Question 1

Many societies used gold as money, because

Accepted Answer

A)  it is relatively rare. 
B)  it is durable. 
C)  it has a relatively low melting point. 
D)  All of the above are correct. 
A)  it is relatively rare. 
B)  it is durable. 
C)  it has a relatively low melting point. 
D)  All of the above are correct.

Question 2

The Fed can influence unemployment in

Accepted Answer

A)  the short run and in the long run. 
B)  the short run, but not in the long run. 
C)  the long run, but not in the short run. 
D)  neither the short nor the long run. 
A)  the short run and in the long run. 
B)  the short run, but not in the long run. 
C)  the long run, but not in the short run. 
D)  neither the short nor the long run.

Question 3

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 4

If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

Accepted Answer

A)  buying bonds. This buying would reduce reserves. 
B)  buying bonds. This buying would increase reserves. 
C)  selling bonds. This selling would reduce reserves. 
D)  selling bonds. This selling would increase reserves. 
A)  buying bonds. This buying would reduce reserves. 
B)  buying bonds. This buying would increase reserves. 
C)  selling bonds. This selling would reduce reserves. 
D)  selling bonds. This selling would increase reserves.

Question 5

Credit cards are

Accepted Answer

A)  a medium of exchange. 
B)  counted as part of M2 but not as part of M1. 
C)  important for analyzing the monetary system. 
D)  All of the above are correct. 
A)  a medium of exchange. 
B)  counted as part of M2 but not as part of M1. 
C)  important for analyzing the monetary system. 
D)  All of the above are correct.

Question 6

Fractional reserve banking is a system where banks must hold an amount of cash based on a percentage of its loans.

Accepted Answer

A) True 
 B)False

Question 7

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. Suppose that the Bank of Tazi changes the reserve requirement to 3 percent. Assuming that the banks still want to hold the same percentage of excess reserves what is the value of the money supply after the change in the reserve requirement?

Accepted Answer

A)  9,375 million tazes 
B)  10,000 million tazes 
C)  12,500 million tazes 
D)  None of the above is correct to the nearest million tazes. 
A)  9,375 million tazes 
B)  10,000 million tazes 
C)  12,500 million tazes 
D)  None of the above is correct to the nearest million tazes.

Question 8

The discount rate is the rate the Federal Reserve charges banks for loans. By lowering this rate, the Fed provides banks with a greater incentive to borrow from it.

Accepted Answer

A) True 
 B)False

Question 9

Suppose the Federal Reserve increases bank reserves and banks lend out some of these reserves, but at some point banks still have $5 million more they wish to lend out. If the reserve requirement is 10 percent, how much more money can banks create if they lend out the remaining amount?

Accepted Answer

A)  $55 million 
B)  $50 million 
C)  $45 million 
D)  $40 million 
A)  $55 million 
B)  $50 million 
C)  $45 million 
D)  $40 million

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

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 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

Which of the following is a liability of a bank and an asset of its customers?

Accepted Answer

A)  deposits of its customers and loans to its customers 
B)  deposits of its customers but not loans to its customers 
C)  loans of its customers but not the deposits of its customers 
D)  neither the deposits of its customers nor the loans to its customers 
A)  deposits of its customers and loans to its customers 
B)  deposits of its customers but not loans to its customers 
C)  loans of its customers but not the deposits of its customers 
D)  neither the deposits of its customers nor the loans to its customers

Question 14

If the Fed buys bonds in the open market, the money supply decreases.

Accepted Answer

A) True 
 B)False

Question 15

A bank loans Greg's Ice Cream $250,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

Accepted Answer

A)  a liability for the bank and an asset for Greg's Ice Cream. The loan increases the money supply. 
B)  a liability for the bank and an asset for Greg's Ice Cream. The loan does not increase the money supply. 
C)  an asset for the bank and a liability for Greg's Ice Cream. The loan increases the money supply. 
D)  an asset for the bank and a liability for Greg's Ice Cream. The loan does not increase the money supply. 
A)  a liability for the bank and an asset for Greg's Ice Cream. The loan increases the money supply. 
B)  a liability for the bank and an asset for Greg's Ice Cream. The loan does not increase the money supply. 
C)  an asset for the bank and a liability for Greg's Ice Cream. The loan increases the money supply. 
D)  an asset for the bank and a liability for Greg's Ice Cream. The loan does not increase the money supply.

Question 16

Roundabout trade decreases production.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following increase when the Fed makes open market purchases?

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 18

The banking system currently has $50 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 sells $10 billion worth of bonds, then by how much does the money supply change?

Accepted Answer

A)  It falls by $20 billion. 
B)  It falls by $110 billion. 
C)  It falls by $180 billion. 
D)  None of the above is correct. 
A)  It falls by $20 billion. 
B)  It falls by $110 billion. 
C)  It falls by $180 billion. 
D)  None of the above is correct.

Question 19

U.S. dollars are an example of commodity money and hides used to make trades are an example of fiat money.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is a store of value?

Accepted Answer

A)  currency 
B)  U.S. government bonds 
C)  fine art 
D)  All of the above are correct. 
A)  currency 
B)  U.S. government bonds 
C)  fine art 
D)  All of the above are correct.

Exam 16: The Monetary System

Many societies used gold as money, because

The Fed can influence unemployment in

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,

If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

Credit cards are

Fractional reserve banking is a system where banks must hold an amount of cash based on a percentage of its loans.

The discount rate is the rate the Federal Reserve charges banks for loans. By lowering this rate, the Fed provides banks with a greater incentive to borrow from it.

Suppose the Federal Reserve increases bank reserves and banks lend out some of these reserves, but at some point banks still have $5 million more they wish to lend out. If the reserve requirement is 10 percent, how much more money can banks create if they lend out the remaining amount?

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.

To increase the money supply, the Fed could

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.

Which of the following is a liability of a bank and an asset of its customers?

If the Fed buys bonds in the open market, the money supply decreases.

A bank loans Greg's Ice Cream $250,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

Roundabout trade decreases production.

Which of the following increase when the Fed makes open market purchases?

U.S. dollars are an example of commodity money and hides used to make trades are an example of fiat money.

Which of the following is a store of value?

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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