Question 1

Cigarettes served as money in some prisoner of war (POW) camps during World War II. Given this, we would expect to observe

Accepted Answer

A)  no one ever smoking a cigarette. 
B)  people usually resorting to barter rather than using cigarettes as money. 
C)  prices of other goods expressed in terms of cigarettes. 
D)  only government-issued cigarettes being accepted as money. 
A)  no one ever smoking a cigarette. 
B)  people usually resorting to barter rather than using cigarettes as money. 
C)  prices of other goods expressed in terms of cigarettes. 
D)  only government-issued cigarettes being accepted as money.

Question 2

Initially, the reserve ratio is 10 percent. Now banks decide they want an additional 10 percent of deposits as reserves. There are no currency drains. If the Fed buys $1 million of U.S. government securities, the money supply will

Accepted Answer

A)  not change because of the excess reserves banks keep on hand. 
B)  increase by $1 million. 
C)  increase by $5 million. 
D)  increase by $10 million. 
A)  not change because of the excess reserves banks keep on hand. 
B)  increase by $1 million. 
C)  increase by $5 million. 
D)  increase by $10 million.

Question 3

The reserve ratio is 10 percent. If the Fed buys $1 million of U.S. government securities from a bond dealer by transmitting the funds to the dealer's deposit account at Bank ABC, then

Accepted Answer

A)  Bank ABC can make no additional loans. 
B)  Bank ABC can make additional loans up to $900,000. 
C)  Bank ABC can make additional loans up to $1 million. 
D)  Bank ABC cannot make any additional loans, but the system as a whole can make additional loans up to $1 million. 
A)  Bank ABC can make no additional loans. 
B)  Bank ABC can make additional loans up to $900,000. 
C)  Bank ABC can make additional loans up to $1 million. 
D)  Bank ABC cannot make any additional loans, but the system as a whole can make additional loans up to $1 million.

Question 4

A decrease in the reserve ratio will

Accepted Answer

A)  cause the money supply to decrease. 
B)  cause the money supply to increase. 
C)  not affect the money supply. 
D)  decrease the money multiplier. 
A)  cause the money supply to decrease. 
B)  cause the money supply to increase. 
C)  not affect the money supply. 
D)  decrease the money multiplier.

Question 5

An individual who desires the most liquid asset possible will hold

Accepted Answer

A)  currency. 
B)  a savings account. 
C)  checkable deposits at a bank. 
D)  U.S. government bonds. 
A)  currency. 
B)  a savings account. 
C)  checkable deposits at a bank. 
D)  U.S. government bonds.

Question 6

Regarding the nation's money supply, the Federal Reserve

Accepted Answer

A)  has no ability to influence its magnitude or its rate of growth. 
B)  precisely sets the amount of money in circulation in consultation with the Congress. 
C)  has a major impact on its rate of growth. 
D)  gives the U.S. Treasury the authority to print as much as it wishes. 
A)  has no ability to influence its magnitude or its rate of growth. 
B)  precisely sets the amount of money in circulation in consultation with the Congress. 
C)  has a major impact on its rate of growth. 
D)  gives the U.S. Treasury the authority to print as much as it wishes.

Question 7

Which of the following would most likely NOT be included in the liquidity approach to defining the money supply?

Accepted Answer

A)  savings deposits 
B)  money market mutual fund accounts 
C)  government bonds 
D)  traveler's checks 
A)  savings deposits 
B)  money market mutual fund accounts 
C)  government bonds 
D)  traveler's checks

Question 8

A system in which money is issued by the government and its value is based uniquely on the public's faith that the currency represents command over goods and services is the

Accepted Answer

A)  transactions approach. 
B)  gold standard. 
C)  fiduciary monetary system. 
D)  barter system. 
A)  transactions approach. 
B)  gold standard. 
C)  fiduciary monetary system. 
D)  barter system.

Question 9

As a unit of account, money is used

Accepted Answer

A)  to define prices of all other goods. 
B)  to pay off future debts. 
C)  to hold purchasing power over time. 
D)  to exchange for goods and services. 
A)  to define prices of all other goods. 
B)  to pay off future debts. 
C)  to hold purchasing power over time. 
D)  to exchange for goods and services.

Question 10

The property of money that allows for the settling of debts that mature in the future is

Accepted Answer

A)  liquidity. 
B)  acceptability. 
C)  store of value. 
D)  standard of deferred payment. 
A)  liquidity. 
B)  acceptability. 
C)  store of value. 
D)  standard of deferred payment.

Question 11

The function that banks perform by obtaining funds from households, businesses, and governments and lending these funds to other households, businesses, and governments is known as

Accepted Answer

A)  financial intermediation. 
B)  lending intermediation. 
C)  fiscal intermediation. 
D)  liquidity intermediation. 
A)  financial intermediation. 
B)  lending intermediation. 
C)  fiscal intermediation. 
D)  liquidity intermediation.

