Question 1

Which of the following functions of money is also a common function of most other financial assets?

Accepted Answer

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

Question 2

The members of the Federal Reserve's Board of Governors

Accepted Answer

A)  are elected to office by the public every fourteen years. 
B)  are nominated by the U.S. Senate banking committee and confirmed by the U.S. house of representatives. 
C)  are elected by bankers in each Federal Reserve Region. 
D)  are appointed by the president of the U.S. and confirmed by the U.S. Senate. 
A)  are elected to office by the public every fourteen years. 
B)  are nominated by the U.S. Senate banking committee and confirmed by the U.S. house of representatives. 
C)  are elected by bankers in each Federal Reserve Region. 
D)  are appointed by the president of the U.S. and confirmed by the U.S. Senate.

Question 3

If a bank has a reserve ratio of 8 percent, then

Accepted Answer

A)  government regulation requires the bank to use at least 8 percent of its deposits to make loans. 
B)  the bank's ratio of loans to deposits is 8 percent. 
C)  the bank keeps 8 percent of its deposits as reserves and loans out the rest. 
D)  the bank keeps 8 percent of its assets as reserves and loans out the rest. 
A)  government regulation requires the bank to use at least 8 percent of its deposits to make loans. 
B)  the bank's ratio of loans to deposits is 8 percent. 
C)  the bank keeps 8 percent of its deposits as reserves and loans out the rest. 
D)  the bank keeps 8 percent of its assets as reserves and loans out the rest.

Question 4

Which of the following is not a tool of monetary policy?

Accepted Answer

A)  open market operations 
B)  reserve requirements 
C)  changing the discount rate 
D)  increasing the government budget deficit 
A)  open market operations 
B)  reserve requirements 
C)  changing the discount rate 
D)  increasing the government budget deficit

Question 5

Which type of money has intrinsic value?

Accepted Answer

A)  commodity money 
B)  fiat money 
C)  both commodity money and fiat money 
D)  neither commodity money nor fiat money 
A)  commodity money 
B)  fiat money 
C)  both commodity money and fiat money 
D)  neither commodity money nor fiat money

Question 6

The money multiplier equals

Accepted Answer

A)  1/R, where R represents the quantity of reserves in the economy. 
B)  1/R, where R represents the reserve ratio for all banks in the economy. 
C)  1/1+R), where R represents the quantity of reserves in the economy. 
D)  1/1+R), where R represents the reserve ratio for all banks in the economy. 
A)  1/R, where R represents the quantity of reserves in the economy. 
B)  1/R, where R represents the reserve ratio for all banks in the economy. 
C)  1/1+R), where R represents the quantity of reserves in the economy. 
D)  1/1+R), where R represents the reserve ratio for all banks in the economy.

Question 7

A bank operates with reserves of $100, loans of $300 and securities of $100. The bank's only liability is deposits of $400 since it has zero debt. Calculate the bank's leverage ratio.

Accepted Answer

Since Assets - Liabilities equals Bank C

Question 8

If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

Accepted Answer

A)  buying bonds. This buying would reduce reserves. 
B)  buying bonds. This buying would increase reserves. 
C)  selling bonds. This selling would reduce reserves. 
D)  selling bonds. This selling would increase reserves. 
A)  buying bonds. This buying would reduce reserves. 
B)  buying bonds. This buying would increase reserves. 
C)  selling bonds. This selling would reduce reserves. 
D)  selling bonds. This selling would increase reserves.

Question 9

The primary difference between commodity money and fiat money is that

Accepted Answer

A)  commodity money is a medium of exchange but fiat money is not. 
B)  fiat money is a medium of exchange but commodity money is not. 
C)  commodity money has intrinsic value but fiat money does not. 
D)  fiat money has intrinsic value but commodity money does not. 
A)  commodity money is a medium of exchange but fiat money is not. 
B)  fiat money is a medium of exchange but commodity money is not. 
C)  commodity money has intrinsic value but fiat money does not. 
D)  fiat money has intrinsic value but commodity money does not.

