Question 1

A conversion of checking account balances into savings account balances would ____ M1 and ____ M2.

Accepted Answer

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

Question 2

Which of the following is included in both M1 and M2?

Accepted Answer

A) traveler's checks 
B) checkable deposits 
C) currency 
D) all of the above. 
A) traveler's checks 
B) checkable deposits 
C) currency 
D) all of the above.

Question 3

Can bankers create money?

Accepted Answer

A) No, they do not have this power. 
B) No, unless they have a special charter which permits it. 
C) Yes, through multiple deposit creation. 
D) Yes, by printing checks for customers. 
E) Uncertain--economists are divided on this question. 
A) No, they do not have this power. 
B) No, unless they have a special charter which permits it. 
C) Yes, through multiple deposit creation. 
D) Yes, by printing checks for customers. 
E) Uncertain--economists are divided on this question.

Question 4

Which of the following is false?

Accepted Answer

A) Whenever excess reserves appear, banks will convert the non-interest earning reserves into other interest-earning assets. 
B) Credit cards are not included in any measures of the money supply. 
C) Paper currency is the only form of legal tender. 
D) Economists are not completely in agreement on what constitutes money for all purposes. 
E) M1 does not include savings accounts. 
A) Whenever excess reserves appear, banks will convert the non-interest earning reserves into other interest-earning assets. 
B) Credit cards are not included in any measures of the money supply. 
C) Paper currency is the only form of legal tender. 
D) Economists are not completely in agreement on what constitutes money for all purposes. 
E) M1 does not include savings accounts.

Question 5

Assume that the reserve requirement is 20 percent.First National Bank has vault cash and deposits with the Fed of $80 million, loans and securities of $320 million, and demand deposits of $400 million.First National:

Accepted Answer

A) could extend a maximum of $40 million of additional loans. 
B) could extend a maximum of $20 million of additional loans. 
C) could extend a maximum of $10 million of additional loans. 
D) is not in a position to extend additional loans. 
A) could extend a maximum of $40 million of additional loans. 
B) could extend a maximum of $20 million of additional loans. 
C) could extend a maximum of $10 million of additional loans. 
D) is not in a position to extend additional loans.

Question 6

If the required reserve ratio was increased, then:

Accepted Answer

A) the money supply would tend to decrease, but the outstanding loans of banks would tend to increase. 
B) both the money supply and the outstanding loans of banks would tend to decrease. 
C) the money supply would tend to increase, but the outstanding loans of banks would tend to decrease. 
D) both the money supply and the outstanding loans of banks would tend to increase. 
A) the money supply would tend to decrease, but the outstanding loans of banks would tend to increase. 
B) both the money supply and the outstanding loans of banks would tend to decrease. 
C) the money supply would tend to increase, but the outstanding loans of banks would tend to decrease. 
D) both the money supply and the outstanding loans of banks would tend to increase.

Question 7

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 money could the excess reserves be used to create in the banking system as a result?

Accepted Answer

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

Question 8

If the required reserve ratio was 25 percent, after depositing $16,000 in currency in a demand deposit account at a bank that previously had zero excess reserves:

Accepted Answer

A) it could now issue $64,000 of new loans. 
B) it could now issue $16,000 of new loans. 
C) it could now issue $12,000 of new loans. 
D) it could now issue $4,000 of new loans. 
E) it would be unable to issue any new loans. 
A) it could now issue $64,000 of new loans. 
B) it could now issue $16,000 of new loans. 
C) it could now issue $12,000 of new loans. 
D) it could now issue $4,000 of new loans. 
E) it would be unable to issue any new loans.

Question 9

Even though the use of checks lower transaction costs when compared to the use of paper currency, it is unlikely that the use of paper or metallic currency will disappear entirely.Why?

Accepted Answer

In small transactions, the gains in safe

Question 10

What are money market mutual funds?

Accepted Answer

Money market mutual funds are interest-e

Question 11

If a bank had $200 million in demand deposits and faced a 40 percent reserve requirement, it would be required to hold ____ as reserves and could have a total amount of loans issued up to ____.

Accepted Answer

A) $120 million; $80 million 
B) $80 million; $120 million 
C) $200 million; $500 million 
D) $500 million; $200 million 
A) $120 million; $80 million 
B) $80 million; $120 million 
C) $200 million; $500 million 
D) $500 million; $200 million

Question 12

If the government requires banks to keep 100 percent of their deposits on reserve, a $1,000 deposit in a checking account would lead to a $100,000 increase in the money supply.

Accepted Answer

A) True 
 B)False

Question 13

A bank may hold secondary reserves, such as U.S.government securities because:

Accepted Answer

A) they pay higher interest rates than deposits at the Fed, and are easily converted into cash assets. 
B) they pay higher interest rates than deposits at the Fed, even though they are hard to convert assets. 
C) they pay lower interest rates than deposits at the Fed, but are more easily converted into cash assets. 
D) they pay lower interest rates than deposits at the Fed, and are hard to convert into cash assets. 
A) they pay higher interest rates than deposits at the Fed, and are easily converted into cash assets. 
B) they pay higher interest rates than deposits at the Fed, even though they are hard to convert assets. 
C) they pay lower interest rates than deposits at the Fed, but are more easily converted into cash assets. 
D) they pay lower interest rates than deposits at the Fed, and are hard to convert into cash assets.

