Question 1

Changing reserve requirements is the most important method the Federal Reserve uses to change the supply of money.

Accepted Answer

A) True 
 B)False

Question 2

What is the initial impact on reserves of a $2,000 deposit if the reserve ratio is 10%?

Accepted Answer

A) ​$200 in excess reserves and $1,800 in required reserves 
B) ​$1,800 in excess reserves and $200 in required reserves 
C) ​$2,00 in excess reserves and zero required reserves 
D) ​zero excess reserves and $2,000 in required reserves 
A) ​$200 in excess reserves and $1,800 in required reserves 
B) ​$1,800 in excess reserves and $200 in required reserves 
C) ​$2,00 in excess reserves and zero required reserves 
D) ​zero excess reserves and $2,000 in required reserves

Question 3

If a bank receiving a new deposit of $200,000 would be able, as a result, to increase their lending by at most $150,000, then the required reserve ratio equals:

Accepted Answer

A) ​4%. 
B) ​25%. 
C) ​40%. 
D) ​50%. 
A) ​4%. 
B) ​25%. 
C) ​40%. 
D) ​50%.

Question 4

Name four of the six primary functions of the central bank.

Accepted Answer

​
The six primary functions of a central

Question 5

Money is a more efficient store of value than wheat, especially when there is not rapid inflation.

Accepted Answer

A) True 
 B)False

Question 6

Say the required reserve ratio is 20 percent. If you pay back a loan of $10,000 a bank had previously made to you, the act of paying back the loan:

Accepted Answer

A) ​adds $2,000 in bank reserves. 
B) ​adds $10,000 in bank reserves. 
C) ​eliminates $2,000 in bank reserves. 
D) ​eliminates $10,000 in bank reserves. 
A) ​adds $2,000 in bank reserves. 
B) ​adds $10,000 in bank reserves. 
C) ​eliminates $2,000 in bank reserves. 
D) ​eliminates $10,000 in bank reserves.

Question 7

New loans create money directly, but they also create excess reserves in other banks, which leads to still further increases in both loans and the supply of money.

Accepted Answer

A) True 
 B)False

Question 8

Suppose you found $10,000 hidden under a rock and deposited it in a demand deposit account at your bank. If the reserve requirement was 10 percent, your deposit would initially add ____ to total demand deposits and over time increase the money supply by a maximum of ____.

Accepted Answer

A) ​$10,000; $100,000 
B) ​$10,000; $90,000 
C) ​$1,000; $90,000 
D) ​$1,000; $9,000 
A) ​$10,000; $100,000 
B) ​$10,000; $90,000 
C) ​$1,000; $90,000 
D) ​$1,000; $9,000

Question 9

One uniquely American aspect of central banking is that:

Accepted Answer

A) ​the United States has 12 central banks rather than one. 
B) ​the Federal Reserve is a private institution with no governmental supervision. 
C) ​the dual banking system created two parallel central banks. 
D) ​the U.S.Treasury runs the Federal Reserve as an extension of the Executive Branch. 
A) ​the United States has 12 central banks rather than one. 
B) ​the Federal Reserve is a private institution with no governmental supervision. 
C) ​the dual banking system created two parallel central banks. 
D) ​the U.S.Treasury runs the Federal Reserve as an extension of the Executive Branch.

Question 10

When a person pays a loan back to a bank by writing a check for the amount due, demand deposits decline and the money supply is reduced.

Accepted Answer

A) True 
 B)False

Question 11

When the Fed buys a U.S. government security:

Accepted Answer

A) ​the volume of loans issued by the banking system increases and investment will tend to increase. 
B) ​the volume of loans issued by the banking system increases and investment will tend to decrease. 
C) ​the volume of loans issued by the banking system decreases and investment will tend to increase. 
D) ​the volume of loans issued by the banking system decreases and investment will tend to decrease. 
A) ​the volume of loans issued by the banking system increases and investment will tend to increase. 
B) ​the volume of loans issued by the banking system increases and investment will tend to decrease. 
C) ​the volume of loans issued by the banking system decreases and investment will tend to increase. 
D) ​the volume of loans issued by the banking system decreases and investment will tend to decrease.

Question 12

A combination of a decrease in the discount rate and an increase in reserve requirements would:

Accepted Answer

A) ​increase the money supply. 
B) ​decrease the money supply. 
C) ​leave the money supply unchanged. 
D) ​have an indeterminate effect on the money supply. 
A) ​increase the money supply. 
B) ​decrease the money supply. 
C) ​leave the money supply unchanged. 
D) ​have an indeterminate effect on the money supply.

Question 13

The largest asset item for most banks is:

Accepted Answer

A) ​cash. 
B) ​bonds. 
C) ​loans. 
D) ​federal cash reserves. 
A) ​cash. 
B) ​bonds. 
C) ​loans. 
D) ​federal cash reserves.

Question 14

If a bank had demand deposits of $80 million and it faced a 25 percent required reserve ratio, it would be required to have how many reserves?

