Question 1

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

Accepted Answer

A) ​The Fed pays a lower 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) ​None of the above would unambiguously decrease the supply of money. 
A) ​The Fed pays a lower 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) ​None of the above would unambiguously decrease the supply of money.

Question 2

The money supply would tend to rise 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 3

The size of the effect of a given deposit of cash into a demand deposit account on the money supply is greater:

Accepted Answer

A) ​the greater the fraction of money people want to hold as currency and the greater the fraction of deposits banks want to hold as excess reserves. 
B) ​the greater the fraction of money people want to hold as currency and the smaller the fraction of deposits banks want to hold as excess reserves. 
C) ​the smaller the fraction of money people want to hold as currency and the greater the fraction of deposits banks want to hold as excess reserves. 
D) ​the smaller the fraction of money people want to hold as currency and the smaller the fraction of deposits banks want to hold as excess reserves. 
A) ​the greater the fraction of money people want to hold as currency and the greater the fraction of deposits banks want to hold as excess reserves. 
B) ​the greater the fraction of money people want to hold as currency and the smaller the fraction of deposits banks want to hold as excess reserves. 
C) ​the smaller the fraction of money people want to hold as currency and the greater the fraction of deposits banks want to hold as excess reserves. 
D) ​the smaller the fraction of money people want to hold as currency and the smaller the fraction of deposits banks want to hold as excess reserves.

Question 4

Say the required reserve ratio is 10 percent. If you pay back a loan of $20,000 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 $20,000 in bank reserves. 
C) ​eliminates $2,000 in bank reserves. 
D) ​eliminates $20,000 in bank reserves. 
A) ​adds $2,000 in bank reserves. 
B) ​adds $20,000 in bank reserves. 
C) ​eliminates $2,000 in bank reserves. 
D) ​eliminates $20,000 in bank reserves.

Question 5

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 money could the excess reserves be used to create in the banking system as a result?

Accepted Answer

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

Question 6

For society, more money means more wealth.

Accepted Answer

A) True 
 B)False

Question 7

Checkable deposits 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 8

A decrease in the excess reserves banks want to hold, together with people depositing currency into their demand deposit accounts, 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 9

When the Fed purchases government securities from a commercial bank, the bank:

Accepted Answer

A) ​automatically becomes poorer. 
B) ​loses equity in the Fed. 
C) ​receives reserves that can be used to make additional loans. 
D) ​loses its ability to make loans. 
A) ​automatically becomes poorer. 
B) ​loses equity in the Fed. 
C) ​receives reserves that can be used to make additional loans. 
D) ​loses its ability to make loans.

Question 10

If banks faced a 100 percent reserve requirement, a $10,000 addition to banking reserves would increase the money supply by:

Accepted Answer

A) ​$100. 
B) ​$1,000. 
C) ​$10,000. 
D) ​$100,000. 
A) ​$100. 
B) ​$1,000. 
C) ​$10,000. 
D) ​$100,000.

Question 11

Ceteris paribus, expanding loans made by the commercial banking system:

Accepted Answer

A) ​changes the composition, but not the magnitude, of the money supply. 
B) ​decreases the money supply. 
C) ​increases the money supply. 
D) ​would help to stabilize an economy experiencing rapid inflation. 
A) ​changes the composition, but not the magnitude, of the money supply. 
B) ​decreases the money supply. 
C) ​increases the money supply. 
D) ​would help to stabilize an economy experiencing rapid inflation.

Question 12

Suppose you found $3,000 hidden in your closet and deposited it in a demand deposit account at your bank. If the reserve requirement was 40 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) ​$1,800; $7,500 
B) ​$1,800; $5,400 
C) ​$3,000; $7,500 
D) ​$3,000; $3,000 
A) ​$1,800; $7,500 
B) ​$1,800; $5,400 
C) ​$3,000; $7,500 
D) ​$3,000; $3,000

Question 13

On a certain date the banking system had $2 billion in excess reserves. The legally required reserve ratio was 12.5 percent. Potentially, if these funds were fully loaned out, the banking system as a whole could increase the money supply by a maximum of:

Accepted Answer

A) ​$0.25 billion. 
B) ​$2.5 billion. 
C) ​$12.5 billion. 
D) ​$16 billion 
A) ​$0.25 billion. 
B) ​$2.5 billion. 
C) ​$12.5 billion. 
D) ​$16 billion

Question 14

If banks faced a 100 percent reserve requirement, a decrease in banking reserves of $4 million would:

Accepted Answer

A) ​increase the money supply by $4 million. 
B) ​increase the money supply by $400 million. 
C) ​decrease the money supply by $4 million. 
D) ​decrease the money supply by $400 million. 
A) ​increase the money supply by $4 million. 
B) ​increase the money supply by $400 million. 
C) ​decrease the money supply by $4 million. 
D) ​decrease the money supply by $400 million.

