Question 1

Commodity money is

Accepted Answer

A)  backed by gold. 
B)  the principal type of money in use today. 
C)  money with intrinsic value. 
D)  receipts created in international trade that are used as a medium of exchange. 
A)  backed by gold. 
B)  the principal type of money in use today. 
C)  money with intrinsic value. 
D)  receipts created in international trade that are used as a medium of exchange.

Question 2

Scenario 29-2.
The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi. The local unit of currency is the taz. Aggregate banking statistics show that collectively the banks of Tazi hold 300 million tazes of required reserves, 75 million tazes of excess reserves, have issued 7,500 million tazes of deposits, and hold 225 million tazes of Tazian Treasury bonds. Tazians prefer to use only demand deposits and so all money is on deposit at the bank.
-Refer to Scenario 29-2. Suppose the Bank of Tazi loaned the banks of Tazi 10 million tazes. Suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the same. By how much would the money supply change?

Accepted Answer

A)  250 million tazes 
B)  200 million tazes 
C)  125 million tazes 
D)  None of the above is correct. 
A)  250 million tazes 
B)  200 million tazes 
C)  125 million tazes 
D)  None of the above is correct.

Question 3

If the reserve requirement is 10 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $500, it

Accepted Answer

A)  must increase required reserves by $50. 
B)  will initially see reserves increase by $500. 
C)  will be able to use this deposit to make new loans amounting to $450. 
D)  All of the above are correct. 
A)  must increase required reserves by $50. 
B)  will initially see reserves increase by $500. 
C)  will be able to use this deposit to make new loans amounting to $450. 
D)  All of the above are correct.

Question 4

The money multiplier equals 1/1 - R), where R represents the reserve ratio.

Accepted Answer

A) True 
 B)False

Question 5

Suppose a bank is operating with a leverage rate of 10. A 6 percent increase in the value of assets

Accepted Answer

A)  will reduce liabilities by 6 percent. 
B)  will result in a 60 percent increase in owner's equity. 
C)  will result in a 60percent decrease in owner's equity. 
D)  will reduce liabilities by 10 percent. 
A)  will reduce liabilities by 6 percent. 
B)  will result in a 60 percent increase in owner's equity. 
C)  will result in a 60percent decrease in owner's equity. 
D)  will reduce liabilities by 10 percent.

Question 6

The manager of the bank where you work tells you that your bank has $10 million in excess reserves. She also tells you that the bank has $400 million in deposits and $375 million dollars in loans. Given this information you find that the reserve requirement must be

Accepted Answer

A)  10/400. 
B)  25/400. 
C)  35/400. 
D)  15/400. 
A)  10/400. 
B)  25/400. 
C)  35/400. 
D)  15/400.

Question 7

A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can given the reserve requirement.

Accepted Answer

A)  It has $80 in reserves and $9,920 in loans. 
B)  It has $800 in reserves and $9,200 in loans. 
C)  It has $1,250 in reserves and $8,750 in loans. 
D)  None of the above is correct. 
A)  It has $80 in reserves and $9,920 in loans. 
B)  It has $800 in reserves and $9,200 in loans. 
C)  It has $1,250 in reserves and $8,750 in loans. 
D)  None of the above is correct.

Question 8

Derek decides to forego a major appliance purchase and save the money. He transfers $2,100 from his checking account to his money market mutual fund. As a result of this transfer,

Accepted Answer

A)  both M1 and M2 decrease by $2,100. 
B)  M1 increases by $2,100 and M2 increases by $2,100. 
C)  M1 decreases by $2,100 and M2 increases by $2,100. 
D)  M1 decreases by $2,100 and M2 stays the same. 
A)  both M1 and M2 decrease by $2,100. 
B)  M1 increases by $2,100 and M2 increases by $2,100. 
C)  M1 decreases by $2,100 and M2 increases by $2,100. 
D)  M1 decreases by $2,100 and M2 stays the same.

