Question 1

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

Accepted Answer

A)  fewer reserves, so the money multiplier will fall. 
B)  fewer reserves, so the money multiplier will rise. 
C)  more reserves, so the money multiplier will fall. 
D)  more reserves, so the money multiplier will rise. 
A)  fewer reserves, so the money multiplier will fall. 
B)  fewer reserves, so the money multiplier will rise. 
C)  more reserves, so the money multiplier will fall. 
D)  more reserves, so the money multiplier will rise.

Question 2

When in France you notice that prices are posted in euros, this best illustrates money's function as

Accepted Answer

A)  a store of value. 
B)  a medium of exchange. 
C)  a unit of account. 
D)  a method of barter. 
A)  a store of value. 
B)  a medium of exchange. 
C)  a unit of account. 
D)  a method of barter.

Question 3

All of the presidents of the regional Federal Reserve banks

Accepted Answer

A)  attend each FOMC meeting. 
B)  have voting rights at each FOMC meeting. 
C)  are appointed by the president of the U.S. and confirmed by the U.S. Senate. 
D)  All of the above are correct. 
A)  attend each FOMC meeting. 
B)  have voting rights at each FOMC meeting. 
C)  are appointed by the president of the U.S. and confirmed by the U.S. Senate. 
D)  All of the above are correct.

Question 4

The Fed purchases $200 worth of government bonds from the public. The reserve requirement is 12.5 percent, people hold no currency, and the banking system keeps no excess reserves. The U.S. money supply eventually increases by

Accepted Answer

A)  $25. 
B)  between $200 and $300. 
C)  $1,600. 
D)  $2,500. 
A)  $25. 
B)  between $200 and $300. 
C)  $1,600. 
D)  $2,500.

Question 5

When the Soviet Union began breaking up in the late 1980s, cigarettes began replacing the ruble as the medium of exchange even though the ruble was legal tender. The cigarettes provide an example of commodity money.

Accepted Answer

A) True 
 B)False

Question 6

The Fed began paying interest on reserves in October 2008. Holding all else constant, what effect would this have on the money supply?

Accepted Answer

This would

Question 7

The Federal Open Market Committee meets approximately

Accepted Answer

A)  every three weeks 
B)  every six weeks 
C)  every 3 months 
D)  every 6 months. 
A)  every three weeks 
B)  every six weeks 
C)  every 3 months 
D)  every 6 months.

Question 8

Which of the following is correct?

Accepted Answer

A)  The Federal Reserve has 14 regional banks. The Board of Governors has 12 members who serve 7-year terms. 
B)  The Federal Reserve has 14 regional banks. The Board of Governors has 7 members who serve 14-year terms. 
C)  The Federal Reserve has 12 regional banks. The Board of Governors has 12 members who serve 7-year terms. 
D)  The Federal Reserve has 12 regional banks. The Board of Governors has 7 members who serve 14-year terms. 
A)  The Federal Reserve has 14 regional banks. The Board of Governors has 12 members who serve 7-year terms. 
B)  The Federal Reserve has 14 regional banks. The Board of Governors has 7 members who serve 14-year terms. 
C)  The Federal Reserve has 12 regional banks. The Board of Governors has 12 members who serve 7-year terms. 
D)  The Federal Reserve has 12 regional banks. The Board of Governors has 7 members who serve 14-year terms.

Question 9

The set of items that serve as media of exchange clearly includes

Accepted Answer

A)  balances that lie behind debit cards. 
B)  demand deposits. 
C)  other checkable deposits. 
D)  All of the above are correct. 
A)  balances that lie behind debit cards. 
B)  demand deposits. 
C)  other checkable deposits. 
D)  All of the above are correct.

Question 10

Economists use the term "money" to refer to

Accepted Answer

A)  all wealth. 
B)  all assets, including real assets and financial assets. 
C)  all financial assets, but not real assets. 
D)  those types of wealth that are regularly accepted by sellers in exchange for goods and services. 
A)  all wealth. 
B)  all assets, including real assets and financial assets. 
C)  all financial assets, but not real assets. 
D)  those types of wealth that are regularly accepted by sellers in exchange for goods and services.

