Question 1

Other things being equal, if you took money out of your demand deposit account and put it in a savings deposit account:

Accepted Answer

A) ​M1 would increase and M2 would increase. 
B) ​M1 would increase but M2 would not change. 
C) ​M1 would decrease and M2 would decrease. 
D) ​M1 would fall but M2 would not change. 
A) ​M1 would increase and M2 would increase. 
B) ​M1 would increase but M2 would not change. 
C) ​M1 would decrease and M2 would decrease. 
D) ​M1 would fall but M2 would not change.

Question 2

An increase in currency in circulation would ____ M1 and ____ M2.

Accepted Answer

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

Question 3

Considering open market operations, which of the following observations is incorrect?

Accepted Answer

A) ​it can be implemented quickly and cheaply. 
B) ​it can be done quietly without a lot of political debate 
C) ​it is potentially the most powerful tool to control the supply of money. 
D) ​it is the most important method now used to control the supply of money. 
A) ​it can be implemented quickly and cheaply. 
B) ​it can be done quietly without a lot of political debate 
C) ​it is potentially the most powerful tool to control the supply of money. 
D) ​it is the most important method now used to control the supply of money.

Question 4

Paper money is fiat money because it has been declared by government as a means of exchange.

Accepted Answer

A) True 
 B)False

Question 5

A decrease in savings deposits would ____ M1 and ____ M2.

Accepted Answer

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

Question 6

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 30 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) ​zero; zero 
B) ​$50,000; $50,000 
C) ​$50,000; $500,000 
D) ​The bank has insufficient reserves to meet its reserve requirements. 
A) ​zero; zero 
B) ​$50,000; $50,000 
C) ​$50,000; $500,000 
D) ​The bank has insufficient reserves to meet its reserve requirements.

Question 7

Which of the following is included in both M1 and M2?

Accepted Answer

A) ​traveler's checks 
B) ​checkable deposits 
C) ​currency 
D) ​all of the above. 
A) ​traveler's checks 
B) ​checkable deposits 
C) ​currency 
D) ​all of the above.

Question 8

M1 includes currency, checkable deposits, traveler's checks, and savings deposits

Accepted Answer

A) True 
 B)False

Question 9

The Open Market Committee oversees the money supply through the Fed's sale and purchase of government securities.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following guarantees the deposits in almost all banks up to a limit of $250,000?

Accepted Answer

A) ​the Federal Reserve 
B) ​the FDIC 
C) ​the U.S.Treasury 
D) ​Bank of America Corporation 
A) ​the Federal Reserve 
B) ​the FDIC 
C) ​the U.S.Treasury 
D) ​Bank of America Corporation

Question 11

The predominant liability item for most banks is:

Accepted Answer

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

Question 12

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 25 percent, what is the level of the bank's excess reserves? How much could it loan out as a result?

Accepted Answer

A) zero; zero 
B) ​$500,000; $500,000 
C) ​$500,000; $2,000,000 
D) ​$250,000; $1,000,000 
A) zero; zero 
B) ​$500,000; $500,000 
C) ​$500,000; $2,000,000 
D) ​$250,000; $1,000,000

Question 13

A decrease in the excess reserves banks want to hold, together with people taking currency out of 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 14

Suppose the XYZ bank has excess reserves of $4,000 and demand deposits of $80,000. If the required reserve ratio is 25 percent, the banks total reserves equal:

Accepted Answer

A) ​$16,000. 
B) ​$20,000. 
C) ​$24,000. 
D) ​$84,000. 
A) ​$16,000. 
B) ​$20,000. 
C) ​$24,000. 
D) ​$84,000.

