Question 1

What does it mean for the Fed to be the "lender of last resort?"

Accepted Answer

When banks cannot borrow in the market p

Question 2

Monetary policy is made by the .

Accepted Answer

Federal Op

Question 3

Any item that people can use to transfer purchasing power from the present to the future is called

Accepted Answer

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

Question 4

If the Fed sells government bonds to the public, then reserves

Accepted Answer

A)  increase and the money supply increases. 
B)  increase and the money supply decreases. 
C)  decrease and the money supply increases. 
D)  decrease and the money supply decreases. 
A)  increase and the money supply increases. 
B)  increase and the money supply decreases. 
C)  decrease and the money supply increases. 
D)  decrease and the money supply decreases.

Question 5

The federal funds rate is the

Accepted Answer

A)  percentage of face value that the Federal Reserve is willing to pay for Treasury Securities. 
B)  percentage of deposits that banks must hold as reserves. 
C)  interest rate at which the Federal Reserve makes short-term loans to banks. 
D)  interest rate at which banks lend reserves to each other overnight. 
A)  percentage of face value that the Federal Reserve is willing to pay for Treasury Securities. 
B)  percentage of deposits that banks must hold as reserves. 
C)  interest rate at which the Federal Reserve makes short-term loans to banks. 
D)  interest rate at which banks lend reserves to each other overnight.

Question 6

If people decide to hold more currency relative to deposits, the money supply

Accepted Answer

A)  falls. The Fed could lessen the impact of this by buying Treasury bonds. 
B)  falls. The Fed could lessen the impact of this by selling Treasury bonds. 
C)  rises. The Fed could lessen the impact of this by buying Treasury bonds. 
D)  rises. The Fed could lessen the impact of the by selling Treasury bonds. 
A)  falls. The Fed could lessen the impact of this by buying Treasury bonds. 
B)  falls. The Fed could lessen the impact of this by selling Treasury bonds. 
C)  rises. The Fed could lessen the impact of this by buying Treasury bonds. 
D)  rises. The Fed could lessen the impact of the by selling Treasury bonds.

Question 7

The leverage ratio is calculated as

Accepted Answer

A)  assets minus liabilities. 
B)  assets divided by bank capital 
C)  the reciprocal of the required reserve ratio 
D)  the required reserve ratio multiplied by bank capital. 
A)  assets minus liabilities. 
B)  assets divided by bank capital 
C)  the reciprocal of the required reserve ratio 
D)  the required reserve ratio multiplied by bank capital.

Question 8

Reserves are

Accepted Answer

A)  the central bank of the U.S. 
B)  deposits that banks hold in excess of the required amount. 
C)  the purchase of bonds by the Federal Open Market Committee. 
D)  deposits that banks have received but have not yet loaned out. 
A)  the central bank of the U.S. 
B)  deposits that banks hold in excess of the required amount. 
C)  the purchase of bonds by the Federal Open Market Committee. 
D)  deposits that banks have received but have not yet loaned out.

Question 9

Table 29-8
  
-Refer to Table 29-8. The required reserve ratio is 12 percent and First National Bank sells $120 of its short-term securities to the Federal Reserve. This action will

Accepted Answer

A)  increase First National's reserves by $120. Its excess reserves are $240. 
B)  decrease First National's reserves by $120. Its excess reserves are $0. 
C)  increase First National's loans by $120. Its reserves decrease by $120. 
D)  decrease First National's loans by $120. Its reserves increase by $120. 
A)  increase First National's reserves by $120. Its excess reserves are $240. 
B)  decrease First National's reserves by $120. Its excess reserves are $0. 
C)  increase First National's loans by $120. Its reserves decrease by $120. 
D)  decrease First National's loans by $120. Its reserves increase by $120.

Question 10

In a system of 100-percent-reserve banking, the purpose of a bank is to

Accepted Answer

A)  make loans to households. 
B)  influence the money supply. 
C)  give depositors a safe place to keep their money. 
D)  buy and sell gold. 
A)  make loans to households. 
B)  influence the money supply. 
C)  give depositors a safe place to keep their money. 
D)  buy and sell gold.

Question 11

Economists use the word "money" to refer to

Accepted Answer

A)  income generated by the production of goods and services. 
B)  those assets regularly used to buy goods and services. 
C)  financial assets such as stocks and bonds. 
D)  any type of wealth. 
A)  income generated by the production of goods and services. 
B)  those assets regularly used to buy goods and services. 
C)  financial assets such as stocks and bonds. 
D)  any type of wealth.

