Question 1

The Federal Reserve primarily uses open-market operations to change the money supply.

Accepted Answer

A) True 
 B)False

Question 2

If the money multiplier is 3 and the Fed buys $50,000 worth of bonds, what happens to the money supply?

Accepted Answer

A)  it increases by $100,000 
B)  it increases by $150,000 
C)  it decreases by $100,000 
D)  it decreases by $200,000 
A)  it increases by $100,000 
B)  it increases by $150,000 
C)  it decreases by $100,000 
D)  it decreases by $200,000

Question 3

Consider five individuals with different occupations.   Which of the following pairs of individuals has a double coincidence of wants?

Accepted Answer

A)  Mary and Clark 
B)  Clark and Nathan 
C)  Nathan and Polly 
D)  Polly and Paul 
A)  Mary and Clark 
B)  Clark and Nathan 
C)  Nathan and Polly 
D)  Polly and Paul

Question 4

Other things the same, if banks decide to hold a smaller part of their deposits as excess reserves, the money supply will fall.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is included in M2 but not in M1?

Accepted Answer

A)  currency 
B)  demand deposits 
C)  savings deposits 
D)  All of the above are included in both M1 and M2. 
A)  currency 
B)  demand deposits 
C)  savings deposits 
D)  All of the above are included in both M1 and M2.

Question 6

You believe the dollars you have today will be accepted in the future in exchange for goods and services. Which function of money does this illustrate?

Accepted Answer

The answer of You believe the dollars you have today...

Question 7

What are the functions of money?

Accepted Answer

Medium of exchange,

Question 8

Table 29-6.
  
-Refer to Table 29-6. Assume there is a reserve requirement and the Bank of Pleasantville is exactly in compliance with that requirement. Assume the same is true for all other banks. Lastly, assume people hold only deposits and no currency. What is the money multiplier?

Accepted Answer

A)  6 
B)  16.7 
C)  15.6 
D)  6.4 
A)  6 
B)  16.7 
C)  15.6 
D)  6.4

Question 9

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 10

To decrease the money supply, the Fed could

Accepted Answer

A)  sell government bonds. 
B)  increase the discount rate. 
C)  increase the reserve requirement. 
D)  All of the above are correct. 
A)  sell government bonds. 
B)  increase the discount rate. 
C)  increase the reserve requirement. 
D)  All of the above are correct.

Question 11

Explain how each of the following changes the money supply.
a. the Fed buys bonds
b. the Fed auctions credit
c. the Fed raises the discount rate
d. the Fed raises the reserve requirement

Accepted Answer

The answer of Explain how each of the following changes...

Question 12

One of the features of money is its store of value. However, most people do not hold their wealth as currency. Given that currency is the most liquid type of asset, why don't people hold all their wealth as currency?

Accepted Answer

Currency is not a perfect store of value

Question 13

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 14

If the reserve ratio is 100-percent, then a new deposit of $1000 into a bank account

Accepted Answer

A)  eventually increases the money supply by $1000. 
B)  leaves the size of the money supply unchanged. 
C)  eventually decreases the size of the money supply by $1000. 
D)  eventually increases the money supply by $2000. 
A)  eventually increases the money supply by $1000. 
B)  leaves the size of the money supply unchanged. 
C)  eventually decreases the size of the money supply by $1000. 
D)  eventually increases the money supply by $2000.

Question 15

Which list ranks assets from most to least liquid?

Accepted Answer

A)  money, bonds, cars, houses 
B)  money, cars, houses, bonds 
C)  bonds, money, cars, houses 
D)  bonds, cars, money, houses 
A)  money, bonds, cars, houses 
B)  money, cars, houses, bonds 
C)  bonds, money, cars, houses 
D)  bonds, cars, money, houses

Question 16

Describe how the use of leverage affects the impact of bank investments.

Accepted Answer

Leverage amplifies the impact from chang

Question 17

Members of the Board of Governors are appointed by the president of the U.S. and confirmed by the U.S. Senate.

Accepted Answer

A) True 
 B)False

Question 18

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 19

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

Accepted Answer

A)  purchased bonds to increase banks reserves. 
B)  purchased bonds to decrease banks reserves. 
C)  sold bonds to increase banks reserves. 
D)  sold bonds to decrease banks reserves. 
A)  purchased bonds to increase banks reserves. 
B)  purchased bonds to decrease banks reserves. 
C)  sold bonds to increase banks reserves. 
D)  sold bonds to decrease banks reserves.

Question 20

What is the difference between commodity money and fiat money? Why do people accept fiat money in trade for goods and services?

Accepted Answer

Commodity money has "intrinsic value," o

Exam 16: The Monetary System

The Federal Reserve primarily uses open-market operations to change the money supply.

If the money multiplier is 3 and the Fed buys $50,000 worth of bonds, what happens to the money supply?

Consider five individuals with different occupations. Which of the following pairs of individuals has a double coincidence of wants?

Other things the same, if banks decide to hold a smaller part of their deposits as excess reserves, the money supply will fall.

Which of the following is included in M2 but not in M1?

You believe the dollars you have today will be accepted in the future in exchange for goods and services. Which function of money does this illustrate?

What are the functions of money?

Table 29-6. -Refer to Table 29-6. Assume there is a reserve requirement and the Bank of Pleasantville is exactly in compliance with that requirement. Assume the same is true for all other banks. Lastly, assume people hold only deposits and no currency. What is the money multiplier?

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

To decrease the money supply, the Fed could

Explain how each of the following changes the money supply. a. the Fed buys bonds b. the Fed auctions credit c. the Fed raises the discount rate d. the Fed raises the reserve requirement

One of the features of money is its store of value. However, most people do not hold their wealth as currency. Given that currency is the most liquid type of asset, why don't people hold all their wealth as currency?

If the reserve ratio is 100-percent, then a new deposit of $1000 into a bank account

Which list ranks assets from most to least liquid?

Describe how the use of leverage affects the impact of bank investments.

Members of the Board of Governors are appointed by the president of the U.S. and confirmed by the U.S. Senate.

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

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

What is the difference between commodity money and fiat money? Why do people accept fiat money in trade for goods and services?

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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