Question 1

If the reserve ratio is 15 percent,and your bank acquires new deposits of $100,000,the maximum it can lend out of these new deposits is

Accepted Answer

A) $15,000 
B) $100,000 
C) $85,000 
D) $150,000 
E) $666,667 
A) $15,000 
B) $100,000 
C) $85,000 
D) $150,000 
E) $666,667

Question 2

Most of the assets of the Fed are held in the form of

Accepted Answer

A) gold 
B) U.S.government securities 
C) loans to member banks 
D) U.S.Treasury deposits 
E) checkable deposits 
A) gold 
B) U.S.government securities 
C) loans to member banks 
D) U.S.Treasury deposits 
E) checkable deposits

Question 3

Asymmetric information in financial markets exists when borrowers know more about their ability to repay loans than lenders do.

Accepted Answer

A) True 
 B)False

Question 4

If the Fed sells U.S.government securities to a member bank and debits that bank's reserve account,

Accepted Answer

A) the Fed's assets decrease 
B) the Fed's assets increase 
C) the Fed's liabilities increase 
D) the member bank's assets decrease 
E) the member bank's liabilities decrease 
A) the Fed's assets decrease 
B) the Fed's assets increase 
C) the Fed's liabilities increase 
D) the member bank's assets decrease 
E) the member bank's liabilities decrease

Question 5

A fall in the discount rate will usually encourage bank borrowing from the Fed and therefore reduce the money supply.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is not included in M2.

Accepted Answer

A) small time deposits 
B) coins,currency,and checkable deposits 
C) savings accounts 
D) gold and silver 
E) money market mutual funds 
A) small time deposits 
B) coins,currency,and checkable deposits 
C) savings accounts 
D) gold and silver 
E) money market mutual funds

Question 7

A single bank can increase the money supply by the increase in its excess reserves times the simple money multiplier.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is not an activity of the Fed?

Accepted Answer

A) making loans to the public 
B) clearing banks' checks 
C) lending funds to the federal government 
D) purchasing U.S.government securities 
E) holding deposits of the U.S.Treasury 
A) making loans to the public 
B) clearing banks' checks 
C) lending funds to the federal government 
D) purchasing U.S.government securities 
E) holding deposits of the U.S.Treasury

Question 9

Suppose that a bank has $8,000 in checkable deposits and the required reserve ratio is 0.2.If actual reserves equal $3,000,then excess reserves equal

Accepted Answer

A) $1,600 
B) $1,400 
C) $2,400 
D) $5,000 
E) zero 
A) $1,600 
B) $1,400 
C) $2,400 
D) $5,000 
E) zero

Question 10

The Federal Reserve's narrowest definition of money is

Accepted Answer

A) M3 
B) M2 
C) M1 
D) near money 
E) money market mutual funds 
A) M3 
B) M2 
C) M1 
D) near money 
E) money market mutual funds

Question 11

The federal funds rate is the interest rate paid when

Accepted Answer

A) the Federal Reserve makes loans to member banks 
B) taxpayers pay overdue taxes 
C) one bank borrows reserves from another bank 
D) banks make loans to the federal government 
E) the federal debt is refinanced 
A) the Federal Reserve makes loans to member banks 
B) taxpayers pay overdue taxes 
C) one bank borrows reserves from another bank 
D) banks make loans to the federal government 
E) the federal debt is refinanced

Question 12

M1,the money supply narrowly defined,consists of coins,paper currency,checkable deposits,travelers checks,and certificates of deposit (CDs).

Accepted Answer

A) True 
 B)False

Question 13

Which of the following are included in the narrowest definition of the money supply?

Accepted Answer

A) cash in bank vaults 
B) savings deposits 
C) money market mutual fund accounts 
D) negotiable certificates of deposit 
E) checkable deposits 
A) cash in bank vaults 
B) savings deposits 
C) money market mutual fund accounts 
D) negotiable certificates of deposit 
E) checkable deposits

Question 14

All of the following are part of M2 except one.Which is the exception?

