Question 1

Which of the following is an asset of a bank and a liability for its customers?

Accepted Answer

A)  deposits of its customers and loans to its customers 
B)  deposits of its customers but not loans to its customers 
C)  loans to its customers but not the deposits of its customers 
D)  neither the deposits of its customers nor the loans to its customers 
A)  deposits of its customers and loans to its customers 
B)  deposits of its customers but not loans to its customers 
C)  loans to its customers but not the deposits of its customers 
D)  neither the deposits of its customers nor the loans to its customers

Question 2

Which of the following increase when the Fed makes open market purchases?

Accepted Answer

A)  currency and reserves 
B)  currency but not reserves 
C)  reserves but not currency 
D)  neither currency nor reserves 
A)  currency and reserves 
B)  currency but not reserves 
C)  reserves but not currency 
D)  neither currency nor reserves

Question 3

In the U.S., the average adult holds about $4,490 in

Accepted Answer

A)  currency. 
B)  wealth. 
C)  M1. 
D)  M2. 
A)  currency. 
B)  wealth. 
C)  M1. 
D)  M2.

Question 4

The existence of money leads to

Accepted Answer

A)  greater specialization in production, but not to a higher standard of living. 
B)  a higher standard of living, but not to greater specialization. 
C)  greater specialization and to a higher standard of living. 
D)  neither greater specialization nor to a higher standard of living. 
A)  greater specialization in production, but not to a higher standard of living. 
B)  a higher standard of living, but not to greater specialization. 
C)  greater specialization and to a higher standard of living. 
D)  neither greater specialization nor to a higher standard of living.

Question 5

There is a

Accepted Answer

A)  short-run tradeoff between inflation and unemployment. 
B)  short-run tradeoff between an increase in the money supply and inflation. 
C)  long-run tradeoff between inflation and unemployment. 
D)  long-run tradeoff between an increase in the money supply and inflation. 
A)  short-run tradeoff between inflation and unemployment. 
B)  short-run tradeoff between an increase in the money supply and inflation. 
C)  long-run tradeoff between inflation and unemployment. 
D)  long-run tradeoff between an increase in the money supply and inflation.

Question 6

A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can given the reserve requirement.

Accepted Answer

A)  It has $80 in reserves and $9,920 in loans. 
B)  It has $800 in reserves and $9,200 in loans. 
C)  It has $1,250 in reserves and $8,750 in loans. 
D)  None of the above is correct. 
A)  It has $80 in reserves and $9,920 in loans. 
B)  It has $800 in reserves and $9,200 in loans. 
C)  It has $1,250 in reserves and $8,750 in loans. 
D)  None of the above is correct.

Question 7

As the reserve ratio decreases, the money multiplier

Accepted Answer

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

Question 8

Table 29-4.  
-Refer to Table 29-4. The reserve ratio for this bank is

Accepted Answer

A)  8 percent. 
B)  12.5 percent. 
C)  87.5 percent. 
D)  25 percent. 
A)  8 percent. 
B)  12.5 percent. 
C)  87.5 percent. 
D)  25 percent.

Question 9

As banks create money, they create wealth.

Accepted Answer

A) True 
 B)False

Question 10

What is the difference between money and wealth?

Accepted Answer

Money is defined as the set of

Question 11

Treasury Bonds are

Accepted Answer

A)  liquid, but not a store of value. 
B)  a store of value, but not liquid. 
C)  both liquid and a store of value. 
D)  neither liquid nor a store of value. 
A)  liquid, but not a store of value. 
B)  a store of value, but not liquid. 
C)  both liquid and a store of value. 
D)  neither liquid nor a store of value.

Question 12

Fiat money

Accepted Answer

A)  has no intrinsic value. 
B)  is backed by gold. 
C)  is a medium of exchange but not a unit of account. 
D)  is any close substitute for currency such as checkable deposits. 
A)  has no intrinsic value. 
B)  is backed by gold. 
C)  is a medium of exchange but not a unit of account. 
D)  is any close substitute for currency such as checkable deposits.

