Question 1

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 2

Which of the following is not included in M1?

Accepted Answer

A)  a $5 bill in your wallet 
B)  $100 in your checking account 
C)  $500 in your savings account 
D)  All of the above are included in M1. 
A)  a $5 bill in your wallet 
B)  $100 in your checking account 
C)  $500 in your savings account 
D)  All of the above are included in M1.

Question 3

Which of the following does the Federal Reserve not do?

Accepted Answer

A)  It controls the supply of money. 
B)  It acts as a lender of last resort to banks. 
C)  It makes loans to any qualified business that requests one. 
D)  It tries to ensure the health of the banking system. 
A)  It controls the supply of money. 
B)  It acts as a lender of last resort to banks. 
C)  It makes loans to any qualified business that requests one. 
D)  It tries to ensure the health of the banking system.

Question 4

Bottles of very fine wine are less liquid than demand deposits.

Accepted Answer

A) True 
 B)False

Question 5

Bank regulators impose capital requirements in order to

Accepted Answer

A)  increase the amount of leverage in the economy. 
B)  provide an incentive for banks to hold risky assets. 
C)  ensure banks can pay off depositors. 
D)  increase the probability of a credit crunch. 
A)  increase the amount of leverage in the economy. 
B)  provide an incentive for banks to hold risky assets. 
C)  ensure banks can pay off depositors. 
D)  increase the probability of a credit crunch.

Question 6

Money allows people to specialize in what they do best, thereby raising everyone's standard of living.

Accepted Answer

A) True 
 B)False

Question 7

To increase the money supply, the Fed could

Accepted Answer

A)  sell government bonds. 
B)  decrease the discount rate. 
C)  increase the reserve requirement. 
D)  None of the above is correct. 
A)  sell government bonds. 
B)  decrease the discount rate. 
C)  increase the reserve requirement. 
D)  None of the above is correct.

Question 8

If the reserve ratio is 8 percent, then the money multiplier is

Accepted Answer

A)  12.5. 
B)  11.5. 
C)  13.5. 
D)  8. 
A)  12.5. 
B)  11.5. 
C)  13.5. 
D)  8.

Question 9

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

Question 10

Reserve requirements are regulations concerning

Accepted Answer

A)  the amount banks are allowed to borrow from the Fed. 
B)  the amount of reserves banks must hold against deposits. 
C)  reserves banks must hold based on the number and type of loans they make. 
D)  the interest rate at which banks can borrow from the Fed. 
A)  the amount banks are allowed to borrow from the Fed. 
B)  the amount of reserves banks must hold against deposits. 
C)  reserves banks must hold based on the number and type of loans they make. 
D)  the interest rate at which banks can borrow from the Fed.

Question 11

The Federal Reserve

Accepted Answer

A)  was created in 1913. 
B)  is the U.S.'s central bank. 
C)  has other duties in addition to controlling the money supply. 
D)  All of the above are correct. 
A)  was created in 1913. 
B)  is the U.S.'s central bank. 
C)  has other duties in addition to controlling the money supply. 
D)  All of the above are correct.

Question 12

Which of the following is included in M2 but not in M1?

Accepted Answer

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

Question 13

People hold $400 million of bank deposits but no currency. Banks have made $380 million dollars of loans and only hold enough reserves to satisfy reserve requirements. Because of uncertainty, banks choose to hold $10 million more in reserves. The Fed takes no action. What happens to bank loans?

Accepted Answer

A)  they fall $220 million 
B)  they fall $200 million 
C)  they rise $200 million 
D)  they rise $220 million 
A)  they fall $220 million 
B)  they fall $200 million 
C)  they rise $200 million 
D)  they rise $220 million

Question 14

Table 29-5.  
-Refer to Table 29-5. If the bank is holding $4,000 in excess reserves, then the reserve requirement with which it must comply is

Accepted Answer

A)  17 percent. 
B)  12 percent. 
C)  13 percent. 
D)  14 percent. 
A)  17 percent. 
B)  12 percent. 
C)  13 percent. 
D)  14 percent.

