Question 1

The most common method employed by the Fed to increase the money supply is the

Accepted Answer

A)  sale of U.S. government bonds. 
B)  purchase of U.S. government bonds. 
C)  sale of gold. 
D)  increase of the federal debt ceiling. 
A)  sale of U.S. government bonds. 
B)  purchase of U.S. government bonds. 
C)  sale of gold. 
D)  increase of the federal debt ceiling.

Question 2

Suppose the banking system currently has $300 billion in reserves, the reserve requirement is 5 percent, and excess reserves are $30 billion. What is the level of loans?

Accepted Answer

A)  $270 billion 
B)  $5,400 billion 
C)  $6,000 billion 
D)  $5,100 billion 
A)  $270 billion 
B)  $5,400 billion 
C)  $6,000 billion 
D)  $5,100 billion

Question 3

Economists call an institution designed to oversee the banking system and regulate the quantity of money in the economy

Accepted Answer

A)  a central bank. 
B)  a charter bank. 
C)  a national bank. 
D)  a state bank. 
A)  a central bank. 
B)  a charter bank. 
C)  a national bank. 
D)  a state bank.

Question 4

The New York Federal Reserve Bank

Accepted Answer

A)  president always gets to vote at the FOMC meetings. 
B)  conducts open market transactions. 
C)  is one of 12 regional Federal Reserve Banks. 
D)  All of the above are correct. 
A)  president always gets to vote at the FOMC meetings. 
B)  conducts open market transactions. 
C)  is one of 12 regional Federal Reserve Banks. 
D)  All of the above are correct.

Question 5

If the discount rate is raised then banks borrow

Accepted Answer

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

Question 6

Reserves increase if the Federal Reserve

Accepted Answer

A)  raises the discount rate or auctions more credit. 
B)  raises the discount rate but not if it auctions more credit. 
C)  lowers the discount rate or auctions more credit. 
D)  lowers the discount rate but not if it auctions more credit. 
A)  raises the discount rate or auctions more credit. 
B)  raises the discount rate but not if it auctions more credit. 
C)  lowers the discount rate or auctions more credit. 
D)  lowers the discount rate but not if it auctions more credit.

Question 7

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 8

A bank has $500,000 in deposits and $475,000 in loans. It has loaned out all it can. It has a reserve ratio of

Accepted Answer

A)  2.5 percent. 
B)  5 percent. 
C)  9.5 percent. 
D)  25 percent. 
A)  2.5 percent. 
B)  5 percent. 
C)  9.5 percent. 
D)  25 percent.

Question 9

Money is the most liquid asset available because

Accepted Answer

A)  it is a store of value. 
B)  it is a medium of exchange. 
C)  it is a unit of account. 
D)  it has intrinsic value. 
A)  it is a store of value. 
B)  it is a medium of exchange. 
C)  it is a unit of account. 
D)  it has intrinsic value.

Question 10

The Soviet government in the 1980's never abandoned the ruble as the official currency. However, the people of Moscow preferred to accept

Accepted Answer

A)  cigarettes in exchange for goods and services, because they were convinced that cigarettes were going to soon become hard to come by. 
B)  American dollars in exchange for goods and services, because rubles were extremely hard to come by. 
C)  goods such as cigarettes or American dollars in exchange for goods and services, reminding us of the fact that government decree by itself is not sufficient for the success of a commodity money. 
D)  All of the above are correct. 
A)  cigarettes in exchange for goods and services, because they were convinced that cigarettes were going to soon become hard to come by. 
B)  American dollars in exchange for goods and services, because rubles were extremely hard to come by. 
C)  goods such as cigarettes or American dollars in exchange for goods and services, reminding us of the fact that government decree by itself is not sufficient for the success of a commodity money. 
D)  All of the above are correct.

Question 11

One surprising thing about the U.S. money stock is that

Accepted Answer

A)  banks hold so much currency relative to the public. 
B)  the public holds so much currency relative to banks. 
C)  there is so little currency per person. 
D)  there is so much currency per person. 
A)  banks hold so much currency relative to the public. 
B)  the public holds so much currency relative to banks. 
C)  there is so little currency per person. 
D)  there is so much currency per person.

Question 12

Consider four survivors on an island.   Which of the following pairs of survivors has a double-coincidence of wants?