Question 9

Banks are able to create money only when

Accepted Answer

A)  interest rates are above 2%. 
B)  the Fed sells U.S. government bonds. 
C)  the reserve ratio is 100%. 
D)  only a fraction of deposits are held in reserve. 
A)  interest rates are above 2%. 
B)  the Fed sells U.S. government bonds. 
C)  the reserve ratio is 100%. 
D)  only a fraction of deposits are held in reserve.

Question 10

Which of the following is not a reason the New York Federal Reserve Bank president always gets to vote at the Federal Open Market Committee meetings?

Accepted Answer

A)  New York is the traditional financial center of the U.S. economy. 
B)  All Fed purchases and sales of bonds go through the New York Fed's trading desk. 
C)  New York has higher population than other cities in the U.S. 
D)  All of the above are reasons. 
A)  New York is the traditional financial center of the U.S. economy. 
B)  All Fed purchases and sales of bonds go through the New York Fed's trading desk. 
C)  New York has higher population than other cities in the U.S. 
D)  All of the above are reasons.

Question 11

On a bank's T­account, which are part of the bank's assets?

Accepted Answer

A)  both deposits made by its customers and reserves 
B)  deposits made by its customers but not reserves 
C)  reserves but not deposits made by its customers 
D)  neither deposits made by its customers nor reserves 
A)  both deposits made by its customers and reserves 
B)  deposits made by its customers but not reserves 
C)  reserves but not deposits made by its customers 
D)  neither deposits made by its customers nor reserves

Question 12

When in France you notice that prices are posted in euros, this best illustrates money's function as

Accepted Answer

A)  a store of value. 
B)  a medium of exchange. 
C)  a unit of account. 
D)  a method of barter. 
A)  a store of value. 
B)  a medium of exchange. 
C)  a unit of account. 
D)  a method of barter.

Question 13

Table 29-5.
  
-Refer to Table 29-5. If the bank faces a reserve requirement of 8 percent, then the bank

Accepted Answer

A)  is in a position to make a new loan of $14,000. 
B)  has fewer reserves than are required. 
C)  has excess reserves of $16,400. 
D)  None of the above is correct. 
A)  is in a position to make a new loan of $14,000. 
B)  has fewer reserves than are required. 
C)  has excess reserves of $16,400. 
D)  None of the above is correct.

Question 14

Under a fractional-reserve banking system, banks

Accepted Answer

A)  hold more reserves than deposits. 
B)  generally lend out a majority of the funds deposited. 
C)  cause the money supply to fall by lending out reserves. 
D)  All of the above are correct. 
A)  hold more reserves than deposits. 
B)  generally lend out a majority of the funds deposited. 
C)  cause the money supply to fall by lending out reserves. 
D)  All of the above are correct.

Question 15

Table 29-6.
  
-Refer to Table 29-6. From the table it follows that the Bank of Pleasantville operates in a

Accepted Answer

A)  fractional-reserve banking system, since its reserves are less than its deposits. 
B)  fractional-reserve banking system, since its reserves are less than its loans. 
C)  100-percent-reserve banking system, since its assets are equal to its liabilities. 
D)  100­percent­reserve banking system if the Fed's reserve requirement is 10 percent; otherwise, it operates in a fractional-reserve banking system. 
A)  fractional-reserve banking system, since its reserves are less than its deposits. 
B)  fractional-reserve banking system, since its reserves are less than its loans. 
C)  100-percent-reserve banking system, since its assets are equal to its liabilities. 
D)  100­percent­reserve banking system if the Fed's reserve requirement is 10 percent; otherwise, it operates in a fractional-reserve banking system.

Question 16

In a fractional reserve economy where the required reserve ratio is 10%, must it be the case that an initial deposit of $100 increases the total money supply by $1,000? Explain.

Accepted Answer

No, this is not necessarily the case.
It

Question 17

When the Fed conducts open-market purchases,

Accepted Answer

A)  it buys Treasury securities, which increases the money supply. 
B)  it buys Treasury securities, which decreases the money supply. 
C)  it borrows money from member banks, which increases the money supply. 
D)  it lends money to member banks, which decreases the money supply. 
A)  it buys Treasury securities, which increases the money supply. 
B)  it buys Treasury securities, which decreases the money supply. 
C)  it borrows money from member banks, which increases the money supply. 
D)  it lends money to member banks, which decreases the money supply.

