Question 1

The part of the Federal Reserve System (the Fed) that sets reserve requirements 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 2

The reserve ratio is 20 percent. The Fed buys $1 million in government securities from a bond dealer by transmitting the funds to the dealer's deposit account at Bank A. Bank A makes the maximum loan possible to a construction company, which buys materials with the loan. The check is deposited in Bank B, which loans out all it can to a car dealership. To this point, the money supply has increased by

Accepted Answer

A)  $1 million. 
B)  $1.8 million. 
C)  $2.44 million. 
D)  $3 million. 
A)  $1 million. 
B)  $1.8 million. 
C)  $2.44 million. 
D)  $3 million.

Question 3

The financial institutions in our banking system are all in the business of transferring funds from savers to investors. This process is known as

Accepted Answer

A)  the circular flow. 
B)  direct financing. 
C)  money laundering. 
D)  financial intermediation. 
A)  the circular flow. 
B)  direct financing. 
C)  money laundering. 
D)  financial intermediation.

Question 4

The cost of holding money is

Accepted Answer

A)  transactions accounts. 
B)  the opportunity cost. 
C)  the liquidity approach. 
D)  capital controls. 
A)  transactions accounts. 
B)  the opportunity cost. 
C)  the liquidity approach. 
D)  capital controls.

Question 5

The M2 measure of money is suggested by the ________ approach to measuring money.

Accepted Answer

A)  investment 
B)  liquidity 
C)  transactions 
D)  speculative 
A)  investment 
B)  liquidity 
C)  transactions 
D)  speculative

Question 6

Money in a fiduciary monetary system is backed by

Accepted Answer

A)  a commodity such as gold or silver. 
B)  the public's confidence that the assets will continue to serve as money. 
C)  the intrinsic value of the materials used to make the assets that serve as money. 
D)  assets owned by the government that are intrinsically valuable. 
A)  a commodity such as gold or silver. 
B)  the public's confidence that the assets will continue to serve as money. 
C)  the intrinsic value of the materials used to make the assets that serve as money. 
D)  assets owned by the government that are intrinsically valuable.

Question 7

The direct exchange of goods and services for other goods and services is known as

Accepted Answer

A)  barter. 
B)  purchasing power. 
C)  intermediation. 
D)  remediation. 
A)  barter. 
B)  purchasing power. 
C)  intermediation. 
D)  remediation.

Question 8

U.S. paper currency is issued by the

Accepted Answer

A)  United States Mint. 
B)  Federal Reserve System. 
C)  U.S. Treasury. 
D)  national commercial banks. 
A)  United States Mint. 
B)  Federal Reserve System. 
C)  U.S. Treasury. 
D)  national commercial banks.

Question 9

Asymmetric information is a situation in which

Accepted Answer

A)  information possessed by one party in a transaction is not known by another party. 
B)  information possessed by one party in a transaction is also known by another party. 
C)  the government has information that it chooses to pass along to private firms. 
D)  private firms have information that they choose to pass along to the government. 
A)  information possessed by one party in a transaction is not known by another party. 
B)  information possessed by one party in a transaction is also known by another party. 
C)  the government has information that it chooses to pass along to private firms. 
D)  private firms have information that they choose to pass along to the government.

Question 10

Depository institutions must

Accepted Answer

A)  use and pay for the services of the Federal Reserve System. 
B)  set their interest rates according to schedules established by the Federal Reserve System. 
C)  keep a certain percentage of their deposits as reserves. 
D)  turn over a percentage of their profits to the Federal Reserve System as payment for services provided by the Fed. 
A)  use and pay for the services of the Federal Reserve System. 
B)  set their interest rates according to schedules established by the Federal Reserve System. 
C)  keep a certain percentage of their deposits as reserves. 
D)  turn over a percentage of their profits to the Federal Reserve System as payment for services provided by the Fed.

Question 11

The Federal Open Market Committee (FOMC)

Accepted Answer

A)  determines the tax policy of the government. 
B)  influences the future growth of the money supply. 
C)  oversees all transactions on the stock market. 
D)  lends to the least credit-worthy customers. 
A)  determines the tax policy of the government. 
B)  influences the future growth of the money supply. 
C)  oversees all transactions on the stock market. 
D)  lends to the least credit-worthy customers.

