Question 1

The existence of money leads to

Accepted Answer

A)  greater specialization in production, but not to a higher standard of living. 
B)  a higher standard of living, but not to greater specialization. 
C)  greater specialization and to a higher standard of living. 
D)  neither greater specialization nor to a higher standard of living. 
A)  greater specialization in production, but not to a higher standard of living. 
B)  a higher standard of living, but not to greater specialization. 
C)  greater specialization and to a higher standard of living. 
D)  neither greater specialization nor to a higher standard of living.

Question 2

The manager of the bank where you work tells you that the bank has $400 million in deposits and $340 million dollars in loans. The Fed then raises the reserve requirement from 5 percent to 10 percent. Assuming everything else stays the same, how much is the bank holding in excess reserves after the increase in the reserve requirement?

Accepted Answer

A)  $0 
B)  $20 million 
C)  $40 million 
D)  $60 million 
A)  $0 
B)  $20 million 
C)  $40 million 
D)  $60 million

Question 3

Suppose banks decide to hold fewer excess reserves relative to deposits. Other things the same, this action will cause the

Accepted Answer

A)  money supply to fall. To reduce the impact of this the Fed could sell Treasury bonds. 
B)  money supply to fall. To reduce the impact of this the Fed could buy Treasury bonds. 
C)  money supply to rise. To reduce the impact of this the Fed could sell Treasury bonds. 
D)  money supply to rise. To reduce the impact of this the Fed could buy Treasury bonds. 
A)  money supply to fall. To reduce the impact of this the Fed could sell Treasury bonds. 
B)  money supply to fall. To reduce the impact of this the Fed could buy Treasury bonds. 
C)  money supply to rise. To reduce the impact of this the Fed could sell Treasury bonds. 
D)  money supply to rise. To reduce the impact of this the Fed could buy Treasury bonds.

Question 4

Which of the following is correct concerning the FOMC?

Accepted Answer

A)  the members of the Board of Governors have the majority of the votes 
B)  the New York Federal Reserve Bank District President is always a voting member 
C)  all Federal Reserve Bank presidents attend the meetings 
D)  All of the above are correct. 
A)  the members of the Board of Governors have the majority of the votes 
B)  the New York Federal Reserve Bank District President is always a voting member 
C)  all Federal Reserve Bank presidents attend the meetings 
D)  All of the above are correct.

Question 5

Monetary policy is determined by a committee whose voting members include all the presidents of the regional Federal Reserve Banks.

Accepted Answer

A) True 
 B)False

Question 6

What does the text mean by the question, "Where Is All the Currency?" How does it answer the question?

Accepted Answer

The amount of currency per person is nea

Question 7

If the Federal Open Market Committee decides to increase the money supply, then the Federal Reserve

Accepted Answer

A)  creates dollars and uses them to purchase government bonds from the public. 
B)  sells government bonds from its portfolio to the public. 
C)  creates dollars and uses them to purchase various types of stocks and bonds from the public. 
D)  sells various types of stocks and bonds from its portfolio to the public. 
A)  creates dollars and uses them to purchase government bonds from the public. 
B)  sells government bonds from its portfolio to the public. 
C)  creates dollars and uses them to purchase various types of stocks and bonds from the public. 
D)  sells various types of stocks and bonds from its portfolio to the public.

Question 8

In a 100-percent-reserve banking system, if people decided to decrease the amount of currency they held by increasing the amount they held in checkable deposits, then

Accepted Answer

A)  M1 would increase. 
B)  M1 would decrease. 
C)  M1 would not change. 
D)  M1 might rise or fall. 
A)  M1 would increase. 
B)  M1 would decrease. 
C)  M1 would not change. 
D)  M1 might rise or fall.

Question 9

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 10

The Federal Reserve is a privately operated commercial bank.

Accepted Answer

A) True 
 B)False

Question 11

You use U.S. currency to pay the owner of a restaurant for a delicious meal. The currency

Accepted Answer

A)  has no intrinsic value. The exchange is an example of barter. 
B)  has no intrinsic value. The exchange is not an example of barter 
C)  has intrinsic value. The exchange is not an example of barter. 
D)  has intrinsic value. The exchange is not an example of barter 
A)  has no intrinsic value. The exchange is an example of barter. 
B)  has no intrinsic value. The exchange is not an example of barter 
C)  has intrinsic value. The exchange is not an example of barter. 
D)  has intrinsic value. The exchange is not an example of barter

Question 12

If the money multiplier is 3 and the Fed buys $50,000 worth of bonds, what happens to the money supply?

