Question 1

A bank's reserve ratio is 8 percent and the bank has $1,000 in deposits. Its reserves amount to

Accepted Answer

A)  $8. 
B)  $80. 
C)  $92. 
D)  $920. 
A)  $8. 
B)  $80. 
C)  $92. 
D)  $920.

Question 2

If the reserve requirement is 10 percent, which of the following pairs of changes would both allow a bank to lend out an additional $10,000?

Accepted Answer

A)  the Fed buys a $10,000 bond from the bank or someone deposits $10,000 in the bank 
B)  the Fed buys a $10,000 bond from the bank or the Fed lends the bank $10,000 
C)  the Fed sells a $10,000 bond to the bank or someone deposits $10,000 in the bank 
D)  the Fed sells a $10,000 bond to the bank or the Fed lends the bank $10,000 
A)  the Fed buys a $10,000 bond from the bank or someone deposits $10,000 in the bank 
B)  the Fed buys a $10,000 bond from the bank or the Fed lends the bank $10,000 
C)  the Fed sells a $10,000 bond to the bank or someone deposits $10,000 in the bank 
D)  the Fed sells a $10,000 bond to the bank or the Fed lends the bank $10,000

Question 3

List two reasons why the Fed cannot control the exact size of the money supply.

Accepted Answer

1) The Fed cannot control how much money

Question 4

Suppose that in a country the total holdings of banks were as follows: required reserves = $45 million excess reserves = $15 million deposits = $750 million loans = $600 million
Treasury bonds = $90 million. Show that the balance sheet balances if these are the only assets and liabilities. Assuming that people hold no currency, what happens to each of these values if the central bank changes the reserve requirement ratio to 2%, banks still want to hold the same percentage of excess reserves, and banks don't change their holdings of Treasury bonds? How much does the money supply change by?

Accepted Answer

The only liability is deposits which equ

Question 5

What is the difference between money and wealth?

Accepted Answer

Money is defined as the set of

Question 6

Federal Reserve governors are given long terms to insulate them from politics.

Accepted Answer

A) True 
 B)False

Question 7

Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate?

Accepted Answer

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

Question 8

Most financial assets other than money function as

Accepted Answer

A)  a medium of exchange, a unit of account, and a store of value. 
B)  a medium of exchange and a store of value, but not a unit of account. 
C)  a store of value and a unit of account, but not a medium of exchange. 
D)  a store of value, but not a unit of account nor a medium of exchange 
A)  a medium of exchange, a unit of account, and a store of value. 
B)  a medium of exchange and a store of value, but not a unit of account. 
C)  a store of value and a unit of account, but not a medium of exchange. 
D)  a store of value, but not a unit of account nor a medium of exchange

Question 9

Monetary policy affects employment

Accepted Answer

A)  only in the long run. 
B)  only in the short run. 
C)  in both the long run and the short run. 
D)  in neither the long run nor the short run. 
A)  only in the long run. 
B)  only in the short run. 
C)  in both the long run and the short run. 
D)  in neither the long run nor the short run.

Question 10

The Fed increases reserves if it conducts open market

Accepted Answer

A)  purchases or auctions term credit. 
B)  purchases but not if it auctions term credit 
C)  sales or auctions term credit 
D)  sales but not if it auctions term credit 
A)  purchases or auctions term credit. 
B)  purchases but not if it auctions term credit 
C)  sales or auctions term credit 
D)  sales but not if it auctions term credit

Question 11

The Fed increases the reserve requirement, but it wants to offset the effects on the money supply. Which of the following should it do?

Accepted Answer

A)  sell bonds to increase reserves 
B)  sell bonds to decrease reserves 
C)  buy bonds to increase reserves 
D)  buy bonds to decrease reserves 
A)  sell bonds to increase reserves 
B)  sell bonds to decrease reserves 
C)  buy bonds to increase reserves 
D)  buy bonds to decrease reserves

Question 12

If the federal funds rate were below 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 increase the money supply. 
B)  buying bonds. This buying would reduce the money supply. 
C)  selling bonds. This selling would increase the money supply. 
D)  selling bonds. This selling would reduce the money supply. 
A)  buying bonds. This buying would increase the money supply. 
B)  buying bonds. This buying would reduce the money supply. 
C)  selling bonds. This selling would increase the money supply. 
D)  selling bonds. This selling would reduce the money supply.

