Question 1

If the reserve ratio increased from 10 percent to 20 percent, the money multiplier would

Accepted Answer

A)  rise from 10 to 20. 
B)  rise from 5 to 10. 
C)  fall from 10 to 5. 
D)  not change. 
A)  rise from 10 to 20. 
B)  rise from 5 to 10. 
C)  fall from 10 to 5. 
D)  not change.

Question 2

Describe the role of bank leverage in bank insolvency during times of falling asset prices.

Accepted Answer

As bank asset values fall, the effect on

Question 3

Assume that when $100 of new reserves enter the banking system, the money supply ultimately increases by $800. Assume also that no banks hold excess reserves and that the entire money supply consists of bank deposits. If, at a point in time, reserves for all banks amount to $750, then at that same point in time, loans for all banks amount to $6,000.

Accepted Answer

A) True 
 B)False

Question 4

If the reserve ratio is 15 percent, and banks do not hold excess reserves, and people hold only deposits and no currency, then when the Fed sells $25.5 million worth of bonds to the public, bank reserves

Accepted Answer

A)  increase by $25.5 million and the money supply eventually increases by $382.5 million. 
B)  increase by $25.5 million and the money supply eventually increases by $170 million. 
C)  decrease by $25.5 million and the money supply eventually decreases by $382.5 million. 
D)  decrease by $25.5 million and the money supply eventually decreases by $170 million. 
A)  increase by $25.5 million and the money supply eventually increases by $382.5 million. 
B)  increase by $25.5 million and the money supply eventually increases by $170 million. 
C)  decrease by $25.5 million and the money supply eventually decreases by $382.5 million. 
D)  decrease by $25.5 million and the money supply eventually decreases by $170 million.

Question 5

Why is the Chairman of the Federal Reserve often referred to as the "second most powerful person in the United States?"

Accepted Answer

The Fed's policy decisions influence the

Question 6

In measuring the stock of money in the U.S., M1 includes

Accepted Answer

A)  traveler's checks. 
B)  savings deposits. 
C)  credit cards 
D)  none of the above. 
A)  traveler's checks. 
B)  savings deposits. 
C)  credit cards 
D)  none of the above.

Question 7

During a bank run, depositors decide to hold more currency relative to deposits and banks decide to hold more excess reserves relative to deposits.

Accepted Answer

A)  Both the decision to hold relatively more currency and the decision to hold relatively more excess reserves would make the money supply increase. 
B)  Both the decision to hold relatively more currency and the decision to hold relatively more excess reserves would make the money supply decrease 
C)  The decision to hold relatively more currency would make the money supply increase. The decision to hold relatively more excess reserves would make the money supply decrease. 
D)  The decision to hold relatively more currency would make the money supply increase. The decision to hold relatively more excess reserves would make the money supply decrease 
A)  Both the decision to hold relatively more currency and the decision to hold relatively more excess reserves would make the money supply increase. 
B)  Both the decision to hold relatively more currency and the decision to hold relatively more excess reserves would make the money supply decrease 
C)  The decision to hold relatively more currency would make the money supply increase. The decision to hold relatively more excess reserves would make the money supply decrease. 
D)  The decision to hold relatively more currency would make the money supply increase. The decision to hold relatively more excess reserves would make the money supply decrease

Question 8

Table 29-3. An economy starts with $50,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $45,750. The T-account of the bank is shown below.
  
-Refer to Table 29-3. The bank's reserve ratio is

Accepted Answer

A)  17.5 percent. 
B)  8.5 percent. 
C)  91.5 percent. 
D)  100 percent. 
A)  17.5 percent. 
B)  8.5 percent. 
C)  91.5 percent. 
D)  100 percent.

Question 9

When the Fed sells 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 10

Suppose the banking system currently has $300 billion in reserves, the reserve requirement is 5 percent, and excess reserves are $30 billion. What is the level of loans?

Accepted Answer

A)  $270 billion 
B)  $5,400 billion 
C)  $6,000 billion 
D)  $5,100 billion 
A)  $270 billion 
B)  $5,400 billion 
C)  $6,000 billion 
D)  $5,100 billion

Question 11

In the 19th century, when crop failures often led to bank runs, banks would make relatively fewer loans and hold relatively more excess reserves. By itself, these actions by the banks should have

Accepted Answer

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

Question 12

Consider four survivors on an island.   Which of the following pairs of survivors has a double-coincidence of wants?

Accepted Answer

A)  Ron with Alice, and Ron with Lee 
B)  Alice with Lee 
C)  Ron with Raymond 
D)  None of the above are correct. 
A)  Ron with Alice, and Ron with Lee 
B)  Alice with Lee 
C)  Ron with Raymond 
D)  None of the above are correct.

