Question 1

Monetary policy affects employment

Accepted Answer

A)  only in the long run. 
B)  only in the short run. 
C)  in both the long run and the short run. 
D)  in neither the long run nor the short run. 
A)  only in the long run. 
B)  only in the short run. 
C)  in both the long run and the short run. 
D)  in neither the long run nor the short run.

Question 2

A bank's reserve ratio is 5 percent and the bank has $2,280 in reserve. Its deposits amount to

Accepted Answer

A)  $114. 
B)  $2,166. 
C)  $2,400. 
D)  $45,600. 
A)  $114. 
B)  $2,166. 
C)  $2,400. 
D)  $45,600.

Question 3

When the Fed purchases $1000 worth of government bonds from the public, the U.S. money supply eventually increases by

Accepted Answer

A)  more than $1000. 
B)  exactly $1000. 
C)  less than $1000. 
D)  None of the above are correct. 
A)  more than $1000. 
B)  exactly $1000. 
C)  less than $1000. 
D)  None of the above are correct.

Question 4

When we say that trade is roundabout we mean that

Accepted Answer

A)  people sometimes trade goods for goods. 
B)  trades require a double coincidence of wants. 
C)  currency is accepted primarily to make further trades. 
D)  people must spend time searching for the products they wish to purchase. 
A)  people sometimes trade goods for goods. 
B)  trades require a double coincidence of wants. 
C)  currency is accepted primarily to make further trades. 
D)  people must spend time searching for the products they wish to purchase.

Question 5

Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate?

Accepted Answer

A)  store of value 
B)  medium of exchange 
C)  unit of account 
D)  None of the above is correct. 
A)  store of value 
B)  medium of exchange 
C)  unit of account 
D)  None of the above is correct.

Question 6

If the reserve ratio is 8 percent, then an additional $800 of reserves can increase the money supply by as much as

Accepted Answer

A)  $6,400. 
B)  $8,000. 
C)  $12,500. 
D)  $10,000. 
A)  $6,400. 
B)  $8,000. 
C)  $12,500. 
D)  $10,000.

Question 7

The rate at which the Fed lends money to banks is

Accepted Answer

A)  the prime rate. 
B)  fixed at 4%. 
C)  the federal funds rate. 
D)  the discount rate. 
A)  the prime rate. 
B)  fixed at 4%. 
C)  the federal funds rate. 
D)  the discount rate.

Question 8

Which of the following is both a store of value and regularly used as a medium of exchange?

Accepted Answer

A)  cash and stocks 
B)  cash but not stocks 
C)  stocks but not cash 
D)  neither cash nor stocks 
A)  cash and stocks 
B)  cash but not stocks 
C)  stocks but not cash 
D)  neither cash nor stocks

Question 9

Table 29-7.  
-Refer to Table 29-7. Assuming the Bank of Springfield and all other banks have the same reserve ratio, then what is the value of the money multiplier?

Accepted Answer

A)  1.1 
B)  12.3 
C)  8.1 
D)  9.1 
A)  1.1 
B)  12.3 
C)  8.1 
D)  9.1

Question 10

Compare the Board of Governors and the Federal Open Market Committee.

Accepted Answer

The Board of Governors runs the Federal

Question 11

The federal funds rate is the

Accepted Answer

A)  percentage of face value that the Federal Reserve is willing to pay for Treasury Securities. 
B)  percentage of deposits that banks must hold as reserves. 
C)  interest rate at which the Federal Reserve makes short-term loans to banks. 
D)  interest rate at which banks lend reserves to each other overnight. 
A)  percentage of face value that the Federal Reserve is willing to pay for Treasury Securities. 
B)  percentage of deposits that banks must hold as reserves. 
C)  interest rate at which the Federal Reserve makes short-term loans to banks. 
D)  interest rate at which banks lend reserves to each other overnight.

Question 12

The Federal Deposit Insurance Corporation

Accepted Answer

A)  protects depositors in the event of bank failures. 
B)  has become insolvent in recent years due to a large number of bank failures. 
C)  is part of the Federal Reserve System. 
D)  in practice has seldom been of much use. 
A)  protects depositors in the event of bank failures. 
B)  has become insolvent in recent years due to a large number of bank failures. 
C)  is part of the Federal Reserve System. 
D)  in practice has seldom been of much use.

Question 13

When the Fed purchases government bonds the money supply and the federal funds rate .

Accepted Answer

increases,

Question 14

List two reasons why the Fed cannot control the exact size of the money supply.

