals. 
B)  widely accepted as a means of payment. 
C)  currency. 
D)  issued by the Federal Reserve or a major commercial bank in the United States. 
A)  backed by gold or other precious metals. 
B)  widely accepted as a means of payment. 
C)  currency. 
D)  issued by the Federal Reserve or a major commercial bank in the United States.

Question 2

Paying a higher interest rate on reserves held at the Fed will tend to:

Accepted Answer

A)  increase the money supply. 
B)  decrease the money supply. 
C)  not change the money supply. 
D)  have an ambiguous effect on the money supply. 
A)  increase the money supply. 
B)  decrease the money supply. 
C)  not change the money supply. 
D)  have an ambiguous effect on the money supply.

Question 3

Moral hazard occurs when banks and other financial institutions:

Accepted Answer

A)  hesitate to lend because of concern over excessive risk. 
B)  take on too much risk,hoping that the Fed and regulators will bail them out. 
C)  fail to maintain their assets exceeding the liabilities. 
D)  fail,then bring down other institutions in the system. 
A)  hesitate to lend because of concern over excessive risk. 
B)  take on too much risk,hoping that the Fed and regulators will bail them out. 
C)  fail to maintain their assets exceeding the liabilities. 
D)  fail,then bring down other institutions in the system.

Question 4

Explain how an open market purchase of bonds by the Federal Reserve will increase the money supply.

Accepted Answer

When the Federal Reserve purchases bonds

Question 5

Tyler owes $100,000,but he owns Mexican Amati paintings that he could sell immediately for $80,000 or within a few months for $120,000.If these are all the assets and liabilities that Tyler has,Tyler is:

Accepted Answer

A)  insolvent and illiquid. 
B)  insolvent but liquid. 
C)  solvent and liquid. 
D)  solvent but illiquid. 
A)  insolvent and illiquid. 
B)  insolvent but liquid. 
C)  solvent and liquid. 
D)  solvent but illiquid.

Question 6

What three measures of the money supply are discussed in this chapter and what does each measure include?

Accepted Answer

The monetary base is currency

Question 7

Why did the Federal Reserve begin to pay interest on reserves held by banks?

Accepted Answer

The Federal Reserve began to pay interes

Question 8

The intended effect of an expansionary monetary policy is that aggregate demand:

Accepted Answer

A)  increases,raising real GDP growth only in the long run. 
B)  increases,raising inflation and real GDP growth in both the short run and the long run. 
C)  increases,raising real GDP growth in the short run,but only inflation rises in the long run. 
D)  remains unchanged while the economy's long-run potential growth rate increases. 
A)  increases,raising real GDP growth only in the long run. 
B)  increases,raising inflation and real GDP growth in both the short run and the long run. 
C)  increases,raising real GDP growth in the short run,but only inflation rises in the long run. 
D)  remains unchanged while the economy's long-run potential growth rate increases.

Question 9

If the Fed buys bonds in the open market,which of the following will likely NOT happen?

Accepted Answer

A)  Investment spending increases. 
B)  Short-term interest rates increase. 
C)  Aggregate demand increases. 
D)  The monetary base increases. 
A)  Investment spending increases. 
B)  Short-term interest rates increase. 
C)  Aggregate demand increases. 
D)  The monetary base increases.

Question 10

Why are debit cards not listed as money?

Accepted Answer

A)  They perform the same function as checks,and checks are counted as money. 
B)  Debit cards cannot be used for payments at most stores. 
C)  Debit cards draw on checkable deposits,which are already counted as money. 
D)  Not all banks issue debit cards. 
A)  They perform the same function as checks,and checks are counted as money. 
B)  Debit cards cannot be used for payments at most stores. 
C)  Debit cards draw on checkable deposits,which are already counted as money. 
D)  Not all banks issue debit cards.

Question 11

Checkable deposits are deposits on which the owner may write checks.

Accepted Answer

A) True 
 B)False

Question 12

The effective reserve ratio is determined primarily by:

Accepted Answer

A)  how liquid banks wish to be. 
B)  how greedy banks wish to be. 
C)  the number of bank customers. 
D)  the size of banks' vaults. 
A)  how liquid banks wish to be. 
B)  how greedy banks wish to be. 
C)  the number of bank customers. 
D)  the size of banks' vaults.

Question 13

Who was chair of Federal Reserve System during the financial crisis of 2008?