Question 11

Banks are able to create money only when

Accepted Answer

A)  interest rates are above 2%. 
B)  the Fed sells U.S. government bonds. 
C)  the reserve ratio is 100%. 
D)  only a fraction of deposits are held in reserve. 
A)  interest rates are above 2%. 
B)  the Fed sells U.S. government bonds. 
C)  the reserve ratio is 100%. 
D)  only a fraction of deposits are held in reserve.

Question 12

If the Fed raised the reserve requirement, the demand for reserves would

Accepted Answer

A)  increase, so the federal funds rate would fall. 
B)  increase, so the federal funds rate would rise. 
C)  decrease, so the federal funds rate would fall. 
D)  decrease, so the federal funds rate would rise. 
A)  increase, so the federal funds rate would fall. 
B)  increase, so the federal funds rate would rise. 
C)  decrease, so the federal funds rate would fall. 
D)  decrease, so the federal funds rate would rise.

Question 13

Which of the following increases when the Fed makes open-market sales?

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 14

If the reserve ratio is 15 percent, the money multiplier is

Accepted Answer

A)  7.7. 
B)  6.7. 
C)  5.7. 
D)  15. 
A)  7.7. 
B)  6.7. 
C)  5.7. 
D)  15.

Question 15

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 16

If a bank uses $200 of excess reserves to make a new loan when the reserve ratio is 15 percent, this action by itself initially makes the money supply

Accepted Answer

A)  and wealth increase by $200. 
B)  and wealth decrease by $200. 
C)  increase by $200 while wealth does not change. 
D)  decrease by $200 while wealth decreases by $200. 
A)  and wealth increase by $200. 
B)  and wealth decrease by $200. 
C)  increase by $200 while wealth does not change. 
D)  decrease by $200 while wealth decreases by $200.

Question 17

If the reserve ratio is 20 percent, how much money can be created from $100 of reserves? Show your work.

Accepted Answer

1/.20) @#IMG-DLM& $1

Question 18

Which tool of monetary policy does the Federal Reserve use most often?

Accepted Answer

A)  term auctions 
B)  open-market operations 
C)  changes in reserve requirements 
D)  changes in the discount rate 
A)  term auctions 
B)  open-market operations 
C)  changes in reserve requirements 
D)  changes in the discount rate

Question 19

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 20

When the Federal Reserve conducts open-market operations to increase the money supply, it

Accepted Answer

A)  redeems Federal Reserve notes. 
B)  buys government bonds from the public. 
C)  raises the discount rate. 
D)  decreases its lending to member banks. 
A)  redeems Federal Reserve notes. 
B)  buys government bonds from the public. 
C)  raises the discount rate. 
D)  decreases its lending to member banks.

Exam 16: The Monetary System

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

When in France you notice that prices are posted in euros, this best illustrates money's function as

All of the presidents of the regional Federal Reserve banks

The Fed purchases $200 worth of government bonds from the public. The reserve requirement is 12.5 percent, people hold no currency, and the banking system keeps no excess reserves. The U.S. money supply eventually increases by

When the Soviet Union began breaking up in the late 1980s, cigarettes began replacing the ruble as the medium of exchange even though the ruble was legal tender. The cigarettes provide an example of commodity money.

The Fed began paying interest on reserves in October 2008. Holding all else constant, what effect would this have on the money supply?

The Federal Open Market Committee meets approximately

Which of the following is correct?

The set of items that serve as media of exchange clearly includes

Economists use the term "money" to refer to

Banks are able to create money only when

If the Fed raised the reserve requirement, the demand for reserves would

Which of the following increases when the Fed makes open-market sales?

If the reserve ratio is 15 percent, the money multiplier is

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.

If a bank uses $200 of excess reserves to make a new loan when the reserve ratio is 15 percent, this action by itself initially makes the money supply

If the reserve ratio is 20 percent, how much money can be created from $100 of reserves? Show your work.

Which tool of monetary policy does the Federal Reserve use most often?

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

When the Federal Reserve conducts open-market operations to increase the money supply, it

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

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

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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