Question 1

In recent years the Federal Open Market Committee has focused on a target for

Accepted Answer

A)  M1 growth. 
B)  the federal funds rate. 
C)  the number of Treasury Securities issued by the federal government. 
D)  total reserves of banks. 
A)  M1 growth. 
B)  the federal funds rate. 
C)  the number of Treasury Securities issued by the federal government. 
D)  total reserves of banks.

Question 2

Suppose the Fed requires banks to hold 9 percent of their deposits as reserves. A bank has $18,000 of excess reserves and then sells the Fed a Treasury bill for $9,000. How much does this bank now have to lend out if it decides to hold only required reserves?

Accepted Answer

A)  $27,000 
B)  $27,190 
C)  $26,190 
D)  $9,000 
A)  $27,000 
B)  $27,190 
C)  $26,190 
D)  $9,000

Question 3

Economists use the word "money" to refer to

Accepted Answer

A)  income generated by the production of goods and services. 
B)  those assets regularly used to buy goods and services. 
C)  financial assets such as stocks and bonds. 
D)  any type of wealth. 
A)  income generated by the production of goods and services. 
B)  those assets regularly used to buy goods and services. 
C)  financial assets such as stocks and bonds. 
D)  any type of wealth.

Question 4

Imagine an economy in which: 1) pieces of paper called dollars are the only thing that buyers give to sellers when they buy goods and services, so it would be common to use, say, 50 dollars to buy a pair of shoes; 2) prices are posted in terms of yardsticks, so you might walk into a grocery store and see that, today, an apple is worth 2 yardsticks; and 3) yardsticks disintegrate overnight, so no yardstick has any value for more than 24 hours. In this economy,

Accepted Answer

A)  the yardstick is a medium of exchange but it cannot serve as a unit of account. 
B)  the yardstick is a unit of account but it cannot serve as a store of value. 
C)  the yardstick is a medium of exchange but it cannot serve as a store of value, and the yollar is a unit of account. 
D)  the yollar is a unit of account, but it is not a medium of exchange and it is not a liquid asset. 
A)  the yardstick is a medium of exchange but it cannot serve as a unit of account. 
B)  the yardstick is a unit of account but it cannot serve as a store of value. 
C)  the yardstick is a medium of exchange but it cannot serve as a store of value, and the yollar is a unit of account. 
D)  the yollar is a unit of account, but it is not a medium of exchange and it is not a liquid asset.

Question 5

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits. As a result, bank reserves will

Accepted Answer

A)  decrease and the money supply will eventually decrease. 
B)  decrease and the money supply will eventually increase. 
C)  increase and the money supply will eventually decrease. 
D)  increase and the money supply will eventually increase. 
A)  decrease and the money supply will eventually decrease. 
B)  decrease and the money supply will eventually increase. 
C)  increase and the money supply will eventually decrease. 
D)  increase and the money supply will eventually increase.

Question 6

Money is the most liquid asset available because

Accepted Answer

A)  it is a store of value. 
B)  it is a medium of exchange. 
C)  it is a unit of account. 
D)  it has intrinsic value. 
A)  it is a store of value. 
B)  it is a medium of exchange. 
C)  it is a unit of account. 
D)  it has intrinsic value.

Question 7

If the reserve ratio is 20 percent, then $100 of new reserves can generate

Accepted Answer

A)  $60 of new money in the economy. 
B)  $250 of new money in the economy. 
C)  $500 of new money in the economy. 
D)  $2,000 of new money in the economy. 
A)  $60 of new money in the economy. 
B)  $250 of new money in the economy. 
C)  $500 of new money in the economy. 
D)  $2,000 of new money in the economy.

Question 8

Which of the following is not included in M1?

Accepted Answer

A)  a $5 bill in your wallet 
B)  $100 in your checking account 
C)  $500 in your savings account 
D)  All of the above are included in M1. 
A)  a $5 bill in your wallet 
B)  $100 in your checking account 
C)  $500 in your savings account 
D)  All of the above are included in M1.

Question 9

Any item that people can use to transfer purchasing power from the present to the future is called

Accepted Answer

A)  a medium of exchange. 
B)  a unit of account. 
C)  a store of value. 
D)  None of the above is correct. 
A)  a medium of exchange. 
B)  a unit of account. 
C)  a store of value. 
D)  None of the above is correct.

Question 10

If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 15 percent receives a deposit of $600, it has a

Accepted Answer

A)  $600 increase in excess reserves and no increase in required reserves. 
B)  $600 increase in required reserves and no increase in excess reserves. 
C)  $510 increase in excess reserves and a $90 increase in required reserves. 
D)  $90 increase in excess reserves and a $510 increase in required reserves. 
A)  $600 increase in excess reserves and no increase in required reserves. 
B)  $600 increase in required reserves and no increase in excess reserves. 
C)  $510 increase in excess reserves and a $90 increase in required reserves. 
D)  $90 increase in excess reserves and a $510 increase in required reserves.

