Question 1

An open market purchase of government securities by the Fed will tend to result in which of the following, other things being equal?

Accepted Answer

A) ​increased bond prices 
B) ​an increase in real output 
C) ​decreased interest rates 
D) ​all of the above 
A) ​increased bond prices 
B) ​an increase in real output 
C) ​decreased interest rates 
D) ​all of the above

Question 2

Why is the money multiplier considered to be a potential multiplier rather than an indication of exactly how much multiplication should be expected?
​

Accepted Answer

Some banks may not choose to loan out al

Question 3

Which of the following is false?

Accepted Answer

A) ​If the Fed wants to expand the money supply, it could lower the discount rate. 
B) ​The discount rate is a relatively unimportant monetary policy tool, mainly because member banks do not rely heavily on the Fed for borrowed funds. 
C) ​Changes in required reserve ratios are such a potent monetary policy tool that they are frequently used. 
D) ​If the Federal Reserve wanted to induce monetary expansion, it could reduce reserve requirements, but it cannot force the banks to make loans, thereby creating new money. 
A) ​If the Fed wants to expand the money supply, it could lower the discount rate. 
B) ​The discount rate is a relatively unimportant monetary policy tool, mainly because member banks do not rely heavily on the Fed for borrowed funds. 
C) ​Changes in required reserve ratios are such a potent monetary policy tool that they are frequently used. 
D) ​If the Federal Reserve wanted to induce monetary expansion, it could reduce reserve requirements, but it cannot force the banks to make loans, thereby creating new money.

Question 4

An important effect of fractional reserve banking is that:

Accepted Answer

A) ​bankers' choices about how much to lend can affect the money supply. 
B) ​the commercial banking system has complete control over total reserves. 
C) ​bankers always turn every dollar of excess reserves into loans. 
D) ​a new bank deposit allows a bank to extend loans of the same amount to borrowers. 
A) ​bankers' choices about how much to lend can affect the money supply. 
B) ​the commercial banking system has complete control over total reserves. 
C) ​bankers always turn every dollar of excess reserves into loans. 
D) ​a new bank deposit allows a bank to extend loans of the same amount to borrowers.

Question 5

Suppose you found $5,000 hidden in your closet and deposited it in a demand deposit account at your bank. If the reserve requirement was 10 percent, the deposit would directly create ____ in excess reserves and ultimately lead to a ____ total increase in the money supply, if all banks in the system lend out 100 percent of their excess reserves.

Accepted Answer

A) ​$500; $5,000 
B) ​$4,500; $5,000 
C) ​$4,500; $45,000 
D) ​$4,500; $50,000 
A) ​$500; $5,000 
B) ​$4,500; $5,000 
C) ​$4,500; $45,000 
D) ​$4,500; $50,000

Question 6

If the Fed wanted to use all of its policy variables to decrease the supply of money, which of following would that include?

Accepted Answer

A) ​Increasing its open market sales of government securities. 
B) ​Increasing the required reserve ratio. 
C) ​Decreasing the interest rate it pays banks on bank reserves. 
D) ​It would include all of the above. 
A) ​Increasing its open market sales of government securities. 
B) ​Increasing the required reserve ratio. 
C) ​Decreasing the interest rate it pays banks on bank reserves. 
D) ​It would include all of the above.

Question 7

If the Fed raises the discount rate, it:

Accepted Answer

A) ​forces commercial banks to call in existing loans. 
B) ​changes excess reserves into required reserves. 
C) ​changes required reserves into excess reserves. 
D) ​none of the above 
A) ​forces commercial banks to call in existing loans. 
B) ​changes excess reserves into required reserves. 
C) ​changes required reserves into excess reserves. 
D) ​none of the above

Question 8

Money is destroyed when:

Accepted Answer

A) ​new loans are made. 
B) ​the net worth of the banking system declines. 
C) ​loans are repaid to banks. 
D) ​checks written on accounts at one bank are deposited in another bank. 
A) ​new loans are made. 
B) ​the net worth of the banking system declines. 
C) ​loans are repaid to banks. 
D) ​checks written on accounts at one bank are deposited in another bank.

