Question 1

When the Fed makes open-market purchases bank

Accepted Answer

A)  withdrawals and lending increase. 
B)  withdrawals increase and lending decreases. 
C)  deposits and lending increase. 
D)  deposits increase and lending decreases. 
A)  withdrawals and lending increase. 
B)  withdrawals increase and lending decreases. 
C)  deposits and lending increase. 
D)  deposits increase and lending decreases.

Question 2

In order for currency to be widely used as a medium of exchange, it is sufficient for the government to designate it as legal tender.

Accepted Answer

A) True 
 B)False

Question 3

The tool most often used by the Fed to control the money supply is

Accepted Answer

A)  changing reserve requirements. 
B)  open market operations. 
C)  buying and selling of equities. 
D)  altering the discount rate. 
A)  changing reserve requirements. 
B)  open market operations. 
C)  buying and selling of equities. 
D)  altering the discount rate.

Question 4

Demand deposits are balances in bank accounts that depositors can access by writing a check or using a debit card.

Accepted Answer

A) True 
 B)False

Question 5

To increase the money supply, the Fed could

Accepted Answer

A)  sell government bonds. 
B)  decrease the discount rate. 
C)  increase the reserve requirement. 
D)  None of the above is correct. 
A)  sell government bonds. 
B)  decrease the discount rate. 
C)  increase the reserve requirement. 
D)  None of the above is correct.

Question 6

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 . Suppose the Central Bank of Namdia purchases 25 million dias of Namdian Treasury Bonds from banks. 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 of Namdia change?

Accepted Answer

A)  200 million dias 
B)  150 million dias 
C)  100 million dias 
D)  None of the above is correct. 
A)  200 million dias 
B)  150 million dias 
C)  100 million dias 
D)  None of the above is correct.

Question 7

Bank regulators impose capital requirements in order to

Accepted Answer

A)  increase the amount of leverage in the economy. 
B)  provide an incentive for banks to hold risky assets. 
C)  ensure banks can pay off depositors. 
D)  increase the probability of a credit crunch. 
A)  increase the amount of leverage in the economy. 
B)  provide an incentive for banks to hold risky assets. 
C)  ensure banks can pay off depositors. 
D)  increase the probability of a credit crunch.

Question 8

Most financial assets other than money function as

Accepted Answer

A)  a medium of exchange, a unit of account, and a store of value. 
B)  a medium of exchange and a store of value, but not a unit of account. 
C)  a store of value and a unit of account, but not a medium of exchange. 
D)  a store of value, but not a unit of account nor a medium of exchange 
A)  a medium of exchange, a unit of account, and a store of value. 
B)  a medium of exchange and a store of value, but not a unit of account. 
C)  a store of value and a unit of account, but not a medium of exchange. 
D)  a store of value, but not a unit of account nor a medium of exchange

Question 9

Members of the Board of Governors of the Federal Reserve System are appointed for life.

Accepted Answer

A) True 
 B)False

Question 10

The money supply of Granov is $10,000 in a 100-percent-reserve banking system. If the Central Bank of Granov decreases the reserve requirement ratio to 10 percent, the money supply could increase by no more than $9,000.

Accepted Answer

A) True 
 B)False

Question 11

Credit cards

Accepted Answer

A)  represent the largest component of M1. 
B)  are not included in M1 but are included in M2. 
C)  are a form of money unique to the U.S. 
D)  are not considered money. 
A)  represent the largest component of M1. 
B)  are not included in M1 but are included in M2. 
C)  are a form of money unique to the U.S. 
D)  are not considered money.

Question 12

Suppose banks desire to hold no excess reserves and that the Fed has set a reserve requirement of 6 percent. If you deposit $8,000 into First Raven Bank,

Accepted Answer

A)  First Raven's required reserves increase by $480. 
B)  First Raven will be able to lend out $7,520. 
C)  First Raven's assets and liabilities both will increase by $8,000. 
D)  All of the above are correct. 
A)  First Raven's required reserves increase by $480. 
B)  First Raven will be able to lend out $7,520. 
C)  First Raven's assets and liabilities both will increase by $8,000. 
D)  All of the above are correct.

Question 13

The Fed increases reserves if it conducts open market

Accepted Answer

A)  purchases or auctions term credit. 
B)  purchases but not if it auctions term credit 
C)  sales or auctions term credit 
D)  sales but not if it auctions term credit 
A)  purchases or auctions term credit. 
B)  purchases but not if it auctions term credit 
C)  sales or auctions term credit 
D)  sales but not if it auctions term credit

Question 14

Which of the following is a store of value?

