Question 1

America's banking system is called a fractional reserve system.

Accepted Answer

A) True 
 B)False

Question 2

If a person buries his money in his backyard, he is using money as a medium of exchange.

Accepted Answer

A) True 
 B)False

Question 3

Which is potentially the most powerful tool available to the Fed to control the supply of money?

Accepted Answer

A) ​open market operations 
B) ​moral suasion 
C) ​changes in reserve requirements 
D) ​discount rate changes 
A) ​open market operations 
B) ​moral suasion 
C) ​changes in reserve requirements 
D) ​discount rate changes

Question 4

Can bankers create money?

Accepted Answer

A) ​No, they do not have this power. 
B) ​No, unless they have a special charter which permits it. 
C) ​Yes, through multiple deposit creation. 
D) ​Yes, by printing checks for customers. 
A) ​No, they do not have this power. 
B) ​No, unless they have a special charter which permits it. 
C) ​Yes, through multiple deposit creation. 
D) ​Yes, by printing checks for customers.

Question 5

Which of the following combinations would produce conflicting effects on 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 lower 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 lower 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 6

Banks are considered a safer place to deposit money now than they were prior to 1933 because:

Accepted Answer

A) ​gold reserves have increased. 
B) ​reserve requirements are higher. 
C) ​they are more closely regulated. 
D) ​the FDIC was created. 
A) ​gold reserves have increased. 
B) ​reserve requirements are higher. 
C) ​they are more closely regulated. 
D) ​the FDIC was created.

Question 7

All decisions of the Fed are subject to approval by:

Accepted Answer

A) ​the President of the United States. 
B) ​the U.S.Congress. 
C) ​the FDIC 
D) ​none of the above 
A) ​the President of the United States. 
B) ​the U.S.Congress. 
C) ​the FDIC 
D) ​none of the above

Question 8

If you go into a bank which faces a 10% required reserve ratio and borrow $1,000, the bank will ____ your checking account at the bank.

Accepted Answer

A) ​add $1,000 to 
B) ​subtract $1,000 from 
C) ​add $5,000 to 
D) ​subtract $5,000 from 
A) ​add $1,000 to 
B) ​subtract $1,000 from 
C) ​add $5,000 to 
D) ​subtract $5,000 from

Question 9

Assume the Fed purchases $5,000 worth of U.S. Treasury bonds from Bill Gates, who promptly deposits the money in Microsoft Rules National Bank. Assuming that the required reserve ratio is 25 percent and banks keep zero excess reserves, then the money supply will ultimately:

Accepted Answer

A) ​increase by a maximum of $5,000. 
B) ​increase by a maximum of $20,000. 
C) ​decrease by a maximum of $5,000. 
D) ​decrease by a maximum of $20,000. 
A) ​increase by a maximum of $5,000. 
B) ​increase by a maximum of $20,000. 
C) ​decrease by a maximum of $5,000. 
D) ​decrease by a maximum of $20,000.

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 could it loan out 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

Which of the following is the best definition of money?

Accepted Answer

A) ​anything generally accepted as a payment for goods or repayment of debt 
B) ​anything that is a liability of the federal government 
C) ​anything that is a liability of a commercial bank 
D) ​coins and currency in the hands of the public 
A) ​anything generally accepted as a payment for goods or repayment of debt 
B) ​anything that is a liability of the federal government 
C) ​anything that is a liability of a commercial bank 
D) ​coins and currency in the hands of the public

Question 12

Banks create money when they increase demand deposits through the process of creating loans.

Accepted Answer

A) True 
 B)False

Question 13

What are money market mutual funds?

Accepted Answer

Money market mutual funds are interest-e

Question 14

An increase 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 15

Which of the following would constitute contractionary monetary policy by the Fed?

Accepted Answer

A) ​An increase in income tax rates, a cut in government spending, and an elimination of the investment tax credit 
B) ​Open market sales of government securities, an increase in the discount rate, and an increase in reserve requirements 
C) ​An increase in tariffs on imported goods and a decrease in foreign aid 
D) ​Open market purchases of government securities, a cut in the discount rate, and an increase in reserve requirements 
A) ​An increase in income tax rates, a cut in government spending, and an elimination of the investment tax credit 
B) ​Open market sales of government securities, an increase in the discount rate, and an increase in reserve requirements 
C) ​An increase in tariffs on imported goods and a decrease in foreign aid 
D) ​Open market purchases of government securities, a cut in the discount rate, and an increase in reserve requirements

Question 16

Money almost always serves as the standard unit for quoting prices. This is another way of saying money serves as a:

Accepted Answer

A) ​medium of exchange. 
B) ​store of value. 
C) ​standard of value. 
D) ​commodity itself. 
A) ​medium of exchange. 
B) ​store of value. 
C) ​standard of value. 
D) ​commodity itself.

