Question 1

When conducting an open-market sale, the Fed

Accepted Answer

A)  buys government bonds, and in so doing increases the money supply. 
B)  buys government bonds, and in so doing decreases the money supply. 
C)  sells government bonds, and in so doing increases the money supply. 
D)  sells government bonds, and in so doing decreases the money supply. 
A)  buys government bonds, and in so doing increases the money supply. 
B)  buys government bonds, and in so doing decreases the money supply. 
C)  sells government bonds, and in so doing increases the money supply. 
D)  sells government bonds, and in so doing decreases the money supply.

Question 2

M1 includes

Accepted Answer

A)  currency. 
B)  demand deposits. 
C)  traveler's checks. 
D)  All of the above are correct. 
A)  currency. 
B)  demand deposits. 
C)  traveler's checks. 
D)  All of the above are correct.

Question 3

If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by

Accepted Answer

A)  $64 of new reserves. 
B)  $448 of new reserves. 
C)  $700 of new reserves. 
D)  $800 of new reserves. 
A)  $64 of new reserves. 
B)  $448 of new reserves. 
C)  $700 of new reserves. 
D)  $800 of new reserves.

Question 4

If the reserve ratio is 12 percent, then the money multiplier is

Accepted Answer

A)  9.3. 
B)  8.3. 
C)  7.3. 
D)  12. 
A)  9.3. 
B)  8.3. 
C)  7.3. 
D)  12.

Question 5

The Board of Governors

Accepted Answer

A)  is chaired by the U.S. Secretary of the Treasury. 
B)  members are elected by the U.S. public. 
C)  has 7 members. 
D)  All of the above are correct. 
A)  is chaired by the U.S. Secretary of the Treasury. 
B)  members are elected by the U.S. public. 
C)  has 7 members. 
D)  All of the above are correct.

Question 6

Describe the role of bank leverage in bank insolvency during times of falling asset prices.

Accepted Answer

As bank asset values fall, the effect on

Question 7

Which of the following does the U.S. president appoint and the U.S. Senate confirm?

Accepted Answer

A)  members of the Board of Governors and regional Federal Reserve Bank Presidents. 
B)  members of the Board of Governors but not the regional Federal Reserve Bank Presidents. 
C)  the regional Federal Reserve Bank Presidents, but not members of the Board of Governors. 
D)  neither members of the Board of Governors nor regional Federal Reserve Bank Presidents. 
A)  members of the Board of Governors and regional Federal Reserve Bank Presidents. 
B)  members of the Board of Governors but not the regional Federal Reserve Bank Presidents. 
C)  the regional Federal Reserve Bank Presidents, but not members of the Board of Governors. 
D)  neither members of the Board of Governors nor regional Federal Reserve Bank Presidents.

Question 8

Which list ranks assets from most to least liquid?

Accepted Answer

A)  currency, fine art, stocks 
B)  currency, stocks, fine art 
C)  fine art, currency, stocks 
D)  fine art, stocks, currency 
A)  currency, fine art, stocks 
B)  currency, stocks, fine art 
C)  fine art, currency, stocks 
D)  fine art, stocks, currency

Question 9

When the Fed purchases $1000 worth of government bonds from the public, the U.S. money supply eventually increases by

Accepted Answer

A)  more than $1000. 
B)  exactly $1000. 
C)  less than $1000. 
D)  None of the above are correct. 
A)  more than $1000. 
B)  exactly $1000. 
C)  less than $1000. 
D)  None of the above are correct.

Question 10

If the Fed decreases reserve requirements, the money supply will increase.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following institutions is a central bank?

Accepted Answer

A)  the Bank of Japan 
B)  the Bank of England 
C)  the Federal Reserve System 
D)  All of the above are correct. 
A)  the Bank of Japan 
B)  the Bank of England 
C)  the Federal Reserve System 
D)  All of the above are correct.

Question 12

The most common method employed by the Fed to increase the money supply is the

Accepted Answer

A)  sale of U.S. government bonds. 
B)  purchase of U.S. government bonds. 
C)  sale of gold. 
D)  increase of the federal debt ceiling. 
A)  sale of U.S. government bonds. 
B)  purchase of U.S. government bonds. 
C)  sale of gold. 
D)  increase of the federal debt ceiling.

Question 13

Table 29-4.
  
-Refer to Table 29-4. The reserve ratio for this bank is

Accepted Answer

A)  8 percent. 
B)  12.5 percent. 
C)  87.5 percent. 
D)  25 percent. 
A)  8 percent. 
B)  12.5 percent. 
C)  87.5 percent. 
D)  25 percent.

