Question 1

The money supply decreases if the Fed

Accepted Answer

A)  sells Treasury bonds. The larger the reserve requirement, the larger the decrease will be. 
B)  sells Treasury bonds. The smaller the reserve requirement, the larger the decrease will be. 
C)  buys Treasury bonds. The larger the reserve requirement, the larger the decrease will be. 
D)  buys Treasury bonds. The smaller the reserve requirement, the larger the decrease will be. 
A)  sells Treasury bonds. The larger the reserve requirement, the larger the decrease will be. 
B)  sells Treasury bonds. The smaller the reserve requirement, the larger the decrease will be. 
C)  buys Treasury bonds. The larger the reserve requirement, the larger the decrease will be. 
D)  buys Treasury bonds. The smaller the reserve requirement, the larger the decrease will be.

Question 2

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

Accepted Answer

A)  purchased bonds in an attempt to increase the federal funds rate. 
B)  purchased bonds in an attempt to reduce the federal funds rate. 
C)  sold bonds in an attempt to increase the federal funds rate. 
D)  sold bonds in an attempt to reduce the federal funds rate. 
A)  purchased bonds in an attempt to increase the federal funds rate. 
B)  purchased bonds in an attempt to reduce the federal funds rate. 
C)  sold bonds in an attempt to increase the federal funds rate. 
D)  sold bonds in an attempt to reduce the federal funds rate.

Question 3

Which of the following institutions is a central bank?

Accepted Answer

A)  the Bank of Japan 
B)  the Bank of England 
C)  the Federal Reserve System 
D)  All of the above are correct. 
A)  the Bank of Japan 
B)  the Bank of England 
C)  the Federal Reserve System 
D)  All of the above are correct.

Question 4

Scenario 29-1.
The monetary policy of Namdian is determined by the Namdian Central Bank. The local currency is the dia. Namdian banks collectively hold 100 million dias of required reserves, 25 million dias of excess reserves, 250 million dias of Namdian Treasury Bonds, and their customers hold 1,000 million dias of deposits. Namdians prefer to use only demand deposits and so the money supply consists of demand deposits.
-Refer to Scenario 29-1. Assuming the only other item Namdian banks have on their balance sheets is loans, what is the value of existing loans made by Namdian banks?

Accepted Answer

A)  625 million dias 
B)  875 million dias 
C)  1,125 million dias 
D)  None of the above is correct. 
A)  625 million dias 
B)  875 million dias 
C)  1,125 million dias 
D)  None of the above is correct.

Question 5

Table 29-1.
The information in the table pertains to an imaginary economy.  
-Refer to Table 29-1. What is the value of M2 in billions of dollars?

Accepted Answer

A)  $9,815 billion 
B)  $8,315 billion 
C)  $7,565 billion 
D)  $7,405 billion 
A)  $9,815 billion 
B)  $8,315 billion 
C)  $7,565 billion 
D)  $7,405 billion

Question 6

Which tool of monetary policy does the Federal Reserve use most often?

Accepted Answer

A)  term auctions 
B)  open-market operations 
C)  changes in reserve requirements 
D)  changes in the discount rate 
A)  term auctions 
B)  open-market operations 
C)  changes in reserve requirements 
D)  changes in the discount rate

Question 7

If the Fed increases the reserve ratio from 5 percent to 12.5 percent, then the money multiplier

Accepted Answer

A)  decreases from 20 to 8. 
B)  decreases from 12.5 to 5. 
C)  increases from 8 to 20. 
D)  increases from 5 to 12.5. 
A)  decreases from 20 to 8. 
B)  decreases from 12.5 to 5. 
C)  increases from 8 to 20. 
D)  increases from 5 to 12.5.

Question 8

M1 includes

Accepted Answer

A)  small time deposits. 
B)  savings deposits. 
C)  other checkable deposits. 
D)  money market mutual funds. 
A)  small time deposits. 
B)  savings deposits. 
C)  other checkable deposits. 
D)  money market mutual funds.

Question 9

The Fed's primary tool to change the money supply is

Accepted Answer

A)  changing the interest rate on reserves. 
B)  changing the reserve requirement. 
C)  conducting open market operations. 
D)  redeeming Federal Reserve notes. 
A)  changing the interest rate on reserves. 
B)  changing the reserve requirement. 
C)  conducting open market operations. 
D)  redeeming Federal Reserve notes.

Question 10

If the reserve ratio is 12 percent, then the money multiplier is

Accepted Answer

A)  8.3. 
A)  9.3. 
B)  7.3. 
C)  12. 
A)  8.3. 
A)  9.3. 
B)  7.3. 
C)  12.

Question 11

The reserve requirement is 4 percent, banks hold no excess reserves and people hold no currency. If the Fed sells $10,000 worth of bonds, what happens to the money supply?

