Question 1

Table 29-6.
  
-Refer to Table 29-6. The Bank of Pleasantville's reserve ratio is

Accepted Answer

A)  6.4 percent. 
B)  16.7 percent. 
C)  6.0 percent. 
D)  15.7 percent. 
A)  6.4 percent. 
B)  16.7 percent. 
C)  6.0 percent. 
D)  15.7 percent.

Question 2

If the discount rate is lowered, banks borrow

Accepted Answer

A)  less from the Fed so reserves increase. 
B)  less from the Fed so reserves decrease. 
C)  more from the Fed so reserves increase. 
D)  more from the Fed so reserves decrease. 
A)  less from the Fed so reserves increase. 
B)  less from the Fed so reserves decrease. 
C)  more from the Fed so reserves increase. 
D)  more from the Fed so reserves decrease.

Question 3

The Federal Reserve

Accepted Answer

A)  was created in 1836. 
B)  serves as a lender of last resort. 
C)  was created to facilitate the federal government's collection of taxes as well as its expenditures. 
D)  All of the above are correct. 
A)  was created in 1836. 
B)  serves as a lender of last resort. 
C)  was created to facilitate the federal government's collection of taxes as well as its expenditures. 
D)  All of the above are correct.

Question 4

Treasury Bonds are

Accepted Answer

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

Question 5

If people decide to hold less currency relative to deposits, the money supply

Accepted Answer

A)  falls. The Fed could lessen the impact of this by buying Treasury bonds. 
B)  falls. The Fed could lessen the impact of this by selling Treasury bonds. 
C)  rises. The Fed could lessen the impact of this by buying Treasury bonds. 
D)  rises. The Fed could lessen the impact of this by selling Treasury bonds. 
A)  falls. The Fed could lessen the impact of this by buying Treasury bonds. 
B)  falls. The Fed could lessen the impact of this by selling Treasury bonds. 
C)  rises. The Fed could lessen the impact of this by buying Treasury bonds. 
D)  rises. The Fed could lessen the impact of this by selling Treasury bonds.

Question 6

An important function of the U.S. Federal Reserve is to

Accepted Answer

A)  set the debt ceiling. 
B)  fund Congressional spending. 
C)  control the supply of money. 
D)  mint coins. 
A)  set the debt ceiling. 
B)  fund Congressional spending. 
C)  control the supply of money. 
D)  mint coins.

Question 7

Prisoners sometimes determine a single good to be used as money. This good becomes

Accepted Answer

A)  a medium of exchange and a unit of account. 
B)  a medium of exchange, but not a unit of account. 
C)  a unit of account, but not a medium of exchange. 
D)  neither a unit of account nor a medium of exchange. 
A)  a medium of exchange and a unit of account. 
B)  a medium of exchange, but not a unit of account. 
C)  a unit of account, but not a medium of exchange. 
D)  neither a unit of account nor a medium of exchange.

Question 8

The Fed can directly protect a bank during a bank run by

Accepted Answer

A)  increasing reserve requirements. 
B)  selling government bonds to the bank. 
C)  lending reserves to the bank. 
D)  doing any of the above. 
A)  increasing reserve requirements. 
B)  selling government bonds to the bank. 
C)  lending reserves to the bank. 
D)  doing any of the above.

Question 9

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. Assume that no banks in the economy want to hold excess reserves and that people only hold deposits and no currency. How much does the money supply ultimately increase when Metropolis National Bank lends out its excess reserves?

Accepted Answer

A)  $100,000 
B)  $110,000 
C)  $120,000 
D)  None of the above are correct. 
A)  $100,000 
B)  $110,000 
C)  $120,000 
D)  None of the above are correct.

Question 10

Which of the following increase when the Fed makes open market purchases?

Accepted Answer

A)  currency and reserves 
B)  currency but not reserves 
C)  reserves but not currency 
D)  neither currency nor reserves 
A)  currency and reserves 
B)  currency but not reserves 
C)  reserves but not currency 
D)  neither currency nor reserves

Question 11

In a system of 100-percent-reserve banking,

Accepted Answer

A)  banks do not accept deposits. 
B)  banks do not influence the supply of money. 
C)  loans are the only asset item for banks. 
D)  All of the above are correct. 
A)  banks do not accept deposits. 
B)  banks do not influence the supply of money. 
C)  loans are the only asset item for banks. 
D)  All of the above are correct.

Question 12

As the reserve ratio decreases, the money multiplier

Accepted Answer

A)  increases. 
B)  does not change. 
C)  decreases. 
D)  could do any of the above. 
A)  increases. 
B)  does not change. 
C)  decreases. 
D)  could do any of the above.

Question 13

Marc puts prices on surfboards and skateboards at his sporting goods store. He is using money as a unit of account.