Question 13

An increase in the money supply might indicate that the Fed had

Accepted Answer

A)  purchased bonds in an attempt to increase the federal funds rate. 
B)  purchased bonds in an attempt to reduce the federal funds rate. 
C)  sold bonds in an attempt to increase the federal funds rate. 
D)  sold bonds in an attempt to reduce the federal funds rate. 
A)  purchased bonds in an attempt to increase the federal funds rate. 
B)  purchased bonds in an attempt to reduce the federal funds rate. 
C)  sold bonds in an attempt to increase the federal funds rate. 
D)  sold bonds in an attempt to reduce the federal funds rate.

Question 14

M2 is both larger and less liquid than M1.

Accepted Answer

A) True 
 B)False

Question 15

The existence of money leads to

Accepted Answer

A)  greater specialization in production, but not to a higher standard of living. 
B)  a higher standard of living, but not to greater specialization. 
C)  greater specialization and to a higher standard of living. 
D)  neither greater specialization nor to a higher standard of living. 
A)  greater specialization in production, but not to a higher standard of living. 
B)  a higher standard of living, but not to greater specialization. 
C)  greater specialization and to a higher standard of living. 
D)  neither greater specialization nor to a higher standard of living.

Question 16

Table 29-6.
  
-Refer to Table 29-6. Assume the Fed's reserve requirement is 5 percent and all banks besides the Bank of Pleasantville are exactly in compliance with the 5 percent requirement. Further assume that people hold only deposits and no currency. Starting from the situation as depicted by the T-account, if the Bank of Pleasantville decides to make new loans so as to end up with no excess reserves, then by how much does the money supply eventually increase?

Accepted Answer

A)  $10,833.33. 
B)  $13,000. 
C)  $8,333.33. 
D)  $10,000. 
A)  $10,833.33. 
B)  $13,000. 
C)  $8,333.33. 
D)  $10,000.

Question 17

The primary tool used by the Federal Reserve to change the money supply is .

Accepted Answer

open-marke

Question 18

Members of the Board of Governors of the Federal Reserve System are appointed for life.

Accepted Answer

A) True 
 B)False

Question 19

The use of money allows trade to be roundabout.

Accepted Answer

A) True 
 B)False

Question 20

If traveler's checks were $1000 higher and saving deposits were $500 higher, M1 would be

Accepted Answer

A)  $500 higher and M2 would be $1,500 higher. 
B)  $1,000 higher and M2 would be $1,500 higher. 
C)  M2 and M1 would be $1,500 higher. 
D)  $1,000 high and M2 would be $500 higher.. 
A)  $500 higher and M2 would be $1,500 higher. 
B)  $1,000 higher and M2 would be $1,500 higher. 
C)  M2 and M1 would be $1,500 higher. 
D)  $1,000 high and M2 would be $500 higher..

Exam 16: The Monetary System

A bank's reserve ratio is 8 percent and the bank has $1,000 in deposits. Its reserves amount to

If the reserve requirement is 10 percent, which of the following pairs of changes would both allow a bank to lend out an additional $10,000?

List two reasons why the Fed cannot control the exact size of the money supply.

What is the difference between money and wealth?

Federal Reserve governors are given long terms to insulate them from politics.

Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate?

Most financial assets other than money function as

Monetary policy affects employment

The Fed increases reserves if it conducts open market

The Fed increases the reserve requirement, but it wants to offset the effects on the money supply. Which of the following should it do?

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

An increase in the money supply might indicate that the Fed had

M2 is both larger and less liquid than M1.

The existence of money leads to

The primary tool used by the Federal Reserve to change the money supply is .

Members of the Board of Governors of the Federal Reserve System are appointed for life.

The use of money allows trade to be roundabout.

If traveler's checks were $1000 higher and saving deposits were $500 higher, M1 would be

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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