Question 1

To increase the money supply, the Fed can

Accepted Answer

A)  buy government bonds or increase the discount rate. 
B)  buy government bonds or decrease the discount rate. 
C)  sell government bonds or increase the discount rate. 
D)  sell government bonds or decrease the discount rate. 
A)  buy government bonds or increase the discount rate. 
B)  buy government bonds or decrease the discount rate. 
C)  sell government bonds or increase the discount rate. 
D)  sell government bonds or decrease the discount rate.

Question 2

Which of the following best illustrates the concept of a store of value?

Accepted Answer

A)  You are a precious-metals dealer, and you are always aware of how many ounces of platinum trade for an ounce of gold. 
B)  You sell items on eBay, and your prices are stated in terms of dollars. 
C)  You keep 6 ounces of gold in your safe-deposit box at the bank for emergencies. 
D)  None of the above is correct. 
A)  You are a precious-metals dealer, and you are always aware of how many ounces of platinum trade for an ounce of gold. 
B)  You sell items on eBay, and your prices are stated in terms of dollars. 
C)  You keep 6 ounces of gold in your safe-deposit box at the bank for emergencies. 
D)  None of the above is correct.

Question 3

Explain why banks can influence the money supply if the required reserve ratio is less than 100 percent.

Accepted Answer

When the reserve requirement is less tha

Question 4

When the Fed makes open-market sales bank

Accepted Answer

A)  withdrawals and lending increase. 
B)  withdrawals increase and lending decreases. 
C)  deposits and lending increase. 
D)  deposits increase and lending decreases. 
A)  withdrawals and lending increase. 
B)  withdrawals increase and lending decreases. 
C)  deposits and lending increase. 
D)  deposits increase and lending decreases.

Question 5

A bank has a 5 percent reserve requirement, $5,000 in deposits, and has loaned out all it can given the reserve requirement.

Accepted Answer

A)  It has $25 in reserves and $4,975 in loans. 
B)  It has $250 in reserves and $4,750 in loans. 
C)  It has $1,000 in reserves and $4,000 in loans. 
D)  None of the above is correct. 
A)  It has $25 in reserves and $4,975 in loans. 
B)  It has $250 in reserves and $4,750 in loans. 
C)  It has $1,000 in reserves and $4,000 in loans. 
D)  None of the above is correct.

Question 6

Reserves are

Accepted Answer

A)  the central bank of the U.S. 
B)  deposits that banks hold in excess of the required amount. 
C)  the purchase of bonds by the Federal Open Market Committee. 
D)  deposits that banks have received but have not yet loaned out. 
A)  the central bank of the U.S. 
B)  deposits that banks hold in excess of the required amount. 
C)  the purchase of bonds by the Federal Open Market Committee. 
D)  deposits that banks have received but have not yet loaned out.

Question 7

Which of the following does the Federal Reserve not do?

Accepted Answer

A)  conduct monetary policy 
B)  act as a lender of last resort 
C)  convert Federal Reserve Notes into gold 
D)  serve as a bank regulator 
A)  conduct monetary policy 
B)  act as a lender of last resort 
C)  convert Federal Reserve Notes into gold 
D)  serve as a bank regulator

Question 8

Bank runs

Accepted Answer

A)  will affect neither the money supply nor the money multiplier. 
B)  increase the money supply. 
C)  can be neither prevented nor mitigated by the Federal Reserve. 
D)  are a problem because banks only hold a fraction of deposits as reserves. 
A)  will affect neither the money supply nor the money multiplier. 
B)  increase the money supply. 
C)  can be neither prevented nor mitigated by the Federal Reserve. 
D)  are a problem because banks only hold a fraction of deposits as reserves.

Question 9

Table 29-9
Metropolis National Bank is currently holding 2% of its deposits as excess reserves.  
-Refer to Table 29-9. Metropolis National Bank is currently holding 2% of deposits as excess reserves. Assume that no banks in the economy want to hold excess reserves and that people only hold deposits and no currency. How much does the money supply ultimately increase when Metropolis National Bank lends out its excess reserves?

Accepted Answer

A)  $100,000 
B)  $110,000 
C)  $120,000 
D)  None of the above are correct. 
A)  $100,000 
B)  $110,000 
C)  $120,000 
D)  None of the above are correct.