Question 14

In December 1999 people feared that there might be computer problems at banks as the century changed. Consequently, people wanted to hold relatively more in currency and relatively less in deposits. In anticipation banks raised their reserve ratios to have enough cash on hand to meet depositors' demands. These actions by the public

Accepted Answer

A)  would increase the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have sold bonds. 
B)  would increase the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have bought bonds. 
C)  would reduce the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have sold bonds. 
D)  would reduce the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have bought bonds. 
A)  would increase the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have sold bonds. 
B)  would increase the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have bought bonds. 
C)  would reduce the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have sold bonds. 
D)  would reduce the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have bought bonds.

Question 15

The federal funds rate is the interest rate

Accepted Answer

A)  the Federal Reserve charges for loans it makes to the federal government. 
B)  the Federal Reserve charges banks for short-term loans. 
C)  banks charge each other for short-term loans of reserves. 
D)  on newly issued one-year Treasury bonds. 
A)  the Federal Reserve charges for loans it makes to the federal government. 
B)  the Federal Reserve charges banks for short-term loans. 
C)  banks charge each other for short-term loans of reserves. 
D)  on newly issued one-year Treasury bonds.

Question 16

In 1991, the Federal Reserve lowered the reserve requirement from 12 percent to 10 percent. Other things the same this should have

Accepted Answer

A)  increased both the money multiplier and the money supply. 
B)  decreased both the money multiplier and the money supply. 
C)  increased the money multiplier and decreased the money supply. 
D)  decreased the money multiplier and increased the money supply. 
A)  increased both the money multiplier and the money supply. 
B)  decreased both the money multiplier and the money supply. 
C)  increased the money multiplier and decreased the money supply. 
D)  decreased the money multiplier and increased the money supply.

Question 17

A problem that the Fed faces when it attempts to control the money supply is that

Accepted Answer

A)  since the U.S. has a fractional-reserve banking system, the amount of money in the economy depends in part on the behavior of depositors and bankers. 
B)  the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools. 
C)  while the Fed has the ability to change the money supply by a large amount, it does not have the ability to change it by a small amount. 
D)  federal legislation in the 1950s stripped the Fed of its power to act as a lender of last resort to banks. 
A)  since the U.S. has a fractional-reserve banking system, the amount of money in the economy depends in part on the behavior of depositors and bankers. 
B)  the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools. 
C)  while the Fed has the ability to change the money supply by a large amount, it does not have the ability to change it by a small amount. 
D)  federal legislation in the 1950s stripped the Fed of its power to act as a lender of last resort to banks.

Question 18

Which of the following is not included in M1?

Accepted Answer

A)  currency 
B)  demand deposits 
C)  traveler's checks 
D)  credit cards 
A)  currency 
B)  demand deposits 
C)  traveler's checks 
D)  credit cards

Question 19

As banks create money, they create wealth.

Accepted Answer

A) True 
 B)False

Question 20

The manager of the bank where you work tells you that the bank has $400 million in deposits and $340 million dollars in loans. The Fed then raises the reserve requirement from 5 percent to 10 percent. Assuming everything else stays the same, how much is the bank holding in excess reserves after the increase in the reserve requirement?

Accepted Answer

A)  $0 
B)  $20 million 
C)  $40 million 
D)  $60 million 
A)  $0 
B)  $20 million 
C)  $40 million 
D)  $60 million

Exam 16: The Monetary System

When conducting an open-market sale, the Fed

M1 includes

If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by

If the reserve ratio is 12 percent, then the money multiplier is

The Board of Governors

Describe the role of bank leverage in bank insolvency during times of falling asset prices.

Which of the following does the U.S. president appoint and the U.S. Senate confirm?

Which list ranks assets from most to least liquid?

When the Fed purchases $1000 worth of government bonds from the public, the U.S. money supply eventually increases by

If the Fed decreases reserve requirements, the money supply will increase.

Which of the following institutions is a central bank?

The most common method employed by the Fed to increase the money supply is the

Table 29-4. -Refer to Table 29-4. The reserve ratio for this bank is

The federal funds rate is the interest rate

In 1991, the Federal Reserve lowered the reserve requirement from 12 percent to 10 percent. Other things the same this should have

A problem that the Fed faces when it attempts to control the money supply is that

Which of the following is not included in M1?

As banks create money, they create wealth.

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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