Question 1

The largest means of payment in the United States is:

Accepted Answer

A)  savings deposits. 
B)  checkable deposits. 
C)  cash. 
D)  credit cards. 
A)  savings deposits. 
B)  checkable deposits. 
C)  cash. 
D)  credit cards.

Question 2

Systemic risk is:

Accepted Answer

A)  the risk of contagion that occurs when a failing financial institution owes significant sums of money to other financial institutions. 
B)  a risk that is limited to a specific sector only. 
C)  the risk of a bubble in the entire asset pricing system. 
D)  the risk that,when a financial institution fails,its depositors will not only lose their money but also their trust in the monetary system. 
A)  the risk of contagion that occurs when a failing financial institution owes significant sums of money to other financial institutions. 
B)  a risk that is limited to a specific sector only. 
C)  the risk of a bubble in the entire asset pricing system. 
D)  the risk that,when a financial institution fails,its depositors will not only lose their money but also their trust in the monetary system.

Question 3

The Federal Reserve provided a loan to finance J.P.Morgan's purchase of Bear Stearns because Bear Stearns was too:

Accepted Answer

A)  big to let fail. 
B)  important to the check clearing process to let fail. 
C)  interconnected with other banks to let fail. 
D)  large of a holder of U.S.Treasury deposits. 
A)  big to let fail. 
B)  important to the check clearing process to let fail. 
C)  interconnected with other banks to let fail. 
D)  large of a holder of U.S.Treasury deposits.

Question 4

Open market operations occur when the Fed:

Accepted Answer

A)  changes the discount rate on lending to banks. 
B)  changes the rate of interest paid on reserves. 
C)  buys and sells government bonds. 
D)  sets up the Term Auction Facility. 
A)  changes the discount rate on lending to banks. 
B)  changes the rate of interest paid on reserves. 
C)  buys and sells government bonds. 
D)  sets up the Term Auction Facility.

Question 5

The interest rate the Federal Reserve charges on loans it makes to commercial banks is called the:

Accepted Answer

A)  prime rate. 
B)  Federal Funds rate. 
C)  discount rate. 
D)  Treasury bill rate. 
A)  prime rate. 
B)  Federal Funds rate. 
C)  discount rate. 
D)  Treasury bill rate.

Question 6

A bank is considered illiquid if:

Accepted Answer

A)  it has short-term liabilities greater than its short-term assets,but overall assets greater than liabilities. 
B)  it has liabilities greater than the value of its assets. 
C)  the value of its outstanding loans is greater than the value of its deposits. 
D)  it has lost its FDIC coverage. 
A)  it has short-term liabilities greater than its short-term assets,but overall assets greater than liabilities. 
B)  it has liabilities greater than the value of its assets. 
C)  the value of its outstanding loans is greater than the value of its deposits. 
D)  it has lost its FDIC coverage.

Question 7

If $1 in cash is held in reserve for every $20 of deposits,the reserve ratio is:

Accepted Answer

A)  20%. 
B)  10%. 
C)  5%. 
D)  1%. 
A)  20%. 
B)  10%. 
C)  5%. 
D)  1%.

Question 8

The key difference between quantitative easing and a typical open market purchase is that quantitative easing:

Accepted Answer

A)  does not involve the purchase of government securities,while a typical open market purchase involves the purchase of government securities. 
B)  involves short-term government securities,while a typical open market purchase involves long-term government securities. 
C)  involves longer-term government securities and other securities,while a typical open market purchase involves short-term government securities. 
D)  involves state and local government securities,while a typical open market purchase involves federal government securities. 
A)  does not involve the purchase of government securities,while a typical open market purchase involves the purchase of government securities. 
B)  involves short-term government securities,while a typical open market purchase involves long-term government securities. 
C)  involves longer-term government securities and other securities,while a typical open market purchase involves short-term government securities. 
D)  involves state and local government securities,while a typical open market purchase involves federal government securities.

Question 9

The members of the Board of Governors of the Federal Reserve are appointed for:

Accepted Answer

A)  4 years. 
B)  7 years. 
C)  14 years. 
D)  life. 
A)  4 years. 
B)  7 years. 
C)  14 years. 
D)  life.

Question 10

Rank the major means of payment from the largest to the smallest amount of dollars.

Accepted Answer

A)  savings deposits,money market mutual funds,small-time deposits 
B)  money market mutual funds,small-time deposits,savings deposits 
C)  money market mutual funds,savings deposits,small-time deposits 
D)  small-time deposits,money market mutual funds,savings deposits 
A)  savings deposits,money market mutual funds,small-time deposits 
B)  money market mutual funds,small-time deposits,savings deposits 
C)  money market mutual funds,savings deposits,small-time deposits 
D)  small-time deposits,money market mutual funds,savings deposits

Question 11

Currently,the Federal Deposit Insurance Corporation (FDIC)guarantees bank deposits up to:

Accepted Answer

A)  $325,000. 
B)  $100,000. 
C)  $125,000. 
D)  $250,000. 
A)  $325,000. 
B)  $100,000. 
C)  $125,000. 
D)  $250,000.