Question 9

Credit card balances are:

Accepted Answer

A) ​included in both M1 and M2. 
B) ​included in M1 but not M2. 
C) ​included in M2 but not M1. 
D) ​not included in either M1 or M2. 
A) ​included in both M1 and M2. 
B) ​included in M1 but not M2. 
C) ​included in M2 but not M1. 
D) ​not included in either M1 or M2.

Question 10

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 20 percent, what is the level of the bank's excess reserves? How much money could the excess reserves be used to create in the banking system as a result?

Accepted Answer

A) ​$600,000; $600,000 
B) ​$600,000; $3,000,000 
C) ​$400,000; $400,000 
D) ​$400,000; $2,000,000 
A) ​$600,000; $600,000 
B) ​$600,000; $3,000,000 
C) ​$400,000; $400,000 
D) ​$400,000; $2,000,000

Question 11

Why does the Fed have imperfect control over the money supply over short periods?

Accepted Answer

A) ​Because of unpredictable changes in reserve requirements 
B) ​Because the public responds to open market operations in unpredictable fashions 
C) ​Because the Fed does not know how much reserves will change when it buys or sells securities 
D) ​Because of unpredictable changes in public desire to hold cash and banks' desires to hold reserves 
A) ​Because of unpredictable changes in reserve requirements 
B) ​Because the public responds to open market operations in unpredictable fashions 
C) ​Because the Fed does not know how much reserves will change when it buys or sells securities 
D) ​Because of unpredictable changes in public desire to hold cash and banks' desires to hold reserves

Question 12

Which of the following is included in M2 but is not included in M1?

Accepted Answer

A) ​Eurodollar deposits 
B) ​savings accounts 
C) ​traveler's checks 
D) ​checkable deposits 
A) ​Eurodollar deposits 
B) ​savings accounts 
C) ​traveler's checks 
D) ​checkable deposits

Question 13

One point virtually all economists agree on when defining money is that:

Accepted Answer

A) ​money must be spendable. 
B) ​money must be liquid. 
C) ​money must be accepted as payment. 
D) ​all of the above are correct. 
A) ​money must be spendable. 
B) ​money must be liquid. 
C) ​money must be accepted as payment. 
D) ​all of the above are correct.

Question 14

Which of the following is not a correct statement about money?

Accepted Answer

A) ​Money serves as a medium of exchange. 
B) ​The value of money generally fluctuates much more than the prices of individual commodities like oil or wheat. 
C) ​Money serves as a store of value. 
D) ​Money serves as a means of deferred payment. 
A) ​Money serves as a medium of exchange. 
B) ​The value of money generally fluctuates much more than the prices of individual commodities like oil or wheat. 
C) ​Money serves as a store of value. 
D) ​Money serves as a means of deferred payment.

Question 15

If the Fed conducted an open market sale of government bonds and raised the discount rate:

Accepted Answer

A) ​the money supply would increase. 
B) ​the money supply would decrease. 
C) ​the money supply would not change. 
D) ​the money supply could either increase or decrease. 
A) ​the money supply would increase. 
B) ​the money supply would decrease. 
C) ​the money supply would not change. 
D) ​the money supply could either increase or decrease.

Question 16

Uncertainty may cause banks to hold larger excess reserves. Other things being constant, this will:

Accepted Answer

A) ​have no effect on the volume of loans or the money supply. 
B) ​tend to reduce both the volume of loans and the money supply. 
C) ​tend to increase both the volume of loans and the money supply. 
D) ​tend to increase the volume of loans but reduce the money supply. 
A) ​have no effect on the volume of loans or the money supply. 
B) ​tend to reduce both the volume of loans and the money supply. 
C) ​tend to increase both the volume of loans and the money supply. 
D) ​tend to increase the volume of loans but reduce the money supply.

Question 17

Which of the following is true?

