Question 1

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 2

In an economy that relies on barter, trade requires a double-coincidence of wants.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Members of the Board of Governors are appointed by the president of the U.S. and confirmed by the U.S. Senate.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is included in M1 and M2?

Accepted Answer

A)  traveler's checks 
B)  savings deposits 
C)  money market mutual funds 
D)  small time deposits 
A)  traveler's checks 
B)  savings deposits 
C)  money market mutual funds 
D)  small time deposits

Question 6

Scenario 29-2.
The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi. The local unit of currency is the taz. Aggregate banking statistics show that collectively the banks of Tazi hold 300 million tazes of required reserves, 75 million tazes of excess reserves, have issued 7,500 million tazes of deposits, and hold 225 million tazes of Tazian Treasury bonds. Tazians prefer to use only demand deposits and so all money is on deposit at the bank.
-Refer to Scenario 29-2. Assuming the only other thing Tazian banks have on their balance sheets is loans, what is the value of existing loans made by Tazian banks?

Accepted Answer

A)  6,900 million tazes 
B)  7,125 million tazes 
C)  7,350 million tazes 
D)  None of the above is correct. 
A)  6,900 million tazes 
B)  7,125 million tazes 
C)  7,350 million tazes 
D)  None of the above is correct.

Question 7

All of the presidents of the regional Federal Reserve banks

Accepted Answer

A)  attend each FOMC meeting. 
B)  have voting rights at each FOMC meeting. 
C)  are appointed by the president of the U.S. and confirmed by the U.S. Senate. 
D)  All of the above are correct. 
A)  attend each FOMC meeting. 
B)  have voting rights at each FOMC meeting. 
C)  are appointed by the president of the U.S. and confirmed by the U.S. Senate. 
D)  All of the above are correct.

Question 8

The amount of currency per person in the United States is about

Accepted Answer

A)  $110. 
B)  $300. 
C)  $2,450. 
D)  $4,490. 
A)  $110. 
B)  $300. 
C)  $2,450. 
D)  $4,490.

Question 9

Scenario 29-2.
The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi. The local unit of currency is the taz. Aggregate banking statistics show that collectively the banks of Tazi hold 300 million tazes of required reserves, 75 million tazes of excess reserves, have issued 7,500 million tazes of deposits, and hold 225 million tazes of Tazian Treasury bonds. Tazians prefer to use only demand deposits and so all money is on deposit at the bank.
-Refer to Scenario 29-2. Assume that banks desire to continue holding the same ratio of excess reserves to deposits. What is the reserve requirement and the reserve ratio for Tazian Banks?

Accepted Answer

A)  5 percent, 8 percent 
B)  4 percent, 8 percent 
C)  4 percent, 5 percent 
D)  None of the above is correct. 
A)  5 percent, 8 percent 
B)  4 percent, 8 percent 
C)  4 percent, 5 percent 
D)  None of the above is correct.

Question 10

In the nation of Wiknam, the money supply is $80,000 and reserves are $18,000. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

Accepted Answer

A)  29 percent. 
B)  22.5 percent. 
C)  16 percent. 
D)  None of the above is correct. 
A)  29 percent. 
B)  22.5 percent. 
C)  16 percent. 
D)  None of the above is correct.

Question 11

If the Fed decreases reserve requirements, the money supply will increase.

Accepted Answer

A) True 
 B)False

Question 12

Roundabout trade decreases production.

Accepted Answer

A) True 
 B)False

Question 13

Scenario 29-2.
The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi. The local unit of currency is the taz. Aggregate banking statistics show that collectively the banks of Tazi hold 300 million tazes of required reserves, 75 million tazes of excess reserves, have issued 7,500 million tazes of deposits, and hold 225 million tazes of Tazian Treasury bonds. Tazians prefer to use only demand deposits and so all money is on deposit at the bank.
-Refer to Scenario 29-2. Suppose the Bank of Tazi purchased 50 million tazes of Tazian Treasury Bonds from the banks. Suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the same. By how much does the money supply change?

Accepted Answer

A)  625 million tazes 
B)  1,000 million tazes 
C)  1,250 million tazes 
D)  None of the above is correct. 
A)  625 million tazes 
B)  1,000 million tazes 
C)  1,250 million tazes 
D)  None of the above is correct.