Question 10

When the Fed conducts open-market purchases,

Accepted Answer

A)  banks buy Treasury securities from Fed, which increases the money supply. 
B)  banks buy Treasury securities from the Fed, which decreases the money supply. 
C)  it buys Treasury securities, which increases the money supply. 
D)  it buys Treasury securities, which decreases the money supply. 
A)  banks buy Treasury securities from Fed, which increases the money supply. 
B)  banks buy Treasury securities from the Fed, which decreases the money supply. 
C)  it buys Treasury securities, which increases the money supply. 
D)  it buys Treasury securities, which decreases the money supply.

Question 11

The federal funds rate is a long-term interest rate banks charge one another for loans.

Accepted Answer

A) True 
 B)False

Question 12

When the Fed purchases government bonds the money supply and the federal funds rate .

Accepted Answer

increases,

Question 13

The manager of the bank where you work tells you that your bank has $6 million in excess reserves. She also tells you that the bank has $400 million in deposits and $362 million dollars in loans. Given this information you find that the reserve requirement must be

Accepted Answer

A)  44/400. 
B)  6/362. 
C)  38/400. 
D)  32/400. 
A)  44/400. 
B)  6/362. 
C)  38/400. 
D)  32/400.

Question 14

Which of the following entities actually executes open-market operations?

Accepted Answer

A)  the Board of Governors 
B)  the New York Federal Reserve Bank 
C)  the Federal Open Market Committee 
D)  the Open Market Committees of the regional Federal Reserve Banks 
A)  the Board of Governors 
B)  the New York Federal Reserve Bank 
C)  the Federal Open Market Committee 
D)  the Open Market Committees of the regional Federal Reserve Banks

Question 15

Credit cards are

Accepted Answer

A)  a medium of exchange. 
B)  counted as part of M2 but not as part of M1. 
C)  important for analyzing the monetary system. 
D)  All of the above are correct. 
A)  a medium of exchange. 
B)  counted as part of M2 but not as part of M1. 
C)  important for analyzing the monetary system. 
D)  All of the above are correct.

Question 16

When we measure and record economic value, we use money as the

Accepted Answer

A)  liquid asset. 
B)  medium of exchange. 
C)  unit of account. 
D)  store of value. 
A)  liquid asset. 
B)  medium of exchange. 
C)  unit of account. 
D)  store of value.

Question 17

People can write checks against

Accepted Answer

A)  demand deposits and money market mutual funds 
B)  demand deposits but not money market mutual funds 
C)  money market mutual funds but not demand deposits 
D)  neither demand deposits nor money market mutual funds 
A)  demand deposits and money market mutual funds 
B)  demand deposits but not money market mutual funds 
C)  money market mutual funds but not demand deposits 
D)  neither demand deposits nor money market mutual funds

Question 18

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. What is the reserve requirement?

Accepted Answer

A)  12 percent 
B)  10 percent 
C)  8 percent 
D)  6 percent 
A)  12 percent 
B)  10 percent 
C)  8 percent 
D)  6 percent

Question 19

The Fed bonds when it conducts an open-market purchase. This action the money supply.

Accepted Answer

The answer of The Fed bonds when it conducts an...

Question 20

Sandra routinely uses currency to purchase her groceries. She is using money as a medium of exchange.

Accepted Answer

A) True 
 B)False

Exam 21: The Monetary System

Which of the following functions of money is also a common function of most other financial assets?

The members of the Federal Reserve's Board of Governors

If a bank has a reserve ratio of 8 percent, then

Which of the following is not a tool of monetary policy?

Which type of money has intrinsic value?

The money multiplier equals

A bank operates with reserves of $100, loans of $300 and securities of $100. The bank's only liability is deposits of $400 since it has zero debt. Calculate the bank's leverage ratio.

If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

The primary difference between commodity money and fiat money is that

When the Fed conducts open-market purchases,

The federal funds rate is a long-term interest rate banks charge one another for loans.

When the Fed purchases government bonds the money supply and the federal funds rate .

The manager of the bank where you work tells you that your bank has $6 million in excess reserves. She also tells you that the bank has $400 million in deposits and $362 million dollars in loans. Given this information you find that the reserve requirement must be

Which of the following entities actually executes open-market operations?

Credit cards are

When we measure and record economic value, we use money as the

People can write checks against

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. What is the reserve requirement?

The Fed bonds when it conducts an open-market purchase. This action the money supply.

Sandra routinely uses currency to purchase her groceries. She is using money as a medium of exchange.

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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