Question 1

List the two main functions performed by the Fed?

Accepted Answer

The Fed performs two main func

Question 2

Credit cards are a medium of exchange.

Accepted Answer

A) True 
 B)False

Question 3

The Fed can increase the money supply by conducting open-market

Accepted Answer

A)  sales or by raising the discount rate. 
B)  sales or by lowering the discount rate. 
C)  purchases or by raising the discount rate. 
D)  purchases or by lowering the discount rate. 
A)  sales or by raising the discount rate. 
B)  sales or by lowering the discount rate. 
C)  purchases or by raising the discount rate. 
D)  purchases or by lowering the discount rate.

Question 4

Which of the following items is included in M2?

Accepted Answer

A)  credit cards 
B)  money market mutual funds 
C)  corporate bonds 
D)  large time deposits 
A)  credit cards 
B)  money market mutual funds 
C)  corporate bonds 
D)  large time deposits

Question 5

Which of the following is not included in either M1 or M2?

Accepted Answer

A)  money market deposit accounts 
B)  large time deposit 
C)  demand deposits 
D)  money market mutual funds 
A)  money market deposit accounts 
B)  large time deposit 
C)  demand deposits 
D)  money market mutual funds

Question 6

Given the following information, what are the values of M1 and M2? Small time deposits $600 billion
Demand deposits and other checkable deposits $400 billion
Savings deposits $800 billion
Money market mutual funds $700 billion
Traveler's checks $30 billion
Large time deposits $400 billion
Currency $250 billion
Miscellaneous categories in M2 $20 billion

Accepted Answer

A)  M1 = $650 billion, M2 = $2,830 billion. 
B)  M1 = $400 billion, M2 = $3,080 billion. 
C)  M1 = $680 billion, M2 = $2,800 billion. 
D)  M1 = $680 billion, M2 = $3,200 billion. 
A)  M1 = $650 billion, M2 = $2,830 billion. 
B)  M1 = $400 billion, M2 = $3,080 billion. 
C)  M1 = $680 billion, M2 = $2,800 billion. 
D)  M1 = $680 billion, M2 = $3,200 billion.

Question 7

If a bank uses $500 of excess reserves to make a new loan when the reserve ratio is 8 percent, this action by itself initially makes the money supply

Accepted Answer

A)  and wealth increase by $500. 
B)  and wealth decrease by $500. 
C)  increase by $500 while wealth does not change. 
D)  decrease by $500 while wealth decreases by $500. 
A)  and wealth increase by $500. 
B)  and wealth decrease by $500. 
C)  increase by $500 while wealth does not change. 
D)  decrease by $500 while wealth decreases by $500.

Question 8

A bank has $8,000 in deposits and $6,000 in loans. It has loaned out all it can given the reserve requirement. It follows that the reserve requirement is

Accepted Answer

A)  2.5 percent. 
B)  33.3 percent. 
C)  25 percent. 
D)  75 percent. 
A)  2.5 percent. 
B)  33.3 percent. 
C)  25 percent. 
D)  75 percent.

Question 9

A bank has $30,000 in deposits and has $5,400 in reserves. What is its reserve ratio?

Accepted Answer

The answer of A bank has $30,000 in deposits and...

Question 10

If the money multiplier decreased from 20 to 12.5, then

Accepted Answer

A)  the Fed increased the reserve ratio from 5 percent to 8 percent. 
B)  the Fed increased the fed funds rate from 5 percent to 8 percent. 
C)  the Fed decreased the reserve ratio from 8 percent to 5 percent. 
D)  the Fed decreased the fed funds rate from 8 percent to 5 percent. 
A)  the Fed increased the reserve ratio from 5 percent to 8 percent. 
B)  the Fed increased the fed funds rate from 5 percent to 8 percent. 
C)  the Fed decreased the reserve ratio from 8 percent to 5 percent. 
D)  the Fed decreased the fed funds rate from 8 percent to 5 percent.

Question 11

A bank has $500,000 in deposits and $475,000 in loans. It has loaned out all it can. It has a reserve ratio of

Accepted Answer

A)  2.5 percent. 
B)  5 percent. 
C)  9.5 percent. 
D)  25 percent. 
A)  2.5 percent. 
B)  5 percent. 
C)  9.5 percent. 
D)  25 percent.

Question 12

The money multiplier is when the reserve ratio is 12.5 percent.

Accepted Answer

The answer of The money multiplier is when the reserve...

Question 13

The prices of goods at a grocery store are listed in dollars. Which function of money does this illustrate?

Accepted Answer

The answer of The prices of goods at a grocery...