Question 15

If the reserve requirement was 5% and a bank customer makes a deposit of $1,000, the initial result would be:

Accepted Answer

A) ​a $950 increase in required reserves and a $50 increase in excess reserves. 
B) ​a $20,000 increase in required reserves and a $950 increase in excess reserves. 
C) ​a $50 increase in required reserves and a $20,000 increase in excess reserves. 
D) ​none of the above 
A) ​a $950 increase in required reserves and a $50 increase in excess reserves. 
B) ​a $20,000 increase in required reserves and a $950 increase in excess reserves. 
C) ​a $50 increase in required reserves and a $20,000 increase in excess reserves. 
D) ​none of the above

Question 16

Open market operations directly change the rate of interest at which banks can borrow funds from the Fed.

Accepted Answer

A) True 
 B)False

Question 17

A conversion of checking account balances into savings account balances would ____ M1 and ____ M2.

Accepted Answer

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

Question 18

Which of the following is not included in the M1 category?

Accepted Answer

A) ​Currency 
B) ​Checkable deposits 
C) ​Traveler's checks 
D) ​Savings deposits 
A) ​Currency 
B) ​Checkable deposits 
C) ​Traveler's checks 
D) ​Savings deposits

Question 19

Which of the following would the Fed increase in order increase the supply of money?

Accepted Answer

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

Question 20

The size of the effect of a given deposit of cash into a demand deposit account on the money supply is smaller:

Accepted Answer

A) ​the greater the fraction of money people want to hold as currency and the greater the fraction of deposits banks want to hold as excess reserves. 
B) ​the greater the fraction of money people want to hold as currency and the smaller the fraction of deposits banks want to hold as excess reserves. 
C) ​the smaller the fraction of money people want to hold as currency and the greater the fraction of deposits banks want to hold as excess reserves. 
D) ​the smaller the fraction of money people want to hold as currency and the smaller the fraction of deposits banks want to hold as excess reserves. 
A) ​the greater the fraction of money people want to hold as currency and the greater the fraction of deposits banks want to hold as excess reserves. 
B) ​the greater the fraction of money people want to hold as currency and the smaller the fraction of deposits banks want to hold as excess reserves. 
C) ​the smaller the fraction of money people want to hold as currency and the greater the fraction of deposits banks want to hold as excess reserves. 
D) ​the smaller the fraction of money people want to hold as currency and the smaller the fraction of deposits banks want to hold as excess reserves.

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

The money supply would tend to rise if:

The size of the effect of a given deposit of cash into a demand deposit account on the money supply is greater:

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

For society, more money means more wealth.

Checkable deposits are:

A decrease in the excess reserves banks want to hold, together with people depositing currency into their demand deposit accounts, would:

When the Fed purchases government securities from a commercial bank, the bank:

If banks faced a 100 percent reserve requirement, a $10,000 addition to banking reserves would increase the money supply by:

Ceteris paribus, expanding loans made by the commercial banking system:

On a certain date the banking system had $2 billion in excess reserves. The legally required reserve ratio was 12.5 percent. Potentially, if these funds were fully loaned out, the banking system as a whole could increase the money supply by a maximum of:

If banks faced a 100 percent reserve requirement, a decrease in banking reserves of $4 million would:

If the reserve requirement was 5% and a bank customer makes a deposit of $1,000, the initial result would be:

Open market operations directly change the rate of interest at which banks can borrow funds from the Fed.

A conversion of checking account balances into savings account balances would M1 and M2.

Which of the following is not included in the M1 category?

Which of the following would the Fed increase in order increase the supply of money?

The size of the effect of a given deposit of cash into a demand deposit account on the money supply is smaller:

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 combinations would unambiguously decrease the supply of money?

The money supply would tend to rise if:

The size of the effect of a given deposit of cash into a demand deposit account on the money supply is greater:

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

For society, more money means more wealth.

Checkable deposits are:

A decrease in the excess reserves banks want to hold, together with people depositing currency into their demand deposit accounts, would:

When the Fed purchases government securities from a commercial bank, the bank:

If banks faced a 100 percent reserve requirement, a $10,000 addition to banking reserves would increase the money supply by:

Ceteris paribus, expanding loans made by the commercial banking system:

On a certain date the banking system had $2 billion in excess reserves. The legally required reserve ratio was 12.5 percent. Potentially, if these funds were fully loaned out, the banking system as a whole could increase the money supply by a maximum of:

If banks faced a 100 percent reserve requirement, a decrease in banking reserves of $4 million would:

If the reserve requirement was 5% and a bank customer makes a deposit of $1,000, the initial result would be:

Open market operations directly change the rate of interest at which banks can borrow funds from the Fed.

A conversion of checking account balances into savings account balances would ____ M1 and ____ M2.

Which of the following is not included in the M1 category?

Which of the following would the Fed increase in order increase the supply of money?

The size of the effect of a given deposit of cash into a demand deposit account on the money supply is smaller:

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

A conversion of checking account balances into savings account balances would M1 and M2.