Question 12

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 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

Scenario 29-1.
The monetary policy of Namdian is determined by the Namdian Central Bank. The local currency is the dia. Namdian banks collectively hold 100 million dias of required reserves, 25 million dias of excess reserves, 250 million dias of Namdian Treasury Bonds, and their customers hold 1,000 million dias of deposits. Namdians prefer to use only demand deposits and so the money supply consists of demand deposits.
-Refer to Scenario 29-1. Assume that banks desire to continue holding the same ratio of excess reserves to deposits. What is the reserve requirement and what is the reserve ratio?

Accepted Answer

A)  2 percent, 8 percent 
B)  8 percent, 10 percent 
C)  10 percent, 12.5 percent 
D)  None of the above is correct. 
A)  2 percent, 8 percent 
B)  8 percent, 10 percent 
C)  10 percent, 12.5 percent 
D)  None of the above is correct.

Question 14

Paper money

Accepted Answer

A)  has a high intrinsic value. 
B)  is the primary medium of exchange in a barter economy. 
C)  is valuable because it is generally accepted in trade. 
D)  is valuable only because of the legal tender requirement. 
A)  has a high intrinsic value. 
B)  is the primary medium of exchange in a barter economy. 
C)  is valuable because it is generally accepted in trade. 
D)  is valuable only because of the legal tender requirement.

Question 15

The ease with which an asset can be

Accepted Answer

A)  traded for another asset determines whether or not that asset is a unit of account. 
B)  transported from one place to another determines whether or not that asset could serve as fiat money. 
C)  converted into a store of value determines the liquidity of that asset. 
D)  converted into the economy's medium of exchange determines the liquidity of that asset. 
A)  traded for another asset determines whether or not that asset is a unit of account. 
B)  transported from one place to another determines whether or not that asset could serve as fiat money. 
C)  converted into a store of value determines the liquidity of that asset. 
D)  converted into the economy's medium of exchange determines the liquidity of that asset.

Question 16

If the discount rate is lowered, banks borrow

Accepted Answer

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

Question 17

A double coincidence of wants

Accepted Answer

A)  is required when there is no item in an economy that is widely accepted in exchange for goods and services. 
B)  is required in an economy that relies on barter. 
C)  is a hindrance to the allocation of resources when it is required for trade. 
D)  All of the above are correct. 
A)  is required when there is no item in an economy that is widely accepted in exchange for goods and services. 
B)  is required in an economy that relies on barter. 
C)  is a hindrance to the allocation of resources when it is required for trade. 
D)  All of the above are correct.

Question 18

Economists equate money with

Accepted Answer

A)  individual wealth. 
B)  income regularly earned. 
C)  assets people use regularly to buy goods and services. 
D)  individual saving. 
A)  individual wealth. 
B)  income regularly earned. 
C)  assets people use regularly to buy goods and services. 
D)  individual saving.

Question 19

If the reserve ratio is 7.5 percent, the money multiplier is

Accepted Answer

A)  7.5. 
B)  10.3. 
C)  13.3. 
D)  11.3. 
A)  7.5. 
B)  10.3. 
C)  13.3. 
D)  11.3.

Question 20

If banks hold any amount of their deposits in reserve, then they do not have the ability to influence the money supply.

Accepted Answer

A) True 
 B)False

Exam 16: The Monetary System

What does it mean for the Fed to be the "lender of last resort?"

Monetary policy is made by the .

Any item that people can use to transfer purchasing power from the present to the future is called

If the Fed sells government bonds to the public, then reserves

The federal funds rate is the

If people decide to hold more currency relative to deposits, the money supply

The leverage ratio is calculated as

Reserves are

Table 29-8 -Refer to Table 29-8. The required reserve ratio is 12 percent and First National Bank sells $120 of its short-term securities to the Federal Reserve. This action will

In a system of 100-percent-reserve banking, the purpose of a bank is to

Economists use the word "money" to refer to

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

Paper money

The ease with which an asset can be

If the discount rate is lowered, banks borrow

A double coincidence of wants

Economists equate money with

If the reserve ratio is 7.5 percent, the money multiplier is

If banks hold any amount of their deposits in reserve, then they do not have the ability to influence the money supply.

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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