Question 15

Fractional reserve banking takes its name from the fact that:

Accepted Answer

A) ​banks hold only a fraction of their reserves at the bank itself. 
B) ​banks keep only a fraction of total deposits on reserve. 
C) ​banks reserve only a fraction of their activity for lending. 
D) ​all of the above 
A) ​banks hold only a fraction of their reserves at the bank itself. 
B) ​banks keep only a fraction of total deposits on reserve. 
C) ​banks reserve only a fraction of their activity for lending. 
D) ​all of the above

Question 16

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 25 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) ​zero; zero 
B) ​$500,000; $500,000 
C) ​$500,000; $2,000,000 
D) ​$250,000; $1,000,000 
A) ​zero; zero 
B) ​$500,000; $500,000 
C) ​$500,000; $2,000,000 
D) ​$250,000; $1,000,000

Question 17

A single bank is severely limited in its ability to create money because:

Accepted Answer

A) ​the FDIC will not permit it to create money unless the Resolution Trust Corporation guarantees the loans. 
B) ​loan recipients usually take the proceeds of the loan in cash. 
C) ​the funds loaned probably will be deposited in another bank. 
D) ​recent federal legislation prohibits banks from creating money except to finance international trade. 
A) ​the FDIC will not permit it to create money unless the Resolution Trust Corporation guarantees the loans. 
B) ​loan recipients usually take the proceeds of the loan in cash. 
C) ​the funds loaned probably will be deposited in another bank. 
D) ​recent federal legislation prohibits banks from creating money except to finance international trade.

Question 18

How could the rumor of a bank failure actually turn into a bank failing? Is the bank really without assets?

Accepted Answer

Individuals who heard a rumor that their

Question 19

Savings accounts are the most liquid of all assets because they can be quickly and easily transferred.

Accepted Answer

A) True 
 B)False

Question 20

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 bank is required to keep reserves equal to one-third of deposits, what is the level of the bank's excess reserves? How much could it loan out as a result?

Accepted Answer

A) ​zero; zero 
B) ​$300,000; $300,000 
C) ​$300,000; $900,000 
D) ​$700,000; $2,100,000 
A) ​zero; zero 
B) ​$300,000; $300,000 
C) ​$300,000; $900,000 
D) ​$700,000; $2,100,000

Other things being equal, if you took money out of your demand deposit account and put it in a savings deposit account:

An increase in currency in circulation would M1 and M2.

Considering open market operations, which of the following observations is incorrect?

Paper money is fiat money because it has been declared by government as a means of exchange.

A decrease in savings deposits would M1 and M2.

Which of the following is included in both M1 and M2?

M1 includes currency, checkable deposits, traveler's checks, and savings deposits

The Open Market Committee oversees the money supply through the Fed's sale and purchase of government securities.

Which of the following guarantees the deposits in almost all banks up to a limit of $250,000?

The predominant liability item for most banks is:

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

Suppose the XYZ bank has excess reserves of $4,000 and demand deposits of $80,000. If the required reserve ratio is 25 percent, the banks total reserves equal:

Fractional reserve banking takes its name from the fact that:

A single bank is severely limited in its ability to create money because:

How could the rumor of a bank failure actually turn into a bank failing? Is the bank really without assets?

Savings accounts are the most liquid of all assets because they can be quickly and easily transferred.

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

Other things being equal, if you took money out of your demand deposit account and put it in a savings deposit account:

An increase in currency in circulation would ____ M1 and ____ M2.

Considering open market operations, which of the following observations is incorrect?

Paper money is fiat money because it has been declared by government as a means of exchange.

A decrease in savings deposits would ____ M1 and ____ M2.

Which of the following is included in both M1 and M2?

M1 includes currency, checkable deposits, traveler's checks, and savings deposits

The Open Market Committee oversees the money supply through the Fed's sale and purchase of government securities.

Which of the following guarantees the deposits in almost all banks up to a limit of $250,000?

The predominant liability item for most banks is:

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

Suppose the XYZ bank has excess reserves of $4,000 and demand deposits of $80,000. If the required reserve ratio is 25 percent, the banks total reserves equal:

Fractional reserve banking takes its name from the fact that:

A single bank is severely limited in its ability to create money because:

How could the rumor of a bank failure actually turn into a bank failing? Is the bank really without assets?

Savings accounts are the most liquid of all assets because they can be quickly and easily transferred.

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

An increase in currency in circulation would M1 and M2.

A decrease in savings deposits would M1 and M2.