Question 1

Narrowly defined,the M1 money supply consists primarily of

Accepted Answer

A) coins 
B) currency 
C) cash held by banks 
D) checkable deposits 
E) money market mutual fund accounts 
A) coins 
B) currency 
C) cash held by banks 
D) checkable deposits 
E) money market mutual fund accounts

Question 2

Suppose the Fed wishes to make only a small change in the money supply.Which of its policy tools is it most likely to use?

Accepted Answer

A) the prime interest rate 
B) loans made to the public 
C) Fed Fund Rate 
D) open market operations 
E) the required reserve ratio 
A) the prime interest rate 
B) loans made to the public 
C) Fed Fund Rate 
D) open market operations 
E) the required reserve ratio

Question 3

M1 includes currency held in bank vaults.

Accepted Answer

A) True 
 B)False

Question 4

The Federal Reserve's narrowest definition of money is

Accepted Answer

A) M3 
B) M2 
C) currency in the hands of the public plus checkable deposits plus traveller's checks 
D) near money 
E) money market mutual funds 
A) M3 
B) M2 
C) currency in the hands of the public plus checkable deposits plus traveller's checks 
D) near money 
E) money market mutual funds

Question 5

The Fed can reduce the money supply by

Accepted Answer

A) buying securities from a bank 
B) buying securities from a private citizen 
C) selling securities 
D) issuing new Federal Reserve notes 
E) saving failing banks 
A) buying securities from a bank 
B) buying securities from a private citizen 
C) selling securities 
D) issuing new Federal Reserve notes 
E) saving failing banks

Question 6

Lowering the discount rate is a way to expand the money supply because

Accepted Answer

A) it encourages banks to borrow from the Fed so they can more easily accommodate their customers' needs for loans 
B) it encourages business customers to borrow directly from the Fed 
C) a lower discount rate reduces the amount of reserves banks are required to keep 
D) a lower discount rate automatically reduces excess reserves 
E) it encourages banks to sell U.S.government securities and increase their cash reserves 
A) it encourages banks to borrow from the Fed so they can more easily accommodate their customers' needs for loans 
B) it encourages business customers to borrow directly from the Fed 
C) a lower discount rate reduces the amount of reserves banks are required to keep 
D) a lower discount rate automatically reduces excess reserves 
E) it encourages banks to sell U.S.government securities and increase their cash reserves

Question 7

Open market operations involve

Accepted Answer

A) opening the discount window 
B) buying stocks in the stock market 
C) buying and selling government securities in the open market 
D) opening new markets for commodities 
E) selling failed banks to other banks 
A) opening the discount window 
B) buying stocks in the stock market 
C) buying and selling government securities in the open market 
D) opening new markets for commodities 
E) selling failed banks to other banks

Question 8

Which of the following are the two forms in which a bank can legally hold reserves?

Accepted Answer

A) gold and coins 
B) gold and checks 
C) cash in its vault and reserve deposits at the Fed 
D) gold and non-interest-bearing reserve deposits at the Fed 
E) U.S.government securities and coins 
A) gold and coins 
B) gold and checks 
C) cash in its vault and reserve deposits at the Fed 
D) gold and non-interest-bearing reserve deposits at the Fed 
E) U.S.government securities and coins

Question 9

Which of the following is the largest component of assets of the Federal Reserve?

Accepted Answer

A) U.S.Treasury deposits 
B) U.S.government securities 
C) foreign exchange 
D) time deposits 
E) checkable deposits 
A) U.S.Treasury deposits 
B) U.S.government securities 
C) foreign exchange 
D) time deposits 
E) checkable deposits

Question 10

The M1 money supply is defined as

Accepted Answer

A) one-dollar bills 
B) currency and coins held by the nonbank public,checkable deposits,and traveler's checks 
C) M3 minus M2 
D) all currency and checkable deposits 
E) coins and currency held by the nonbank public 
A) one-dollar bills 
B) currency and coins held by the nonbank public,checkable deposits,and traveler's checks 
C) M3 minus M2 
D) all currency and checkable deposits 
E) coins and currency held by the nonbank public

Question 11

If the required reserve ratio is 10 percent and a bank receives a new deposit for $100,000,then the

Accepted Answer

A) bank must keep $5,000 in excess reserves 
B) bank's required reserves increase by $45,000 
C) bank's liabilities increase by $100,000 
D) bank can increase its loans by up to $50,000 
E) bank can increase its loans by up to $400,000 
A) bank must keep $5,000 in excess reserves 
B) bank's required reserves increase by $45,000 
C) bank's liabilities increase by $100,000 
D) bank can increase its loans by up to $50,000 
E) bank can increase its loans by up to $400,000

Question 12

If you returned a $5 Federal Reserve note to the Fed,you could receive

Accepted Answer

A) $5 in silver 
B) $5 in gold 
C) 5 one-dollar bills 
D) 10 one-dollar bills 
E) a small gold bar 
A) $5 in silver 
B) $5 in gold 
C) 5 one-dollar bills 
D) 10 one-dollar bills 
E) a small gold bar