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 15

Who can vote on Federal Open Market Committee decisions?

Accepted Answer

A)  all of the members of the Board of Governors and all of the Federal Reserve Bank presidents 
B)  all of the members of the Board of Governors and some of the Federal Reserve Bank presidents 
C)  some of the members of the Board of Governors and all of the Federal Reserve Bank presidents 
D)  some of the members of the Board of Governors and some of the Federal Reserve Bank presidents 
A)  all of the members of the Board of Governors and all of the Federal Reserve Bank presidents 
B)  all of the members of the Board of Governors and some of the Federal Reserve Bank presidents 
C)  some of the members of the Board of Governors and all of the Federal Reserve Bank presidents 
D)  some of the members of the Board of Governors and some of the Federal Reserve Bank presidents

Question 16

The use of money allows trade to be roundabout.

Accepted Answer

A) True 
 B)False

Question 17

For purposes of analyzing the money stock and its relationship to relevant economic variables, money is best thought of as

Accepted Answer

A)  those items that can be readily accessed and used to buy goods and services. 
B)  currency only. 
C)  currency plus all bank accounts. 
D)  currency plus all bank accounts plus bonds. 
A)  those items that can be readily accessed and used to buy goods and services. 
B)  currency only. 
C)  currency plus all bank accounts. 
D)  currency plus all bank accounts plus bonds.

Question 18

During wars the public tends to hold relatively more currency and relatively fewer deposits. This decision makes reserves

Accepted Answer

A)  and the money supply increase. 
B)  and the money supply decrease. 
C)  increase, but leaves the money supply unchanged. 
D)  decrease, but leaves the money supply unchanged. 
A)  and the money supply increase. 
B)  and the money supply decrease. 
C)  increase, but leaves the money supply unchanged. 
D)  decrease, but leaves the money supply unchanged.

Question 19

The manager of the bank where you work tells you that your bank has $10 million in excess reserves. She also tells you that the bank has $400 million in deposits and $375 million dollars in loans. Given this information you find that the reserve requirement must be

Accepted Answer

A)  10/400. 
B)  25/400. 
C)  35/400. 
D)  15/400. 
A)  10/400. 
B)  25/400. 
C)  35/400. 
D)  15/400.

Question 20

Which of the following is an example of barter?

Accepted Answer

A)  A parent gives a teenager a $10 bill in exchange for her babysitting services. 
B)  A homeowner gives an exterminator a check for $50 in exchange for extermination services. 
C)  A barber gives a plumber a haircut in exchange for the plumber fixing the barber's leaky faucet. 
D)  All of the above are examples of barter. 
A)  A parent gives a teenager a $10 bill in exchange for her babysitting services. 
B)  A homeowner gives an exterminator a check for $50 in exchange for extermination services. 
C)  A barber gives a plumber a haircut in exchange for the plumber fixing the barber's leaky faucet. 
D)  All of the above are examples of barter.

Exam 21: The Monetary System

When the Fed makes open-market purchases bank

In order for currency to be widely used as a medium of exchange, it is sufficient for the government to designate it as legal tender.

The tool most often used by the Fed to control the money supply is

Demand deposits are balances in bank accounts that depositors can access by writing a check or using a debit card.

To increase the money supply, the Fed could

Bank regulators impose capital requirements in order to

Most financial assets other than money function as

Members of the Board of Governors of the Federal Reserve System are appointed for life.

The money supply of Granov is $10,000 in a 100-percent-reserve banking system. If the Central Bank of Granov decreases the reserve requirement ratio to 10 percent, the money supply could increase by no more than $9,000.

Credit cards

Suppose banks desire to hold no excess reserves and that the Fed has set a reserve requirement of 6 percent. If you deposit $8,000 into First Raven Bank,

The Fed increases reserves if it conducts open market

Which of the following is a store of value?

Who can vote on Federal Open Market Committee decisions?

The use of money allows trade to be roundabout.

For purposes of analyzing the money stock and its relationship to relevant economic variables, money is best thought of as

During wars the public tends to hold relatively more currency and relatively fewer deposits. This decision makes reserves

The manager of the bank where you work tells you that your bank has $10 million in excess reserves. She also tells you that the bank has $400 million in deposits and $375 million dollars in loans. Given this information you find that the reserve requirement must be

Which of the following is an example of barter?

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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