Question 1

Which of the following is true?

Accepted Answer

A) ​The money supply will tend to fall when the Fed pays a higher interest rate on bank reserves. 
B) ​If banks never wanted to hold excess reserves, decreasing the interest rate the Fed pays on reserves would not increase the money supply. 
C) ​If banks hold excess reserves, the actual money multiplier would be less than potential money expansion. 
D) ​All of the above are true 
A) ​The money supply will tend to fall when the Fed pays a higher interest rate on bank reserves. 
B) ​If banks never wanted to hold excess reserves, decreasing the interest rate the Fed pays on reserves would not increase the money supply. 
C) ​If banks hold excess reserves, the actual money multiplier would be less than potential money expansion. 
D) ​All of the above are true

Question 2

A commercial bank has $1,000,000 of outstanding demand deposits and actual reserves of $300,000. If the required reserve ratio is 20 percent, what is the maximum amount of new loans the bank can extend?

Accepted Answer

A) ​zero 
B) ​$100,000 
C) ​$300,000 
D) ​$700,000 
A) ​zero 
B) ​$100,000 
C) ​$300,000 
D) ​$700,000

Question 3

A depositor cannot directly write checks against:

Accepted Answer

A) ​demand deposits. 
B) ​transaction deposits. 
C) ​nontransaction deposits. 
D) ​money market mutual fund accounts. 
A) ​demand deposits. 
B) ​transaction deposits. 
C) ​nontransaction deposits. 
D) ​money market mutual fund accounts.

Question 4

The process of money creation can be reversed:

Accepted Answer

A) ​when a person pays a loan back to a bank. 
B) ​when the government passes a law against it. 
C) ​when customers begin to deposit money into banks. 
D) ​when loans are extended to customers. 
A) ​when a person pays a loan back to a bank. 
B) ​when the government passes a law against it. 
C) ​when customers begin to deposit money into banks. 
D) ​when loans are extended to customers.

Question 5

With the invention of banking, one important aspect of money was that:

Accepted Answer

A) ​individuals have no discretion over the money supply. 
B) ​government lost all control over the money supply. 
C) ​banks have some discretion over the money supply. 
D) ​banks have full control over the money supply. 
A) ​individuals have no discretion over the money supply. 
B) ​government lost all control over the money supply. 
C) ​banks have some discretion over the money supply. 
D) ​banks have full control over the money supply.

Question 6

A reserve requirement of 12.5 percent implies a potential money multiplier of:

Accepted Answer

A) ​5. 
B) ​8. 
C) ​12.5. 
D) ​112.5. 
A) ​5. 
B) ​8. 
C) ​12.5. 
D) ​112.5.

Question 7

Which of the following is the Fed's most common way to change the money supply?

Accepted Answer

A) ​Moral suasion 
B) ​The discount rate 
C) ​The required reserve rate 
D) ​Open market operations 
A) ​Moral suasion 
B) ​The discount rate 
C) ​The required reserve rate 
D) ​Open market operations

Question 8

The primary benefit of monetary exchange compared to barter exchange is:

Accepted Answer

A) ​the possibility of tracking trade for tax purposes. 
B) ​increased time devoted to finding trade partners. 
C) ​increased time devoted to shopping for what we want. 
D) ​increased efficiency in arranging transactions. 
A) ​the possibility of tracking trade for tax purposes. 
B) ​increased time devoted to finding trade partners. 
C) ​increased time devoted to shopping for what we want. 
D) ​increased efficiency in arranging transactions.

Question 9

What is fiat money? Why is fiat money important in the United States today?

Accepted Answer

Fiat (from the Latin for "let it be done

Question 10

If the reserve requirement was 15% and a bank customer makes a deposit of $500, the initial result would be:

Accepted Answer

A) ​a $75 increase in required reserves and a $425 increase in excess reserves. 
B) ​a $425 increase in required reserves and a $75 increase in excess reserves. 
C) ​a $75 increase in required reserves and a $3,333 increase in excess reserves. 
D) ​a $3,333 increase in required reserves and a $425 increase in excess reserves. 
A) ​a $75 increase in required reserves and a $425 increase in excess reserves. 
B) ​a $425 increase in required reserves and a $75 increase in excess reserves. 
C) ​a $75 increase in required reserves and a $3,333 increase in excess reserves. 
D) ​a $3,333 increase in required reserves and a $425 increase in excess reserves.

Question 11

What can the Fed do to decrease the supply of money?

Accepted Answer

A) ​open market purchases of government bonds 
B) ​increase reserve requirements 
C) ​decrease the discount rate 
D) ​any of the above 
A) ​open market purchases of government bonds 
B) ​increase reserve requirements 
C) ​decrease the discount rate 
D) ​any of the above

Question 12

Exhibit 17-2
​
A bank's assets consist of $1,000,000 in total reserves, $2,100,000 in loans, and a building worth $1,200,000. Its liabilities and capital consist of $3,000,000 in demand deposits and $1,300,000 in capital.
-Refer to Exhibit 17-2. If the required reserve ratio is 10 percent, what is the level of the bank's excess reserves? How much could it loan out as a result?

Accepted Answer

A) ​$700,000; $700,000 
B) ​$700,000; $7,000,000 
C) ​$300,000; $300,000 
D) ​$300,000; $3,000,000 
A) ​$700,000; $700,000 
B) ​$700,000; $7,000,000 
C) ​$300,000; $300,000 
D) ​$300,000; $3,000,000

Question 13

Decisions regarding purchases and sales of securities by the Fed are made by:

Accepted Answer

A) ​FDIC. 
B) ​Discount Committee. 
C) ​Federal Open Market Committee. 
D) ​Federal Funds Committee. 
A) ​FDIC. 
B) ​Discount Committee. 
C) ​Federal Open Market Committee. 
D) ​Federal Funds Committee.