Accepted Answer

A) ​$20 million 
B) ​$40 million 
C) ​$60 million 
D) ​$80 million 
A) ​$20 million 
B) ​$40 million 
C) ​$60 million 
D) ​$80 million

Question 15

If the Fed sells a U.S. government bond to a bank, what is the effect on the money supply?

Accepted Answer

A) ​It will increase. 
B) ​It will not change. 
C) ​It will decrease. 
D) ​It will be uncertain. 
A) ​It will increase. 
B) ​It will not change. 
C) ​It will decrease. 
D) ​It will be uncertain.

Question 16

When is a particular bank in a position to make new loans?

Accepted Answer

A) ​When required reserves equal actual reserves. 
B) ​When required reserves exceed actual reserves. 
C) ​When required reserves are less than actual reserves. 
D) ​all of the above 
A) ​When required reserves equal actual reserves. 
B) ​When required reserves exceed actual reserves. 
C) ​When required reserves are less than actual reserves. 
D) ​all of the above

Question 17

First Safety, a commercial bank, has $6,000,000 of outstanding demand deposits and actual reserves of $1,700,000. If the reserve ratio is 25 percent, what is the maximum amount of new loans the bank can extend?

Accepted Answer

A) ​$100,000 
B) ​$425,000 
C) ​$200,000 
D) ​$1,500,000 
A) ​$100,000 
B) ​$425,000 
C) ​$200,000 
D) ​$1,500,000

Question 18

The money supply would tend to fall if:

Accepted Answer

A) ​banks decide to keep more excess reserves and people convert more of their demand deposits to currency. 
B) ​banks decide to keep more excess reserves and people deposit currency in their demand deposit accounts. 
C) ​banks decide to keep fewer excess reserves and people deposit currency in their demand deposit accounts. 
D) ​banks decide to keep fewer excess reserves and people convert more of their demand deposits to currency. 
A) ​banks decide to keep more excess reserves and people convert more of their demand deposits to currency. 
B) ​banks decide to keep more excess reserves and people deposit currency in their demand deposit accounts. 
C) ​banks decide to keep fewer excess reserves and people deposit currency in their demand deposit accounts. 
D) ​banks decide to keep fewer excess reserves and people convert more of their demand deposits to currency.

Question 19

In the United States, monetary policy is the responsibility of the Federal Reserve Board of Governors and the Federal Open Market Committee.

Accepted Answer

A) True 
 B)False

Question 20

A combination of Fed purchases of government securities and an increase in reserve requirements would:

Accepted Answer

A) ​increase the money supply. 
B) ​decrease the money supply. 
C) ​leave the money supply unchanged. 
D) ​have an indeterminate effect on the money supply. 
A) ​increase the money supply. 
B) ​decrease the money supply. 
C) ​leave the money supply unchanged. 
D) ​have an indeterminate effect on the money supply.

Exam 17: Income, Poverty and Health Care

Changing reserve requirements is the most important method the Federal Reserve uses to change the supply of money.

What is the initial impact on reserves of a $2,000 deposit if the reserve ratio is 10%?

If a bank receiving a new deposit of $200,000 would be able, as a result, to increase their lending by at most $150,000, then the required reserve ratio equals:

Name four of the six primary functions of the central bank.

Money is a more efficient store of value than wheat, especially when there is not rapid inflation.

Say the required reserve ratio is 20 percent. If you pay back a loan of $10,000 a bank had previously made to you, the act of paying back the loan:

New loans create money directly, but they also create excess reserves in other banks, which leads to still further increases in both loans and the supply of money.

Suppose you found $10,000 hidden under a rock and deposited it in a demand deposit account at your bank. If the reserve requirement was 10 percent, your deposit would initially add ____ to total demand deposits and over time increase the money supply by a maximum of ____.

One uniquely American aspect of central banking is that:

When a person pays a loan back to a bank by writing a check for the amount due, demand deposits decline and the money supply is reduced.

When the Fed buys a U.S. government security:

A combination of a decrease in the discount rate and an increase in reserve requirements would:

The largest asset item for most banks is:

If a bank had demand deposits of $80 million and it faced a 25 percent required reserve ratio, it would be required to have how many reserves?

If the Fed sells a U.S. government bond to a bank, what is the effect on the money supply?

When is a particular bank in a position to make new loans?

First Safety, a commercial bank, has $6,000,000 of outstanding demand deposits and actual reserves of $1,700,000. If the reserve ratio is 25 percent, what is the maximum amount of new loans the bank can extend?

The money supply would tend to fall if:

In the United States, monetary policy is the responsibility of the Federal Reserve Board of Governors and the Federal Open Market Committee.

A combination of Fed purchases of government securities and an increase in reserve requirements would:

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

Suppose you found $10,000 hidden under a rock and deposited it in a demand deposit account at your bank. If the reserve requirement was 10 percent, your deposit would initially add to total demand deposits and over time increase the money supply by a maximum of .