Question 14

If a bank had demand deposits of $50 million and it faced a 25 percent required reserve ratio, it would be able to have a maximum amount of how many dollars worth of loans?

Accepted Answer

A) $50 million 
B) $37.5 million 
C) $25 million 
D) $12.5 million 
A) $50 million 
B) $37.5 million 
C) $25 million 
D) $12.5 million

Question 15

A reserve requirement of 25 percent would mean that each dollar of reserves could support ____ of demand deposits.

Accepted Answer

A) $0.25 
B) $0.75 
C) $1.33 
D) $4.00 
E) $25.00 
A) $0.25 
B) $0.75 
C) $1.33 
D) $4.00 
E) $25.00

Question 16

The problem of double coincidence of wants is associated with:

Accepted Answer

A) paper money. 
B) insurance. 
C) credit cards. 
D) barter system. 
A) paper money. 
B) insurance. 
C) credit cards. 
D) barter system.

Question 17

Money functioning as a medium of exchange results in an increase in transactions costs.

Accepted Answer

A) True 
 B)False

Question 18

In general, a bank that held excess reserves would earn lower profits as a result.

Accepted Answer

A) True 
 B)False

Question 19

An increase in the excess reserves banks want to hold, together with people taking currency out of their demand deposit accounts, would:

Accepted Answer

A) increase the money supply. 
B) decrease the money supply. 
C) leave the money supply unchanged. 
D) have an indeterminate effect on the money supply. 
A) increase the money supply. 
B) decrease the money supply. 
C) leave the money supply unchanged. 
D) have an indeterminate effect on the money supply.

Question 20

Why is the money multiplier considered to be a potential multiplier rather than an indication of exactly how much multiplication should be expected?

Accepted Answer

Some banks may not choose to loan out al

A conversion of checking account balances into savings account balances would M1 and M2.

Which of the following is included in both M1 and M2?

Can bankers create money?

Which of the following is false?

Assume that the reserve requirement is 20 percent.First National Bank has vault cash and deposits with the Fed of $80 million, loans and securities of $320 million, and demand deposits of $400 million.First National:

If the required reserve ratio was increased, then:

If the required reserve ratio was 25 percent, after depositing $16,000 in currency in a demand deposit account at a bank that previously had zero excess reserves:

Even though the use of checks lower transaction costs when compared to the use of paper currency, it is unlikely that the use of paper or metallic currency will disappear entirely.Why?

What are money market mutual funds?

If a bank had $200 million in demand deposits and faced a 40 percent reserve requirement, it would be required to hold as reserves and could have a total amount of loans issued up to .

If the government requires banks to keep 100 percent of their deposits on reserve, a $1,000 deposit in a checking account would lead to a $100,000 increase in the money supply.

A bank may hold secondary reserves, such as U.S.government securities because:

If a bank had demand deposits of $50 million and it faced a 25 percent required reserve ratio, it would be able to have a maximum amount of how many dollars worth of loans?

A reserve requirement of 25 percent would mean that each dollar of reserves could support ____ of demand deposits.

The problem of double coincidence of wants is associated with:

Money functioning as a medium of exchange results in an increase in transactions costs.

In general, a bank that held excess reserves would earn lower profits as a result.

An increase in the excess reserves banks want to hold, together with people taking currency out of their demand deposit accounts, would:

Why is the money multiplier considered to be a potential multiplier rather than an indication of exactly how much multiplication should be expected?

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

A conversion of checking account balances into savings account balances would ____ M1 and ____ M2.

Which of the following is included in both M1 and M2?

Can bankers create money?

Which of the following is false?

Assume that the reserve requirement is 20 percent.First National Bank has vault cash and deposits with the Fed of $80 million, loans and securities of $320 million, and demand deposits of $400 million.First National:

If the required reserve ratio was increased, then:

If the required reserve ratio was 25 percent, after depositing $16,000 in currency in a demand deposit account at a bank that previously had zero excess reserves:

Even though the use of checks lower transaction costs when compared to the use of paper currency, it is unlikely that the use of paper or metallic currency will disappear entirely.Why?

What are money market mutual funds?

If a bank had $200 million in demand deposits and faced a 40 percent reserve requirement, it would be required to hold ____ as reserves and could have a total amount of loans issued up to ____.

If the government requires banks to keep 100 percent of their deposits on reserve, a $1,000 deposit in a checking account would lead to a $100,000 increase in the money supply.

A bank may hold secondary reserves, such as U.S.government securities because:

If a bank had demand deposits of $50 million and it faced a 25 percent required reserve ratio, it would be able to have a maximum amount of how many dollars worth of loans?

A reserve requirement of 25 percent would mean that each dollar of reserves could support ____ of demand deposits.

The problem of double coincidence of wants is associated with:

Money functioning as a medium of exchange results in an increase in transactions costs.

In general, a bank that held excess reserves would earn lower profits as a result.

An increase in the excess reserves banks want to hold, together with people taking currency out of their demand deposit accounts, would:

Why is the money multiplier considered to be a potential multiplier rather than an indication of exactly how much multiplication should be expected?

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 conversion of checking account balances into savings account balances would M1 and M2.

If a bank had $200 million in demand deposits and faced a 40 percent reserve requirement, it would be required to hold as reserves and could have a total amount of loans issued up to .