Question 1

Which of the following best illustrates the medium of exchange function of money?

Accepted Answer

A)  You keep some money hidden in your shoe. 
B)  You keep track of the value of your assets in terms of currency. 
C)  You pay for your oil change using currency. 
D)  None of the above is correct. 
A)  You keep some money hidden in your shoe. 
B)  You keep track of the value of your assets in terms of currency. 
C)  You pay for your oil change using currency. 
D)  None of the above is correct.

Question 2

If the Fed sells government bonds to the public, then reserves

Accepted Answer

A)  increase and the money supply increases. 
B)  increase and the money supply decreases. 
C)  decrease and the money supply increases. 
D)  decrease and the money supply decreases. 
A)  increase and the money supply increases. 
B)  increase and the money supply decreases. 
C)  decrease and the money supply increases. 
D)  decrease and the money supply decreases.

Question 3

When the Fed decreases the discount rate, banks will

Accepted Answer

A)  borrow more from the Fed and lend more to the public. The money supply increases. 
B)  borrow more from the Fed and lend less to the public. The money supply decreases. 
C)  borrow less from the Fed and lend more to the public. The money supply increases. 
D)  borrow less from the Fed and lend less to the public. The money supply decreases. 
A)  borrow more from the Fed and lend more to the public. The money supply increases. 
B)  borrow more from the Fed and lend less to the public. The money supply decreases. 
C)  borrow less from the Fed and lend more to the public. The money supply increases. 
D)  borrow less from the Fed and lend less to the public. The money supply decreases.

Question 4

If the Federal Open Market Committee decides to decrease the money supply, it will

Accepted Answer

A)  sell government bonds. 
B)  purchase corporate bonds. 
C)  purchase government bonds. 
D)  reduce interest rates. 
A)  sell government bonds. 
B)  purchase corporate bonds. 
C)  purchase government bonds. 
D)  reduce interest rates.

Question 5

Scenario 29-2.
The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi. The local unit of currency is the taz. Aggregate banking statistics show that collectively the banks of Tazi hold 300 million tazes of required reserves, 75 million tazes of excess reserves, have issued 7,500 million tazes of deposits, and hold 225 million tazes of Tazian Treasury bonds. Tazians prefer to use only demand deposits and so all money is on deposit at the bank.
-Refer to Scenario 29-2. Assuming the only other thing Tazian banks have on their balance sheets is loans, what is the value of existing loans made by Tazian banks?

Accepted Answer

A)  6,900 million tazes 
B)  7,125 million tazes 
C)  7,350 million tazes 
D)  None of the above is correct. 
A)  6,900 million tazes 
B)  7,125 million tazes 
C)  7,350 million tazes 
D)  None of the above is correct.

Question 6

The leverage ratio is calculated as

Accepted Answer

A)  assets minus liabilities. 
B)  assets divided by bank capital 
C)  the reciprocal of the required reserve ratio 
D)  the required reserve ratio multiplied by bank capital. 
A)  assets minus liabilities. 
B)  assets divided by bank capital 
C)  the reciprocal of the required reserve ratio 
D)  the required reserve ratio multiplied by bank capital.

Question 7

One surprising thing about the U.S. money stock is that

Accepted Answer

A)  banks hold so much currency relative to the public. 
B)  the public holds so much currency relative to banks. 
C)  there is so little currency per person. 
D)  there is so much currency per person. 
A)  banks hold so much currency relative to the public. 
B)  the public holds so much currency relative to banks. 
C)  there is so little currency per person. 
D)  there is so much currency per person.

Question 8

To decrease the money supply, the Fed can

Accepted Answer

A)  buy government bonds or increase the discount rate. 
B)  buy government bonds or decrease the discount rate. 
C)  sell government bonds or increase the discount rate. 
D)  sell government bonds or decrease the discount rate. 
A)  buy government bonds or increase the discount rate. 
B)  buy government bonds or decrease the discount rate. 
C)  sell government bonds or increase the discount rate. 
D)  sell government bonds or decrease the discount rate.

Question 9

The Federal Deposit Insurance Corporation

Accepted Answer

A)  protects depositors in the event of bank failures. 
B)  has become insolvent in recent years due to a large number of bank failures. 
C)  is part of the Federal Reserve System. 
D)  in practice has seldom been of much use. 
A)  protects depositors in the event of bank failures. 
B)  has become insolvent in recent years due to a large number of bank failures. 
C)  is part of the Federal Reserve System. 
D)  in practice has seldom been of much use.