Accepted Answer

A) ​A majority of U.S.money, whether M1 or M2, is in the form of legal tender. 
B) ​If a bank lends out its excess reserves of $90,000, at the time the loan is made, the money supply will increase by $90,000. 
C) ​Reserve requirements exist primarily to eliminate bank runs. 
D) ​When there are two forms of money available, people prefer to spend the form of money that is more valuable. 
A) ​A majority of U.S.money, whether M1 or M2, is in the form of legal tender. 
B) ​If a bank lends out its excess reserves of $90,000, at the time the loan is made, the money supply will increase by $90,000. 
C) ​Reserve requirements exist primarily to eliminate bank runs. 
D) ​When there are two forms of money available, people prefer to spend the form of money that is more valuable.

Question 18

Reserve requirements exist primarily to prevent bank failures.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following actions of the Fed is likely to lead to a decrease in the money supply?

Accepted Answer

A) ​A decrease in the discount rate 
B) ​An increase in reserve requirements 
C) ​A decrease in reserve requirements 
D) ​A purchase of government securities by the Fed in the open market 
A) ​A decrease in the discount rate 
B) ​An increase in reserve requirements 
C) ​A decrease in reserve requirements 
D) ​A purchase of government securities by the Fed in the open market

Question 20

If the Fed was to use all of its three most common tools to increase the money supply, it would:

Accepted Answer

A) ​buy bonds, reduce the discount rate, and reduce reserve requirements. 
B) ​sell bonds, reduce the discount rate, and reduce reserve requirements. 
C) ​sell bonds, reduce the discount rate, and increase reserve requirements. 
D) ​sell bonds, increase the discount rate, and increase reserve requirements. 
A) ​buy bonds, reduce the discount rate, and reduce reserve requirements. 
B) ​sell bonds, reduce the discount rate, and reduce reserve requirements. 
C) ​sell bonds, reduce the discount rate, and increase reserve requirements. 
D) ​sell bonds, increase the discount rate, and increase reserve requirements.

An open market purchase of government securities by the Fed will tend to result in which of the following, other things being equal?

Why is the money multiplier considered to be a potential multiplier rather than an indication of exactly how much multiplication should be expected?

Which of the following is false?

An important effect of fractional reserve banking is that:

If the Fed wanted to use all of its policy variables to decrease the supply of money, which of following would that include?

If the Fed raises the discount rate, it:

Money is destroyed when:

Credit card balances are:

Why does the Fed have imperfect control over the money supply over short periods?

Which of the following is included in M2 but is not included in M1?

One point virtually all economists agree on when defining money is that:

Which of the following is not a correct statement about money?

If the Fed conducted an open market sale of government bonds and raised the discount rate:

Uncertainty may cause banks to hold larger excess reserves. Other things being constant, this will:

Which of the following is true?

Reserve requirements exist primarily to prevent bank failures.

Which of the following actions of the Fed is likely to lead to a decrease in the money supply?

If the Fed was to use all of its three most common tools to increase the money supply, it 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

Exam 17: Income, Poverty and Health Care

An open market purchase of government securities by the Fed will tend to result in which of the following, other things being equal?

Why is the money multiplier considered to be a potential multiplier rather than an indication of exactly how much multiplication should be expected? ​

Which of the following is false?

An important effect of fractional reserve banking is that:

If the Fed wanted to use all of its policy variables to decrease the supply of money, which of following would that include?

If the Fed raises the discount rate, it:

Money is destroyed when:

Credit card balances are:

Why does the Fed have imperfect control over the money supply over short periods?

Which of the following is included in M2 but is not included in M1?

One point virtually all economists agree on when defining money is that:

Which of the following is not a correct statement about money?

If the Fed conducted an open market sale of government bonds and raised the discount rate:

Uncertainty may cause banks to hold larger excess reserves. Other things being constant, this will:

Which of the following is true?

Reserve requirements exist primarily to prevent bank failures.

Which of the following actions of the Fed is likely to lead to a decrease in the money supply?

If the Fed was to use all of its three most common tools to increase the money supply, it 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

Why is the money multiplier considered to be a potential multiplier rather than an indication of exactly how much multiplication should be expected?