Question 1

Which of the following is false?

Accepted Answer

A) The Fed controls the supply of money, even though privately owned commercial banks actually create and destroy money by making loans. 
B) With a 10% required reserve ratio, a $10,000 cash deposit in a bank would result in an increase in the bank's excess reserves by $1000. 
C) With a 10% required reserve ratio, a $1,000 bond purchase by the Fed directly creates $1,000 in money in the form of bank deposits, and indirectly permits up to $9,000 in additional money to be created through the multiple expansion in bank deposits. 
D) When the Fed sells government bonds, it will tend to cause a multiple contraction of bank deposits. 
A) The Fed controls the supply of money, even though privately owned commercial banks actually create and destroy money by making loans. 
B) With a 10% required reserve ratio, a $10,000 cash deposit in a bank would result in an increase in the bank's excess reserves by $1000. 
C) With a 10% required reserve ratio, a $1,000 bond purchase by the Fed directly creates $1,000 in money in the form of bank deposits, and indirectly permits up to $9,000 in additional money to be created through the multiple expansion in bank deposits. 
D) When the Fed sells government bonds, it will tend to cause a multiple contraction of bank deposits.

Question 2

The money supply would tend to fall if:

Accepted Answer

A) banks decide to keep more excess reserves and people convert more of their demand deposits to currency. 
B) banks decide to keep more excess reserves and people deposit currency in their demand deposit accounts. 
C) banks decide to keep fewer excess reserves and people deposit currency in their demand deposit accounts. 
D) banks decide to keep fewer excess reserves and people convert more of their demand deposits to currency. 
A) banks decide to keep more excess reserves and people convert more of their demand deposits to currency. 
B) banks decide to keep more excess reserves and people deposit currency in their demand deposit accounts. 
C) banks decide to keep fewer excess reserves and people deposit currency in their demand deposit accounts. 
D) banks decide to keep fewer excess reserves and people convert more of their demand deposits to currency.

Question 3

Uncertainty may cause banks to hold larger excess reserves.Other things being constant, this will:

Accepted Answer

A) have no effect on the volume of loans or the money supply. 
B) tend to reduce both the volume of loans and the money supply. 
C) tend to increase both the volume of loans and the money supply. 
D) tend to increase the volume of loans but reduce the money supply. 
E) tend to decrease the volume of loans but increase the money supply. 
A) have no effect on the volume of loans or the money supply. 
B) tend to reduce both the volume of loans and the money supply. 
C) tend to increase both the volume of loans and the money supply. 
D) tend to increase the volume of loans but reduce the money supply. 
E) tend to decrease the volume of loans but increase the money supply.

Question 4

One point virtually all economists agree on when defining money is that:

Accepted Answer

A) money must be spendable. 
B) money must be liquid. 
C) money must be accepted as payment. 
D) money must be easily transferable. 
E) all of the above are correct. 
A) money must be spendable. 
B) money must be liquid. 
C) money must be accepted as payment. 
D) money must be easily transferable. 
E) all of the above are correct.

Question 5

Using money as a store of value rather than wheat is:

Accepted Answer

A) safer. 
B) less expensive. 
C) both safer and less expensive. 
D) neither safer nor less expensive. 
A) safer. 
B) less expensive. 
C) both safer and less expensive. 
D) neither safer nor less expensive.

Question 6

If you go into a bank which faces a 10% required reserve ratio and borrow $1,000, the bank will ____ in your checking account at the bank.

Accepted Answer

A) add $1,000 
B) subtract $1,000 
C) add $5,000 
D) subtract $5,000 
A) add $1,000 
B) subtract $1,000 
C) add $5,000 
D) subtract $5,000

Question 7

Money is a more efficient store of value than wheat.

Accepted Answer

A) True 
 B)False

Question 8

A decrease in savings deposits would ____ M1 and ____ M2.

Accepted Answer

A) increase; increase. 
B) not change; increase. 
C) decrease; decrease. 
D) not change; decrease. 
E) not change; not change. 
A) increase; increase. 
B) not change; increase. 
C) decrease; decrease. 
D) not change; decrease. 
E) not change; not change.

Question 9

Suppose you found $1,000 hidden in your mattress and deposited it in a demand deposit account at your bank.If the reserve requirement was 20 percent, the deposit would directly create ____ in excess reserves and ultimately lead to a ____ total increase in the money supply, if all banks in the system lend out 100 percent of their excess reserves.

Accepted Answer

A) $800; $4,000 
B) $800; $5,000 
C) $1,000; $4,000 
D) $1,000; $5,000 
A) $800; $4,000 
B) $800; $5,000 
C) $1,000; $4,000 
D) $1,000; $5,000

Question 10

On a certain date the banking system had $2 billion in excess reserves.The legally required reserve ratio was 12.5 percent.Potentially, if these funds were fully loaned out, the banking system as a whole could increase the money supply by a maximum of:

Accepted Answer

A) $2 billion. 
B) $2.5 billion. 
C) $12.5 billion. 
D) $16 billion 
E) $25 billion. 
A) $2 billion. 
B) $2.5 billion. 
C) $12.5 billion. 
D) $16 billion 
E) $25 billion.

Question 11

If banks faced a 100 percent reserve requirement, a $10,000 reduction in banking reserves would decrease the money supply by:

Accepted Answer

A) $1,000,000. 
B) $100,000. 
C) $10,000. 
D) $1,000. 
E) $100. 
A) $1,000,000. 
B) $100,000. 
C) $10,000. 
D) $1,000. 
E) $100.

Question 12

What is a fractional reserve system?

Accepted Answer

In order for banks to continue to do bus

Question 13

If a person buries his money in his backyard, he is using money as a medium of exchange.