Accepted Answer

1) The Fed cannot control how much money

Question 15

If the reserve ratio is 15 percent, and banks do not hold excess reserves, and people hold only deposits and no currency, then when the Fed sells $25.5 million worth of bonds to the public, bank reserves

Accepted Answer

A)  increase by $25.5 million and the money supply eventually increases by $382.5 million. 
B)  increase by $25.5 million and the money supply eventually increases by $170 million. 
C)  decrease by $25.5 million and the money supply eventually decreases by $382.5 million. 
D)  decrease by $25.5 million and the money supply eventually decreases by $170 million. 
A)  increase by $25.5 million and the money supply eventually increases by $382.5 million. 
B)  increase by $25.5 million and the money supply eventually increases by $170 million. 
C)  decrease by $25.5 million and the money supply eventually decreases by $382.5 million. 
D)  decrease by $25.5 million and the money supply eventually decreases by $170 million.

Question 16

Under a fractional-reserve banking system, banks

Accepted Answer

A)  hold more reserves than deposits. 
B)  generally lend out a majority of the funds deposited. 
C)  cause the money supply to fall by lending out reserves. 
D)  All of the above are correct. 
A)  hold more reserves than deposits. 
B)  generally lend out a majority of the funds deposited. 
C)  cause the money supply to fall by lending out reserves. 
D)  All of the above are correct.

Question 17

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 holding 2% of its deposits as excess reserves. Assume that no banks in the economy want to maintain holdings of excess reserves and that people only hold deposits and no currency. The Fed makes open market purchases of $10,000. The person who sold bonds to the Fed deposits all the funds in Metropolis National Bank. If the bank now loans out all its excess reserves, by how much will the money supply increase?

Accepted Answer

A)  $190,000 
B)  $200,000 
C)  $240,000 
D)  None of the above are correct. 
A)  $190,000 
B)  $200,000 
C)  $240,000 
D)  None of the above are correct.

Question 18

Which of the following will not help to prevent bank runs?

Accepted Answer

A)  government insurance of deposits 
B)  fractional reserve banking 
C)  100% reserve banking 
D)  All of the above prevent bank runs. 
A)  government insurance of deposits 
B)  fractional reserve banking 
C)  100% reserve banking 
D)  All of the above prevent bank runs.

Question 19

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 . Suppose the Central Bank of Namdia purchases 25 million dias of Namdian Treasury Bonds from banks. Suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the same. By how much would the money supply of Namdia change?

Accepted Answer

A)  200 million dias 
B)  150 million dias 
C)  100 million dias 
D)  None of the above is correct. 
A)  200 million dias 
B)  150 million dias 
C)  100 million dias 
D)  None of the above is correct.

Question 20

If traveler's checks were $1000 higher and saving deposits were $500 higher, M1 would be

Accepted Answer

A)  $500 higher and M2 would be $1,500 higher. 
B)  $1,000 higher and M2 would be $1,500 higher. 
C)  M2 and M1 would be $1,500 higher. 
D)  $1,000 high and M2 would be $500 higher.. 
A)  $500 higher and M2 would be $1,500 higher. 
B)  $1,000 higher and M2 would be $1,500 higher. 
C)  M2 and M1 would be $1,500 higher. 
D)  $1,000 high and M2 would be $500 higher..

Exam 29: The Monetary System

Monetary policy affects employment

A bank's reserve ratio is 5 percent and the bank has $2,280 in reserve. Its deposits amount to

When the Fed purchases $1000 worth of government bonds from the public, the U.S. money supply eventually increases by

When we say that trade is roundabout we mean that

Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate?

If the reserve ratio is 8 percent, then an additional $800 of reserves can increase the money supply by as much as

The rate at which the Fed lends money to banks is

Which of the following is both a store of value and regularly used as a medium of exchange?

Table 29-7. -Refer to Table 29-7. Assuming the Bank of Springfield and all other banks have the same reserve ratio, then what is the value of the money multiplier?

Compare the Board of Governors and the Federal Open Market Committee.

The federal funds rate is the

The Federal Deposit Insurance Corporation

When the Fed purchases government bonds the money supply and the federal funds rate .

List two reasons why the Fed cannot control the exact size of the money supply.

If the reserve ratio is 15 percent, and banks do not hold excess reserves, and people hold only deposits and no currency, then when the Fed sells $25.5 million worth of bonds to the public, bank reserves

Under a fractional-reserve banking system, banks

Which of the following will not help to prevent bank runs?

If traveler's checks were $1000 higher and saving deposits were $500 higher, M1 would be

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

Filters