Question 1

If the reserve requirement is 10 percent, which of the following pairs of changes would both allow a bank to lend out an additional $10,000?

Accepted Answer

A)  the Fed buys a $10,000 bond from the bank or someone deposits $10,000 in the bank 
B)  the Fed buys a $10,000 bond from the bank or the Fed lends the bank $10,000 
C)  the Fed sells a $10,000 bond to the bank or someone deposits $10,000 in the bank 
D)  the Fed sells a $10,000 bond to the bank or the Fed lends the bank $10,000 
A)  the Fed buys a $10,000 bond from the bank or someone deposits $10,000 in the bank 
B)  the Fed buys a $10,000 bond from the bank or the Fed lends the bank $10,000 
C)  the Fed sells a $10,000 bond to the bank or someone deposits $10,000 in the bank 
D)  the Fed sells a $10,000 bond to the bank or the Fed lends the bank $10,000

Question 2

The regional Federal Reserve Banks

Accepted Answer

A)  are not allowed to make loans to banks in their region. 
B)  regulate banks in their regions. 
C)  have more voting members on the FOMC than does the Board of Governors. 
D)  are each headed by a member of the Board of Governors. 
A)  are not allowed to make loans to banks in their region. 
B)  regulate banks in their regions. 
C)  have more voting members on the FOMC than does the Board of Governors. 
D)  are each headed by a member of the Board of Governors.

Question 3

Table 29-5.
  
-Refer to Table 29-5. Suppose the bank faces a reserve requirement of 10 percent. Starting from the situation as depicted by the T-account, a customer deposits an additional $60,000 into his account at the bank. If the bank takes no other action it will

Accepted Answer

A)  have $64,000 in excess reserves. 
B)  have $4,000 in excess reserves. 
C)  be in a position to make new loans equal to $6,000 
D)  None of the above is correct. 
A)  have $64,000 in excess reserves. 
B)  have $4,000 in excess reserves. 
C)  be in a position to make new loans equal to $6,000 
D)  None of the above is correct.

Question 4

Today, bank runs are

Accepted Answer

A)  uncommon because of the high reserve requirement. 
B)  uncommon because of FDIC deposit insurance. 
C)  common because of the low reserve requirement. 
D)  common because the FDIC is nearly bankrupt. 
A)  uncommon because of the high reserve requirement. 
B)  uncommon because of FDIC deposit insurance. 
C)  common because of the low reserve requirement. 
D)  common because the FDIC is nearly bankrupt.

Question 5

Just after the terrorist attack on September 11, 2001, the Fed stood ready to lend financial institutions funds. When the Fed did this, it was acting in its role of lender of last resort.

Accepted Answer

A) True 
 B)False

Question 6

If you withdraw $500 from your savings account and deposit it in your checking account, then M1 will change by and M2 will change by .

Accepted Answer

The answer of If you withdraw $500 from your savings...

Question 7

On a bank's T-account, which are part of the banks liabilities?

Accepted Answer

A)  both deposits made by its customers and reserves 
B)  deposits made by its customers but not reserves 
C)  reserves but not deposits made by its customers 
D)  neither deposits made by its customers nor reserves 
A)  both deposits made by its customers and reserves 
B)  deposits made by its customers but not reserves 
C)  reserves but not deposits made by its customers 
D)  neither deposits made by its customers nor reserves

Question 8

At the Federal Reserve,

Accepted Answer

A)  the nation's monetary and fiscal policies are made by the Federal Open Market Committee, which meets about every six weeks. 
B)  the nation's monetary and fiscal policies are made by the Federal Open Market Committee, which meets twice a year. 
C)  the nation's monetary policy is made by the Federal Open Market Committee, which meets about every six weeks. 
D)  the nation's monetary policy is made by the Federal Open Market Committee, which meets twice a year. 
A)  the nation's monetary and fiscal policies are made by the Federal Open Market Committee, which meets about every six weeks. 
B)  the nation's monetary and fiscal policies are made by the Federal Open Market Committee, which meets twice a year. 
C)  the nation's monetary policy is made by the Federal Open Market Committee, which meets about every six weeks. 
D)  the nation's monetary policy is made by the Federal Open Market Committee, which meets twice a year.

Question 9

A bank loans Greg's Ice Cream $250,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

Accepted Answer

A)  a liability for the bank and an asset for Greg's Ice Cream. The loan increases the money supply. 
B)  a liability for the bank and an asset for Greg's Ice Cream. The loan does not increase the money supply. 
C)  an asset for the bank and a liability for Greg's Ice Cream. The loan increases the money supply. 
D)  an asset for the bank and a liability for Greg's Ice Cream. The loan does not increase the money supply. 
A)  a liability for the bank and an asset for Greg's Ice Cream. The loan increases the money supply. 
B)  a liability for the bank and an asset for Greg's Ice Cream. The loan does not increase the money supply. 
C)  an asset for the bank and a liability for Greg's Ice Cream. The loan increases the money supply. 
D)  an asset for the bank and a liability for Greg's Ice Cream. The loan does not increase the money supply.

Question 10

Money is the only asset that functions as a store of value.