Question 14

The agency responsible for regulating the U.S. monetary system is the

Accepted Answer

A)  U.S. Treasury 
B)  Federal Reserve 
C)  Department of Justice 
D)  Federal Trade Commission 
A)  U.S. Treasury 
B)  Federal Reserve 
C)  Department of Justice 
D)  Federal Trade Commission

Question 15

You receive money as payment for babysitting your neighbors' children. This best illustrates which function of money?

Accepted Answer

A)  medium of exchange 
B)  unit of account 
C)  store of value 
D)  liquidity 
A)  medium of exchange 
B)  unit of account 
C)  store of value 
D)  liquidity

Question 16

In the months of November and December, people in the United States hold a larger part of their money in the form of currency because they intend to shop and travel for the holidays. As a result, other things the same, the money supply increases.

Accepted Answer

A) True 
 B)False

Question 17

A problem that the Fed faces when it attempts to control the money supply is that

Accepted Answer

A)  since the U.S. has a fractional-reserve banking system, the amount of money in the economy depends in part on the behavior of depositors and bankers. 
B)  the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools. 
C)  while the Fed has the ability to change the money supply by a large amount, it does not have the ability to change it by a small amount. 
D)  federal legislation in the 1950s stripped the Fed of its power to act as a lender of last resort to banks. 
A)  since the U.S. has a fractional-reserve banking system, the amount of money in the economy depends in part on the behavior of depositors and bankers. 
B)  the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools. 
C)  while the Fed has the ability to change the money supply by a large amount, it does not have the ability to change it by a small amount. 
D)  federal legislation in the 1950s stripped the Fed of its power to act as a lender of last resort to banks.

Question 18

Credit cards

Accepted Answer

A)  represent the largest component of M1. 
B)  are not included in M1 but are included in M2. 
C)  are a form of money unique to the U.S. 
D)  are not considered money. 
A)  represent the largest component of M1. 
B)  are not included in M1 but are included in M2. 
C)  are a form of money unique to the U.S. 
D)  are not considered money.

Question 19

All Fed purchases and sales of

Accepted Answer

A)  corporate stocks and bonds are conducted at the New York Fed's trading desk. 
B)  government bonds are conducted at the New York Fed's trading desk. 
C)  real estate and other real assets are conducted by the Federal Open Market Committee. 
D)  All of the above are correct. 
A)  corporate stocks and bonds are conducted at the New York Fed's trading desk. 
B)  government bonds are conducted at the New York Fed's trading desk. 
C)  real estate and other real assets are conducted by the Federal Open Market Committee. 
D)  All of the above are correct.

Question 20

At any meeting of the Federal Open Market Committee, that committee's voting members consist of

Accepted Answer

A)  5 Federal Reserve Regional Bank Presidents and all the members of the Board of Governors. 
B)  5 Federal Reserve Regional Bank Presidents and 5 members of the Board of Governors. 
C)  12 Federal Reserve Regional Bank Presidents and all the members of the Board of Governors. 
D)  12 Federal Reserve Regional Bank Presidents and 5 members of the Board of Governors. 
A)  5 Federal Reserve Regional Bank Presidents and all the members of the Board of Governors. 
B)  5 Federal Reserve Regional Bank Presidents and 5 members of the Board of Governors. 
C)  12 Federal Reserve Regional Bank Presidents and all the members of the Board of Governors. 
D)  12 Federal Reserve Regional Bank Presidents and 5 members of the Board of Governors.

Exam 29: The Monetary System

When conducting an open-market purchase, the Fed

In an economy that relies on barter, trade requires a double-coincidence of wants.

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

Members of the Board of Governors are appointed by the president of the U.S. and confirmed by the U.S. Senate.

Which of the following is included in M1 and M2?

All of the presidents of the regional Federal Reserve banks

The amount of currency per person in the United States is about

In the nation of Wiknam, the money supply is $80,000 and reserves are $18,000. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

If the Fed decreases reserve requirements, the money supply will increase.

Roundabout trade decreases production.

The agency responsible for regulating the U.S. monetary system is the

You receive money as payment for babysitting your neighbors' children. This best illustrates which function of money?

In the months of November and December, people in the United States hold a larger part of their money in the form of currency because they intend to shop and travel for the holidays. As a result, other things the same, the money supply increases.

A problem that the Fed faces when it attempts to control the money supply is that

Credit cards

All Fed purchases and sales of

At any meeting of the Federal Open Market Committee, that committee's voting members consist of

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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