Question 13

In a fractional-reserve banking system with no excess reserves and no currency holdings, if the central bank buys $100 million worth of bonds,

Accepted Answer

A)  reserves and the money supply increase by less than $100 million. 
B)  reserves increase by $100 million and the money supply increases by $100 million. 
C)  reserves increase by $100 million and the money supply increases by more than $100 million. 
D)  both reserves and the money supply increase by more than $100 million. 
A)  reserves and the money supply increase by less than $100 million. 
B)  reserves increase by $100 million and the money supply increases by $100 million. 
C)  reserves increase by $100 million and the money supply increases by more than $100 million. 
D)  both reserves and the money supply increase by more than $100 million.

Question 14

If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by

Accepted Answer

A)  $64 of new reserves. 
B)  $448 of new reserves. 
C)  $700 of new reserves. 
D)  $800 of new reserves. 
A)  $64 of new reserves. 
B)  $448 of new reserves. 
C)  $700 of new reserves. 
D)  $800 of new reserves.

Question 15

The reserve requirement is 12 percent. Lucy deposits $600 into a bank. By how much do excess reserves change?

Accepted Answer

A)  $600 
B)  $528 
C)  $72 
D)  $12 
A)  $600 
B)  $528 
C)  $72 
D)  $12

Question 16

If the reserve ratio is 8 percent, then the money multiplier is

Accepted Answer

A)  12.5. 
B)  11.5. 
C)  13.5. 
D)  8. 
A)  12.5. 
B)  11.5. 
C)  13.5. 
D)  8.

Question 17

Which of the following is included in both M1 and M2?

Accepted Answer

A)  savings deposits 
B)  demand deposits 
C)  small time deposits 
D)  money market mutual funds 
A)  savings deposits 
B)  demand deposits 
C)  small time deposits 
D)  money market mutual funds

Question 18

Many societies used gold as money, because

Accepted Answer

A)  it is relatively rare. 
B)  it is durable. 
C)  it has a relatively low melting point. 
D)  All of the above are correct. 
A)  it is relatively rare. 
B)  it is durable. 
C)  it has a relatively low melting point. 
D)  All of the above are correct.

Question 19

Which tool of monetary policy does the Federal Reserve use most often?

Accepted Answer

A)  term auctions 
B)  open-market operations 
C)  changes in reserve requirements 
D)  changes in the discount rate 
A)  term auctions 
B)  open-market operations 
C)  changes in reserve requirements 
D)  changes in the discount rate

Question 20

Consider five individuals with different occupations.   If this economy has money

Accepted Answer

A)  Allen will buy from Betty 
B)  Betty will buy from Calvin 
C)  Eric will buy from Allen 
D)  None of the above are correct. 
A)  Allen will buy from Betty 
B)  Betty will buy from Calvin 
C)  Eric will buy from Allen 
D)  None of the above are correct.

Exam 21: The Monetary System

If the reserve ratio increased from 10 percent to 20 percent, the money multiplier would

Describe the role of bank leverage in bank insolvency during times of falling asset prices.

If the reserve ratio is 15 percent, and banks do not hold excess reserves, and people hold only deposits and no currency, then when the Fed sells $25.5 million worth of bonds to the public, bank reserves

Why is the Chairman of the Federal Reserve often referred to as the "second most powerful person in the United States?"

In measuring the stock of money in the U.S., M1 includes

During a bank run, depositors decide to hold more currency relative to deposits and banks decide to hold more excess reserves relative to deposits.

Table 29-3. An economy starts with $50,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $45,750. The T-account of the bank is shown below. -Refer to Table 29-3. The bank's reserve ratio is

When the Fed sells government bonds,

Suppose the banking system currently has $300 billion in reserves, the reserve requirement is 5 percent, and excess reserves are $30 billion. What is the level of loans?

In the 19th century, when crop failures often led to bank runs, banks would make relatively fewer loans and hold relatively more excess reserves. By itself, these actions by the banks should have

Consider four survivors on an island. Which of the following pairs of survivors has a double-coincidence of wants?

In a fractional-reserve banking system with no excess reserves and no currency holdings, if the central bank buys $100 million worth of bonds,

If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by

The reserve requirement is 12 percent. Lucy deposits $600 into a bank. By how much do excess reserves change?

If the reserve ratio is 8 percent, then the money multiplier is

Which of the following is included in both M1 and M2?

Many societies used gold as money, because

Which tool of monetary policy does the Federal Reserve use most often?

Consider five individuals with different occupations. If this economy has money

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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