Question 1

The chance of encountering fake U.S.currency abroad is only about

Accepted Answer

A) 1 in 10 
B) 1 in 100 
C) 1 in 1,000 
D) 1 in 10,000 
E) 1 in 1,000,000 
A) 1 in 10 
B) 1 in 100 
C) 1 in 1,000 
D) 1 in 10,000 
E) 1 in 1,000,000

Question 2

By reducing the required reserve ratio,the Fed can not only create excess reserves but also

Accepted Answer

A) increase mortgage interest rates 
B) reduce borrowing by corporations 
C) increase the safety of bank deposits 
D) reduce the risk of bank failure 
E) increase the money multiplier 
A) increase mortgage interest rates 
B) reduce borrowing by corporations 
C) increase the safety of bank deposits 
D) reduce the risk of bank failure 
E) increase the money multiplier

Question 3

The simple money multiplier is defined as

Accepted Answer

A) the reciprocal of the interest rate 
B) 1/required reserve ratio 
C) excess reserves plus required reserves 
D) the reciprocal of the federal funds rate 
E) the reciprocal of the discount rate 
A) the reciprocal of the interest rate 
B) 1/required reserve ratio 
C) excess reserves plus required reserves 
D) the reciprocal of the federal funds rate 
E) the reciprocal of the discount rate

Question 4

Congressional control over the Fed is

Accepted Answer

A) substantial because it can cut off necessary appropriations 
B) limited because the Fed is not dependent on Congress for the funds to support its operations 
C) substantial because the members of the Board of Governors can be replaced every four years 
D) substantial because Congress has created a Super Board to oversee the Fed 
E) limited because members of the Fed Board are appointed for life 
A) substantial because it can cut off necessary appropriations 
B) limited because the Fed is not dependent on Congress for the funds to support its operations 
C) substantial because the members of the Board of Governors can be replaced every four years 
D) substantial because Congress has created a Super Board to oversee the Fed 
E) limited because members of the Fed Board are appointed for life

Question 5

Which of the following is not a liability to a bank?

Accepted Answer

A) checkable deposits 
B) NOW accounts 
C) net worth 
D) borrowings from the Fed 
E) deposits with the Fed 
A) checkable deposits 
B) NOW accounts 
C) net worth 
D) borrowings from the Fed 
E) deposits with the Fed

Question 6

Demand deposits are

Accepted Answer

A) long-term,high-interest savings accounts 
B) accounts into which banks can require depositors make regular deposits 
C) checkable deposits held by commercial banks that earn no interest 
D) negotiable order of withdrawal accounts 
E) loans from the Fed 
A) long-term,high-interest savings accounts 
B) accounts into which banks can require depositors make regular deposits 
C) checkable deposits held by commercial banks that earn no interest 
D) negotiable order of withdrawal accounts 
E) loans from the Fed

Question 7

If a bank has $1 million in checkable deposits and the required reserve ratio is 0.4,then the bank can lend

Accepted Answer

A) $400,000 
B) $1 million 
C) no more than $600,000 
D) no less than $300,000 
E) $500,000 
A) $400,000 
B) $1 million 
C) no more than $600,000 
D) no less than $300,000 
E) $500,000

Question 8

Net Worth on a bank's balance sheet is

Accepted Answer

A) equal to assets plus liabilities 
B) sometimes called the owners' equity 
C) equal to assets minus reserves 
D) the same thing as net profits 
E) on the asset side of the balance sheet 
A) equal to assets plus liabilities 
B) sometimes called the owners' equity 
C) equal to assets minus reserves 
D) the same thing as net profits 
E) on the asset side of the balance sheet

Question 9

In the federal funds market,

Accepted Answer

A) banks make loans to the Fed 
B) banks make short-term loans to other banks 
C) banks make long-term loans to other banks 
D) the Fed makes short-term loans to commercial banks 
E) the Fed makes long-term loans to commercial banks 
A) banks make loans to the Fed 
B) banks make short-term loans to other banks 
C) banks make long-term loans to other banks 
D) the Fed makes short-term loans to commercial banks 
E) the Fed makes long-term loans to commercial banks

Question 10

In financial markets,asymmetric information exists when

Accepted Answer

A) one party to a transaction has more knowledge of relevant details than the other does 
B) both parties to a transaction have less knowledge of relevant details than the Fed does 
C) lenders know more about the borrowers than the borrowers know about themselves 
D) all parties to a transaction have exactly the same information 
E) all the information which the parties have is inaccurate 
A) one party to a transaction has more knowledge of relevant details than the other does 
B) both parties to a transaction have less knowledge of relevant details than the Fed does 
C) lenders know more about the borrowers than the borrowers know about themselves 
D) all parties to a transaction have exactly the same information 
E) all the information which the parties have is inaccurate

Question 11

Suppose the reserve requirement is 15 percent.Which of the following is true?

Accepted Answer

A) The simple money multiplier is 15. 
B) The simple money multiplier is 1/15. 
C) The simple money multiplier is 30,000. 
D) The simple money multiplier is 1/30,000. 
E) The simple money multiplier is 1/0.15. 
A) The simple money multiplier is 15. 
B) The simple money multiplier is 1/15. 
C) The simple money multiplier is 30,000. 
D) The simple money multiplier is 1/30,000. 
E) The simple money multiplier is 1/0.15.

