Question 1

Commodity money cannot be used as a unit of account.

Accepted Answer

A) True 
 B)False

Question 2

Demand deposits are a type of

Accepted Answer

A)  checking account. 
B)  time deposit. 
C)  money market mutual fund. 
D)  savings deposit. 
A)  checking account. 
B)  time deposit. 
C)  money market mutual fund. 
D)  savings deposit.

Question 3

Which of the following items is not included in the most narrow definition of money, M1?

Accepted Answer

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

Question 4

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 5

Suppose a bank is operating with a leverage rate of 10. A 6 percent increase in the value of assets

Accepted Answer

A)  will reduce liabilities by 6 percent. 
B)  will result in a 60 percent increase in owner's equity. 
C)  will result in a 60percent decrease in owner's equity. 
D)  will reduce liabilities by 10 percent. 
A)  will reduce liabilities by 6 percent. 
B)  will result in a 60 percent increase in owner's equity. 
C)  will result in a 60percent decrease in owner's equity. 
D)  will reduce liabilities by 10 percent.

Question 6

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 7

If you deposit $100 of currency into a demand deposit at a bank, this action by itself

Accepted Answer

A)  does not change the money supply. 
B)  increases the money supply. 
C)  decreases the money supply. 
D)  has an indeterminate effect on the money supply. 
A)  does not change the money supply. 
B)  increases the money supply. 
C)  decreases the money supply. 
D)  has an indeterminate effect on the money supply.

Question 8

If the reserve ratio is 4 percent, then $81,250 of new money can be generated by

Accepted Answer

A)  $325 of new reserves. 
B)  $3,250 of new reserves. 
C)  $20,312.50 of new reserves. 
D)  $2,031,250 of new reserves. 
A)  $325 of new reserves. 
B)  $3,250 of new reserves. 
C)  $20,312.50 of new reserves. 
D)  $2,031,250 of new reserves.

Question 9

The banking system currently has $10 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed raises the reserve requirement to 12.5 percent and at the same time buys $1 billion worth of bonds, then by how much does the money supply change?

Accepted Answer

A)  It falls by $12 billion. 
B)  It falls by $19 billion. 
C)  It falls by $21 billion. 
D)  None of the above is correct. 
A)  It falls by $12 billion. 
B)  It falls by $19 billion. 
C)  It falls by $21 billion. 
D)  None of the above is correct.

Question 10

A bank has a 10 percent reserve requirement, $36,000 in loans, and has loaned out all it can given the reserve requirement.

Accepted Answer

A)  It has $3,600 in deposits. 
B)  It has $32,400 in deposits. 
C)  It has $39,600 in deposits. 
D)  It has $40,000 in deposits. 
A)  It has $3,600 in deposits. 
B)  It has $32,400 in deposits. 
C)  It has $39,600 in deposits. 
D)  It has $40,000 in deposits.

Question 11

Describe the role of the Federal Deposit Insurance Corporation (FDIC).

Accepted Answer

The FDIC is the primary mechanism by whi

Question 12

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

Accepted Answer

A)  falls. The larger the reserve ratio is, the more the money supply falls. 
B)  falls. The larger the reserve ratio is, the less the money supply falls. 
C)  rises. The larger the reserve ratio is, the more the money supply rises. 
D)  rises. The larger the reserve ratio is, the less the money supply rises. 
A)  falls. The larger the reserve ratio is, the more the money supply falls. 
B)  falls. The larger the reserve ratio is, the less the money supply falls. 
C)  rises. The larger the reserve ratio is, the more the money supply rises. 
D)  rises. The larger the reserve ratio is, the less the money supply rises.

Question 13

If the money multiplier is 3 and the Fed buys $50,000 worth of bonds, what happens to the money supply?

Accepted Answer

A)  it increases by $100,000 
B)  it increases by $150,000 
C)  it decreases by $100,000 
D)  it decreases by $200,000 
A)  it increases by $100,000 
B)  it increases by $150,000 
C)  it decreases by $100,000 
D)  it decreases by $200,000

Question 14

The Fed has the power to increase or decrease the number of dollars in the economy through the decisions of

Accepted Answer

A)  the Board of Governors. 
B)  the FOMC. 
C)  the regional Federal Reserve Bank presidents. 
D)  the U.S. Treasury. 
A)  the Board of Governors. 
B)  the FOMC. 
C)  the regional Federal Reserve Bank presidents. 
D)  the U.S. Treasury.

Question 15

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 16

Which list ranks assets from most to least liquid?

Accepted Answer

A)  money, bonds, cars, houses 
B)  money, cars, houses, bonds 
C)  bonds, money, cars, houses 
D)  bonds, cars, money, houses 
A)  money, bonds, cars, houses 
B)  money, cars, houses, bonds 
C)  bonds, money, cars, houses 
D)  bonds, cars, money, houses

Question 17

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits. As a result, bank reserves will

Accepted Answer

A)  decrease and the money supply will eventually decrease. 
B)  decrease and the money supply will eventually increase. 
C)  increase and the money supply will eventually decrease. 
D)  increase and the money supply will eventually increase. 
A)  decrease and the money supply will eventually decrease. 
B)  decrease and the money supply will eventually increase. 
C)  increase and the money supply will eventually decrease. 
D)  increase and the money supply will eventually increase.

Question 18

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 19

How does the Fed Open Market Committee increase the money supply?

Accepted Answer

The answer of How does the Fed Open Market Committee...

Question 20

Over one time horizon or another, Fed policy decisions influence

Accepted Answer

A)  inflation and employment. 
B)  inflation but not employment. 
C)  employment but not inflation. 
D)  neither inflation nor employment. 
A)  inflation and employment. 
B)  inflation but not employment. 
C)  employment but not inflation. 
D)  neither inflation nor employment.

Exam 29: The Monetary System

Commodity money cannot be used as a unit of account.

Demand deposits are a type of

Which of the following items is not included in the most narrow definition of money, M1?

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

Suppose a bank is operating with a leverage rate of 10. A 6 percent increase in the value of assets

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

If you deposit $100 of currency into a demand deposit at a bank, this action by itself

If the reserve ratio is 4 percent, then $81,250 of new money can be generated by

A bank has a 10 percent reserve requirement, $36,000 in loans, and has loaned out all it can given the reserve requirement.

Describe the role of the Federal Deposit Insurance Corporation (FDIC).

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

If the money multiplier is 3 and the Fed buys $50,000 worth of bonds, what happens to the money supply?

The Fed has the power to increase or decrease the number of dollars in the economy through the decisions of

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

Which list ranks assets from most to least liquid?

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits. As a result, bank reserves will

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

How does the Fed Open Market Committee increase the money supply?

Over one time horizon or another, Fed policy decisions influence

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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

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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