Accepted Answer

A) True 
 B)False

Question 14

Balance Sheet 15-B
A bank's assets consist of $1,000,000 in total reserves, $2,100,000 in loans, and a building worth $1,200,000. Its liabilities and capital consist of $3,000,000 in demand deposits and $1,300,000 in capital.
-Refer to Balance Sheet 15-B.If the required reserve ratio is 10 percent, what is the level of the bank's excess reserves? How much money could the excess reserves be used to create in the banking system as a result?

Accepted Answer

A) $700,000; $700,000 
B) $700,000; $7,000,000 
C) $300,000; $300,000 
D) $300,000; $3,000,000 
A) $700,000; $700,000 
B) $700,000; $7,000,000 
C) $300,000; $300,000 
D) $300,000; $3,000,000

Question 15

Reserve requirements exist primarily to prevent bank failures.

Accepted Answer

A) True 
 B)False

Question 16

Bank runs ____ bank reserves and ____ the money supply.

Accepted Answer

A) decrease; decrease 
B) decrease; increase 
C) increase; increase 
D) increase; decrease 
A) decrease; decrease 
B) decrease; increase 
C) increase; increase 
D) increase; decrease

Question 17

Demand deposits are:

Accepted Answer

A) assets of banks, liabilities of depositors. 
B) liabilities of banks, assets of depositors. 
C) assets of banks and their depositors. 
D) liabilities of banks and their depositors. 
A) assets of banks, liabilities of depositors. 
B) liabilities of banks, assets of depositors. 
C) assets of banks and their depositors. 
D) liabilities of banks and their depositors.

Question 18

Balance Sheet 15-A
A bank's assets consist of $500,000 in total reserves, $1,600,000 in loans, and a building worth $1,200,000. Its liabilities and capital consist of $2,000,000 in demand deposits and $1,300,000 in capital.
-Refer to Balance Sheet 15-A.If the required reserve ratio is 20 percent, what is the level of the bank's excess reserves? How much could it loan out as a result?

Accepted Answer

A) $100,000; $100,000 
B) $100,000; $400,000 
C) $400,000; $500,000 
D) $400,000; $2,000,000 
A) $100,000; $100,000 
B) $100,000; $400,000 
C) $400,000; $500,000 
D) $400,000; $2,000,000

Question 19

Which of the following is not included in the M1 category?

Accepted Answer

A) Currency 
B) Checkable deposits 
C) Traveler's checks 
D) Savings deposits 
A) Currency 
B) Checkable deposits 
C) Traveler's checks 
D) Savings deposits

Question 20

Ceteris paribus, expanding loans made by the commercial banking system:

Accepted Answer

A) changes the composition, but not the magnitude, of the money supply. 
B) decreases the money supply. 
C) increases the money supply. 
D) would help to stabilize an economy experiencing rapid inflation. 
A) changes the composition, but not the magnitude, of the money supply. 
B) decreases the money supply. 
C) increases the money supply. 
D) would help to stabilize an economy experiencing rapid inflation.

Which of the following is false?

The money supply would tend to fall if:

Uncertainty may cause banks to hold larger excess reserves.Other things being constant, this will:

One point virtually all economists agree on when defining money is that:

Using money as a store of value rather than wheat is:

If you go into a bank which faces a 10% required reserve ratio and borrow $1,000, the bank will ____ in your checking account at the bank.

Money is a more efficient store of value than wheat.

A decrease in savings deposits would M1 and M2.

On a certain date the banking system had $2 billion in excess reserves.The legally required reserve ratio was 12.5 percent.Potentially, if these funds were fully loaned out, the banking system as a whole could increase the money supply by a maximum of:

If banks faced a 100 percent reserve requirement, a $10,000 reduction in banking reserves would decrease the money supply by:

What is a fractional reserve system?

If a person buries his money in his backyard, he is using money as a medium of exchange.

Reserve requirements exist primarily to prevent bank failures.

Bank runs bank reserves and the money supply.

Demand deposits are:

Which of the following is not included in the M1 category?

Ceteris paribus, expanding loans made by the commercial banking system:

The Role and Method of Economics

The Economic Way of Thinking

Supply and Demand

Using Supply and Demand

Market Failure and Public Choice

Production and Costs

Firms in Competitive Markets

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets, Income Distribution, and Poverty

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Economic Growth

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Economics

Filters

Exam 15: Monetary Institutions

Which of the following is false?

The money supply would tend to fall if:

Uncertainty may cause banks to hold larger excess reserves.Other things being constant, this will:

One point virtually all economists agree on when defining money is that:

Using money as a store of value rather than wheat is:

If you go into a bank which faces a 10% required reserve ratio and borrow $1,000, the bank will ____ in your checking account at the bank.

Money is a more efficient store of value than wheat.

A decrease in savings deposits would ____ M1 and ____ M2.

On a certain date the banking system had $2 billion in excess reserves.The legally required reserve ratio was 12.5 percent.Potentially, if these funds were fully loaned out, the banking system as a whole could increase the money supply by a maximum of:

If banks faced a 100 percent reserve requirement, a $10,000 reduction in banking reserves would decrease the money supply by:

What is a fractional reserve system?

If a person buries his money in his backyard, he is using money as a medium of exchange.

Reserve requirements exist primarily to prevent bank failures.

Bank runs ____ bank reserves and ____ the money supply.

Demand deposits are:

Which of the following is not included in the M1 category?

Ceteris paribus, expanding loans made by the commercial banking system:

The Role and Method of Economics

The Economic Way of Thinking

Supply and Demand

Using Supply and Demand

Market Failure and Public Choice

Production and Costs

Firms in Competitive Markets

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets, Income Distribution, and Poverty

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Economic Growth

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Economics

Filters

A decrease in savings deposits would M1 and M2.

Bank runs bank reserves and the money supply.