Accepted Answer

A) money market deposit accounts 
B) coins 
C) travelers checks 
D) large denomination time deposits 
E) savings deposits 
A) money market deposit accounts 
B) coins 
C) travelers checks 
D) large denomination time deposits 
E) savings deposits

Question 15

Through changes in the discount rate,the Federal Reserve can

Accepted Answer

A) force banks to increase reserves but can't force them to decrease reserves 
B) force banks to decrease reserves but can't force them to increase reserves 
C) force either an increase or a decrease in reserves 
D) give banks an incentive to either increase or decrease reserves but cannot force them to change 
E) affect a commercial bank's major customers by lending to them directly 
A) force banks to increase reserves but can't force them to decrease reserves 
B) force banks to decrease reserves but can't force them to increase reserves 
C) force either an increase or a decrease in reserves 
D) give banks an incentive to either increase or decrease reserves but cannot force them to change 
E) affect a commercial bank's major customers by lending to them directly

Question 16

Suppose that the required reserve ratio is 0.2,and the Fed buys $5,000 of U.S.government securities from Bank A,which lends $4,000 and keeps $1,000 in its vault in cash.In this round of the money-creation process,the money supply,as measured by M1,has increased by

Accepted Answer

A) $1,000 
B) $4,000 
C) $5,000 
D) $10,000 
E) $3,000 
A) $1,000 
B) $4,000 
C) $5,000 
D) $10,000 
E) $3,000

Question 17

The largest component of M1 is

Accepted Answer

A) currency 
B) checkable deposits 
C) traveler's checks 
D) money market mutual fund accounts 
E) savings accounts 
A) currency 
B) checkable deposits 
C) traveler's checks 
D) money market mutual fund accounts 
E) savings accounts

Question 18

Banks borrow excess reserves from each other on a day-to-day basis in the

Accepted Answer

A) federal reserve market 
B) stock market 
C) bond market 
D) federal funds market 
E) discount window at the Fed 
A) federal reserve market 
B) stock market 
C) bond market 
D) federal funds market 
E) discount window at the Fed

Question 19

If you know the required reserve ratio and the amount of a bank's deposits,then you know the minimum amount of reserves the bank is required to hold.

Accepted Answer

A) True 
 B)False

Question 20

The ability to convert a store of value into a medium of exchange with little loss of value is known as

Accepted Answer

A) arbitrage 
B) solvency 
C) liquidity 
D) liability 
E) currency 
A) arbitrage 
B) solvency 
C) liquidity 
D) liability 
E) currency

Exam 15: Banking and the Money Supply

If the reserve ratio is 15 percent,and your bank acquires new deposits of $100,000,the maximum it can lend out of these new deposits is

Most of the assets of the Fed are held in the form of

Asymmetric information in financial markets exists when borrowers know more about their ability to repay loans than lenders do.

If the Fed sells U.S.government securities to a member bank and debits that bank's reserve account,

A fall in the discount rate will usually encourage bank borrowing from the Fed and therefore reduce the money supply.

Which of the following is not included in M2.

A single bank can increase the money supply by the increase in its excess reserves times the simple money multiplier.

Which of the following is not an activity of the Fed?

Suppose that a bank has $8,000 in checkable deposits and the required reserve ratio is 0.2.If actual reserves equal $3,000,then excess reserves equal

The Federal Reserve's narrowest definition of money is

The federal funds rate is the interest rate paid when

M1,the money supply narrowly defined,consists of coins,paper currency,checkable deposits,travelers checks,and certificates of deposit (CDs).

Which of the following are included in the narrowest definition of the money supply?

All of the following are part of M2 except one.Which is the exception?

Through changes in the discount rate,the Federal Reserve can

Suppose that the required reserve ratio is 0.2,and the Fed buys $5,000 of U.S.government securities from Bank A,which lends $4,000 and keeps $1,000 in its vault in cash.In this round of the money-creation process,the money supply,as measured by M1,has increased by

The largest component of M1 is

Banks borrow excess reserves from each other on a day-to-day basis in the

If you know the required reserve ratio and the amount of a bank's deposits,then you know the minimum amount of reserves the bank is required to hold.

The ability to convert a store of value into a medium of exchange with little loss of value is known as

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