Question 12

The initial impact of the Fed's open market sale of government securities by the Federal Reserve is

Accepted Answer

A)  an increase in the money supply by some multiple of the dollar volume of the sale. 
B)  an increase in commercial bank deposits at the Fed. 
C)  a fall in the money supply by some multiple of the dollar volume of the sale. 
D)  a reduction of the commercial banking system's reserve deposits at the Fed. 
A)  an increase in the money supply by some multiple of the dollar volume of the sale. 
B)  an increase in commercial bank deposits at the Fed. 
C)  a fall in the money supply by some multiple of the dollar volume of the sale. 
D)  a reduction of the commercial banking system's reserve deposits at the Fed.

Question 13

The part of the Federal Reserve System (the Fed) that holds the reserve balances of depository institutions is

Accepted Answer

A)  the Federal Open Market Committee. 
B)  the Federal Advisory Committee. 
C)  the Federal Reserve district banks. 
D)  the Board of Governors. 
A)  the Federal Open Market Committee. 
B)  the Federal Advisory Committee. 
C)  the Federal Reserve district banks. 
D)  the Board of Governors.

Question 14

A checkable and debitable banking account is

Accepted Answer

A)  a liability to a commercial bank. 
B)  an asset to a commercial bank. 
C)  a liability to the household or firm that has the account. 
D)  an asset for the Federal Reserve System. 
A)  a liability to a commercial bank. 
B)  an asset to a commercial bank. 
C)  a liability to the household or firm that has the account. 
D)  an asset for the Federal Reserve System.

Question 15

When a bank sells a bond to the Fed

Accepted Answer

A)  its liabilities decrease. 
B)  its liabilities increase. 
C)  its reserves initially decrease. 
D)  its reserves initially increase. 
A)  its liabilities decrease. 
B)  its liabilities increase. 
C)  its reserves initially decrease. 
D)  its reserves initially increase.

Question 16

When money is accepted as payment in a market transaction, it is functioning as a

Accepted Answer

A)  store of value. 
B)  unit of accounting. 
C)  medium of exchange. 
D)  unit of investment. 
A)  store of value. 
B)  unit of accounting. 
C)  medium of exchange. 
D)  unit of investment.

Question 17

All of the following are functions of the Federal Reserve System EXCEPT

Accepted Answer

A)  supplying the economy with fiduciary currency. 
B)  providing a system of check collection and clearing. 
C)  acting as the government's fiscal agent. 
D)  lending funds to risky customers denied credit by commercial banks. 
A)  supplying the economy with fiduciary currency. 
B)  providing a system of check collection and clearing. 
C)  acting as the government's fiscal agent. 
D)  lending funds to risky customers denied credit by commercial banks.

Question 18

If banks engage in fractional reserve banking, it means that

Accepted Answer

A)  they never run short of currency. 
B)  they hold less than 100 percent of their deposits as reserves. 
C)  a fraction of their legal reserves are held as top-grade government securities. 
D)  they do not hold any excess reserves. 
A)  they never run short of currency. 
B)  they hold less than 100 percent of their deposits as reserves. 
C)  a fraction of their legal reserves are held as top-grade government securities. 
D)  they do not hold any excess reserves.

Question 19

A central bank is

Accepted Answer

A)  the largest bank in the country. 
B)  the same as the government. 
C)  a banker's bank. 
D)  an international bank. 
A)  the largest bank in the country. 
B)  the same as the government. 
C)  a banker's bank. 
D)  an international bank.

Question 20

To expand the money supply, the Fed should

Accepted Answer

A)  buy U.S. government securities. 
B)  sell U.S. government securities. 
C)  raise the required reserve ration. 
D)  cut taxes. 
A)  buy U.S. government securities. 
B)  sell U.S. government securities. 
C)  raise the required reserve ration. 
D)  cut taxes.

Exam 15: Money, Banking, and Central Banking

Cigarettes served as money in some prisoner of war (POW) camps during World War II. Given this, we would expect to observe

Initially, the reserve ratio is 10 percent. Now banks decide they want an additional 10 percent of deposits as reserves. There are no currency drains. If the Fed buys $1 million of U.S. government securities, the money supply will

The reserve ratio is 10 percent. If the Fed buys $1 million of U.S. government securities from a bond dealer by transmitting the funds to the dealer's deposit account at Bank ABC, then

A decrease in the reserve ratio will

An individual who desires the most liquid asset possible will hold

Regarding the nation's money supply, the Federal Reserve

Which of the following would most likely NOT be included in the liquidity approach to defining the money supply?

A system in which money is issued by the government and its value is based uniquely on the public's faith that the currency represents command over goods and services is the

As a unit of account, money is used

The property of money that allows for the settling of debts that mature in the future is

The function that banks perform by obtaining funds from households, businesses, and governments and lending these funds to other households, businesses, and governments is known as

The initial impact of the Fed's open market sale of government securities by the Federal Reserve is

The part of the Federal Reserve System (the Fed) that holds the reserve balances of depository institutions is

A checkable and debitable banking account is

When a bank sells a bond to the Fed

When money is accepted as payment in a market transaction, it is functioning as a

All of the following are functions of the Federal Reserve System EXCEPT

If banks engage in fractional reserve banking, it means that

A central bank is

To expand the money supply, the Fed should

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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