Question 14

The more widely held and accepted credit cards are, the more money people would be expected to hold in the form of currency.

Accepted Answer

A) True 
 B)False

Question 15

Explain Gresham's Law.

Accepted Answer

When there are two forms of money availa

Question 16

If you deposit $20,000 in cash into a demand deposit account at a bank that faces an 18 percent required reserve ratio the result will be:

Accepted Answer

A) ​the bank will add $3,600 to its excess reserves. 
B) ​the bank will add $16,400 to its excess reserves. 
C) ​the bank will add $16,400 to its total reserves. 
D) ​the bank will add $20,000 to its excess reserves. 
A) ​the bank will add $3,600 to its excess reserves. 
B) ​the bank will add $16,400 to its excess reserves. 
C) ​the bank will add $16,400 to its total reserves. 
D) ​the bank will add $20,000 to its excess reserves.

Question 17

A decrease in currency in circulation combined with an equal increase in savings account deposits would:

Accepted Answer

A) ​increase both M1 and M2. 
B) ​increase M1 but have no effect on M2. 
C) ​decrease both M1 and M2. 
D) ​decrease M1 but have no effect on M2. 
A) ​increase both M1 and M2. 
B) ​increase M1 but have no effect on M2. 
C) ​decrease both M1 and M2. 
D) ​decrease M1 but have no effect on M2.

Question 18

A bank may hold secondary reserves, such as U.S. government securities because:

Accepted Answer

A) ​they pay higher interest rates than deposits at the Fed, and are easily converted into cash assets. 
B) ​they pay higher interest rates than deposits at the Fed, even though they are hard to convert assets. 
C) ​they pay lower interest rates than deposits at the Fed, but are more easily converted into cash assets. 
D) ​they pay lower interest rates than deposits at the Fed, and are hard to convert into cash assets. 
A) ​they pay higher interest rates than deposits at the Fed, and are easily converted into cash assets. 
B) ​they pay higher interest rates than deposits at the Fed, even though they are hard to convert assets. 
C) ​they pay lower interest rates than deposits at the Fed, but are more easily converted into cash assets. 
D) ​they pay lower interest rates than deposits at the Fed, and are hard to convert into cash assets.

Question 19

Why is the change in reserve requirement not frequently used to control the supply of money?

Accepted Answer

Though reserve requirement change can be

Question 20

Exhibit 17-1
​
A bank's assets consist of $500,000 in total reserves, $1,600,000 in loans, and a building worth $1,200,000. Its liabilities and capital consist of $2,000,000 in demand deposits and $1,300,000 in capital.
-Refer to Exhibit 17-1. If the required reserve ratio is 20 percent, what is the level of the bank's excess reserves? How much could it loan out as a result?

Accepted Answer

A) ​$100,000; $100,000 
B) ​$100,000; $400,000 
C) ​$400,000; $500,000 
D) ​$400,000; $2,000,000 
A) ​$100,000; $100,000 
B) ​$100,000; $400,000 
C) ​$400,000; $500,000 
D) ​$400,000; $2,000,000

Which of the following is true?

A commercial bank has $1,000,000 of outstanding demand deposits and actual reserves of $300,000. If the required reserve ratio is 20 percent, what is the maximum amount of new loans the bank can extend?

A depositor cannot directly write checks against:

The process of money creation can be reversed:

With the invention of banking, one important aspect of money was that:

A reserve requirement of 12.5 percent implies a potential money multiplier of:

Which of the following is the Fed's most common way to change the money supply?

The primary benefit of monetary exchange compared to barter exchange is:

What is fiat money? Why is fiat money important in the United States today?

If the reserve requirement was 15% and a bank customer makes a deposit of $500, the initial result would be:

What can the Fed do to decrease the supply of money?

Decisions regarding purchases and sales of securities by the Fed are made by:

The more widely held and accepted credit cards are, the more money people would be expected to hold in the form of currency.

Explain Gresham's Law.

If you deposit $20,000 in cash into a demand deposit account at a bank that faces an 18 percent required reserve ratio the result will be:

A decrease in currency in circulation combined with an equal increase in savings account deposits would:

A bank may hold secondary reserves, such as U.S. government securities because:

Why is the change in reserve requirement not frequently used to control the supply of money?

The Role and Method of Economics

Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Market in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Filters

Exam 17: Income, Poverty and Health Care

Which of the following is true?

A commercial bank has $1,000,000 of outstanding demand deposits and actual reserves of $300,000. If the required reserve ratio is 20 percent, what is the maximum amount of new loans the bank can extend?

A depositor cannot directly write checks against:

The process of money creation can be reversed:

With the invention of banking, one important aspect of money was that:

A reserve requirement of 12.5 percent implies a potential money multiplier of:

Which of the following is the Fed's most common way to change the money supply?

The primary benefit of monetary exchange compared to barter exchange is:

What is fiat money? Why is fiat money important in the United States today?

If the reserve requirement was 15% and a bank customer makes a deposit of $500, the initial result would be:

What can the Fed do to decrease the supply of money?

Decisions regarding purchases and sales of securities by the Fed are made by:

The more widely held and accepted credit cards are, the more money people would be expected to hold in the form of currency.

Explain Gresham's Law.

If you deposit $20,000 in cash into a demand deposit account at a bank that faces an 18 percent required reserve ratio the result will be:

A decrease in currency in circulation combined with an equal increase in savings account deposits would:

A bank may hold secondary reserves, such as U.S. government securities because:

Why is the change in reserve requirement not frequently used to control the supply of money?

The Role and Method of Economics

Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Market in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Filters