Question 12

When the Fed buys U.S.government bonds to affect the money supply,it is conducting:

Accepted Answer

A)  discount rate lending. 
B)  discount rate borrowing. 
C)  an open market sale. 
D)  an open market purchase. 
A)  discount rate lending. 
B)  discount rate borrowing. 
C)  an open market sale. 
D)  an open market purchase.

Question 13

If the reserve ratio is 20%,the money multiplier is 2.

Accepted Answer

A) True 
 B)False

Question 14

An increase in money supply growth will cause the economy's AD curve to:

Accepted Answer

A)  become steeper. 
B)  become flatter. 
C)  shift leftward. 
D)  shift rightward. 
A)  become steeper. 
B)  become flatter. 
C)  shift leftward. 
D)  shift rightward.

Question 15

Because the United States has a fractional reserve banking system,banks hold:

Accepted Answer

A)  less than 100% of deposits as reserves. 
B)  more than 100% of deposits as reserves. 
C)  100% of deposits as reserves. 
D)  no currency in their vaults. 
A)  less than 100% of deposits as reserves. 
B)  more than 100% of deposits as reserves. 
C)  100% of deposits as reserves. 
D)  no currency in their vaults.

Question 16

The members of the Board of Governors of the Federal Reserve have 14-year nonrenewable terms.Thus:

Accepted Answer

A)  they are somewhat insulated from the political process. 
B)  the chairman of the Board of Governors also has a 14-year term. 
C)  every president of a Federal Reserve district bank will serve at least 14 years on the Board of Governors. 
D)  the New York Federal Reserve District Bank President can only serve 14 years on the Federal Open Market Committee. 
A)  they are somewhat insulated from the political process. 
B)  the chairman of the Board of Governors also has a 14-year term. 
C)  every president of a Federal Reserve district bank will serve at least 14 years on the Board of Governors. 
D)  the New York Federal Reserve District Bank President can only serve 14 years on the Federal Open Market Committee.

Question 17

Open market operations refer to:

Accepted Answer

A)  the buying and selling of stocks in the stock market. 
B)  the buying and selling of government bonds by the Fed. 
C)  decisions by the Fed to raise or lower interest rates. 
D)  decisions by the Fed to increase or decrease the money multiplier. 
A)  the buying and selling of stocks in the stock market. 
B)  the buying and selling of government bonds by the Fed. 
C)  decisions by the Fed to raise or lower interest rates. 
D)  decisions by the Fed to increase or decrease the money multiplier.

Question 18

An increase in money growth will cause the economy's AD curve to:

Accepted Answer

A)  not shift. 
B)  shift inward. 
C)  shift outward. 
D)  shift outward during expansions and inward during contractions. 
A)  not shift. 
B)  shift inward. 
C)  shift outward. 
D)  shift outward during expansions and inward during contractions.

Question 19

The Fed usually focuses on the Federal Funds rate because it is a convenient signal of monetary policy.

Accepted Answer

A) True 
 B)False

Question 20

The Federal Reserve acquires its unique powers through its ability to:

Accepted Answer

A)  set the consumer price index. 
B)  intervene in the bond markets. 
C)  issue money. 
D)  oversee banking operations. 
A)  set the consumer price index. 
B)  intervene in the bond markets. 
C)  issue money. 
D)  oversee banking operations.

Exam 15: The Federal Reserve System

The largest means of payment in the United States is:

Systemic risk is:

The Federal Reserve provided a loan to finance J.P.Morgan's purchase of Bear Stearns because Bear Stearns was too:

Open market operations occur when the Fed:

The interest rate the Federal Reserve charges on loans it makes to commercial banks is called the:

A bank is considered illiquid if:

If $1 in cash is held in reserve for every $20 of deposits,the reserve ratio is:

The key difference between quantitative easing and a typical open market purchase is that quantitative easing:

The members of the Board of Governors of the Federal Reserve are appointed for:

Rank the major means of payment from the largest to the smallest amount of dollars.

Currently,the Federal Deposit Insurance Corporation (FDIC)guarantees bank deposits up to:

When the Fed buys U.S.government bonds to affect the money supply,it is conducting:

If the reserve ratio is 20%,the money multiplier is 2.

An increase in money supply growth will cause the economy's AD curve to:

Because the United States has a fractional reserve banking system,banks hold:

The members of the Board of Governors of the Federal Reserve have 14-year nonrenewable terms.Thus:

Open market operations refer to:

An increase in money growth will cause the economy's AD curve to:

The Fed usually focuses on the Federal Funds rate because it is a convenient signal of monetary policy.

The Federal Reserve acquires its unique powers through its ability to:

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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