Question 13

A decrease in the money supply might indicate that the Fed had

Accepted Answer

A)  purchased bonds to increase banks reserves. 
B)  purchased bonds to decrease banks reserves. 
C)  sold bonds to increase banks reserves. 
D)  sold bonds to decrease banks reserves. 
A)  purchased bonds to increase banks reserves. 
B)  purchased bonds to decrease banks reserves. 
C)  sold bonds to increase banks reserves. 
D)  sold bonds to decrease banks reserves.

Question 14

A bank's reserve ratio is 8 percent and the bank has $1,000 in deposits. Its reserves amount to

Accepted Answer

A)  $8. 
B)  $80. 
C)  $92. 
D)  $920. 
A)  $8. 
B)  $80. 
C)  $92. 
D)  $920.

Question 15

In a fractional-reserve banking system, an increase in reserve requirements

Accepted Answer

A)  increases both the money multiplier and the money supply. 
B)  decreases both the money multiplier and the money supply. 
C)  increases the money multiplier, but decreases the money supply. 
D)  decreases the money multiplier, but increases the money supply. 
A)  increases both the money multiplier and the money supply. 
B)  decreases both the money multiplier and the money supply. 
C)  increases the money multiplier, but decreases the money supply. 
D)  decreases the money multiplier, but increases the money supply.

Question 16

The money multiplier equals 1/(1 - R), where R represents the reserve ratio.

Accepted Answer

A) True 
 B)False

Question 17

To increase the money supply, the Fed could

Accepted Answer

A)  sell government bonds. 
B)  auction more loans to banks. 
C)  increase the reserve requirement. 
D)  None of the above is correct. 
A)  sell government bonds. 
B)  auction more loans to banks. 
C)  increase the reserve requirement. 
D)  None of the above is correct.

Question 18

If the Federal Open Market Committee decides to increase the money supply, then the Federal Reserve

Accepted Answer

A)  creates dollars and uses them to purchase government bonds from the public. 
B)  sells government bonds from its portfolio to the public. 
C)  creates dollars and uses them to purchase various types of stocks and bonds from the public. 
D)  sells various types of stocks and bonds from its portfolio to the public. 
A)  creates dollars and uses them to purchase government bonds from the public. 
B)  sells government bonds from its portfolio to the public. 
C)  creates dollars and uses them to purchase various types of stocks and bonds from the public. 
D)  sells various types of stocks and bonds from its portfolio to the public.

Question 19

To increase the money supply, the Fed could

Accepted Answer

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

Question 20

On a bank's T-account, which are part of the banks liabilities?

Accepted Answer

A)  both deposits made by its customers and reserves 
B)  deposits made by its customers but not reserves 
C)  reserves but not deposits made by its customers 
D)  neither deposits made by its customers nor reserves 
A)  both deposits made by its customers and reserves 
B)  deposits made by its customers but not reserves 
C)  reserves but not deposits made by its customers 
D)  neither deposits made by its customers nor reserves

Exam 29: The Monetary System

Which of the following is an asset of a bank and a liability for its customers?

Which of the following increase when the Fed makes open market purchases?

In the U.S., the average adult holds about $4,490 in

The existence of money leads to

There is a

A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can given the reserve requirement.

As the reserve ratio decreases, the money multiplier

Table 29-4. -Refer to Table 29-4. The reserve ratio for this bank is

As banks create money, they create wealth.

What is the difference between money and wealth?

Treasury Bonds are

Fiat money

A decrease in the money supply might indicate that the Fed had

A bank's reserve ratio is 8 percent and the bank has $1,000 in deposits. Its reserves amount to

In a fractional-reserve banking system, an increase in reserve requirements

The money multiplier equals 1/(1 - R), where R represents the reserve ratio.

To increase the money supply, the Fed could

If the Federal Open Market Committee decides to increase the money supply, then the Federal Reserve

To increase the money supply, the Fed could

On a bank's T-account, which are part of the banks liabilities?

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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