Question 1

The reserve ratio equals 2 percent. The Fed buys $1 million in U.S. government securities. The most the money supply can increase is

Accepted Answer

A)  $10 million. 
B)  $40 million. 
C)  $50 million. 
D)  $100 million. 
A)  $10 million. 
B)  $40 million. 
C)  $50 million. 
D)  $100 million.

Question 2

Suppose that the reserve ratio is 25%. What is the value of the potential money multiplier?

Accepted Answer

A)  2 
B)  5 
C)  2.5 
D)  4 
A)  2 
B)  5 
C)  2.5 
D)  4

Question 3

In economics, money is

Accepted Answer

A)  another term for income. 
B)  a financial instrument backed by some precious metal such as gold or silver. 
C)  anything that people generally accept in exchange for goods and services. 
D)  whatever the government defines it to be. 
A)  another term for income. 
B)  a financial instrument backed by some precious metal such as gold or silver. 
C)  anything that people generally accept in exchange for goods and services. 
D)  whatever the government defines it to be.

Question 4

All transaction deposits are included in

Accepted Answer

A)  M1 only. 
B)  M2 only. 
C)  both M1 and M2. 
D)  savings balances only. 
A)  M1 only. 
B)  M2 only. 
C)  both M1 and M2. 
D)  savings balances only.

Question 5

Of the items in the following lists, which go from most liquid to least liquid?

Accepted Answer

A)  a checking account, a new vehicle, a six-month certificate of deposit, shares of stock 
B)  a six-month certificate of deposit, shares of stock, a new vehicle, a checking account 
C)  a checking account, a certificate of deposit, shares of stock, a new vehicle 
D)  a new vehicle, a six-month certificate of deposit, shares of stock, a checking account 
A)  a checking account, a new vehicle, a six-month certificate of deposit, shares of stock 
B)  a six-month certificate of deposit, shares of stock, a new vehicle, a checking account 
C)  a checking account, a certificate of deposit, shares of stock, a new vehicle 
D)  a new vehicle, a six-month certificate of deposit, shares of stock, a checking account

Question 6

To the extent that the value of money is less predictable, it becomes

Accepted Answer

A)  more acceptable as a standard of deferred payment. 
B)  more acceptable as a unit of account. 
C)  more acceptable as a store of value. 
D)  less acceptable as a medium of exchange. 
A)  more acceptable as a standard of deferred payment. 
B)  more acceptable as a unit of account. 
C)  more acceptable as a store of value. 
D)  less acceptable as a medium of exchange.

Question 7

In the United States, who determines monetary policy? What is the major tool used to determine monetary policy?

Accepted Answer

The Federal Reserve Bank's Federal Open

Question 8

Small-denomination time deposits are

Accepted Answer

A)  considered part of near money. 
B)  included in the definition of both M1 and M2. 
C)  included in the definition of M1, but not in M2. 
D)  the same as transaction deposits. 
A)  considered part of near money. 
B)  included in the definition of both M1 and M2. 
C)  included in the definition of M1, but not in M2. 
D)  the same as transaction deposits.

Question 9

Any asset that sellers will accept as payment is a(n)

Accepted Answer

A)  medium of exchange. 
B)  unit of accounting. 
C)  store of value. 
D)  standard of deferred payment. 
A)  medium of exchange. 
B)  unit of accounting. 
C)  store of value. 
D)  standard of deferred payment.

Question 10

The Federal Reserve will engage in open market operations when

Accepted Answer

A)  it wants to punish private banks because they are not keeping the required level of reserves. 
B)  it wants to change the money supply. 
C)  it wants to change the reserve ratio. 
D)  it wants to increase the total amount of reserves since government securities are considered a reserve. 
A)  it wants to punish private banks because they are not keeping the required level of reserves. 
B)  it wants to change the money supply. 
C)  it wants to change the reserve ratio. 
D)  it wants to increase the total amount of reserves since government securities are considered a reserve.

Question 11

The Federal Deposit Insurance Corporation insures

Accepted Answer

A)  banks against lawsuits. 
B)  the federal funds market. 
C)  the deposits held in member banks. 
D)  the deposits held in the Fed. 
A)  banks against lawsuits. 
B)  the federal funds market. 
C)  the deposits held in member banks. 
D)  the deposits held in the Fed.

