Question 1

In a fractional-reserve banking system, a bank

Accepted Answer

A)  does not make loans. 
B)  does not accept deposits. 
C)  keeps only a fraction of its deposits in reserve. 
D)  None of the above is correct. 
A)  does not make loans. 
B)  does not accept deposits. 
C)  keeps only a fraction of its deposits in reserve. 
D)  None of the above is correct.

Question 2

Monetary policy has an important influence on and in the short run.

Accepted Answer

inflation,

Question 3

If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by

Accepted Answer

A)  $64 of new reserves. 
B)  $448 of new reserves. 
C)  $700 of new reserves. 
D)  $800 of new reserves. 
A)  $64 of new reserves. 
B)  $448 of new reserves. 
C)  $700 of new reserves. 
D)  $800 of new reserves.

Question 4

If the Fed sells government bonds to the public, then reserves

Accepted Answer

A)  increase and the money supply increases. 
B)  increase and the money supply decreases. 
C)  decrease and the money supply increases. 
D)  decrease and the money supply decreases. 
A)  increase and the money supply increases. 
B)  increase and the money supply decreases. 
C)  decrease and the money supply increases. 
D)  decrease and the money supply decreases.

Question 5

You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate?

Accepted Answer

A)  medium of exchange 
B)  unit of account 
C)  store of value 
D)  liquidity 
A)  medium of exchange 
B)  unit of account 
C)  store of value 
D)  liquidity

Question 6

Fiat money

Accepted Answer

A)  is worthless. 
B)  has no intrinsic value. 
C)  may be used as a medium of exchange, but is not legal tender. 
D)  refers to highly liquid assets that do not serve as a medium of exchange. 
A)  is worthless. 
B)  has no intrinsic value. 
C)  may be used as a medium of exchange, but is not legal tender. 
D)  refers to highly liquid assets that do not serve as a medium of exchange.

Question 7

The measure of the money stock called M1 includes

Accepted Answer

A)  wealth held by people in their checking accounts. 
B)  wealth held by people in their savings accounts. 
C)  wealth held by people in money market mutual funds. 
D)  everything that is included in M2 plus some additional items. 
A)  wealth held by people in their checking accounts. 
B)  wealth held by people in their savings accounts. 
C)  wealth held by people in money market mutual funds. 
D)  everything that is included in M2 plus some additional items.

Question 8

When we measure and record economic value, we use money as the

Accepted Answer

A)  liquid asset. 
B)  medium of exchange. 
C)  unit of account. 
D)  store of value. 
A)  liquid asset. 
B)  medium of exchange. 
C)  unit of account. 
D)  store of value.

Question 9

An open-market sale

Accepted Answer

A)  increases the number of dollars and the number of bonds in the hands of the public. 
B)  increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public. 
C)  decreases the number of dollars and the number of bonds in the hands of the public. 
D)  decreases the number of dollars in the hands of the public and increases the number of bonds in the hands of the public. 
A)  increases the number of dollars and the number of bonds in the hands of the public. 
B)  increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public. 
C)  decreases the number of dollars and the number of bonds in the hands of the public. 
D)  decreases the number of dollars in the hands of the public and increases the number of bonds in the hands of the public.

Question 10

A bank has $30,000 in deposits and has $5,400 in reserves. What is its reserve ratio?

Accepted Answer

The answer of A bank has $30,000 in deposits and...

Question 11

The manager of the bank where you work tells you that the bank has $300 million in deposits and $255 million dollars in loans. If the reserve requirement is 8.5 percent, how much is the bank holding in excess reserves?

Accepted Answer

A)  $15 million 
B)  $19.5 million 
C)  $25.5 million 
D)  $0 million 
A)  $15 million 
B)  $19.5 million 
C)  $25.5 million 
D)  $0 million

Question 12

In 1991, the Federal Reserve lowered the reserve requirement from 12 percent to 10 percent. Other things the same this should have

Accepted Answer

A)  increased both the money multiplier and the money supply. 
B)  decreased both the money multiplier and the money supply. 
C)  increased the money multiplier and decreased the money supply. 
D)  decreased the money multiplier and increased the money supply. 
A)  increased both the money multiplier and the money supply. 
B)  decreased both the money multiplier and the money supply. 
C)  increased the money multiplier and decreased the money supply. 
D)  decreased the money multiplier and increased the money supply.