Accepted Answer

A)  Tim Geithner 
B)  Paul Volcker 
C)  Ben Bernanke 
D)  Janet Yellen 
A)  Tim Geithner 
B)  Paul Volcker 
C)  Ben Bernanke 
D)  Janet Yellen

Question 14

The Federal Reserve lends money to other banks.

Accepted Answer

A) True 
 B)False

Question 15

The monetary base is equal to currency plus:

Accepted Answer

A)  checkable deposits. 
B)  total reserves held at the Federal Reserve. 
C)  savings deposits. 
D)  small-time deposits. 
A)  checkable deposits. 
B)  total reserves held at the Federal Reserve. 
C)  savings deposits. 
D)  small-time deposits.

Question 16

If the Fed wishes to lower interest rates,it should:

Accepted Answer

A)  conduct an open market purchase. 
B)  conduct an open market sale. 
C)  raise the discount rate. 
D)  do nothing. 
A)  conduct an open market purchase. 
B)  conduct an open market sale. 
C)  raise the discount rate. 
D)  do nothing.

Question 17

When the Fed conducts open market purchases,it:

Accepted Answer

A)  buys government securities. 
B)  sells government securities. 
C)  buys shares of corporations. 
D)  sells shares of corporations. 
A)  buys government securities. 
B)  sells government securities. 
C)  buys shares of corporations. 
D)  sells shares of corporations.

Question 18

As the government's bank,the Fed does NOT:

Accepted Answer

A)  manage the borrowing of the U.S.Treasury. 
B)  maintain the bank account of the U.S.Treasury. 
C)  conduct the issuing,transferring,and redeeming of U.S.Treasury bonds. 
D)  approve the transactions involving corporate bonds and stocks. 
A)  manage the borrowing of the U.S.Treasury. 
B)  maintain the bank account of the U.S.Treasury. 
C)  conduct the issuing,transferring,and redeeming of U.S.Treasury bonds. 
D)  approve the transactions involving corporate bonds and stocks.

Question 19

Which statement is correct?

Accepted Answer

A)  M1 is always larger than M2. 
B)  M2 is always larger than M1. 
C)  M1 is larger than M2 during recessions,while M2 is larger than M1 during expansions. 
D)  M2 is larger than M1 during recessions,while M1 is larger than M2 during expansions. 
A)  M1 is always larger than M2. 
B)  M2 is always larger than M1. 
C)  M1 is larger than M2 during recessions,while M2 is larger than M1 during expansions. 
D)  M2 is larger than M1 during recessions,while M1 is larger than M2 during expansions.

Question 20

An increase in money growth will cause output growth to increase in:

Accepted Answer

A)  the short run only. 
B)  the long run only. 
C)  both the short run and the long run. 
D)  neither the short run nor the long run. 
A)  the short run only. 
B)  the long run only. 
C)  both the short run and the long run. 
D)  neither the short run nor the long run.

Exam 15: The Federal Reserve System

To be considered money,an asset must be:

Paying a higher interest rate on reserves held at the Fed will tend to:

Moral hazard occurs when banks and other financial institutions:

Explain how an open market purchase of bonds by the Federal Reserve will increase the money supply.

Tyler owes $100,000,but he owns Mexican Amati paintings that he could sell immediately for $80,000 or within a few months for $120,000.If these are all the assets and liabilities that Tyler has,Tyler is:

What three measures of the money supply are discussed in this chapter and what does each measure include?

Why did the Federal Reserve begin to pay interest on reserves held by banks?

The intended effect of an expansionary monetary policy is that aggregate demand:

If the Fed buys bonds in the open market,which of the following will likely NOT happen?

Why are debit cards not listed as money?

Checkable deposits are deposits on which the owner may write checks.

The effective reserve ratio is determined primarily by:

Who was chair of Federal Reserve System during the financial crisis of 2008?

The Federal Reserve lends money to other banks.

The monetary base is equal to currency plus:

If the Fed wishes to lower interest rates,it should:

When the Fed conducts open market purchases,it:

As the government's bank,the Fed does NOT:

Which statement is correct?

An increase in money growth will cause output growth to increase in:

The Big Ideas

The Power of Trade

Supply and Demand

Equilibrium- How Supply and Demand

Price Ceilings and Floors

GDP and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth,capital Accumulation

Saving,investment,and the Financial System

Stock Markets and Personal Finance

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Business Fluctuations

Transmission and Amplification Mechanisms

Monetary Policy

The Federal Budget- Taxes and Spending

Fiscal Policy

International Trade

International Finance

Political Economy and Public Choice

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