Question 1

What limits a bank's ability to extend loans?

Accepted Answer

An individual bank can safely

Question 2

The Fed's purchases and sales of government securities are called:

Accepted Answer

A) ​margin operations. 
B) ​open market operations. 
C) ​small-dealer transactions. 
D) ​intermediary transactions. 
A) ​margin operations. 
B) ​open market operations. 
C) ​small-dealer transactions. 
D) ​intermediary transactions.

Question 3

What are the inherent disadvantages of a barter system?

Accepted Answer

In a barter system, the buyer may not ha

Question 4

Other things equal. an open market purchase of government securities by the Fed will not result in which of the following?

Accepted Answer

A) ​increased bond prices 
B) ​a reduced volume of loans issued by the commercial banking system 
C) ​decreased interest rates 
D) ​an increase in the price level 
A) ​increased bond prices 
B) ​a reduced volume of loans issued by the commercial banking system 
C) ​decreased interest rates 
D) ​an increase in the price level

Question 5

The higher the interest rate paid on certificates of deposit and other nontransaction deposits, other things being equal, the less people would be expected to hold in demand deposits.

Accepted Answer

A) True 
 B)False

Question 6

A one percentage point change in the required reserve ratio would change the money supply by less than one percent, other things being equal.

Accepted Answer

A) True 
 B)False

Question 7

The idea behind money as a standard of value is that use of money allows:

Accepted Answer

A) ​greater efficiency in exchange. 
B) ​receipt of income to be separated from spending. 
C) ​persons to hold spending power for some period of time. 
D) ​prices quoted in money terms. 
A) ​greater efficiency in exchange. 
B) ​receipt of income to be separated from spending. 
C) ​persons to hold spending power for some period of time. 
D) ​prices quoted in money terms.

Question 8

Which of the following combinations would have an indeterminate effect on the size of the money supply?

Accepted Answer

A) ​an increase in the percentage of money people want to hold as currency and a decrease in the fraction of deposits banks want to hold as excess reserves 
B) ​an increase in the percentage of money people want to hold as currency and an increase in the fraction of deposits banks want to hold as excess reserves 
C) ​a decrease in the percentage of money people want to hold as currency and a decrease in the fraction of deposits banks want to hold as excess reserves 
D) ​none of the above 
A) ​an increase in the percentage of money people want to hold as currency and a decrease in the fraction of deposits banks want to hold as excess reserves 
B) ​an increase in the percentage of money people want to hold as currency and an increase in the fraction of deposits banks want to hold as excess reserves 
C) ​a decrease in the percentage of money people want to hold as currency and a decrease in the fraction of deposits banks want to hold as excess reserves 
D) ​none of the above

Question 9

The existence of inflation and other possible uncertainties reduces the usefulness of money as a store of value.

Accepted Answer

A) True 
 B)False

Question 10

With of the following is true with regard to leverage?

Accepted Answer

A) ​The U.S.banking system uses very little leverage to ensure the safety of the banking system. 
B) ​Leverage in the banking system increases its potential for profits, but no losses. 
C) ​Losses borne by highly leveraged banks can have a ripple effect throughout the financial system. 
D) ​All of the above are true 
A) ​The U.S.banking system uses very little leverage to ensure the safety of the banking system. 
B) ​Leverage in the banking system increases its potential for profits, but no losses. 
C) ​Losses borne by highly leveraged banks can have a ripple effect throughout the financial system. 
D) ​All of the above are true

Question 11

Which of the following would cause the U.S. money supply to expand?

Accepted Answer

A) ​a commercial bank calling in a loan to build up more excess reserves 
B) ​a commercial bank purchasing U.S.securities from the Fed as an investment 
C) ​a decrease in reserve requirements 
D) ​an increase in the discount rate 
A) ​a commercial bank calling in a loan to build up more excess reserves 
B) ​a commercial bank purchasing U.S.securities from the Fed as an investment 
C) ​a decrease in reserve requirements 
D) ​an increase in the discount rate

Question 12

If the government requires banks to keep 100 percent of their deposits on reserve, a $1,000 deposit in a checking account would lead to a $100,000 increase in the money supply.

Accepted Answer

A) True 
 B)False

Question 13

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 money could the excess reserves be used to create in the banking system 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

Question 14

If banks faced a 100 percent reserve requirement, a $10,000 reduction in banking reserves would decrease the money supply by:

Accepted Answer

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

Question 15

Which of the following would tend to increase unemployment in the short run?

