Question 1

Which of the following groups is largely responsible for carrying out the Fed's tasks of regulating banks and ensuring the health of the financial system?

Accepted Answer

A)  FOMC 
B)  the Board of Governors 
C)  the New York Fed 
D)  the regional Federal Reserve Banks 
A)  FOMC 
B)  the Board of Governors 
C)  the New York Fed 
D)  the regional Federal Reserve Banks

Question 2

Money is the only asset that functions as a store of value.

Accepted Answer

A) True 
 B)False

Question 3

When conducting an open-market purchase, 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 4

The fractional reserve characteristic of the banking system allows banks to create money and also create wealth from bank deposits. Describe why this statement is or is not true.

Accepted Answer

This statement is not true.
Banks can cr

Question 5

There is a

Accepted Answer

A)  short-run tradeoff between inflation and unemployment. 
B)  short-run tradeoff between an increase in the money supply and inflation. 
C)  long-run tradeoff between inflation and unemployment. 
D)  long-run tradeoff between an increase in the money supply and inflation. 
A)  short-run tradeoff between inflation and unemployment. 
B)  short-run tradeoff between an increase in the money supply and inflation. 
C)  long-run tradeoff between inflation and unemployment. 
D)  long-run tradeoff between an increase in the money supply and inflation.

Question 6

Given the following information, what are the values of M1 and M2? Small time deposits $1,800 billion
Demand deposits and other checkable deposits $1,000 billion
Savings deposits $1,400 billion
Money market mutual funds $1,000 billion
Traveler's checks $50 billion
Large time deposits $600 billion
Currency $300 billion
Miscellaneous categories in M2 $50 billion

Accepted Answer

A)  M1 = $3,150 billion, M2 = $6,200 billion. 
B)  M1 = $1,350 billion, M2 = $5,600 billion. 
C)  M1 = $1,400 billion, M2 = $6,200 billion. 
D)  M1 = $1,300 billion, M2 = $5,600 billion. 
A)  M1 = $3,150 billion, M2 = $6,200 billion. 
B)  M1 = $1,350 billion, M2 = $5,600 billion. 
C)  M1 = $1,400 billion, M2 = $6,200 billion. 
D)  M1 = $1,300 billion, M2 = $5,600 billion.

Question 7

If the discount rate is raised then banks borrow

Accepted Answer

A)  more from the Fed so reserves increase. 
B)  more from the Fed so reserves decrease. 
C)  less from the Fed so reserves increase. 
D)  less from the Fed so reserves decrease. 
A)  more from the Fed so reserves increase. 
B)  more from the Fed so reserves decrease. 
C)  less from the Fed so reserves increase. 
D)  less from the Fed so reserves decrease.

Question 8

Bank regulators impose capital requirements in order to

Accepted Answer

A)  increase the amount of leverage in the economy. 
B)  provide an incentive for banks to hold risky assets. 
C)  ensure banks can pay off depositors. 
D)  increase the probability of a credit crunch. 
A)  increase the amount of leverage in the economy. 
B)  provide an incentive for banks to hold risky assets. 
C)  ensure banks can pay off depositors. 
D)  increase the probability of a credit crunch.

Question 9

A decrease 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 10

If the reserve ratio increased from 10 percent to 20 percent, the money multiplier would

Accepted Answer

A)  rise from 10 to 20. 
B)  rise from 5 to 10. 
C)  fall from 10 to 5. 
D)  not change. 
A)  rise from 10 to 20. 
B)  rise from 5 to 10. 
C)  fall from 10 to 5. 
D)  not change.

Question 11

If the Federal Open Market Committee decides to increase the money supply, then the Federal Reserve

Accepted Answer

A)  creates dollars and uses them to purchase government bonds from the public. 
B)  sells government bonds from its portfolio to the public. 
C)  creates dollars and uses them to purchase various types of stocks and bonds from the public. 
D)  sells various types of stocks and bonds from its portfolio to the public. 
A)  creates dollars and uses them to purchase government bonds from the public. 
B)  sells government bonds from its portfolio to the public. 
C)  creates dollars and uses them to purchase various types of stocks and bonds from the public. 
D)  sells various types of stocks and bonds from its portfolio to the public.

Question 12

A bank has a 20 percent reserve requirement, $8,000 in loans, and has loaned out all it can given the reserve requirement.

