Question 1

M1 includes savings deposits.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements regarding the Federal Open Market Committee is correct?

Accepted Answer

A)  Only the five voting regional Fed presidents attend the meetings. 
B)  All regional Fed presidents attend and vote at the meetings. 
C)  All regional Fed presidents attend the meetings, but only five get to vote. 
D)  Regional Fed presidents may neither attend nor vote the meetings. 
A)  Only the five voting regional Fed presidents attend the meetings. 
B)  All regional Fed presidents attend and vote at the meetings. 
C)  All regional Fed presidents attend the meetings, but only five get to vote. 
D)  Regional Fed presidents may neither attend nor vote the meetings.

Question 3

In December 1999 people feared that there might be computer problems at banks as the century changed. Consequently, people wanted to hold relatively more in currency and relatively less in deposits. In anticipation banks raised their reserve ratios to have enough cash on hand to meet depositors' demands. These actions by the public

Accepted Answer

A)  would increase the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have sold bonds. 
B)  would increase the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have bought bonds. 
C)  would reduce the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have sold bonds. 
D)  would reduce the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have bought bonds. 
A)  would increase the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have sold bonds. 
B)  would increase the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have bought bonds. 
C)  would reduce the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have sold bonds. 
D)  would reduce the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have bought bonds.

Question 4

The discount rate is the rate the Federal Reserve charges banks for loans. By lowering this rate, the Fed provides banks with a greater incentive to borrow from it.

Accepted Answer

A) True 
 B)False

Question 5

Table 29-4.
  
-Refer to Table 29-4. The reserve ratio for this bank is

Accepted Answer

A)  8 percent. 
B)  12.5 percent. 
C)  87.5 percent. 
D)  25 percent. 
A)  8 percent. 
B)  12.5 percent. 
C)  87.5 percent. 
D)  25 percent.

Question 6

Which of the following both increase the money supply?

Accepted Answer

A)  an increase in the discount rate and an increase in the interest rate on reserves 
B)  an increase in the discount rate and a decrease in the interest rate on reserves 
C)  a decrease in the discount rate and an increase in the interest rate on reserves 
D)  a decrease in the discount rate and a decrease in the interest rate on reserves 
A)  an increase in the discount rate and an increase in the interest rate on reserves 
B)  an increase in the discount rate and a decrease in the interest rate on reserves 
C)  a decrease in the discount rate and an increase in the interest rate on reserves 
D)  a decrease in the discount rate and a decrease in the interest rate on reserves

Question 7

Which of the following does the Federal Reserve not do?

Accepted Answer

A)  conduct monetary policy 
B)  act as a lender of last resort 
C)  convert Federal Reserve Notes into gold 
D)  serve as a bank regulator 
A)  conduct monetary policy 
B)  act as a lender of last resort 
C)  convert Federal Reserve Notes into gold 
D)  serve as a bank regulator

Question 8

The banking system currently has $10 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed raises the reserve requirement to 12.5 percent and at the same time buys $1 billion worth of bonds, then by how much does the money supply change?

Accepted Answer

A)  It falls by $12 billion. 
B)  It falls by $19 billion. 
C)  It falls by $21 billion. 
D)  None of the above is correct. 
A)  It falls by $12 billion. 
B)  It falls by $19 billion. 
C)  It falls by $21 billion. 
D)  None of the above is correct.

Question 9

In a fractional-reserve banking system, an increase in reserve requirements

Accepted Answer

A)  increases both the money multiplier and the money supply. 
B)  decreases both the money multiplier and the money supply. 
C)  increases the money multiplier, but decreases the money supply. 
D)  decreases the money multiplier, but increases the money supply. 
A)  increases both the money multiplier and the money supply. 
B)  decreases both the money multiplier and the money supply. 
C)  increases the money multiplier, but decreases the money supply. 
D)  decreases the money multiplier, but increases the money supply.

Question 10

Which of the following is both a store of value and regularly used as a medium of exchange?

Accepted Answer

A)  cash and stocks 
B)  cash but not stocks 
C)  stocks but not cash 
D)  neither cash nor stocks 
A)  cash and stocks 
B)  cash but not stocks 
C)  stocks but not cash 
D)  neither cash nor stocks

Question 11

Gary's wealth is $1 million. Economists would say that Gary has $1 million worth of money.