Accepted Answer

A) ​commercial banks calling in loans to build up their excess reserves 
B) ​an increase in reserve requirements 
C) ​an increase in the discount rate 
D) ​all of the above 
A) ​commercial banks calling in loans to build up their excess reserves 
B) ​an increase in reserve requirements 
C) ​an increase in the discount rate 
D) ​all of the above

Question 16

A bank receives a demand deposit of $2,000. The bank loans out $1,200 of this deposit and increases its excess reserves by $600. What is the required reserve ratio?

Accepted Answer

A) ​10% 
B) ​30% 
C) ​40% 
D) ​60% 
A) ​10% 
B) ​30% 
C) ​40% 
D) ​60%

Question 17

Which of the following observations concerning money market mutual funds is not true?

Accepted Answer

A) ​They are interest-earning accounts provided by brokers. 
B) ​They are considered to be near money. 
C) ​Depositors are allowed to write checks against their accounts. 
D) ​These funds are invested in long-term securities. 
A) ​They are interest-earning accounts provided by brokers. 
B) ​They are considered to be near money. 
C) ​Depositors are allowed to write checks against their accounts. 
D) ​These funds are invested in long-term securities.

Question 18

What is a fractional reserve system?

Accepted Answer

In order for banks to continue to do bus

Question 19

If a bank had the reserve requirement of 10 percent and excess reserves of $2,000, the largest loan it could legally extend would be:

Accepted Answer

A) ​$200. 
B) ​$1,800. 
C) ​$2,000. 
D) ​$20,000. 
A) ​$200. 
B) ​$1,800. 
C) ​$2,000. 
D) ​$20,000.

Question 20

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

What limits a bank's ability to extend loans?

The Fed's purchases and sales of government securities are called:

What are the inherent disadvantages of a barter system?

Other things equal. an open market purchase of government securities by the Fed will not result in which of the following?

The higher the interest rate paid on certificates of deposit and other nontransaction deposits, other things being equal, the less people would be expected to hold in demand deposits.

A one percentage point change in the required reserve ratio would change the money supply by less than one percent, other things being equal.

The idea behind money as a standard of value is that use of money allows:

Which of the following combinations would have an indeterminate effect on the size of the money supply?

The existence of inflation and other possible uncertainties reduces the usefulness of money as a store of value.

With of the following is true with regard to leverage?

Which of the following would cause the U.S. money supply to expand?

If the government requires banks to keep 100 percent of their deposits on reserve, a $1,000 deposit in a checking account would lead to a $100,000 increase in the money supply.

If banks faced a 100 percent reserve requirement, a $10,000 reduction in banking reserves would decrease the money supply by:

Which of the following would tend to increase unemployment in the short run?

A bank receives a demand deposit of $2,000. The bank loans out $1,200 of this deposit and increases its excess reserves by $600. What is the required reserve ratio?

Which of the following observations concerning money market mutual funds is not true?

What is a fractional reserve system?

If a bank had the reserve requirement of 10 percent and excess reserves of $2,000, the largest loan it could legally extend would be:

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

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

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Exam 17: Income, Poverty and Health Care

What limits a bank's ability to extend loans?

The Fed's purchases and sales of government securities are called:

What are the inherent disadvantages of a barter system?

Other things equal. an open market purchase of government securities by the Fed will not result in which of the following?

The higher the interest rate paid on certificates of deposit and other nontransaction deposits, other things being equal, the less people would be expected to hold in demand deposits.

A one percentage point change in the required reserve ratio would change the money supply by less than one percent, other things being equal.

The idea behind money as a standard of value is that use of money allows:

Which of the following combinations would have an indeterminate effect on the size of the money supply?

The existence of inflation and other possible uncertainties reduces the usefulness of money as a store of value.

With of the following is true with regard to leverage?

Which of the following would cause the U.S. money supply to expand?

If the government requires banks to keep 100 percent of their deposits on reserve, a $1,000 deposit in a checking account would lead to a $100,000 increase in the money supply.

If banks faced a 100 percent reserve requirement, a $10,000 reduction in banking reserves would decrease the money supply by:

Which of the following would tend to increase unemployment in the short run?

A bank receives a demand deposit of $2,000. The bank loans out $1,200 of this deposit and increases its excess reserves by $600. What is the required reserve ratio?

Which of the following observations concerning money market mutual funds is not true?

What is a fractional reserve system?

If a bank had the reserve requirement of 10 percent and excess reserves of $2,000, the largest loan it could legally extend would be:

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

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