Question 1

If the required reserve ratio was increased, then:

Accepted Answer

A) ​the money supply would tend to decrease, but the outstanding loans of banks would tend to increase. 
B) ​both the money supply and the outstanding loans of banks would tend to decrease. 
C) ​the money supply would tend to increase, but the outstanding loans of banks would tend to decrease. 
D) ​both the money supply and the outstanding loans of banks would tend to increase. 
A) ​the money supply would tend to decrease, but the outstanding loans of banks would tend to increase. 
B) ​both the money supply and the outstanding loans of banks would tend to decrease. 
C) ​the money supply would tend to increase, but the outstanding loans of banks would tend to decrease. 
D) ​both the money supply and the outstanding loans of banks would tend to increase.

Question 2

A reserve requirement of 40 percent would mean that each dollar of reserves could support ____ of demand deposits.

Accepted Answer

A) ​$0.40 
B) ​$1.60 
C) ​$2.50 
D) ​$4.00 
A) ​$0.40 
B) ​$1.60 
C) ​$2.50 
D) ​$4.00

Question 3

Which of the following was a cause of the savings and loan crisis that occurred in the 1980s?

Accepted Answer

A) ​the increasing rates of inflation throughout the 1970s 
B) ​savings and loans investing in high-risk ventures including real estate projects 
C) ​government deregulation in the 1980s 
D) ​all of the above 
A) ​the increasing rates of inflation throughout the 1970s 
B) ​savings and loans investing in high-risk ventures including real estate projects 
C) ​government deregulation in the 1980s 
D) ​all of the above

Question 4

Which of the following is false?

Accepted Answer

A) ​The Fed controls the supply of money, even though privately owned commercial banks actually create and destroy money by making loans. 
B) ​With a 10% required reserve ratio, a $10,000 cash deposit in a bank would result in an increase in the bank's excess reserves by $1000. 
C) ​With a 10% required reserve ratio, a $1,000 bond purchase by the Fed directly creates $1,000 in money in the form of bank deposits, and indirectly permits up to $9,000 in additional money to be created through the multiple expansion in bank deposits. 
D) ​When the Fed sells government bonds, it will tend to cause a multiple contraction of bank deposits. 
A) ​The Fed controls the supply of money, even though privately owned commercial banks actually create and destroy money by making loans. 
B) ​With a 10% required reserve ratio, a $10,000 cash deposit in a bank would result in an increase in the bank's excess reserves by $1000. 
C) ​With a 10% required reserve ratio, a $1,000 bond purchase by the Fed directly creates $1,000 in money in the form of bank deposits, and indirectly permits up to $9,000 in additional money to be created through the multiple expansion in bank deposits. 
D) ​When the Fed sells government bonds, it will tend to cause a multiple contraction of bank deposits.

Question 5

An increase in the required reserve ratio, say from 10 to 12 percent would:

Accepted Answer

A) ​decrease the money supply by a substantial amount. 
B) ​decrease the money supply by a small amount. 
C) ​increase the money supply by a substantial amount. 
D) ​increase the money supply by a small amount. 
A) ​decrease the money supply by a substantial amount. 
B) ​decrease the money supply by a small amount. 
C) ​increase the money supply by a substantial amount. 
D) ​increase the money supply by a small amount.

Question 6

Explain how the Fed's structure provides a high degree of independence from the U.S. government. What are some of the benefits of this independence?

Accepted Answer

The members of the Board of Governors ar

Question 7

Demand deposits are:

Accepted Answer

A) ​assets of banks, liabilities of depositors. 
B) ​liabilities of banks, assets of depositors. 
C) ​assets of banks and their depositors. 
D) ​liabilities of banks and their depositors. 
A) ​assets of banks, liabilities of depositors. 
B) ​liabilities of banks, assets of depositors. 
C) ​assets of banks and their depositors. 
D) ​liabilities of banks and their depositors.

Question 8

Which of the following is an example of money serving as a medium of exchange?

Accepted Answer

A) ​John buys a cup of coffee and a roll at the faculty dining room. 
B) ​Steve puts a five-dollar bill in his money belt. 
C) ​Scott deposits cash into a savings account. 
D) ​Roland puts his coins into a piggy bank. 
A) ​John buys a cup of coffee and a roll at the faculty dining room. 
B) ​Steve puts a five-dollar bill in his money belt. 
C) ​Scott deposits cash into a savings account. 
D) ​Roland puts his coins into a piggy bank.

Question 9

If a bank has $1 million in demand deposits, $350,000 in reserves, and faces a 30 percent reserve requirement, the amount of money that a bank could initially create by loaning out their excess reserves is:

Accepted Answer

A) ​$50,000. 
B) ​$300,000. 
C) ​$350,000. 
D) ​$700,000. 
A) ​$50,000. 
B) ​$300,000. 
C) ​$350,000. 
D) ​$700,000.

Question 10

If banks faced a 100 percent reserve requirement, the money multiplier would be:

Accepted Answer

A) ​0.1. 
B) ​1.0. 
C) ​10. 
D) ​100. 
A) ​0.1. 
B) ​1.0. 
C) ​10. 
D) ​100.

Question 11

A bank's capital is:

Accepted Answer

A) ​the value of all its assets, including loans. 
B) ​the value of all its assets, excluding loans. 
C) ​the value of its physical plant, including buildings, computers, and automatic teller machines. 
D) ​the difference between its assets and liabilities. 
A) ​the value of all its assets, including loans. 
B) ​the value of all its assets, excluding loans. 
C) ​the value of its physical plant, including buildings, computers, and automatic teller machines. 
D) ​the difference between its assets and liabilities.