Question 14

When the federal funds rate is below the target rate, the Fed will bonds.
This action will the money supply.

Accepted Answer

The answer of When the federal funds rate is below...

Question 15

During a bank run, depositors decide to hold more currency relative to deposits and banks decide to hold more excess reserves relative to deposits.

Accepted Answer

A)  Both the decision to hold relatively more currency and the decision to hold relatively more excess reserves would make the money supply increase 
B)  Both the decision to hold relatively more currency and the decision to hold relatively more excess reserves would make the money supply decrease. 
C)  The decision to hold relatively more currency would make the money supply increase. The decision to hold relatively more excess reserves would make the money supply decrease. 
D)  The decision to hold relatively more currency would make the money supply increase. The decision to hold relatively more excess reserves would make the money supply decrease 
A)  Both the decision to hold relatively more currency and the decision to hold relatively more excess reserves would make the money supply increase 
B)  Both the decision to hold relatively more currency and the decision to hold relatively more excess reserves would make the money supply decrease. 
C)  The decision to hold relatively more currency would make the money supply increase. The decision to hold relatively more excess reserves would make the money supply decrease. 
D)  The decision to hold relatively more currency would make the money supply increase. The decision to hold relatively more excess reserves would make the money supply decrease

Question 16

Derek decides to forego a major appliance purchase and save the money. He transfers $2,100 from his checking account to his money market mutual fund. As a result of this transfer,

Accepted Answer

A)  both M1 and M2 decrease by $2,100. 
B)  M1 increases by $2,100 and M2 increases by $2,100. 
C)  M1 decreases by $2,100 and M2 increases by $2,100. 
D)  M1 decreases by $2,100 and M2 stays the same. 
A)  both M1 and M2 decrease by $2,100. 
B)  M1 increases by $2,100 and M2 increases by $2,100. 
C)  M1 decreases by $2,100 and M2 increases by $2,100. 
D)  M1 decreases by $2,100 and M2 stays the same.

Question 17

Which of the following is not correct?

Accepted Answer

A)  The president of the New York Federal Reserve bank is the only Federal Reserve Regional Bank President who gets to vote at every meeting of the Federal Open Market Committee. 
B)  The Fed's policy decisions influence the economy's rate of inflation in the short run and the economy's employment and production in the long run. 
C)  The Fed's primary monetary policy tool is open­market operations. 
D)  All of the above are correct. 
A)  The president of the New York Federal Reserve bank is the only Federal Reserve Regional Bank President who gets to vote at every meeting of the Federal Open Market Committee. 
B)  The Fed's policy decisions influence the economy's rate of inflation in the short run and the economy's employment and production in the long run. 
C)  The Fed's primary monetary policy tool is open­market operations. 
D)  All of the above are correct.

Question 18

If the reserve ratio is 8 percent, then a decrease in reserves of $6,000 can cause the money supply to fall by as much as

Accepted Answer

A)  $48,000. 
B)  $75,000. 
C)  $55,200. 
D)  $10,800. 
A)  $48,000. 
B)  $75,000. 
C)  $55,200. 
D)  $10,800.

Question 19

A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

Accepted Answer

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

Question 20

M1 includes savings deposits.

Accepted Answer

A) True 
 B)False

Exam 16: The Monetary System

List the two main functions performed by the Fed?

Credit cards are a medium of exchange.

The Fed can increase the money supply by conducting open-market

Which of the following items is included in M2?

Which of the following is not included in either M1 or M2?

If a bank uses $500 of excess reserves to make a new loan when the reserve ratio is 8 percent, this action by itself initially makes the money supply

A bank has $8,000 in deposits and $6,000 in loans. It has loaned out all it can given the reserve requirement. It follows that the reserve requirement is

A bank has $30,000 in deposits and has $5,400 in reserves. What is its reserve ratio?

If the money multiplier decreased from 20 to 12.5, then

A bank has $500,000 in deposits and $475,000 in loans. It has loaned out all it can. It has a reserve ratio of

The money multiplier is when the reserve ratio is 12.5 percent.

The prices of goods at a grocery store are listed in dollars. Which function of money does this illustrate?

When the federal funds rate is below the target rate, the Fed will bonds. This action will the money supply.

During a bank run, depositors decide to hold more currency relative to deposits and banks decide to hold more excess reserves relative to deposits.

Derek decides to forego a major appliance purchase and save the money. He transfers $2,100 from his checking account to his money market mutual fund. As a result of this transfer,

Which of the following is not correct?

If the reserve ratio is 8 percent, then a decrease in reserves of $6,000 can cause the money supply to fall by as much as

A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

M1 includes savings deposits.

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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