Question 1

The tool most often used by the Fed to control the money supply is

Accepted Answer

A)  changing reserve requirements. 
B)  open market operations. 
C)  buying and selling of equities. 
D)  altering the discount rate. 
A)  changing reserve requirements. 
B)  open market operations. 
C)  buying and selling of equities. 
D)  altering the discount rate.

Question 2

Currently, U.S. currency is

Accepted Answer

A)  fiat money with intrinsic value. 
B)  fiat money with no intrinsic value. 
C)  commodity money with intrinsic value. 
D)  commodity money with no intrinsic value. 
A)  fiat money with intrinsic value. 
B)  fiat money with no intrinsic value. 
C)  commodity money with intrinsic value. 
D)  commodity money with no intrinsic value.

Question 3

All U.S. paper dollars read "This note is legal tender for all debts, public and private." This statement represents which characteristic of US currency?

Accepted Answer

A)  The U.S. operates under the gold standard. 
B)  U.S. paper money is commodity money. 
C)  U.S. paper money is fiat money. 
D)  U.S. paper money is a convenient store of wealth. 
A)  The U.S. operates under the gold standard. 
B)  U.S. paper money is commodity money. 
C)  U.S. paper money is fiat money. 
D)  U.S. paper money is a convenient store of wealth.

Question 4

Which of the following functions of money is also a common function of most other financial assets?

Accepted Answer

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

Question 5

Why is the president of the New York Fed always a voting member of the FOMC?

Accepted Answer

New York is the financial capitol of the

Question 6

What is meant by the term "lender of last resort?" In what circumstances might the Fed be a lender of last resort?

Accepted Answer

A "lender of last resort" is a lender to

Question 7

List the two main functions performed by the Fed?

Accepted Answer

The Fed performs two main func

Question 8

The discount rate is the interest rate that

Accepted Answer

A)  banks charge one another for loans. 
B)  banks charge the Fed for loans. 
C)  the Fed charges banks for loans. 
D)  the Fed charges Congress for loans. 
A)  banks charge one another for loans. 
B)  banks charge the Fed for loans. 
C)  the Fed charges banks for loans. 
D)  the Fed charges Congress for loans.

Question 9

If a bank uses $200 of excess reserves to make a new loan when the reserve ratio is 15 percent, this action by itself initially makes the money supply

Accepted Answer

A)  and wealth increase by $200. 
B)  and wealth decrease by $200. 
C)  increase by $200 while wealth does not change. 
D)  decrease by $200 while wealth decreases by $200. 
A)  and wealth increase by $200. 
B)  and wealth decrease by $200. 
C)  increase by $200 while wealth does not change. 
D)  decrease by $200 while wealth decreases by $200.

Question 10

Which list ranks assets from most to least liquid?

Accepted Answer

A)  currency, demand deposits, money market mutual funds 
B)  currency, money market mutual funds, demand deposits 
C)  money market mutual funds, demand deposits, currency 
D)  demand deposits, money market mutual funds, currency 
A)  currency, demand deposits, money market mutual funds 
B)  currency, money market mutual funds, demand deposits 
C)  money market mutual funds, demand deposits, currency 
D)  demand deposits, money market mutual funds, currency

Question 11

If the reserve ratio is 100-percent, then a new deposit of $1000 into a bank account

Accepted Answer

A)  eventually increases the money supply by $1000. 
B)  leaves the size of the money supply unchanged. 
C)  eventually decreases the size of the money supply by $1000. 
D)  eventually increases the money supply by $2000. 
A)  eventually increases the money supply by $1000. 
B)  leaves the size of the money supply unchanged. 
C)  eventually decreases the size of the money supply by $1000. 
D)  eventually increases the money supply by $2000.

Question 12

Which of the following is included in both M1 and M2?

