Question 1

Which of the following can banks use to borrow from the Federal Reserve?

Accepted Answer

A)  the discount window or the term auction facility 
B)  the discount window but not the term auction facility 
C)  the term auction facility but not the discount window 
D)  Banks cannot borrow from the Federal Reserve, only the government can. 
A)  the discount window or the term auction facility 
B)  the discount window but not the term auction facility 
C)  the term auction facility but not the discount window 
D)  Banks cannot borrow from the Federal Reserve, only the government can. A

Question 2

The money supply decreases if

Accepted Answer

A)  households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively more excess reserves and make fewer loans. 
B)  households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively fewer excess reserves and make more loans. 
C)  households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively more excess reserves and make fewer loans. 
D)  households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively less excess reserves and make more loans. 
A)  households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively more excess reserves and make fewer loans. 
B)  households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively fewer excess reserves and make more loans. 
C)  households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively more excess reserves and make fewer loans. 
D)  households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively less excess reserves and make more loans. A

Question 3

Which of the following is not included in either M1 or M2?

Accepted Answer

A)  money market deposit accounts 
B)  large time deposit 
C)  demand deposits 
D)  money market mutual funds 
A)  money market deposit accounts 
B)  large time deposit 
C)  demand deposits 
D)  money market mutual funds B

Question 4

The Soviet government in the 1980's never abandoned the ruble as the official currency. However, the people of Moscow preferred to accept

Accepted Answer

A)  cigarettes in exchange for goods and services, because they were convinced that cigarettes were going to soon become hard to come by. 
B)  American dollars in exchange for goods and services, because rubles were extremely hard to come by. 
C)  goods such as cigarettes or American dollars in exchange for goods and services, reminding us of the fact that government decree by itself is not sufficient for the success of a commodity money. 
D)  All of the above are correct. 
A)  cigarettes in exchange for goods and services, because they were convinced that cigarettes were going to soon become hard to come by. 
B)  American dollars in exchange for goods and services, because rubles were extremely hard to come by. 
C)  goods such as cigarettes or American dollars in exchange for goods and services, reminding us of the fact that government decree by itself is not sufficient for the success of a commodity money. 
D)  All of the above are correct.

Question 5

Which of the following is included in M1 and M2?

Accepted Answer

A)  traveler's checks 
B)  savings deposits 
C)  money market mutual funds 
D)  small time deposits 
A)  traveler's checks 
B)  savings deposits 
C)  money market mutual funds 
D)  small time deposits

Question 6

Table 29-7.
  
-Refer to Table 29-7. Assuming the Bank of Springfield and all other banks have the same reserve ratio, then what is the value of the money multiplier?

Accepted Answer

A)  1.1 
B)  12.3 
C)  8.1 
D)  9.1 
A)  1.1 
B)  12.3 
C)  8.1 
D)  9.1

Question 7

Which of the following is a function of money?

Accepted Answer

A)  a unit of account 
B)  a store of value 
C)  medium of exchange 
D)  All of the above are correct. 
A)  a unit of account 
B)  a store of value 
C)  medium of exchange 
D)  All of the above are correct.

Question 8

All U.S. paper dollars read "This note is legal tender for all debts, public and private." This statement represents which characteristic of US currency?

Accepted Answer

A)  The U.S. operates under the gold standard. 
B)  U.S. paper money is commodity money. 
C)  U.S. paper money is fiat money. 
D)  U.S. paper money is a convenient store of wealth. 
A)  The U.S. operates under the gold standard. 
B)  U.S. paper money is commodity money. 
C)  U.S. paper money is fiat money. 
D)  U.S. paper money is a convenient store of wealth.

Question 9

If the reserve ratio is 8 percent, then an additional $800 of reserves can increase the money supply by as much as

Accepted Answer

A)  $6,400. 
B)  $8,000. 
C)  $12,500. 
D)  $10,000. 
A)  $6,400. 
B)  $8,000. 
C)  $12,500. 
D)  $10,000.

Question 10

An increase in the money supply might indicate that the Fed had

Accepted Answer

A)  purchased bonds in an attempt to increase the federal funds rate. 
B)  purchased bonds in an attempt to reduce the federal funds rate. 
C)  sold bonds in an attempt to increase the federal funds rate. 
D)  sold bonds in an attempt to reduce the federal funds rate. 
A)  purchased bonds in an attempt to increase the federal funds rate. 
B)  purchased bonds in an attempt to reduce the federal funds rate. 
C)  sold bonds in an attempt to increase the federal funds rate. 
D)  sold bonds in an attempt to reduce the federal funds rate.