Accepted Answer

A) True 
 B)False

Question 12

List two reasons why the Fed cannot control the exact size of the money supply.

Accepted Answer

1) The Fed cannot control how much money

Question 13

Compare the Board of Governors and the Federal Open Market Committee.

Accepted Answer

The Board of Governors runs the Federal

Question 14

The interest rate charged by the Fed to member banks is called the .

Accepted Answer

The answer of The interest rate charged by the Fed...

Question 15

A decrease in the money supply might indicate that the Fed had

Accepted Answer

A)  purchased bonds in an attempt to increase the federal funds rate. 
B)  purchased bonds in an attempt to reduce the federal funds rate. 
C)  sold bonds in an attempt to increase the federal funds rate. 
D)  sold bonds in an attempt to reduce the federal funds rate. 
A)  purchased bonds in an attempt to increase the federal funds rate. 
B)  purchased bonds in an attempt to reduce the federal funds rate. 
C)  sold bonds in an attempt to increase the federal funds rate. 
D)  sold bonds in an attempt to reduce the federal funds rate.

Question 16

Which of the following will not help to prevent bank runs?

Accepted Answer

A)  government insurance of deposits 
B)  fractional reserve banking 
C)  100% reserve banking 
D)  All of the above prevent bank runs. 
A)  government insurance of deposits 
B)  fractional reserve banking 
C)  100% reserve banking 
D)  All of the above prevent bank runs.

Question 17

If the reserve ratio is 12.5 percent, then $1,000 of additional reserves can create up to

Accepted Answer

A)  $7,000 of new money. 
B)  $8,000 of new money. 
C)  $11,500 of new money. 
D)  $12,500 of new money. 
A)  $7,000 of new money. 
B)  $8,000 of new money. 
C)  $11,500 of new money. 
D)  $12,500 of new money.

Question 18

A bank's reserve ratio is 5 percent and the bank has $2,280 in reserve. Its deposits amount to

Accepted Answer

A)  $114. 
B)  $2,166. 
C)  $2,400. 
D)  $45,600. 
A)  $114. 
B)  $2,166. 
C)  $2,400. 
D)  $45,600.

Question 19

Jim transfers money from his money market account to his savings account. This action

Accepted Answer

A)  reduced M1 and increases M2. 
B)  increases M1 and reduces M2. 
C)  has no effect on M1 or M2. 
D)  increases M1 and M2. 
A)  reduced M1 and increases M2. 
B)  increases M1 and reduces M2. 
C)  has no effect on M1 or M2. 
D)  increases M1 and M2.

Question 20

Bank capital is

Accepted Answer

A)  the machinery, structures, and equipment of the bank. 
B)  the resources that owners have put into the bank. 
C)  the reserves of the bank. 
D)  the bank's total assets. 
A)  the machinery, structures, and equipment of the bank. 
B)  the resources that owners have put into the bank. 
C)  the reserves of the bank. 
D)  the bank's total assets.

Exam 21: The Monetary System

M1 includes savings deposits.

Which of the following statements regarding the Federal Open Market Committee is correct?

The discount rate is the rate the Federal Reserve charges banks for loans. By lowering this rate, the Fed provides banks with a greater incentive to borrow from it.

Table 29-4. -Refer to Table 29-4. The reserve ratio for this bank is

Which of the following both increase the money supply?

Which of the following does the Federal Reserve not do?

In a fractional-reserve banking system, an increase in reserve requirements

Which of the following is both a store of value and regularly used as a medium of exchange?

Gary's wealth is $1 million. Economists would say that Gary has $1 million worth of money.

List two reasons why the Fed cannot control the exact size of the money supply.

Compare the Board of Governors and the Federal Open Market Committee.

The interest rate charged by the Fed to member banks is called the .

A decrease in the money supply might indicate that the Fed had

Which of the following will not help to prevent bank runs?

If the reserve ratio is 12.5 percent, then $1,000 of additional reserves can create up to

A bank's reserve ratio is 5 percent and the bank has $2,280 in reserve. Its deposits amount to

Jim transfers money from his money market account to his savings account. This action

Bank capital is

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

Filters