Question 12

Deposit insurance and government's willingness to help distressed banks have virtually eliminated the potential for serious bank runs.

Accepted Answer

A) True 
 B)False

Question 13

A bank's actual reserves can be calculated by:

Accepted Answer

A) ​multiplying its demand deposits by the required reserve ratio. 
B) ​multiplying its excess reserves by the required reserve ratio. 
C) ​subtracting its required reserves from its excess reserves. 
D) ​adding its required reserves and its excess reserves. 
A) ​multiplying its demand deposits by the required reserve ratio. 
B) ​multiplying its excess reserves by the required reserve ratio. 
C) ​subtracting its required reserves from its excess reserves. 
D) ​adding its required reserves and its excess reserves.

Question 14

Which of the following combinations would unambiguously increase the supply of money?

Accepted Answer

A) ​The Fed pays a higher interest rate on bank reserves and increases the required reserve ratio. 
B) ​The Fed conducts an open market purchase of government securities and raises the discount rate. 
C) ​The Fed pays a higher interest rate on bank reserves and conducts an open market purchase of government securities. 
D) ​All of the above would produce conflicting effects on the supply of money 
A) ​The Fed pays a higher interest rate on bank reserves and increases the required reserve ratio. 
B) ​The Fed conducts an open market purchase of government securities and raises the discount rate. 
C) ​The Fed pays a higher interest rate on bank reserves and conducts an open market purchase of government securities. 
D) ​All of the above would produce conflicting effects on the supply of money

Question 15

A reserve requirement of 10% implies a money multiplier of 10 and a reserve requirement of 15% implies a money multiplier of 15.

Accepted Answer

A) True 
 B)False

Question 16

The major objective of the Federal Reserve System is to:

Accepted Answer

A) ​make substantial profits for its member banks. 
B) ​help in generating stabilization policies for the economy. 
C) ​distribute paper money and coins to banks and retail stores. 
D) ​prevent closure (failure) of individual member banks. 
A) ​make substantial profits for its member banks. 
B) ​help in generating stabilization policies for the economy. 
C) ​distribute paper money and coins to banks and retail stores. 
D) ​prevent closure (failure) of individual member banks.

Question 17

Assume that the reserve requirement is 20 percent. First National Bank has vault cash and deposits with the Fed of $80 million, loans and securities of $320 million, and demand deposits of $400 million. First National:

Accepted Answer

A) ​could extend a maximum of $40 million of additional loans. 
B) ​could extend a maximum of $20 million of additional loans. 
C) ​could extend a maximum of $10 million of additional loans. 
D) ​is not in a position to extend additional loans. 
A) ​could extend a maximum of $40 million of additional loans. 
B) ​could extend a maximum of $20 million of additional loans. 
C) ​could extend a maximum of $10 million of additional loans. 
D) ​is not in a position to extend additional loans.

Question 18

Loans are:

Accepted Answer

A) ​assets of banks, liabilities of borrowers. 
B) ​liabilities of banks, assets of borrowers. 
C) ​assets of banks and their borrowers. 
D) ​liabilities of banks and their borrowers. 
A) ​assets of banks, liabilities of borrowers. 
B) ​liabilities of banks, assets of borrowers. 
C) ​assets of banks and their borrowers. 
D) ​liabilities of banks and their borrowers.

Question 19

How is money destroyed in the banking system?

Accepted Answer

The process of money creation can be rev

Question 20

Other things constant, a decrease in credit card balances would ____ M1 and ____ M2.

Accepted Answer

A) ​increase; increase. 
B) ​not change; increase. 
C) ​decrease; decrease. 
D) ​not change; not change. 
A) ​increase; increase. 
B) ​not change; increase. 
C) ​decrease; decrease. 
D) ​not change; not change.

Exam 17: Income, Poverty and Health Care

If the required reserve ratio was increased, then:

A reserve requirement of 40 percent would mean that each dollar of reserves could support ____ of demand deposits.

Which of the following was a cause of the savings and loan crisis that occurred in the 1980s?

Which of the following is false?

An increase in the required reserve ratio, say from 10 to 12 percent would:

Explain how the Fed's structure provides a high degree of independence from the U.S. government. What are some of the benefits of this independence?

Demand deposits are:

Which of the following is an example of money serving as a medium of exchange?

If a bank has $1 million in demand deposits, $350,000 in reserves, and faces a 30 percent reserve requirement, the amount of money that a bank could initially create by loaning out their excess reserves is:

If banks faced a 100 percent reserve requirement, the money multiplier would be:

A bank's capital is:

Deposit insurance and government's willingness to help distressed banks have virtually eliminated the potential for serious bank runs.

A bank's actual reserves can be calculated by:

Which of the following combinations would unambiguously increase the supply of money?

A reserve requirement of 10% implies a money multiplier of 10 and a reserve requirement of 15% implies a money multiplier of 15.

The major objective of the Federal Reserve System is to:

Assume that the reserve requirement is 20 percent. First National Bank has vault cash and deposits with the Fed of $80 million, loans and securities of $320 million, and demand deposits of $400 million. First National:

Loans are:

How is money destroyed in the banking system?

Other things constant, a decrease in credit card balances would ____ M1 and ____ M2.

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

Other things constant, a decrease in credit card balances would M1 and M2.