Accepted Answer

A) True 
 B)False

Question 11

The Fed can reduce the federal funds rate by

Accepted Answer

A)  decreasing the money supply. To decrease the money supply it could sell bonds. 
B)  decreasing the money supply. To decrease the money supply it could buy bonds. 
C)  increasing the money supply. To increase the money supply it could sell bonds. 
D)  increasing the money supply. To increase the money supply it could buy bonds. 
A)  decreasing the money supply. To decrease the money supply it could sell bonds. 
B)  decreasing the money supply. To decrease the money supply it could buy bonds. 
C)  increasing the money supply. To increase the money supply it could sell bonds. 
D)  increasing the money supply. To increase the money supply it could buy bonds.

Question 12

Treasury Bonds are

Accepted Answer

A)  liquid, but not a store of value. 
B)  a store of value, but not liquid. 
C)  both liquid and a store of value. 
D)  neither liquid nor a store of value. 
A)  liquid, but not a store of value. 
B)  a store of value, but not liquid. 
C)  both liquid and a store of value. 
D)  neither liquid nor a store of value.

Question 13

Scenario 29-1.
The monetary policy of Namdian is determined by the Namdian Central Bank. The local currency is the dia. Namdian banks collectively hold 100 million dias of required reserves, 25 million dias of excess reserves, 250 million dias of Namdian Treasury Bonds, and their customers hold 1,000 million dias of deposits. Namdians prefer to use only demand deposits and so the money supply consists of demand deposits.
-Refer to Scenario 29-1. Assume that banks desire to continue holding the same ratio of excess reserves to deposits. What is the reserve requirement and what is the reserve ratio?

Accepted Answer

A)  2 percent, 8 percent 
B)  8 percent, 10 percent 
C)  10 percent, 12.5 percent 
D)  None of the above is correct. 
A)  2 percent, 8 percent 
B)  8 percent, 10 percent 
C)  10 percent, 12.5 percent 
D)  None of the above is correct.

Question 14

The legal tender requirement means that

Accepted Answer

A)  people are more likely to accept the dollar as a medium of exchange. 
B)  the government must hold enough gold to redeem all currency. 
C)  people may not make trades with anything else. 
D)  All of the above are correct. 
A)  people are more likely to accept the dollar as a medium of exchange. 
B)  the government must hold enough gold to redeem all currency. 
C)  people may not make trades with anything else. 
D)  All of the above are correct.

Question 15

Under a fractional-reserve banking system, banks

Accepted Answer

A)  hold more reserves than deposits. 
B)  generally lend out a majority of the funds deposited. 
C)  cause the money supply to fall by lending out reserves. 
D)  All of the above are correct. 
A)  hold more reserves than deposits. 
B)  generally lend out a majority of the funds deposited. 
C)  cause the money supply to fall by lending out reserves. 
D)  All of the above are correct.

Question 16

Banks cannot influence the money supply if they are required to hold all deposits in reserve.

Accepted Answer

A) True 
 B)False

Question 17

When the Fed conducts open-market purchases,

Accepted Answer

A)  it buys Treasury securities, which increases the money supply. 
B)  it buys Treasury securities, which decreases the money supply. 
C)  it borrows money from member banks, which increases the money supply. 
D)  it lends money to member banks, which decreases the money supply. 
A)  it buys Treasury securities, which increases the money supply. 
B)  it buys Treasury securities, which decreases the money supply. 
C)  it borrows money from member banks, which increases the money supply. 
D)  it lends money to member banks, which decreases the money supply.

Question 18

In an economy that relies on barter, trade requires a double-coincidence of wants.

Accepted Answer

A) True 
 B)False

Question 19

The primary tool used by the Federal Reserve to change the money supply is .

Accepted Answer

open-marke

Question 20

If the reserve requirement is 5 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $10, then this bank

Accepted Answer

A)  must increase its required reserves by $10. 
B)  will initially see its total reserves increase by $10.50. 
C)  will be able to make new loans up to a maximum of $9.50. 
D)  All of the above are correct. 
A)  must increase its required reserves by $10. 
B)  will initially see its total reserves increase by $10.50. 
C)  will be able to make new loans up to a maximum of $9.50. 
D)  All of the above are correct.

Exam 21: The Monetary System

If the reserve requirement is 10 percent, which of the following pairs of changes would both allow a bank to lend out an additional $10,000?

The regional Federal Reserve Banks

Table 29-5. -Refer to Table 29-5. Suppose the bank faces a reserve requirement of 10 percent. Starting from the situation as depicted by the T-account, a customer deposits an additional $60,000 into his account at the bank. If the bank takes no other action it will

Today, bank runs are

Just after the terrorist attack on September 11, 2001, the Fed stood ready to lend financial institutions funds. When the Fed did this, it was acting in its role of lender of last resort.

If you withdraw $500 from your savings account and deposit it in your checking account, then M1 will change by and M2 will change by .

On a bank's T-account, which are part of the banks liabilities?

At the Federal Reserve,

A bank loans Greg's Ice Cream $250,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

Money is the only asset that functions as a store of value.

The Fed can reduce the federal funds rate by

Treasury Bonds are

The legal tender requirement means that

Under a fractional-reserve banking system, banks

Banks cannot influence the money supply if they are required to hold all deposits in reserve.

When the Fed conducts open-market purchases,

In an economy that relies on barter, trade requires a double-coincidence of wants.

The primary tool used by the Federal Reserve to change the money supply is .

If the reserve requirement is 5 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $10, then this bank

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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