Accepted Answer

A)  Ron with Alice, and Ron with Lee 
B)  Alice with Lee 
C)  Ron with Raymond 
D)  None of the above are correct. 
A)  Ron with Alice, and Ron with Lee 
B)  Alice with Lee 
C)  Ron with Raymond 
D)  None of the above are correct.

Question 13

What does the text mean by the question, "Where Is All the Currency?" How does it answer the question?

Accepted Answer

The amount of currency per person is nea

Question 14

When a bank loans out $1,000, the money supply

Accepted Answer

A)  does not change. 
B)  decreases. 
C)  increases. 
D)  may do any of the above. 
A)  does not change. 
B)  decreases. 
C)  increases. 
D)  may do any of the above.

Question 15

Which of the following can the Fed do to change the money supply?

Accepted Answer

A)  change reserves or change the reserve ratio 
B)  change reserves but not change the reserve ratio 
C)  change the reserve ratio but not change the reserve ratio 
D)  neither change reserves nor change the reserve ratio 
A)  change reserves or change the reserve ratio 
B)  change reserves but not change the reserve ratio 
C)  change the reserve ratio but not change the reserve ratio 
D)  neither change reserves nor change the reserve ratio

Question 16

Credit card limits are included in

Accepted Answer

A)  M1 but not M2. 
B)  M2 but not M1. 
C)  M1 and M2. 
D)  neither M1 nor M2. 
A)  M1 but not M2. 
B)  M2 but not M1. 
C)  M1 and M2. 
D)  neither M1 nor M2.

Question 17

The manager of the bank where you work tells you that the bank has $400 million in deposits and $340 million dollars in loans. The Fed then raises the reserve requirement from 5 percent to 10 percent. Assuming everything else stays the same, how much is the bank holding in excess reserves after the increase in the reserve requirement?

Accepted Answer

A)  $0 
B)  $20 million 
C)  $40 million 
D)  $60 million 
A)  $0 
B)  $20 million 
C)  $40 million 
D)  $60 million

Question 18

If the reserve ratio is 5 percent, then $500 of additional reserves can create up to

Accepted Answer

A)  $10,500 of new money. 
B)  $10,000 of new money. 
C)  $9,500 of new money. 
D)  $2,500 of new money. 
A)  $10,500 of new money. 
B)  $10,000 of new money. 
C)  $9,500 of new money. 
D)  $2,500 of new money.

Question 19

During the early 1930s there were a number of bank failures in the United States. What did this do to the money supply? The New York Federal Reserve Bank advocated open market purchases. Would these purchases have reversed the change in the money supply and helped banks? Explain.

Accepted Answer

Bank failures cause people to lose confi

Question 20

The series of bank failures in 1907 occurred despite the creation of the Federal Reserve many years earlier.

Accepted Answer

A) True 
 B)False

Exam 29: The Monetary System

The most common method employed by the Fed to increase the money supply is the

Suppose the banking system currently has $300 billion in reserves, the reserve requirement is 5 percent, and excess reserves are $30 billion. What is the level of loans?

Economists call an institution designed to oversee the banking system and regulate the quantity of money in the economy

The New York Federal Reserve Bank

If the discount rate is raised then banks borrow

Reserves increase if the Federal Reserve

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

A bank has $500,000 in deposits and $475,000 in loans. It has loaned out all it can. It has a reserve ratio of

Money is the most liquid asset available because

The Soviet government in the 1980's never abandoned the ruble as the official currency. However, the people of Moscow preferred to accept

One surprising thing about the U.S. money stock is that

Consider four survivors on an island. Which of the following pairs of survivors has a double-coincidence of wants?

What does the text mean by the question, "Where Is All the Currency?" How does it answer the question?

When a bank loans out $1,000, the money supply

Which of the following can the Fed do to change the money supply?

Credit card limits are included in

If the reserve ratio is 5 percent, then $500 of additional reserves can create up to

During the early 1930s there were a number of bank failures in the United States. What did this do to the money supply? The New York Federal Reserve Bank advocated open market purchases. Would these purchases have reversed the change in the money supply and helped banks? Explain.

The series of bank failures in 1907 occurred despite the creation of the Federal Reserve many years earlier.

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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