Question 12

Small-denomination time deposits are less than

Accepted Answer

A)  $1 million. 
B)  $100,000. 
C)  $10,000. 
D)  $1,000. 
A)  $1 million. 
B)  $100,000. 
C)  $10,000. 
D)  $1,000.

Question 13

The largest component of M1 is

Accepted Answer

A)  currency and coins. 
B)  traveler's checks. 
C)  transaction deposits. 
D)  time deposit. 
A)  currency and coins. 
B)  traveler's checks. 
C)  transaction deposits. 
D)  time deposit.

Question 14

Which of the following is the most liquid?

Accepted Answer

A)  certificate of deposit 
B)  cash 
C)  checkable and debitable account 
D)  stocks and bonds 
A)  certificate of deposit 
B)  cash 
C)  checkable and debitable account 
D)  stocks and bonds

Question 15

Federal Reserve notes are

Accepted Answer

A)  paper currency. 
B)  savings bonds. 
C)  checks issued by the U.S. government. 
D)  backed by gold. 
A)  paper currency. 
B)  savings bonds. 
C)  checks issued by the U.S. government. 
D)  backed by gold.

Question 16

Traveler's check are

Accepted Answer

A)  part of M1 but not M2. 
B)  part of M2 but not M1. 
C)  part of M1 and M2. 
D)  not part of M1 or M2. 
A)  part of M1 but not M2. 
B)  part of M2 but not M1. 
C)  part of M1 and M2. 
D)  not part of M1 or M2.

Question 17

A fiduciary monetary system ultimately rests on

Accepted Answer

A)  the power of the government. 
B)  the public's confidence in the system. 
C)  the value of the assets backing up the system. 
D)  the difficulty of counterfeiting the currency. 
A)  the power of the government. 
B)  the public's confidence in the system. 
C)  the value of the assets backing up the system. 
D)  the difficulty of counterfeiting the currency.

Question 18

If the money multiplier is 2.5 and the Fed buys $8 million in securities on the open market, transaction deposits could potentially

Accepted Answer

A)  increase by $20 million. 
B)  increase by $25 million. 
C)  decrease by $20 million. 
D)  decrease by $25 million. 
A)  increase by $20 million. 
B)  increase by $25 million. 
C)  decrease by $20 million. 
D)  decrease by $25 million.

Question 19

The level of reserves in the banking system is determined by

Accepted Answer

A)  the American Banking Association. 
B)  the Federal Open Market Committee. 
C)  bond dealers. 
D)  the Treasury Department. 
A)  the American Banking Association. 
B)  the Federal Open Market Committee. 
C)  bond dealers. 
D)  the Treasury Department.

Question 20

If the Federal Reserve buys $500 of government securities when the required reserve ratio is 50 percent, the maximum potential change in the money supply is a(n)

Accepted Answer

A)  increase by $500. 
B)  increase by $1,000. 
C)  decrease by $500. 
D)  decrease by $1,000. 
A)  increase by $500. 
B)  increase by $1,000. 
C)  decrease by $500. 
D)  decrease by $1,000.

Exam 15: Money, Banking, and Central Banking

The part of the Federal Reserve System (the Fed) that sets reserve requirements is

The financial institutions in our banking system are all in the business of transferring funds from savers to investors. This process is known as

The cost of holding money is

The M2 measure of money is suggested by the ________ approach to measuring money.

Money in a fiduciary monetary system is backed by

The direct exchange of goods and services for other goods and services is known as

U.S. paper currency is issued by the

Asymmetric information is a situation in which

Depository institutions must

The Federal Open Market Committee (FOMC)

Small-denomination time deposits are less than

The largest component of M1 is

Which of the following is the most liquid?

Federal Reserve notes are

Traveler's check are

A fiduciary monetary system ultimately rests on

If the money multiplier is 2.5 and the Fed buys $8 million in securities on the open market, transaction deposits could potentially

The level of reserves in the banking system is determined by

If the Federal Reserve buys $500 of government securities when the required reserve ratio is 50 percent, the maximum potential change in the money supply is a(n)

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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