Question 12

The immediate effect of a member bank's sale of U.S.government securities to the Fed is a(n)

Accepted Answer

A) increase in that bank's required reserves 
B) decrease in that bank's required reserves 
C) increase in that bank's excess reserves 
D) decrease in that bank's excess reserves 
E) decrease in the Fed's assets 
A) increase in that bank's required reserves 
B) decrease in that bank's required reserves 
C) increase in that bank's excess reserves 
D) decrease in that bank's excess reserves 
E) decrease in the Fed's assets

Question 13

Approximately 75 percent of the liabilities of the Fed are in the form of Federal Reserve notes.

Accepted Answer

A) True 
 B)False

Question 14

When a member bank sells U.S.government securities to the Fed,that bank's assets and liabilities both increase.

Accepted Answer

A) True 
 B)False

Question 15

Katie Sierra is willing to pay a higher interest rate.With no income verification,she can apply for a type of loan commonly called

Accepted Answer

A) lion loans 
B) liars loans 
C) phantom loans 
D) vaporware loans 
E) prime-rate loans 
A) lion loans 
B) liars loans 
C) phantom loans 
D) vaporware loans 
E) prime-rate loans

Question 16

When a check is cleared against Bank A after being deposited at Bank B,

Accepted Answer

A) both Bank A's and Bank B's liabilities increase 
B) both Bank A's and Bank B's liabilities decrease 
C) Bank A's liabilities increase and Bank B's liabilities decrease 
D) Bank A's liabilities decrease and Bank B's liabilities increase 
E) there is no change in either bank's liabilities 
A) both Bank A's and Bank B's liabilities increase 
B) both Bank A's and Bank B's liabilities decrease 
C) Bank A's liabilities increase and Bank B's liabilities decrease 
D) Bank A's liabilities decrease and Bank B's liabilities increase 
E) there is no change in either bank's liabilities

Question 17

Of the following,which is not included in the narrowest definition of money,M1

Accepted Answer

A) coins and currency in bank vaults 
B) currency in the hands of the nonbank public 
C) coins in the hands of the nonbank public 
D) traveler's checks 
E) checkable deposits 
A) coins and currency in bank vaults 
B) currency in the hands of the nonbank public 
C) coins in the hands of the nonbank public 
D) traveler's checks 
E) checkable deposits

Question 18

Banks in need of reserves can borrow from the Fed or in the federal funds market.

Accepted Answer

A) True 
 B)False

Question 19

The extent of money expansion will be

Accepted Answer

A) greater if banks hold on to excess reserves 
B) greater if private individuals hold on to cash 
C) greater if banks hold on to excess reserves but less if private individuals hold on to cash 
D) less if banks hold on to excess reserves but greater if private individuals hold on to cash 
E) less if banks hold on to excess reserves or private individuals hold on to cash 
A) greater if banks hold on to excess reserves 
B) greater if private individuals hold on to cash 
C) greater if banks hold on to excess reserves but less if private individuals hold on to cash 
D) less if banks hold on to excess reserves but greater if private individuals hold on to cash 
E) less if banks hold on to excess reserves or private individuals hold on to cash

Question 20

If an increase in excess reserves of $10 million increases checkable deposits in the banking system by a maximum of $200 million,the required reserve ratio is

Accepted Answer

A) 0 
B) 5 percent 
C) 10 percent 
D) 20 percent 
E) 2 percent 
A) 0 
B) 5 percent 
C) 10 percent 
D) 20 percent 
E) 2 percent

Exam 15: Banking and the Money Supply

The chance of encountering fake U.S.currency abroad is only about

By reducing the required reserve ratio,the Fed can not only create excess reserves but also

The simple money multiplier is defined as

Congressional control over the Fed is

Which of the following is not a liability to a bank?

Demand deposits are

If a bank has $1 million in checkable deposits and the required reserve ratio is 0.4,then the bank can lend

Net Worth on a bank's balance sheet is

In the federal funds market,

In financial markets,asymmetric information exists when

Suppose the reserve requirement is 15 percent.Which of the following is true?

The immediate effect of a member bank's sale of U.S.government securities to the Fed is a(n)

Approximately 75 percent of the liabilities of the Fed are in the form of Federal Reserve notes.

When a member bank sells U.S.government securities to the Fed,that bank's assets and liabilities both increase.

Katie Sierra is willing to pay a higher interest rate.With no income verification,she can apply for a type of loan commonly called

When a check is cleared against Bank A after being deposited at Bank B,

Of the following,which is not included in the narrowest definition of money,M1

Banks in need of reserves can borrow from the Fed or in the federal funds market.

The extent of money expansion will be

If an increase in excess reserves of $10 million increases checkable deposits in the banking system by a maximum of $200 million,the required reserve ratio is

The Art and Science of Economic Analysis

Economic Tools and Economics Systems

Economic Decision Makers

Demand, supply, and Markets

Introduction to Macroeconomics

Tracking the Useconomy

Unemployment and Inflation

Productivity and Growth

Aaggregate Expenditure and Aggregate Demand

Baggregate Expenditure and Aggregate Demand

Aggregate Supply

Fiscal Policy

Federal Budgets and Public Policy

Money and the Financial System

Monetary Theory and Policy

Macro Policy Debate: Active or Passive

International Trade

Externalities and the Environment

International Finance

Economic Development

understanding Graphs

National Income Accounts

The Algebra of Demand-Side Equilibrium

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