Question 13

The largest component of the Federal Reserve's liabilities is in the form of

Accepted Answer

A) government securities 
B) Federal Reserve notes 
C) U.S.Treasury deposits 
D) bank deposits 
E) coins 
A) government securities 
B) Federal Reserve notes 
C) U.S.Treasury deposits 
D) bank deposits 
E) coins

Question 14

On a bank's balance sheet,

Accepted Answer

A) assets are always less than liabilities 
B) assets equal liabilities plus net worth 
C) assets equal liabilities minus net worth 
D) liabilities equal assets plus net worth 
E) assets are always larger than liabilities plus net worth 
A) assets are always less than liabilities 
B) assets equal liabilities plus net worth 
C) assets equal liabilities minus net worth 
D) liabilities equal assets plus net worth 
E) assets are always larger than liabilities plus net worth

Question 15

Liquidity contributes to the bank's achievement of all of the following except one.Which is the exception?

Accepted Answer

A) confidence of its depositors 
B) income of the bank 
C) ability to pay funds out to depositors on demand 
D) flexibility in responding to investment opportunities 
E) ability to make an immediate loan to a valued customer 
A) confidence of its depositors 
B) income of the bank 
C) ability to pay funds out to depositors on demand 
D) flexibility in responding to investment opportunities 
E) ability to make an immediate loan to a valued customer

Question 16

If the reserve requirement is constant,it is impossible for a bank's excess reserves to fall if its total reserves have not fallen.

Accepted Answer

A) True 
 B)False

Question 17

For banks,increasing liquidity usually means increasing profitability as well.

Accepted Answer

A) True 
 B)False

Question 18

Exhibit 14-2
Exhibit 14-2
$$\begin{array}{l}
\text { COUNTYBANK}\
\begin{array} {lll } 
 &\text { assets}&&\text {Liabilities and Net Worth }\
\hline \text {cash }&&\text {+\$ 1,000 Checkable deposits }&&+\$1,000\
\end{array}
\end{array}$$
-Refer to Exhibit 14-2.What kind of transaction just took place at Countybank?

Accepted Answer

A) A customer withdrew $1,000 from her checking account. 
B) A customer deposited a $1,000 check in her savings account. 
C) A customer deposited $1,000 in her checking account. 
D) The bank purchased a security with $1,000 cash. 
E) The bank borrowed $1,000 from the Federal Reserve. 
A) A customer withdrew $1,000 from her checking account. 
B) A customer deposited a $1,000 check in her savings account. 
C) A customer deposited $1,000 in her checking account. 
D) The bank purchased a security with $1,000 cash. 
E) The bank borrowed $1,000 from the Federal Reserve.

Question 19

Which of the following is not one of the procedures the Fed uses to change the money supply?

Accepted Answer

A) buying government securities 
B) selling government securities 
C) lending reserves through the discount window 
D) changing the required reserve ratio 
E) extending loans to the public 
A) buying government securities 
B) selling government securities 
C) lending reserves through the discount window 
D) changing the required reserve ratio 
E) extending loans to the public

Question 20

Suppose that a bank has $100 million in checkable deposits and the required reserve ratio is 0.1.The bank has $5 million in actual reserves,so excess reserves are

Accepted Answer

A) $-10 million 
B) $-5 million 
C) 0 
D) $5 million 
E) $10 million 
A) $-10 million 
B) $-5 million 
C) 0 
D) $5 million 
E) $10 million

Exam 15: Banking and the Money Supply

Narrowly defined,the M1 money supply consists primarily of

Suppose the Fed wishes to make only a small change in the money supply.Which of its policy tools is it most likely to use?

M1 includes currency held in bank vaults.

The Federal Reserve's narrowest definition of money is

The Fed can reduce the money supply by

Lowering the discount rate is a way to expand the money supply because

Open market operations involve

Which of the following are the two forms in which a bank can legally hold reserves?

Which of the following is the largest component of assets of the Federal Reserve?

The M1 money supply is defined as

If the required reserve ratio is 10 percent and a bank receives a new deposit for $100,000,then the

If you returned a $5 Federal Reserve note to the Fed,you could receive

The largest component of the Federal Reserve's liabilities is in the form of

On a bank's balance sheet,

Liquidity contributes to the bank's achievement of all of the following except one.Which is the exception?

If the reserve requirement is constant,it is impossible for a bank's excess reserves to fall if its total reserves have not fallen.

For banks,increasing liquidity usually means increasing profitability as well.

Exhibit 14-2 Exhibit 14-2 COUNTYBANK assets Liabilities and Net Worth cash +\ 1,000 Checkable deposits + \1 ,000 -Refer to Exhibit 14-2.What kind of transaction just took place at Countybank?

Which of the following is not one of the procedures the Fed uses to change the money supply?

Suppose that a bank has $100 million in checkable deposits and the required reserve ratio is 0.1.The bank has $5 million in actual reserves,so excess reserves are

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

Filters