Accepted Answer

A)  it increases by $100,000 
B)  it increases by $150,000 
C)  it decreases by $100,000 
D)  it decreases by $200,000 
A)  it increases by $100,000 
B)  it increases by $150,000 
C)  it decreases by $100,000 
D)  it decreases by $200,000

Question 13

A bank has a 10 percent reserve requirement, $36,000 in loans, and has loaned out all it can given the reserve requirement.

Accepted Answer

A)  It has $3,600 in deposits. 
B)  It has $32,400 in deposits. 
C)  It has $39,600 in deposits. 
D)  It has $40,000 in deposits. 
A)  It has $3,600 in deposits. 
B)  It has $32,400 in deposits. 
C)  It has $39,600 in deposits. 
D)  It has $40,000 in deposits.

Question 14

Savings deposits are included in

Accepted Answer

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

Question 15

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 16

If the reserve ratio is 10 percent, $1,400 of additional reserves can create up to

Accepted Answer

A)  $140 of new money. 
B)  $14,000 of new money. 
C)  $140,000 of new money. 
D)  None of the above is correct. 
A)  $140 of new money. 
B)  $14,000 of new money. 
C)  $140,000 of new money. 
D)  None of the above is correct.

Question 17

If the public decides to hold more currency and fewer deposits in banks, bank reserves

Accepted Answer

A)  decrease and the money supply eventually decreases. 
B)  decrease but the money supply does not change. 
C)  increase and the money supply eventually increases. 
D)  increase but the money supply does not change. 
A)  decrease and the money supply eventually decreases. 
B)  decrease but the money supply does not change. 
C)  increase and the money supply eventually increases. 
D)  increase but the money supply does not change.

Question 18

If the federal funds rate were below 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 increase the money supply. 
B)  buying bonds. This buying would reduce the money supply. 
C)  selling bonds. This selling would increase the money supply. 
D)  selling bonds. This selling would reduce the money supply. 
A)  buying bonds. This buying would increase the money supply. 
B)  buying bonds. This buying would reduce the money supply. 
C)  selling bonds. This selling would increase the money supply. 
D)  selling bonds. This selling would reduce the money supply.

Question 19

In 1991, the Federal Reserve lowered the reserve requirement from 12 percent to 10 percent. Other things the same this should have

Accepted Answer

A)  increased both the money multiplier and the money supply. 
B)  decreased both the money multiplier and the money supply. 
C)  increased the money multiplier and decreased the money supply. 
D)  decreased the money multiplier and increased the money supply. 
A)  increased both the money multiplier and the money supply. 
B)  decreased both the money multiplier and the money supply. 
C)  increased the money multiplier and decreased the money supply. 
D)  decreased the money multiplier and increased the money supply.

Question 20

If the Fed decreases reserve requirements, the money supply will increase.

Accepted Answer

A) True 
 B)False

Exam 21: The Monetary System

The existence of money leads to

Suppose banks decide to hold fewer excess reserves relative to deposits. Other things the same, this action will cause the

Which of the following is correct concerning the FOMC?

Monetary policy is determined by a committee whose voting members include all the presidents of the regional Federal Reserve Banks.

What does the text mean by the question, "Where Is All the Currency?" How does it answer the question?

If the Federal Open Market Committee decides to increase the money supply, then the Federal Reserve

In a 100-percent-reserve banking system, if people decided to decrease the amount of currency they held by increasing the amount they held in checkable deposits, then

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

The Federal Reserve is a privately operated commercial bank.

You use U.S. currency to pay the owner of a restaurant for a delicious meal. The currency

If the money multiplier is 3 and the Fed buys $50,000 worth of bonds, what happens to the money supply?

A bank has a 10 percent reserve requirement, $36,000 in loans, and has loaned out all it can given the reserve requirement.

Savings deposits are included in

If the reserve ratio is 10 percent, $1,400 of additional reserves can create up to

If the public decides to hold more currency and fewer deposits in banks, bank reserves

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

In 1991, the Federal Reserve lowered the reserve requirement from 12 percent to 10 percent. Other things the same this should have

If the Fed decreases reserve requirements, the money supply will increase.

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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