Question 10

Derek decides to forego a major appliance purchase and save the money. He transfers $2,100 from his checking account to his money market mutual fund. As a result of this transfer,

Accepted Answer

A)  both M1 and M2 decrease by $2,100. 
B)  M1 increases by $2,100 and M2 increases by $2,100. 
C)  M1 decreases by $2,100 and M2 increases by $2,100. 
D)  M1 decreases by $2,100 and M2 stays the same. 
A)  both M1 and M2 decrease by $2,100. 
B)  M1 increases by $2,100 and M2 increases by $2,100. 
C)  M1 decreases by $2,100 and M2 increases by $2,100. 
D)  M1 decreases by $2,100 and M2 stays the same.

Question 11

Marc puts prices on surfboards and skateboards at his sporting goods store. He is using money as a unit of account.

Accepted Answer

A) True 
 B)False

Question 12

Banks cannot influence the money supply if they are required to hold all deposits in reserve.

Accepted Answer

A) True 
 B)False

Question 13

Consider five individuals with different occupations.   In a barter system which of the following pairs has a double coincidence of wants?

Accepted Answer

A)  Allen and Eric 
B)  Diedre and Calvin 
C)  Both A and B are correct. 
D)  None of the above are correct. 
A)  Allen and Eric 
B)  Diedre and Calvin 
C)  Both A and B are correct. 
D)  None of the above are correct.

Question 14

Which of the three functions of money are commonly met by each of the following assets in the U.S. economy?
a. paper dollar
b. precious metals
c. collectibles such as baseball cards, stamps, and antiques

Accepted Answer

a. medium of exchang

Question 15

Other things the same if reserve requirements are decreased, the reserve ratio

Accepted Answer

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

Question 16

If the discount rate is lowered, banks borrow

Accepted Answer

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

Question 17

Designers of the Federal Reserve System were concerned that the Fed might form policy favorable to one part of the country or to a particular party. What are some ways that the organization of the Fed reflects such concerns?

Accepted Answer

1. The president appoints the Board of G

Question 18

The banking system currently has $50 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed raises the reserve requirement to 12.5 percent and at the same time sells $10 billion worth of bonds, then by how much does the money supply change?

Accepted Answer

A)  It falls by $20 billion. 
B)  It falls by $110 billion. 
C)  It falls by $180 billion. 
D)  None of the above is correct. 
A)  It falls by $20 billion. 
B)  It falls by $110 billion. 
C)  It falls by $180 billion. 
D)  None of the above is correct.

Question 19

Suppose a bank has $3,000 in reserves, $25,000 of deposits, and a 10 percent reserve requirement. What is the amount of excess reserves?

Accepted Answer

The answer of Suppose a bank has $3,000 in reserves,...

Question 20

One plausible explanation for the large amount of U.S. currency outstanding is that many dollars are held abroad.

Accepted Answer

A) True 
 B)False

Exam 29: The Monetary System

To increase the money supply, the Fed can

Which of the following best illustrates the concept of a store of value?

Explain why banks can influence the money supply if the required reserve ratio is less than 100 percent.

When the Fed makes open-market sales bank

A bank has a 5 percent reserve requirement, $5,000 in deposits, and has loaned out all it can given the reserve requirement.

Reserves are

Which of the following does the Federal Reserve not do?

Bank runs

Derek decides to forego a major appliance purchase and save the money. He transfers $2,100 from his checking account to his money market mutual fund. As a result of this transfer,

Marc puts prices on surfboards and skateboards at his sporting goods store. He is using money as a unit of account.

Banks cannot influence the money supply if they are required to hold all deposits in reserve.

Consider five individuals with different occupations. In a barter system which of the following pairs has a double coincidence of wants?

Which of the three functions of money are commonly met by each of the following assets in the U.S. economy? a. paper dollar b. precious metals c. collectibles such as baseball cards, stamps, and antiques

Other things the same if reserve requirements are decreased, the reserve ratio

If the discount rate is lowered, banks borrow

Designers of the Federal Reserve System were concerned that the Fed might form policy favorable to one part of the country or to a particular party. What are some ways that the organization of the Fed reflects such concerns?

Suppose a bank has $3,000 in reserves, $25,000 of deposits, and a 10 percent reserve requirement. What is the amount of excess reserves?

One plausible explanation for the large amount of U.S. currency outstanding is that many dollars are held abroad.

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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