Question 13

A bank's reserve ratio is 10 percent and the bank has $5,000 in deposits. Its reserves amount to

Accepted Answer

A)  $50. 
B)  $500. 
C)  $4,500. 
D)  $4,950. 
A)  $50. 
B)  $500. 
C)  $4,500. 
D)  $4,950.

Question 14

If the reserve ratio increased from 10 percent to 20 percent, the money multiplier would

Accepted Answer

A)  rise from 10 to 20. 
B)  rise from 5 to 10. 
C)  fall from 10 to 5. 
D)  not change. 
A)  rise from 10 to 20. 
B)  rise from 5 to 10. 
C)  fall from 10 to 5. 
D)  not change.

Question 15

The confidence you have that a retailer will accept dollars in exchange for goods is based primarily on money

Accepted Answer

A)  being a unit of account. 
B)  being a medium of exchange. 
C)  serving as a store of value. 
D)  having intrinsic value. 
A)  being a unit of account. 
B)  being a medium of exchange. 
C)  serving as a store of value. 
D)  having intrinsic value.

Question 16

Which of the following increases when the Fed makes open-market sales?

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 17

Why do Federal Reserve Board of Governors have long (14 year) terms?

Accepted Answer

Long terms allow Fed Board of

Question 18

Table 29-7.  
-Refer to Table 29-7. If the Bank of Springfield has lent out all the money it can given its level of deposits, then what is the reserve requirement?

Accepted Answer

A)  8.1 percent 
B)  11.0 percent 
C)  12.4 percent 
D)  89.0 percent 
A)  8.1 percent 
B)  11.0 percent 
C)  12.4 percent 
D)  89.0 percent

Question 19

Suppose the banking system currently has $400 billion in reserves, the reserve requirement is 8 percent, and excess reserves amount to $5 billion. What is the level of deposits?

Accepted Answer

A)  $5,000 billion 
B)  $4,937.5 billion 
C)  $5,062.5 billion 
D)  $4,995 billion 
A)  $5,000 billion 
B)  $4,937.5 billion 
C)  $5,062.5 billion 
D)  $4,995 billion

Question 20

The Federal Reserve was created in 1913 after a series of bank failures in 1907.

Accepted Answer

A) True 
 B)False

Exam 29: The Monetary System

In a fractional-reserve banking system, a bank

Monetary policy has an important influence on and in the short run.

If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by

If the Fed sells government bonds to the public, then reserves

You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate?

Fiat money

The measure of the money stock called M1 includes

When we measure and record economic value, we use money as the

An open-market sale

A bank has $30,000 in deposits and has $5,400 in reserves. What is its reserve ratio?

The manager of the bank where you work tells you that the bank has $300 million in deposits and $255 million dollars in loans. If the reserve requirement is 8.5 percent, how much is the bank holding in excess reserves?

In 1991, the Federal Reserve lowered the reserve requirement from 12 percent to 10 percent. Other things the same this should have

A bank's reserve ratio is 10 percent and the bank has $5,000 in deposits. Its reserves amount to

If the reserve ratio increased from 10 percent to 20 percent, the money multiplier would

The confidence you have that a retailer will accept dollars in exchange for goods is based primarily on money

Which of the following increases when the Fed makes open-market sales?

Why do Federal Reserve Board of Governors have long (14 year) terms?

Table 29-7. -Refer to Table 29-7. If the Bank of Springfield has lent out all the money it can given its level of deposits, then what is the reserve requirement?

Suppose the banking system currently has $400 billion in reserves, the reserve requirement is 8 percent, and excess reserves amount to $5 billion. What is the level of deposits?

The Federal Reserve was created in 1913 after a series of bank failures in 1907.

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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