Question 18

The Federal Open Market Committee meets approximately

Accepted Answer

A)  every three weeks 
B)  every six weeks 
C)  every 3 months 
D)  every 6 months. 
A)  every three weeks 
B)  every six weeks 
C)  every 3 months 
D)  every 6 months.

Question 19

What is the difference between commodity money and fiat money? Why do people accept fiat money in trade for goods and services?

Accepted Answer

Commodity money has "intrinsic value," o

Question 20

Members of the Board of Governors of the Federal Reserve System are appointed for life.

Accepted Answer

A) True 
 B)False

Commodity money is

If the reserve requirement is 10 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $500, it

The money multiplier equals 1/1 - R), where R represents the reserve ratio.

Suppose a bank is operating with a leverage rate of 10. A 6 percent increase in the value of assets

The manager of the bank where you work tells you that your bank has $10 million in excess reserves. She also tells you that the bank has $400 million in deposits and $375 million dollars in loans. Given this information you find that the reserve requirement must be

A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can given the reserve requirement.

Derek decides to forego a major appliance purchase and save the money. He transfers $2,100 from his checking account to his money market mutual fund. As a result of this transfer,

Banks are able to create money only when

Which of the following is not a reason the New York Federal Reserve Bank president always gets to vote at the Federal Open Market Committee meetings?

On a bank's Taccount, which are part of the bank's assets?

When in France you notice that prices are posted in euros, this best illustrates money's function as

Table 29-5. -Refer to Table 29-5. If the bank faces a reserve requirement of 8 percent, then the bank

Under a fractional-reserve banking system, banks

Table 29-6. -Refer to Table 29-6. From the table it follows that the Bank of Pleasantville operates in a

In a fractional reserve economy where the required reserve ratio is 10%, must it be the case that an initial deposit of $100 increases the total money supply by $1,000? Explain.

When the Fed conducts open-market purchases,

The Federal Open Market Committee meets approximately

What is the difference between commodity money and fiat money? Why do people accept fiat money in trade for goods and services?

Members of the Board of Governors of the Federal Reserve System are appointed for life.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment and Its Natural Rate

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

Exam 11: The Monetary System

Commodity money is

If the reserve requirement is 10 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $500, it

The money multiplier equals 1/1 - R), where R represents the reserve ratio.

Suppose a bank is operating with a leverage rate of 10. A 6 percent increase in the value of assets

The manager of the bank where you work tells you that your bank has $10 million in excess reserves. She also tells you that the bank has $400 million in deposits and $375 million dollars in loans. Given this information you find that the reserve requirement must be

A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can given the reserve requirement.

Derek decides to forego a major appliance purchase and save the money. He transfers $2,100 from his checking account to his money market mutual fund. As a result of this transfer,

Banks are able to create money only when

Which of the following is not a reason the New York Federal Reserve Bank president always gets to vote at the Federal Open Market Committee meetings?

On a bank's T­account, which are part of the bank's assets?

When in France you notice that prices are posted in euros, this best illustrates money's function as

Table 29-5. -Refer to Table 29-5. If the bank faces a reserve requirement of 8 percent, then the bank

Under a fractional-reserve banking system, banks

Table 29-6. -Refer to Table 29-6. From the table it follows that the Bank of Pleasantville operates in a

In a fractional reserve economy where the required reserve ratio is 10%, must it be the case that an initial deposit of $100 increases the total money supply by $1,000? Explain.

When the Fed conducts open-market purchases,

The Federal Open Market Committee meets approximately

What is the difference between commodity money and fiat money? Why do people accept fiat money in trade for goods and services?

Members of the Board of Governors of the Federal Reserve System are appointed for life.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment and Its Natural Rate

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

On a bank's Taccount, which are part of the bank's assets?