Accepted Answer

A)  savings deposits 
B)  demand deposits 
C)  small time deposits 
D)  money market mutual funds 
A)  savings deposits 
B)  demand deposits 
C)  small time deposits 
D)  money market mutual funds

Question 13

Many societies used gold as money, because

Accepted Answer

A)  it is relatively rare. 
B)  it is durable. 
C)  it has a relatively low melting point. 
D)  All of the above are correct. 
A)  it is relatively rare. 
B)  it is durable. 
C)  it has a relatively low melting point. 
D)  All of the above are correct.

Question 14

The money supply decreases if

Accepted Answer

A)  households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively more excess reserves and make fewer loans. 
B)  households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively fewer excess reserves and make more loans. 
C)  households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively more excess reserves and make fewer loans. 
D)  households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively less excess reserves and make more loans. 
A)  households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively more excess reserves and make fewer loans. 
B)  households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively fewer excess reserves and make more loans. 
C)  households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively more excess reserves and make fewer loans. 
D)  households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively less excess reserves and make more loans.

Question 15

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 16

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 17

When the Fed buys government bonds,

Accepted Answer

A)  the money supply increases and the federal funds rate increases. 
B)  the money supply increases and the federal funds rate decreases. 
C)  the money supply decreases and the federal funds rate increases. 
D)  the money supply decreases and the federal funds rate decreases. 
A)  the money supply increases and the federal funds rate increases. 
B)  the money supply increases and the federal funds rate decreases. 
C)  the money supply decreases and the federal funds rate increases. 
D)  the money supply decreases and the federal funds rate decreases.

Question 18

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 19

Suppose that in a country the total holdings of banks were as follows: required reserves = $45 million excess reserves = $15 million deposits = $750 million loans = $600 million
Treasury bonds = $90 million. Show that the balance sheet balances if these are the only assets and liabilities. Assuming that people hold no currency, what happens to each of these values if the central bank changes the reserve requirement ratio to 2%, banks still want to hold the same percentage of excess reserves, and banks don't change their holdings of Treasury bonds? How much does the money supply change by?

Accepted Answer

The only liability is deposits which equ

Question 20

Table 29-6.  
-Refer to Table 29-6. From the table it follows that the Bank of Pleasantville operates in a

Accepted Answer

A)  fractional-reserve banking system, since its reserves are less than its deposits. 
B)  fractional-reserve banking system, since its reserves are less than its loans. 
C)  100-percent-reserve banking system, since its assets are equal to its liabilities. 
D)  100­percent­reserve banking system if the Fed's reserve requirement is 10 percent; otherwise, it operates in a fractional-reserve banking system. 
A)  fractional-reserve banking system, since its reserves are less than its deposits. 
B)  fractional-reserve banking system, since its reserves are less than its loans. 
C)  100-percent-reserve banking system, since its assets are equal to its liabilities. 
D)  100­percent­reserve banking system if the Fed's reserve requirement is 10 percent; otherwise, it operates in a fractional-reserve banking system.

Exam 29: The Monetary System

The tool most often used by the Fed to control the money supply is

Currently, U.S. currency is

All U.S. paper dollars read "This note is legal tender for all debts, public and private." This statement represents which characteristic of US currency?

Which of the following functions of money is also a common function of most other financial assets?

Why is the president of the New York Fed always a voting member of the FOMC?

What is meant by the term "lender of last resort?" In what circumstances might the Fed be a lender of last resort?

List the two main functions performed by the Fed?

The discount rate is the interest rate that

If a bank uses $200 of excess reserves to make a new loan when the reserve ratio is 15 percent, this action by itself initially makes the money supply

Which list ranks assets from most to least liquid?

If the reserve ratio is 100-percent, then a new deposit of $1000 into a bank account

Which of the following is included in both M1 and M2?

Many societies used gold as money, because

The money supply decreases if

A double coincidence of wants

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.

When the Fed buys government bonds,

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?

Table 29-6. -Refer to Table 29-6. From the table it follows that the Bank of Pleasantville operates in a

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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