Question 17

If the Federal Open Market Committee (FOMC) decides to expand the money supply, then:

Accepted Answer

A) ​it will issue directions to sell U.S.government securities, thus increasing the velocity of circulation of the money supply. 
B) ​it will issue directions to purchase U.S.government securities, thus putting more reserves in the hands of banks. 
C) ​it will order new Federal Reserve notes delivered to member banks. 
D) ​it will raise the discount rate to member banks. 
A) ​it will issue directions to sell U.S.government securities, thus increasing the velocity of circulation of the money supply. 
B) ​it will issue directions to purchase U.S.government securities, thus putting more reserves in the hands of banks. 
C) ​it will order new Federal Reserve notes delivered to member banks. 
D) ​it will raise the discount rate to member banks.

Question 18

The discount rate's main significance is that:

Accepted Answer

A) ​changes in the rate are commonly viewed as a signal of the Fed's intentions with respect to monetary policy. 
B) ​changes in the rate are a sign that monetary policy has swung strongly in a new direction. 
C) ​it can be done quietly, without a lot of political debate or a public announcement. 
D) ​a small change in the rate can make a huge change in the number of dollars that are in excess reserves in banks all over the country. 
A) ​changes in the rate are commonly viewed as a signal of the Fed's intentions with respect to monetary policy. 
B) ​changes in the rate are a sign that monetary policy has swung strongly in a new direction. 
C) ​it can be done quietly, without a lot of political debate or a public announcement. 
D) ​a small change in the rate can make a huge change in the number of dollars that are in excess reserves in banks all over the country.

Question 19

The difference between M1 and M2 is significant. Which of the following best describes the difference?

Accepted Answer

A) ​M1 is nearly three times as large as M2. 
B) ​M2 is made up mostly of demand and checkable deposits. 
C) ​M2 is substantially larger than M1. 
D) ​None of the above. 
A) ​M1 is nearly three times as large as M2. 
B) ​M2 is made up mostly of demand and checkable deposits. 
C) ​M2 is substantially larger than M1. 
D) ​None of the above.

Question 20

A reserve requirement of 25 percent would mean that each dollar of reserves could support ____ of demand deposits.

Accepted Answer

A) ​$0.25 
B) ​$0.75 
C) ​$1.33 
D) ​$4.00 
A) ​$0.25 
B) ​$0.75 
C) ​$1.33 
D) ​$4.00

America's banking system is called a fractional reserve system.

If a person buries his money in his backyard, he is using money as a medium of exchange.

Which is potentially the most powerful tool available to the Fed to control the supply of money?

Can bankers create money?

Which of the following combinations would produce conflicting effects on the supply of money?

Banks are considered a safer place to deposit money now than they were prior to 1933 because:

All decisions of the Fed are subject to approval by:

If you go into a bank which faces a 10% required reserve ratio and borrow $1,000, the bank will ____ your checking account at the bank.

Assume the Fed purchases $5,000 worth of U.S. Treasury bonds from Bill Gates, who promptly deposits the money in Microsoft Rules National Bank. Assuming that the required reserve ratio is 25 percent and banks keep zero excess reserves, then the money supply will ultimately:

Which of the following is the best definition of money?

Banks create money when they increase demand deposits through the process of creating loans.

What are money market mutual funds?

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

Which of the following would constitute contractionary monetary policy by the Fed?

Money almost always serves as the standard unit for quoting prices. This is another way of saying money serves as a:

If the Federal Open Market Committee (FOMC) decides to expand the money supply, then:

The discount rate's main significance is that:

The difference between M1 and M2 is significant. Which of the following best describes the difference?

A reserve requirement of 25 percent would mean that each dollar of reserves could support ____ of demand deposits.

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

America's banking system is called a fractional reserve system.

If a person buries his money in his backyard, he is using money as a medium of exchange.

Which is potentially the most powerful tool available to the Fed to control the supply of money?

Can bankers create money?

Which of the following combinations would produce conflicting effects on the supply of money?

Banks are considered a safer place to deposit money now than they were prior to 1933 because:

All decisions of the Fed are subject to approval by:

If you go into a bank which faces a 10% required reserve ratio and borrow $1,000, the bank will ____ your checking account at the bank.

Assume the Fed purchases $5,000 worth of U.S. Treasury bonds from Bill Gates, who promptly deposits the money in Microsoft Rules National Bank. Assuming that the required reserve ratio is 25 percent and banks keep zero excess reserves, then the money supply will ultimately:

Which of the following is the best definition of money?

Banks create money when they increase demand deposits through the process of creating loans.

What are money market mutual funds?

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

Which of the following would constitute contractionary monetary policy by the Fed?

Money almost always serves as the standard unit for quoting prices. This is another way of saying money serves as a:

If the Federal Open Market Committee (FOMC) decides to expand the money supply, then:

The discount rate's main significance is that:

The difference between M1 and M2 is significant. Which of the following best describes the difference?

A reserve requirement of 25 percent would mean that each dollar of reserves could support ____ of demand deposits.

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