Question 11

The money supply increases when the Fed

Accepted Answer

A)  lowers the discount rate. The increase will be larger the smaller the reserve ratio is. 
B)  lowers the discount rate. The increase will be larger the larger the reserve ratio is. 
C)  raises the discount rate. The increase will be larger the smaller the reserve ratio is. 
D)  raises the discount rate. The increase will be larger the larger the reserve ratio is. 
A)  lowers the discount rate. The increase will be larger the smaller the reserve ratio is. 
B)  lowers the discount rate. The increase will be larger the larger the reserve ratio is. 
C)  raises the discount rate. The increase will be larger the smaller the reserve ratio is. 
D)  raises the discount rate. The increase will be larger the larger the reserve ratio is.

Question 12

The Fed can increase the money supply by conducting open-market

Accepted Answer

A)  sales or by raising the discount rate. 
B)  sales or by lowering the discount rate. 
C)  purchases or by raising the discount rate. 
D)  purchases or by lowering the discount rate. 
A)  sales or by raising the discount rate. 
B)  sales or by lowering the discount rate. 
C)  purchases or by raising the discount rate. 
D)  purchases or by lowering the discount rate.

Question 13

Describe how the use of leverage affects the impact of bank investments.

Accepted Answer

Leverage amplifies the impact from chang

Question 14

Describe the two things that limit the precision of the Fed's control of the money supply and explain how each limits that control.

Accepted Answer

First, the Fed does not control the amou

Question 15

Which of the following is included in M2 but not in M1?

Accepted Answer

A)  demand deposits 
B)  corporate bonds 
C)  large time deposits 
D)  money market mutual funds 
A)  demand deposits 
B)  corporate bonds 
C)  large time deposits 
D)  money market mutual funds

Question 16

You receive money as payment for babysitting your neighbors' children. This best illustrates which function of money?

Accepted Answer

A)  medium of exchange 
B)  unit of account 
C)  store of value 
D)  liquidity 
A)  medium of exchange 
B)  unit of account 
C)  store of value 
D)  liquidity

Question 17

Scenario 29-1.
The monetary policy of Namdian is determined by the Namdian Central Bank. The local currency is the dia. Namdian banks collectively hold 100 million dias of required reserves, 25 million dias of excess reserves, 250 million dias of Namdian Treasury Bonds, and their customers hold 1,000 million dias of deposits. Namdians prefer to use only demand deposits and so the money supply consists of demand deposits.
-Refer to Scenario 29-1. Assuming the only other item Namdian banks have on their balance sheets is loans, what is the value of existing loans made by Namdian banks?

Accepted Answer

A)  625 million dias 
B)  875 million dias 
C)  1,125 million dias 
D)  None of the above is correct. 
A)  625 million dias 
B)  875 million dias 
C)  1,125 million dias 
D)  None of the above is correct.

Question 18

Money market mutual funds are included in

Accepted Answer

A)  M1 but not M2. 
B)  M1 and M2. 
C)  M2 but not M1. 
D)  neither M1 nor M2. 
A)  M1 but not M2. 
B)  M1 and M2. 
C)  M2 but not M1. 
D)  neither M1 nor M2.

Question 19

Other things the same, if reserve requirements are increased, the reserve ratio

Accepted Answer

A)  increases, the money multiplier increases, and the money supply increases. 
B)  increases, the money multiplier decreases, and the money supply decreases. 
C)  decreases, the money multiplier increases, and the money supply increases. 
D)  decreases, the money multiplier decreases, and the money supply increases. 
A)  increases, the money multiplier increases, and the money supply increases. 
B)  increases, the money multiplier decreases, and the money supply decreases. 
C)  decreases, the money multiplier increases, and the money supply increases. 
D)  decreases, the money multiplier decreases, and the money supply increases.

Question 20

Members of the Board of Governors are appointed by the president of the U.S. and confirmed by the U.S. Senate.

Accepted Answer

A) True 
 B)False

Exam 21: The Monetary System

Which of the following can banks use to borrow from the Federal Reserve?

The money supply decreases if

Which of the following is not included in either M1 or M2?

The Soviet government in the 1980's never abandoned the ruble as the official currency. However, the people of Moscow preferred to accept

Which of the following is included in M1 and M2?

Table 29-7. -Refer to Table 29-7. Assuming the Bank of Springfield and all other banks have the same reserve ratio, then what is the value of the money multiplier?

Which of the following is a function of money?

All U.S. paper dollars read "This note is legal tender for all debts, public and private." This statement represents which characteristic of US currency?

If the reserve ratio is 8 percent, then an additional $800 of reserves can increase the money supply by as much as

An increase in the money supply might indicate that the Fed had

The money supply increases when the Fed

The Fed can increase the money supply by conducting open-market

Describe how the use of leverage affects the impact of bank investments.

Describe the two things that limit the precision of the Fed's control of the money supply and explain how each limits that control.

Which of the following is included in M2 but not in M1?

You receive money as payment for babysitting your neighbors' children. This best illustrates which function of money?

Money market mutual funds are included in

Other things the same, if reserve requirements are increased, the reserve ratio

Members of the Board of Governors are appointed by the president of the U.S. and confirmed by the U.S. Senate.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Costs of Production

Firms in Competitive Markets

Monopoly

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

Money Growth and Inflation

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

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