Question 12

A system in which depository institutions hold reserves that are less than the amount of total deposits is

Accepted Answer

A)  a fractional reserve banking system. 
B)  a percentage reserve banking system. 
C)  a ratio reserve banking system. 
D)  a legal reserve banking system. 
A)  a fractional reserve banking system. 
B)  a percentage reserve banking system. 
C)  a ratio reserve banking system. 
D)  a legal reserve banking system.

Question 13

When the Federal Reserve sells a government security to a commercial bank

Accepted Answer

A)  the cash reserves of the commercial bank decrease. 
B)  the net worth of the commercial bank increases. 
C)  the loans of the commercial bank will increase. 
D)  the balance sheet of the commercial bank is thrown off balance. 
A)  the cash reserves of the commercial bank decrease. 
B)  the net worth of the commercial bank increases. 
C)  the loans of the commercial bank will increase. 
D)  the balance sheet of the commercial bank is thrown off balance.

Question 14

Which one of the following is a function of the Federal Reserve System?

Accepted Answer

A)  providing the economy with currency 
B)  providing a system for check clearing 
C)  serving as a lender of last resort 
D)  all of the above 
A)  providing the economy with currency 
B)  providing a system for check clearing 
C)  serving as a lender of last resort 
D)  all of the above

Question 15

The use of money as a medium of exchange I. lowers transaction costs.
II) permits more specialization.

Accepted Answer

A)  I only 
B)  II only 
C)  Neither I nor II 
D)  Both I and II 
A)  I only 
B)  II only 
C)  Neither I nor II 
D)  Both I and II

Question 16

In 2010, President Obama signed into law that made the Federal Reserve as the nation's

Accepted Answer

A)  largest private bank. 
B)  federal income tax collector. 
C)  fiscal policy making unit. 
D)  regulator of systemic financial risk. 
A)  largest private bank. 
B)  federal income tax collector. 
C)  fiscal policy making unit. 
D)  regulator of systemic financial risk.

Question 17

Suppose you are offered a concert ticket in exchange for four hours of your work in your friend's garden. This is an example of

Accepted Answer

A)  money as a medium of exchange. 
B)  money as a store of value. 
C)  barter. 
D)  money as a standard of deferred payment. 
A)  money as a medium of exchange. 
B)  money as a store of value. 
C)  barter. 
D)  money as a standard of deferred payment.

Question 18

Asymmetric information before a transaction takes place generates the problem of

Accepted Answer

A)  flawed bank regulation. 
B)  intermediation. 
C)  adverse selection. 
D)  bank runs. 
A)  flawed bank regulation. 
B)  intermediation. 
C)  adverse selection. 
D)  bank runs.

Question 19

The Fed is the bankers' bank. What functions of the Fed are involved in this role? What are the other important functions of the Fed?

Accepted Answer

The Fed holds reserves of banks, lends t

Question 20

What is liquidity? Why is money the most liquid of all assets? What is the cost of this liquidity?

Accepted Answer

Liquidity is the degree to which an asse

Exam 15: Money, Banking, and Central Banking

The reserve ratio equals 2 percent. The Fed buys $1 million in U.S. government securities. The most the money supply can increase is

Suppose that the reserve ratio is 25%. What is the value of the potential money multiplier?

In economics, money is

All transaction deposits are included in

Of the items in the following lists, which go from most liquid to least liquid?

To the extent that the value of money is less predictable, it becomes

In the United States, who determines monetary policy? What is the major tool used to determine monetary policy?

Small-denomination time deposits are

Any asset that sellers will accept as payment is a(n)

The Federal Reserve will engage in open market operations when

The Federal Deposit Insurance Corporation insures

A system in which depository institutions hold reserves that are less than the amount of total deposits is

When the Federal Reserve sells a government security to a commercial bank

Which one of the following is a function of the Federal Reserve System?

The use of money as a medium of exchange I. lowers transaction costs. II) permits more specialization.

In 2010, President Obama signed into law that made the Federal Reserve as the nation's

Suppose you are offered a concert ticket in exchange for four hours of your work in your friend's garden. This is an example of

Asymmetric information before a transaction takes place generates the problem of

The Fed is the bankers' bank. What functions of the Fed are involved in this role? What are the other important functions of the Fed?

What is liquidity? Why is money the most liquid of all assets? What is the cost of this liquidity?

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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