Question 11

In the nation of Wiknam, the money supply is $80,000 and reserves are $18,000. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

Accepted Answer

A)  29 percent. 
B)  22.5 percent. 
C)  16 percent. 
D)  None of the above is correct. 
A)  29 percent. 
B)  22.5 percent. 
C)  16 percent. 
D)  None of the above is correct.

Question 12

Economists equate money with

Accepted Answer

A)  individual wealth. 
B)  income regularly earned. 
C)  assets people use regularly to buy goods and services. 
D)  individual saving. 
A)  individual wealth. 
B)  income regularly earned. 
C)  assets people use regularly to buy goods and services. 
D)  individual saving.

Question 13

The Fed's control of the money supply is not precise because

Accepted Answer

A)  Congress can also make changes to the money supply. 
B)  there are not always government bonds available for purchase when the Fed wants to perform open-market operations. 
C)  the Fed does not know where all U.S. currency is located. 
D)  the amount of money in the economy depends in part on the behavior of depositors and bankers. 
A)  Congress can also make changes to the money supply. 
B)  there are not always government bonds available for purchase when the Fed wants to perform open-market operations. 
C)  the Fed does not know where all U.S. currency is located. 
D)  the amount of money in the economy depends in part on the behavior of depositors and bankers.

Question 14

Suppose a bank is operating with a leverage ratio of 20. What is the maximum decrease in the market value of assets before the bank becomes insolvent?

Accepted Answer

A leverage ratio of 20 implies each perc

Question 15

Table 29-9
Metropolis National Bank is currently holding 2% of its deposits as excess reserves.
  
-Refer to Table 29-9. Metropolis National Bank is currently holding 2% of deposits as excess reserves. Assuming that all banks have the same required reserve ratio, and then none want to hold excess reserves what is the value of the money multiplier?

Accepted Answer

A)  8.25 
B)  10 
C)  12 
D)  20 
A)  8.25 
B)  10 
C)  12 
D)  20

Question 16

If the central bank in some country raised the reserve requirement, then the money multiplier for that country

Accepted Answer

A)  would increase. 
B)  would not change. 
C)  would decrease. 
D)  could do any of the above. 
A)  would increase. 
B)  would not change. 
C)  would decrease. 
D)  could do any of the above.

Question 17

If the money multiplier decreased from 20 to 12.5, then

Accepted Answer

A)  the Fed increased the reserve ratio from 5 percent to 8 percent. 
B)  the Fed increased the fed funds rate from 5 percent to 8 percent. 
C)  the Fed decreased the reserve ratio from 8 percent to 5 percent. 
D)  the Fed decreased the fed funds rate from 8 percent to 5 percent. 
A)  the Fed increased the reserve ratio from 5 percent to 8 percent. 
B)  the Fed increased the fed funds rate from 5 percent to 8 percent. 
C)  the Fed decreased the reserve ratio from 8 percent to 5 percent. 
D)  the Fed decreased the fed funds rate from 8 percent to 5 percent.

Question 18

Paper money

Accepted Answer

A)  has a high intrinsic value. 
B)  is the primary medium of exchange in a barter economy. 
C)  is valuable because it is generally accepted in trade. 
D)  is valuable only because of the legal tender requirement. 
A)  has a high intrinsic value. 
B)  is the primary medium of exchange in a barter economy. 
C)  is valuable because it is generally accepted in trade. 
D)  is valuable only because of the legal tender requirement.

Question 19

Which two of the Ten Principles of Economics imply that the Fed can profoundly affect the economy?

Accepted Answer

1. Prices rise when the govern

Question 20

Suppose a bank purchases $50 of government securities using funds from reserves. How much do bank assets change as a result of this transaction?

Accepted Answer

In this case, the value of bank assets d

Exam 21: The Monetary System

In recent years the Federal Open Market Committee has focused on a target for

Suppose the Fed requires banks to hold 9 percent of their deposits as reserves. A bank has $18,000 of excess reserves and then sells the Fed a Treasury bill for $9,000. How much does this bank now have to lend out if it decides to hold only required reserves?

Economists use the word "money" to refer to

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits. As a result, bank reserves will

Money is the most liquid asset available because

If the reserve ratio is 20 percent, then $100 of new reserves can generate

Which of the following is not included in M1?

Any item that people can use to transfer purchasing power from the present to the future is called

If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 15 percent receives a deposit of $600, it has a

In the nation of Wiknam, the money supply is $80,000 and reserves are $18,000. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

Economists equate money with

The Fed's control of the money supply is not precise because

Suppose a bank is operating with a leverage ratio of 20. What is the maximum decrease in the market value of assets before the bank becomes insolvent?

If the central bank in some country raised the reserve requirement, then the money multiplier for that country

If the money multiplier decreased from 20 to 12.5, then

Paper money

Which two of the Ten Principles of Economics imply that the Fed can profoundly affect the economy?

Suppose a bank purchases $50 of government securities using funds from reserves. How much do bank assets change as a result of this transaction?

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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