Question 10

Suppose a bank is operating with a leverage rate of 10. A 6 percent increase in the value of assets

Accepted Answer

A)  will reduce liabilities by 6 percent. 
B)  will result in a 60 percent increase in owner's equity. 
C)  will result in a 60percent decrease in owner's equity. 
D)  will reduce liabilities by 10 percent. 
A)  will reduce liabilities by 6 percent. 
B)  will result in a 60 percent increase in owner's equity. 
C)  will result in a 60percent decrease in owner's equity. 
D)  will reduce liabilities by 10 percent.

Question 11

A debit card is more similar to a credit card than to a check.

Accepted Answer

A) True 
 B)False

Question 12

Banks can hold deposits at the Federal Reserve. Balances in these accounts can be used by banks to meet their reserve requirements, but the Fed pays no interest on these deposits.

Accepted Answer

A) True 
 B)False

Question 13

Table 29-2.
The information in the table pertains to an imaginary economy.
  
-Refer to Table 29-2. What is the M2 money supply?

Accepted Answer

A)  $1,300 billion 
B)  $580 billion 
C)  $880 billion 
D)  $1,000 billion 
A)  $1,300 billion 
B)  $580 billion 
C)  $880 billion 
D)  $1,000 billion

Question 14

The discount rate is

Accepted Answer

A)  the interest rate the Fed charges banks. 
B)  one divided by the difference between one and the reserve ratio. 
C)  the interest rate banks receive on reserve deposits with the Fed. 
D)  the interest rate that banks charge on overnight loans to other banks. 
A)  the interest rate the Fed charges banks. 
B)  one divided by the difference between one and the reserve ratio. 
C)  the interest rate banks receive on reserve deposits with the Fed. 
D)  the interest rate that banks charge on overnight loans to other banks.

Question 15

If the reserve ratio is 6 percent, then $9,000 of additional reserves can create up to

Accepted Answer

A)  $159,000 of new money. 
B)  $54,000 of new money. 
C)  $150,000 of new money. 
D)  $141,000 of new money. 
A)  $159,000 of new money. 
B)  $54,000 of new money. 
C)  $150,000 of new money. 
D)  $141,000 of new money.

Question 16

Monetary policy has an important influence on and in the short run.

Accepted Answer

inflation,

Question 17

Draw a simple T-account for First National Bank which has $5,000 of deposits, a required reserve ratio of 10 percent, and excess reserves of $300. Make sure your balance sheet balances.

Accepted Answer

The answer of Draw a simple T-account for First National...

Question 18

Money

Accepted Answer

A)  is a perfect store of value. 
B)  is the most liquid asset. 
C)  has intrinsic value, regardless of which form it takes. 
D)  All of the above are correct. 
A)  is a perfect store of value. 
B)  is the most liquid asset. 
C)  has intrinsic value, regardless of which form it takes. 
D)  All of the above are correct.

Question 19

According to the article "Why Gold?', silver may be used as money. One problem with using silver as money is that

Accepted Answer

A)  silver is too abundant. 
B)  silver tarnishes over time. 
C)  it is not a precious metal. 
D)  it has a high melting point. 
A)  silver is too abundant. 
B)  silver tarnishes over time. 
C)  it is not a precious metal. 
D)  it has a high melting point.

Question 20

What is the change in the money supply when the Fed purchases $100 worth of bonds in a 100-percent-reserve banking system?

Accepted Answer

The answer of What is the change in the money...

Exam 21: The Monetary System

Which of the following best illustrates the medium of exchange function of money?

If the Fed sells government bonds to the public, then reserves

When the Fed decreases the discount rate, banks will

If the Federal Open Market Committee decides to decrease the money supply, it will

The leverage ratio is calculated as

One surprising thing about the U.S. money stock is that

To decrease the money supply, the Fed can

The Federal Deposit Insurance Corporation

Suppose a bank is operating with a leverage rate of 10. A 6 percent increase in the value of assets

A debit card is more similar to a credit card than to a check.

Banks can hold deposits at the Federal Reserve. Balances in these accounts can be used by banks to meet their reserve requirements, but the Fed pays no interest on these deposits.

Table 29-2. The information in the table pertains to an imaginary economy. -Refer to Table 29-2. What is the M2 money supply?

The discount rate is

If the reserve ratio is 6 percent, then $9,000 of additional reserves can create up to

Monetary policy has an important influence on and in the short run.

Draw a simple T-account for First National Bank which has $5,000 of deposits, a required reserve ratio of 10 percent, and excess reserves of $300. Make sure your balance sheet balances.

Money

According to the article "Why Gold?', silver may be used as money. One problem with using silver as money is that

What is the change in the money supply when the Fed purchases $100 worth of bonds in a 100-percent-reserve banking system?

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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