Accepted Answer

A)  it increases by $250,000 
B)  it increases by $200,000 
C)  it decreases by $200,000 
D)  it decreases by $250,000 
A)  it increases by $250,000 
B)  it increases by $200,000 
C)  it decreases by $200,000 
D)  it decreases by $250,000

Question 12

Most financial assets other than money function as

Accepted Answer

A)  a medium of exchange, a unit of account, and a store of value. 
B)  a medium of exchange and a store of value, but not a unit of account. 
C)  a store of value and a unit of account, but not a medium of exchange. 
D)  a store of value, but not a unit of account nor a medium of exchange 
A)  a medium of exchange, a unit of account, and a store of value. 
B)  a medium of exchange and a store of value, but not a unit of account. 
C)  a store of value and a unit of account, but not a medium of exchange. 
D)  a store of value, but not a unit of account nor a medium of exchange

Question 13

Suppose the required reserve ratio is 20%. What is the maximum amount of total money supply that can be created from an initial deposit of $200? In general, why might the actual amount of total money creation be less than the maximum?

Accepted Answer

The money multiplier is the reciprocal o

Question 14

The discount rate is

Accepted Answer

A)  the interest rate the Fed charges banks. 
B)  one divided by the difference between one and the reserve ratio. 
C)  the interest rate banks receive on reserve deposits with the Fed. 
D)  the interest rate that banks charge on overnight loans to other banks. 
A)  the interest rate the Fed charges banks. 
B)  one divided by the difference between one and the reserve ratio. 
C)  the interest rate banks receive on reserve deposits with the Fed. 
D)  the interest rate that banks charge on overnight loans to other banks.

Question 15

Consider five individuals with different occupations.   Which of the following pairs of individuals has a double coincidence of wants?

Accepted Answer

A)  Mary and Clark 
B)  Clark and Nathan 
C)  Nathan and Polly 
D)  Polly and Paul 
A)  Mary and Clark 
B)  Clark and Nathan 
C)  Nathan and Polly 
D)  Polly and Paul

Question 16

The discount rate is

Accepted Answer

A)  the rate at which public banks lend to other public banks. 
B)  the rate at which the Fed lends to banks. 
C)  the percentage difference between the face value of a Treasury bond and what the Fed pays for it. 
D)  the percentage of deposits banks hold as excess reserves. 
A)  the rate at which public banks lend to other public banks. 
B)  the rate at which the Fed lends to banks. 
C)  the percentage difference between the face value of a Treasury bond and what the Fed pays for it. 
D)  the percentage of deposits banks hold as excess reserves.

Question 17

Table 29-8  
-Refer to Table 29-8. The required reserve ratio is 12 percent. Which of the following is true?

Accepted Answer

A)  This banks reserve ratio is 12 percent. Its excess reserves are $0. 
B)  This banks reserve ratio is 13.3 percent. Its excess reserves are $120. 
C)  This banks reserve ratio is 15 percent. Its excess reserves are $240. 
D)  This banks reserve ratio is 10 percent. Its excess reserves are $300. 
A)  This banks reserve ratio is 12 percent. Its excess reserves are $0. 
B)  This banks reserve ratio is 13.3 percent. Its excess reserves are $120. 
C)  This banks reserve ratio is 15 percent. Its excess reserves are $240. 
D)  This banks reserve ratio is 10 percent. Its excess reserves are $300.

Question 18

In a 100-percent-reserve banking system, if people decided to decrease the amount of currency they held by increasing the amount they held in checkable deposits, then

Accepted Answer

A)  M1 would increase. 
B)  M1 would decrease. 
C)  M1 would not change. 
D)  M1 might rise or fall. 
A)  M1 would increase. 
B)  M1 would decrease. 
C)  M1 would not change. 
D)  M1 might rise or fall.

Question 19

Table 29-2.
The information in the table pertains to an imaginary economy.  
-Refer to Table 29-2. What is the M2 money supply?

Accepted Answer

A)  $1,300 billion 
B)  $580 billion 
C)  $880 billion 
D)  $1,000 billion 
A)  $1,300 billion 
B)  $580 billion 
C)  $880 billion 
D)  $1,000 billion

Question 20

Savings deposits 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.

Exam 29: The Monetary System

The money supply decreases if the Fed

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

Which of the following institutions is a central bank?

Table 29-1. The information in the table pertains to an imaginary economy. -Refer to Table 29-1. What is the value of M2 in billions of dollars?

Which tool of monetary policy does the Federal Reserve use most often?

If the Fed increases the reserve ratio from 5 percent to 12.5 percent, then the money multiplier

M1 includes

The Fed's primary tool to change the money supply is

If the reserve ratio is 12 percent, then the money multiplier is A) 8.3.

The reserve requirement is 4 percent, banks hold no excess reserves and people hold no currency. If the Fed sells $10,000 worth of bonds, what happens to the money supply?

Most financial assets other than money function as

Suppose the required reserve ratio is 20%. What is the maximum amount of total money supply that can be created from an initial deposit of $200? In general, why might the actual amount of total money creation be less than the maximum?

The discount rate is

Consider five individuals with different occupations. Which of the following pairs of individuals has a double coincidence of wants?

The discount rate is

Table 29-8 -Refer to Table 29-8. The required reserve ratio is 12 percent. Which of the following is true?

In a 100-percent-reserve banking system, if people decided to decrease the amount of currency they held by increasing the amount they held in checkable deposits, then

Table 29-2. The information in the table pertains to an imaginary economy. -Refer to Table 29-2. What is the M2 money supply?

Savings deposits are included in

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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