Question 15

Which of the following statements is correct? In the special case of the 100-percent reserve banking the money multiplier is

Accepted Answer

A)  0 and banks create money. 
B)  0 and banks do not create money. 
C)  1 and banks create money 
D)  1 and banks do not create money. 
A)  0 and banks create money. 
B)  0 and banks do not create money. 
C)  1 and banks create money 
D)  1 and banks do not create money.

Question 16

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 17

When the Federal Reserve sells assets from its portfolio to the public with the intent of changing the money supply,

Accepted Answer

A)  those assets are government bonds and the Fed's reason for selling them is to increase the money supply. 
B)  those assets are government bonds and the Fed's reason for selling them is to decrease the money supply. 
C)  those assets are items that are included in M2 and the Fed's reason for selling them is to increase the money supply. 
D)  those assets are items that are included in M2 and the Fed's reason for selling them is to decrease the money supply. 
A)  those assets are government bonds and the Fed's reason for selling them is to increase the money supply. 
B)  those assets are government bonds and the Fed's reason for selling them is to decrease the money supply. 
C)  those assets are items that are included in M2 and the Fed's reason for selling them is to increase the money supply. 
D)  those assets are items that are included in M2 and the Fed's reason for selling them is to decrease the money supply.

Question 18

Today, bank runs are not a major problem for the U.S. banking system because

Accepted Answer

A)  bank runs are now illegal. 
B)  banks now hold 100 percent of their deposits in reserve. 
C)  banks are now all government-operated. 
D)  the federal government now guarantees the safety of deposits at most banks. 
A)  bank runs are now illegal. 
B)  banks now hold 100 percent of their deposits in reserve. 
C)  banks are now all government-operated. 
D)  the federal government now guarantees the safety of deposits at most banks.

Question 19

Suppose a bank purchases $50 of government securities using funds from reserves. How much do bank assets change as a result of this transaction?

Accepted Answer

In this case, the value of bank assets d

Question 20

Table 29-5.  
-Refer to Table 29-5. Suppose the bank faces a reserve requirement of 10 percent. Starting from the situation as depicted by the T-account, a customer deposits an additional $60,000 into his account at the bank. If the bank takes no other action it will

Accepted Answer

A)  have $64,000 in excess reserves. 
B)  have $4,000 in excess reserves. 
C)  be in a position to make new loans equal to $6,000 
D)  None of the above is correct. 
A)  have $64,000 in excess reserves. 
B)  have $4,000 in excess reserves. 
C)  be in a position to make new loans equal to $6,000 
D)  None of the above is correct.

Exam 29: The Monetary System

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

Which of the following is not included in M1?

Which of the following does the Federal Reserve not do?

Bottles of very fine wine are less liquid than demand deposits.

Bank regulators impose capital requirements in order to

Money allows people to specialize in what they do best, thereby raising everyone's standard of living.

To increase the money supply, the Fed could

If the reserve ratio is 8 percent, then 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.

Reserve requirements are regulations concerning

The Federal Reserve

Which of the following is included in M2 but not in M1?

People hold $400 million of bank deposits but no currency. Banks have made $380 million dollars of loans and only hold enough reserves to satisfy reserve requirements. Because of uncertainty, banks choose to hold $10 million more in reserves. The Fed takes no action. What happens to bank loans?

Table 29-5. -Refer to Table 29-5. If the bank is holding $4,000 in excess reserves, then the reserve requirement with which it must comply is

Which of the following statements is correct? In the special case of the 100-percent reserve banking the money multiplier is

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

When the Federal Reserve sells assets from its portfolio to the public with the intent of changing the money supply,

Today, bank runs are not a major problem for the U.S. banking system because

Suppose a bank purchases $50 of government securities using funds from reserves. How much do bank assets change as a result of this transaction?

Table 29-5. -Refer to Table 29-5. Suppose the bank faces a reserve requirement of 10 percent. Starting from the situation as depicted by the T-account, a customer deposits an additional $60,000 into his account at the bank. If the bank takes no other action it will

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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