Accepted Answer

A)  It has $6,400 in deposits. 
B)  It has $10,000 in deposits. 
C)  It has $9,600 in deposits. 
D)  It has $1,600 in deposits. 
A)  It has $6,400 in deposits. 
B)  It has $10,000 in deposits. 
C)  It has $9,600 in deposits. 
D)  It has $1,600 in deposits.

Question 13

Table 29-2.
The information in the table pertains to an imaginary economy.
  
-Refer to Table 29-2. What is the M1 money supply?

Accepted Answer

A)  $705 billion 
B)  $570 billion 
C)  $505 billion 
D)  $585 billion 
A)  $705 billion 
B)  $570 billion 
C)  $505 billion 
D)  $585 billion

Question 14

The manager of the bank where you work tells you that your bank has $10 million in excess reserves. She also tells you that the bank has $400 million in deposits and $375 million dollars in loans. Given this information you find that the reserve requirement must be

Accepted Answer

A)  10/400. 
B)  25/400. 
C)  35/400. 
D)  15/400. 
A)  10/400. 
B)  25/400. 
C)  35/400. 
D)  15/400.

Question 15

The money multiplier equals

Accepted Answer

A)  1/R, where R represents the quantity of reserves in the economy. 
B)  1/R, where R represents the reserve ratio for all banks in the economy. 
C)  1/1+R), where R represents the quantity of reserves in the economy. 
D)  1/1+R), where R represents the reserve ratio for all banks in the economy. 
A)  1/R, where R represents the quantity of reserves in the economy. 
B)  1/R, where R represents the reserve ratio for all banks in the economy. 
C)  1/1+R), where R represents the quantity of reserves in the economy. 
D)  1/1+R), where R represents the reserve ratio for all banks in the economy.

Question 16

How are Federal Reserve Board Governors selected?

Accepted Answer

The Fed Governors are appointed by the p

Question 17

Money allows people to specialize in what they do best, thereby raising everyone's standard of living.

Accepted Answer

A) True 
 B)False

Question 18

In the 19th century, when crop failures often led to bank runs, banks would make relatively fewer loans and hold relatively more excess reserves. By itself, these actions by the banks should have

Accepted Answer

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

Question 19

In Ugoland, the money supply is $8 million and reserves are $1 million. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

Accepted Answer

A)  14 percent. 
B)  12.5 percent. 
C)  8 percent. 
D)  None of the above is correct. 
A)  14 percent. 
B)  12.5 percent. 
C)  8 percent. 
D)  None of the above is correct.

Question 20

The Fed's primary tool to change the money supply is

Accepted Answer

A)  changing the interest rate on reserves. 
B)  changing the reserve requirement. 
C)  conducting open market operations. 
D)  redeeming Federal Reserve notes. 
A)  changing the interest rate on reserves. 
B)  changing the reserve requirement. 
C)  conducting open market operations. 
D)  redeeming Federal Reserve notes.

Exam 16: The Monetary System

Which of the following groups is largely responsible for carrying out the Fed's tasks of regulating banks and ensuring the health of the financial system?

Money is the only asset that functions as a store of value.

When conducting an open-market purchase, the Fed

The fractional reserve characteristic of the banking system allows banks to create money and also create wealth from bank deposits. Describe why this statement is or is not true.

There is a

If the discount rate is raised then banks borrow

Bank regulators impose capital requirements in order to

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

If the reserve ratio increased from 10 percent to 20 percent, the money multiplier would

If the Federal Open Market Committee decides to increase the money supply, then the Federal Reserve

A bank has a 20 percent reserve requirement, $8,000 in loans, and has loaned out all it can given the reserve requirement.

Table 29-2. The information in the table pertains to an imaginary economy. -Refer to Table 29-2. What is the M1 money supply?

The manager of the bank where you work tells you that your bank has $10 million in excess reserves. She also tells you that the bank has $400 million in deposits and $375 million dollars in loans. Given this information you find that the reserve requirement must be

The money multiplier equals

How are Federal Reserve Board Governors selected?

Money allows people to specialize in what they do best, thereby raising everyone's standard of living.

In the 19th century, when crop failures often led to bank runs, banks would make relatively fewer loans and hold relatively more excess reserves. By itself, these actions by the banks should have

In Ugoland, the money supply is $8 million and reserves are $1 million. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

The Fed's primary tool to change the money supply is

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

Filters