Question 1

When the Federal Reserve sells assets from its portfolio to the public with the intent of changing the money supply,

Accepted Answer

A)  those assets are government bonds and the Fed's reason for selling them is to increase the money supply. 
B)  those assets are government bonds and the Fed's reason for selling them is to decrease the money supply. 
C)  those assets are items that are included in M2 and the Fed's reason for selling them is to increase the money supply. 
D)  those assets are items that are included in M2 and the Fed's reason for selling them is to decrease the money supply. 
A)  those assets are government bonds and the Fed's reason for selling them is to increase the money supply. 
B)  those assets are government bonds and the Fed's reason for selling them is to decrease the money supply. 
C)  those assets are items that are included in M2 and the Fed's reason for selling them is to increase the money supply. 
D)  those assets are items that are included in M2 and the Fed's reason for selling them is to decrease the money supply.

Question 2

Which of the following statements is correct?

Accepted Answer

A)  All items that are included in M1 are included also in M2. 
B)  All items that are included in M2 are included also in M1. 
C)  Credit cards are included in both M1 and M2. 
D)  Savings deposits are included in both M1 and M2. 
A)  All items that are included in M1 are included also in M2. 
B)  All items that are included in M2 are included also in M1. 
C)  Credit cards are included in both M1 and M2. 
D)  Savings deposits are included in both M1 and M2.

Question 3

The ease with which an asset can be converted into the economy's medium of exchange is known as__________________.

Accepted Answer

The answer of The ease with which an asset can...

Question 4

Which of the following is a liability of a bank and an asset of its customers?

Accepted Answer

A)  deposits of its customers and loans to its customers 
B)  deposits of its customers but not loans to its customers 
C)  loans of its customers but not the deposits of its customers 
D)  neither the deposits of its customers nor the loans to its customers 
A)  deposits of its customers and loans to its customers 
B)  deposits of its customers but not loans to its customers 
C)  loans of its customers but not the deposits of its customers 
D)  neither the deposits of its customers nor the loans to its customers

Question 5

Describe the role of the Federal Deposit Insurance Corporation FDIC).

Accepted Answer

The FDIC is the primary mechanism by whi

Question 6

Table 29-7.
  
-Refer to Table 29-7. If the Fed requires a reserve ratio of 6 percent, then what quantity of excess reserves does the Bank of Springfield now hold?

Accepted Answer

A)  $9,600 
B)  $10,800 
C)  $10,200 
D)  $9,000 
A)  $9,600 
B)  $10,800 
C)  $10,200 
D)  $9,000

Question 7

When the Fed buys government bonds,

Accepted Answer

A)  the money supply increases and the federal funds rate increases. 
B)  the money supply increases and the federal funds rate decreases. 
C)  the money supply decreases and the federal funds rate increases. 
D)  the money supply decreases and the federal funds rate decreases. 
A)  the money supply increases and the federal funds rate increases. 
B)  the money supply increases and the federal funds rate decreases. 
C)  the money supply decreases and the federal funds rate increases. 
D)  the money supply decreases and the federal funds rate decreases.

Question 8

Which of the following best illustrates the concept of a store of value?

Accepted Answer

A)  You are a precious-metals dealer, and you are always aware of how many ounces of platinum trade for an ounce of gold. 
B)  You sell items on eBay, and your prices are stated in terms of dollars. 
C)  You keep 6 ounces of gold in your safe-deposit box at the bank for emergencies. 
D)  None of the above is correct. 
A)  You are a precious-metals dealer, and you are always aware of how many ounces of platinum trade for an ounce of gold. 
B)  You sell items on eBay, and your prices are stated in terms of dollars. 
C)  You keep 6 ounces of gold in your safe-deposit box at the bank for emergencies. 
D)  None of the above is correct.

Question 9

M1 equals currency plus demand deposits plus

Accepted Answer

A)  nothing else. 
B)  other checkable deposits. 
C)  traveler's checks plus other checkable deposits. 
D)  traveler's checks plus other checkable deposits plus savings deposits. 
A)  nothing else. 
B)  other checkable deposits. 
C)  traveler's checks plus other checkable deposits. 
D)  traveler's checks plus other checkable deposits plus savings deposits.

Question 10

If people decide to hold more currency relative to deposits, the money supply

Accepted Answer

A)  falls. The Fed could lessen the impact of this by buying Treasury bonds. 
B)  falls. The Fed could lessen the impact of this by selling Treasury bonds. 
C)  rises. The Fed could lessen the impact of this by buying Treasury bonds. 
D)  rises. The Fed could lessen the impact of the by selling Treasury bonds. 
A)  falls. The Fed could lessen the impact of this by buying Treasury bonds. 
B)  falls. The Fed could lessen the impact of this by selling Treasury bonds. 
C)  rises. The Fed could lessen the impact of this by buying Treasury bonds. 
D)  rises. The Fed could lessen the impact of the by selling Treasury bonds.