Accepted Answer

A) True 
 B)False

Question 14

If the discount rate is raised then banks borrow

Accepted Answer

A)  more from the Fed so reserves increase. 
B)  more from the Fed so reserves decrease. 
C)  less from the Fed so reserves increase. 
D)  less from the Fed so reserves decrease. 
A)  more from the Fed so reserves increase. 
B)  more from the Fed so reserves decrease. 
C)  less from the Fed so reserves increase. 
D)  less from the Fed so reserves decrease.

Question 15

Which of the following lists is included in what economists call "money"?

Accepted Answer

A)  cash 
B)  cash and stocks and bonds 
C)  cash and stocks and bonds and real estate 
D)  cash and stocks and bonds and real estate and all other assets 
A)  cash 
B)  cash and stocks and bonds 
C)  cash and stocks and bonds and real estate 
D)  cash and stocks and bonds and real estate and all other assets

Question 16

Table 29-8
  
-Refer to Table 29-8. The required reserve ratio is 12 percent and First National Bank sells $120 of its short-term securities to the Federal Reserve. This action will

Accepted Answer

A)  increase First National's reserves by $120. Its excess reserves are $240. 
B)  decrease First National's reserves by $120. Its excess reserves are $0. 
C)  increase First National's loans by $120. Its reserves decrease by $120. 
D)  decrease First National's loans by $120. Its reserves increase by $120. 
A)  increase First National's reserves by $120. Its excess reserves are $240. 
B)  decrease First National's reserves by $120. Its excess reserves are $0. 
C)  increase First National's loans by $120. Its reserves decrease by $120. 
D)  decrease First National's loans by $120. Its reserves increase by $120.

Question 17

Given the following information, what are the values of M1 and M2? Small time deposits $1,800 billion
Demand deposits and other checkable deposits $1,000 billion
Savings deposits $1,400 billion
Money market mutual funds $1,000 billion
Traveler's checks $50 billion
Large time deposits $600 billion
Currency $300 billion
Miscellaneous categories in M2 $50 billion

Accepted Answer

A)  M1 = $3,150 billion, M2 = $6,200 billion. 
B)  M1 = $1,350 billion, M2 = $5,600 billion. 
C)  M1 = $1,400 billion, M2 = $6,200 billion. 
D)  M1 = $1,300 billion, M2 = $5,600 billion. 
A)  M1 = $3,150 billion, M2 = $6,200 billion. 
B)  M1 = $1,350 billion, M2 = $5,600 billion. 
C)  M1 = $1,400 billion, M2 = $6,200 billion. 
D)  M1 = $1,300 billion, M2 = $5,600 billion.

Question 18

A bank's reserve ratio is 8 percent and the bank has $1,000 in deposits. Its reserves amount to

Accepted Answer

A)  $8. 
B)  $80. 
C)  $92. 
D)  $920. 
A)  $8. 
B)  $80. 
C)  $92. 
D)  $920.

Question 19

If people decide to hold more currency relative to deposits, the money supply

Accepted Answer

A)  falls. The larger the reserve ratio is, the more the money supply falls. 
B)  falls. The larger the reserve ratio is, the less the money supply falls. 
C)  rises. The larger the reserve ratio is, the more the money supply rises. 
D)  rises. The larger the reserve ratio is, the less the money supply rises. 
A)  falls. The larger the reserve ratio is, the more the money supply falls. 
B)  falls. The larger the reserve ratio is, the less the money supply falls. 
C)  rises. The larger the reserve ratio is, the more the money supply rises. 
D)  rises. The larger the reserve ratio is, the less the money supply rises.

Question 20

Currency includes

Accepted Answer

A)  paper bills and coins. 
B)  demand deposits. 
C)  credit cards. 
D)  Both a) and b) are correct. 
A)  paper bills and coins. 
B)  demand deposits. 
C)  credit cards. 
D)  Both a) and b) are correct.

Exam 21: The Monetary System

Table 29-6. -Refer to Table 29-6. The Bank of Pleasantville's reserve ratio is

If the discount rate is lowered, banks borrow

The Federal Reserve

Treasury Bonds are

If people decide to hold less currency relative to deposits, the money supply

An important function of the U.S. Federal Reserve is to

Prisoners sometimes determine a single good to be used as money. This good becomes

The Fed can directly protect a bank during a bank run by

Which of the following increase when the Fed makes open market purchases?

In a system of 100-percent-reserve banking,

As the reserve ratio decreases, the money multiplier

Marc puts prices on surfboards and skateboards at his sporting goods store. He is using money as a unit of account.

If the discount rate is raised then banks borrow

Which of the following lists is included in what economists call "money"?

Table 29-8 -Refer to Table 29-8. The required reserve ratio is 12 percent and First National Bank sells $120 of its short-term securities to the Federal Reserve. This action will

A bank's reserve ratio is 8 percent and the bank has $1,000 in deposits. Its reserves amount to

If people decide to hold more currency relative to deposits, the money supply

Currency includes

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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