Question 1

In the special case of the 100 percent-reserve banking, the money multiplier is

Accepted Answer

A)  1 and banks create money. 
B)  1 and banks do not create money. 
C)  2 and banks create money 
D)  2 and banks do not create money. 
A)  1 and banks create money. 
B)  1 and banks do not create money. 
C)  2 and banks create money 
D)  2 and banks do not create money.

Question 2

The rate at which the Fed lends money to banks is

Accepted Answer

A)  the prime rate. 
B)  fixed at 4%. 
C)  the federal funds rate. 
D)  the discount rate. 
A)  the prime rate. 
B)  fixed at 4%. 
C)  the federal funds rate. 
D)  the discount rate.

Question 3

Table 29-5.
  
-Refer to Table 29-5. If the bank faces a reserve requirement of 6 percent, then the bank

Accepted Answer

A)  is in a position to make a new loan of $12,000. 
B)  is in a position to make a new loan of $18,000. 
C)  has excess reserves of $12,000. 
D)  None of the above is correct. 
A)  is in a position to make a new loan of $12,000. 
B)  is in a position to make a new loan of $18,000. 
C)  has excess reserves of $12,000. 
D)  None of the above is correct.

Question 4

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 5

The money supply decreases if

Accepted Answer

A)  households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively more excess reserves and make fewer loans. 
B)  households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively fewer excess reserves and make more loans. 
C)  households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively more excess reserves and make fewer loans. 
D)  households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively less excess reserves and make more loans. 
A)  households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively more excess reserves and make fewer loans. 
B)  households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively fewer excess reserves and make more loans. 
C)  households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively more excess reserves and make fewer loans. 
D)  households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively less excess reserves and make more loans.

Question 6

At one time, people in a certain country had no access to banks; they relied exclusively on currency. Then, a fractional-reserve banking system was created. As a result, the money supply

Accepted Answer

A)  increased. The central bank could have reduced the size of this increase by buying bonds. 
B)  increased. The central bank could have reduced the size of this increase by selling bonds. 
C)  decreased. The central bank could have reduced the size of this decrease by buying bonds. 
D)  decreased. The central bank could have reduced the size of this decrease by selling bonds. 
A)  increased. The central bank could have reduced the size of this increase by buying bonds. 
B)  increased. The central bank could have reduced the size of this increase by selling bonds. 
C)  decreased. The central bank could have reduced the size of this decrease by buying bonds. 
D)  decreased. The central bank could have reduced the size of this decrease by selling bonds.

Question 7

In measuring the stock of money in the U.S., M1 includes

Accepted Answer

A)  traveler's checks. 
B)  savings deposits. 
C)  credit cards 
D)  none of the above. 
A)  traveler's checks. 
B)  savings deposits. 
C)  credit cards 
D)  none of the above.

Question 8

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 9

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 10

When prisoners use cigarettes or some other good as money, cigarettes become

Accepted Answer

A)  commodity money, but do not function as a unit of account. 
B)  commodity money and function as a unit of account. 
C)  fiat money, but do not function as a unit of account. 
D)  fiat money and function as a unit of account. 
A)  commodity money, but do not function as a unit of account. 
B)  commodity money and function as a unit of account. 
C)  fiat money, but do not function as a unit of account. 
D)  fiat money and function as a unit of account.

Question 11

Describe the two things that limit the precision of the Fed's control of the money supply and explain how each limits that control.

Accepted Answer

First, the Fed does not control the amou

Question 12

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 13

If the reserve ratio is 8 percent, then an additional $800 of reserves can increase the money supply by as much as

Accepted Answer

A)  $6,400. 
B)  $8,000. 
C)  $12,500. 
D)  $10,000. 
A)  $6,400. 
B)  $8,000. 
C)  $12,500. 
D)  $10,000.

Question 14

An open-market purchase

Accepted Answer

A)  increases the number of dollars and the number of bonds in the hands of the public. 
B)  increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public. 
C)  decreases the number of dollars and the number of bonds in the hands of the public. 
D)  decreases the number of dollars in the hands of the public and increases the number of bonds in the hands of the public. 
A)  increases the number of dollars and the number of bonds in the hands of the public. 
B)  increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public. 
C)  decreases the number of dollars and the number of bonds in the hands of the public. 
D)  decreases the number of dollars in the hands of the public and increases the number of bonds in the hands of the public.

Question 15

If the reserve requirement is 12 percent and banks desire to hold no excess reserves, when a bank receives a new deposit of $1,000,

Accepted Answer

A)  it must increase its required reserves by more than $150. 
B)  its total reserves initially increase by $120. 
C)  it will be able to make new loans up to a maximum of $880. 
D)  None of the above is correct. 
A)  it must increase its required reserves by more than $150. 
B)  its total reserves initially increase by $120. 
C)  it will be able to make new loans up to a maximum of $880. 
D)  None of the above is correct.

Question 16

The banking system currently has $100 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 lowers the reserve requirement to 5 percent and at the same time buys $10 billion worth of bonds, then by how much does the money supply change?

Accepted Answer

A)  It rises by $200 billion. 
B)  It rises by $800 billion. 
C)  It rises by $1,200 billion. 
D)  None of the above is correct. 
A)  It rises by $200 billion. 
B)  It rises by $800 billion. 
C)  It rises by $1,200 billion. 
D)  None of the above is correct.

Question 17

Dollar bills, rare paintings, and emerald necklaces are all

Accepted Answer

A)  media of exchange. 
B)  units of account. 
C)  stores of value. 
D)  All of the above are correct. 
A)  media of exchange. 
B)  units of account. 
C)  stores of value. 
D)  All of the above are correct.

Question 18

Which of the following functions of money is also a common function of most other financial assets?

Accepted Answer

A)  a unit of account 
B)  a store of value 
C)  medium of exchange 
D)  None of the above is correct. 
A)  a unit of account 
B)  a store of value 
C)  medium of exchange 
D)  None of the above is correct.

Question 19

The Federal Reserve Board of Governors

Accepted Answer

A)  rotate each four years. 
B)  are appointed by the President and confirmed by the Senate. 
C)  are elected by popular vote. 
D)  hold lifetime appointments. 
A)  rotate each four years. 
B)  are appointed by the President and confirmed by the Senate. 
C)  are elected by popular vote. 
D)  hold lifetime appointments.

Question 20

What does the text mean by the question, "Where Is All the Currency?" How does it answer the question?

Accepted Answer

The amount of currency per person is nea

Exam 16: The Monetary System

In the special case of the 100 percent-reserve banking, the money multiplier is

The rate at which the Fed lends money to banks is

Table 29-5. -Refer to Table 29-5. If the bank faces a reserve requirement of 6 percent, then the bank

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

The money supply decreases if

At one time, people in a certain country had no access to banks; they relied exclusively on currency. Then, a fractional-reserve banking system was created. As a result, the money supply

In measuring the stock of money in the U.S., M1 includes

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

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

When prisoners use cigarettes or some other good as money, cigarettes become

Describe the two things that limit the precision of the Fed's control of the money supply and explain how each limits that control.

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

If the reserve ratio is 8 percent, then an additional $800 of reserves can increase the money supply by as much as

An open-market purchase

If the reserve requirement is 12 percent and banks desire to hold no excess reserves, when a bank receives a new deposit of $1,000,

Dollar bills, rare paintings, and emerald necklaces are all

Which of the following functions of money is also a common function of most other financial assets?

The Federal Reserve Board of Governors

What does the text mean by the question, "Where Is All the Currency?" How does it answer the question?

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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