Question 11

The Fed's policy decisions have an important influence on

Accepted Answer

A)  inflation in the long run and employment and production in the short run. 
B)  inflation in the long run and employment and production in the long run. 
C)  inflation in the short run and employment and production in the short run. 
D)  inflation in the short run and employment and production in the long run. 
A)  inflation in the long run and employment and production in the short run. 
B)  inflation in the long run and employment and production in the long run. 
C)  inflation in the short run and employment and production in the short run. 
D)  inflation in the short run and employment and production in the long run.

Question 12

People hold $400 million of bank deposits but no currency. Banks have made $380 million dollars of loans and only hold enough reserves to satisfy reserve requirements. Because of uncertainty, banks choose to hold $10 million more in reserves. The Fed takes no action. What happens to bank loans?

Accepted Answer

A)  they fall $220 million 
B)  they fall $200 million 
C)  they rise $200 million 
D)  they rise $220 million 
A)  they fall $220 million 
B)  they fall $200 million 
C)  they rise $200 million 
D)  they rise $220 million

Question 13

Which of the following does the Federal Reserve not do?

Accepted Answer

A)  It controls the supply of money. 
B)  It acts as a lender of last resort to banks. 
C)  It makes loans to any qualified business that requests one. 
D)  It tries to ensure the health of the banking system. 
A)  It controls the supply of money. 
B)  It acts as a lender of last resort to banks. 
C)  It makes loans to any qualified business that requests one. 
D)  It tries to ensure the health of the banking system.

Question 14

Over one time horizon or another, Fed policy decisions influence

Accepted Answer

A)  inflation and employment. 
B)  inflation but not employment. 
C)  employment but not inflation. 
D)  neither inflation nor employment. 
A)  inflation and employment. 
B)  inflation but not employment. 
C)  employment but not inflation. 
D)  neither inflation nor employment.

Question 15

Table 29-7.
  
-Refer to Table 29-7. Assume the Fed's reserve requirement is 10 percent and that the Bank of Springfield makes new loans so as to make its new reserve ratio 10 percent. From then on, no bank holds any excess reserves. Assume also that people hold only deposits and no currency. Then by what amount does the economy's money supply increase?

Accepted Answer

A)  $37,800 
B)  $18,000 
C)  $2,000 
D)  $16,300 
A)  $37,800 
B)  $18,000 
C)  $2,000 
D)  $16,300

Question 16

The discount rate is the interest rate that

Accepted Answer

A)  banks charge one another for loans. 
B)  banks charge the Fed for loans. 
C)  the Fed charges banks for loans. 
D)  the Fed charges Congress for loans. 
A)  banks charge one another for loans. 
B)  banks charge the Fed for loans. 
C)  the Fed charges banks for loans. 
D)  the Fed charges Congress for loans.

Question 17

What makes the New York Federal Reserve regional bank so important?

Accepted Answer

The president of the New York Federal Re

Question 18

As banks create money, they create wealth.

Accepted Answer

A) True 
 B)False

Question 19

Name three actions the Fed can take to increase the money supply.

Accepted Answer

Open-market purchases buy gove

Question 20

At one time, people in a certain country had no access to banks; they relied exclusively on currency. Then, a fractional-reserve banking system was created. As a result, the money supply

Accepted Answer

A)  increased. The central bank could have reduced the size of this increase by buying bonds. 
B)  increased. The central bank could have reduced the size of this increase by selling bonds. 
C)  decreased. The central bank could have reduced the size of this decrease by buying bonds. 
D)  decreased. The central bank could have reduced the size of this decrease by selling bonds. 
A)  increased. The central bank could have reduced the size of this increase by buying bonds. 
B)  increased. The central bank could have reduced the size of this increase by selling bonds. 
C)  decreased. The central bank could have reduced the size of this decrease by buying bonds. 
D)  decreased. The central bank could have reduced the size of this decrease by selling bonds.

Exam 21: The Monetary System

When the Federal Reserve sells assets from its portfolio to the public with the intent of changing the money supply,

Which of the following statements is correct?

The ease with which an asset can be converted into the economy's medium of exchange is known as__________________.

Which of the following is a liability of a bank and an asset of its customers?

Describe the role of the Federal Deposit Insurance Corporation FDIC).

Table 29-7. -Refer to Table 29-7. If the Fed requires a reserve ratio of 6 percent, then what quantity of excess reserves does the Bank of Springfield now hold?

When the Fed buys government bonds,

Which of the following best illustrates the concept of a store of value?

M1 equals currency plus demand deposits plus

If people decide to hold more currency relative to deposits, the money supply

The Fed's policy decisions have an important influence on

People hold $400 million of bank deposits but no currency. Banks have made $380 million dollars of loans and only hold enough reserves to satisfy reserve requirements. Because of uncertainty, banks choose to hold $10 million more in reserves. The Fed takes no action. What happens to bank loans?

Which of the following does the Federal Reserve not do?

Over one time horizon or another, Fed policy decisions influence

The discount rate is the interest rate that

What makes the New York Federal Reserve regional bank so important?

As banks create money, they create wealth.

Name three actions the Fed can take to increase the money supply.

At one time, people in a certain country had no access to banks; they relied exclusively on currency. Then, a fractional-reserve banking system was created. As a result, the money supply

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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