Question 1

Table 29-7.  
-Refer to Table 29-7. If the Fed requires a reserve ratio of 6 percent, then what quantity of excess reserves does the Bank of Springfield now hold?

Accepted Answer

A)  $9,600 
B)  $10,800 
C)  $10,200 
D)  $9,000 
A)  $9,600 
B)  $10,800 
C)  $10,200 
D)  $9,000

Question 2

If the public decides to hold more currency and fewer deposits in banks, bank reserves

Accepted Answer

A)  decrease and the money supply eventually decreases. 
B)  decrease but the money supply does not change. 
C)  increase and the money supply eventually increases. 
D)  increase but the money supply does not change. 
A)  decrease and the money supply eventually decreases. 
B)  decrease but the money supply does not change. 
C)  increase and the money supply eventually increases. 
D)  increase but the money supply does not change.

Question 3

When colonists in Virginia used tobacco as money, their money

Accepted Answer

A)  was commodity money. 
B)  had no intrinsic value. 
C)  was fiat money. 
D)  had no store of value. 
A)  was commodity money. 
B)  had no intrinsic value. 
C)  was fiat money. 
D)  had no store of value.

Question 4

Members of the Board of Governors of the Federal Reserve System are appointed for life.

Accepted Answer

A) True 
 B)False

Question 5

Imagine an economy in which: (1) pieces of paper called dollars are the only thing that buyers give to sellers when they buy goods and services, so it would be common to use, say, 50 dollars to buy a pair of shoes; (2) prices are posted in terms of yardsticks, so you might walk into a grocery store and see that, today, an apple is worth 2 yardsticks; and (3) yardsticks disintegrate overnight, so no yardstick has any value for more than 24 hours. In this economy,

Accepted Answer

A)  the yardstick is a medium of exchange but it cannot serve as a unit of account. 
B)  the yardstick is a unit of account but it cannot serve as a store of value. 
C)  the yardstick is a medium of exchange but it cannot serve as a store of value, and the yollar is a unit of account. 
D)  the yollar is a unit of account, but it is not a medium of exchange and it is not a liquid asset. 
A)  the yardstick is a medium of exchange but it cannot serve as a unit of account. 
B)  the yardstick is a unit of account but it cannot serve as a store of value. 
C)  the yardstick is a medium of exchange but it cannot serve as a store of value, and the yollar is a unit of account. 
D)  the yollar is a unit of account, but it is not a medium of exchange and it is not a liquid asset.

Question 6

To decrease 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 7

Table 29-5.  
-Refer to Table 29-5. If the bank faces a reserve requirement of 8 percent, then the bank

Accepted Answer

A)  is in a position to make a new loan of $14,000. 
B)  has fewer reserves than are required. 
C)  has excess reserves of $16,400. 
D)  None of the above is correct. 
A)  is in a position to make a new loan of $14,000. 
B)  has fewer reserves than are required. 
C)  has excess reserves of $16,400. 
D)  None of the above is correct.

Question 8

Table 29-6.  
-Refer to Table 29-6. The Bank of Pleasantville's reserve ratio is

Accepted Answer

A)  6.4 percent. 
B)  16.7 percent. 
C)  6.0 percent. 
D)  15.7 percent. 
A)  6.4 percent. 
B)  16.7 percent. 
C)  6.0 percent. 
D)  15.7 percent.

Question 9

During the Great Depression in the early 1930s,

Accepted Answer

A)  bank runs closed many banks. 
B)  the money supply rose sharply. 
C)  the Fed decreased reserve requirements. 
D)  both a and b are correct. 
A)  bank runs closed many banks. 
B)  the money supply rose sharply. 
C)  the Fed decreased reserve requirements. 
D)  both a and b are correct.

Question 10

Money

Accepted Answer

A)  is a perfect store of value. 
B)  is the most liquid asset. 
C)  has intrinsic value, regardless of which form it takes. 
D)  All of the above are correct. 
A)  is a perfect store of value. 
B)  is the most liquid asset. 
C)  has intrinsic value, regardless of which form it takes. 
D)  All of the above are correct.

Question 11

Other things the same, if banks decide to hold a smaller part of their deposits as excess reserves, the money supply will fall.

Accepted Answer

A) True 
 B)False

Question 12

If the reserve ratio is 5 percent, then $1,000 of additional reserves can create up to

Accepted Answer

A)  $5,500 of new money. 
B)  $5,000 of new money. 
C)  $4,000 of new money. 
D)  None of the above is correct. 
A)  $5,500 of new money. 
B)  $5,000 of new money. 
C)  $4,000 of new money. 
D)  None of the above is correct.

Question 13

Which of the following is not included in either M1 or M2?

Accepted Answer

A)  U.S. Treasury bills 
B)  small time deposits 
C)  demand deposits 
D)  money market mutual funds 
A)  U.S. Treasury bills 
B)  small time deposits 
C)  demand deposits 
D)  money market mutual funds

Question 14

The Fed can influence unemployment in

Accepted Answer

A)  the short run and in the long run. 
B)  the short run, but not in the long run. 
C)  the long run, but not in the short run. 
D)  neither the short nor the long run. 
A)  the short run and in the long run. 
B)  the short run, but not in the long run. 
C)  the long run, but not in the short run. 
D)  neither the short nor the long run.

Question 15

Suppose banks decide to hold more excess reserves relative to deposits. Other things the same, this action will cause the

Accepted Answer

A)  money supply to fall. To reduce the impact of this the Fed could lower the discount rate. 
B)  money supply to fall. To reduce the impact of this the Fed could raise the discount rate. 
C)  money supply to rise. To reduce the impact of this the Fed could lower the discount rate. 
D)  money supply to rise. To reduce the impact of this the Fed could raise the discount rate. 
A)  money supply to fall. To reduce the impact of this the Fed could lower the discount rate. 
B)  money supply to fall. To reduce the impact of this the Fed could raise the discount rate. 
C)  money supply to rise. To reduce the impact of this the Fed could lower the discount rate. 
D)  money supply to rise. To reduce the impact of this the Fed could raise the discount rate.

Question 16

If the reserve ratio is 12.5 percent, then $1,000 of additional reserves can create up to

Accepted Answer

A)  $7,000 of new money. 
B)  $8,000 of new money. 
C)  $11,500 of new money. 
D)  $12,500 of new money. 
A)  $7,000 of new money. 
B)  $8,000 of new money. 
C)  $11,500 of new money. 
D)  $12,500 of new money.

Question 17

Any item that people can use to transfer purchasing power from the present to the future is called

Accepted Answer

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

Question 18

The set of items that serve as media of exchange clearly includes

Accepted Answer

A)  balances that lie behind debit cards. 
B)  demand deposits. 
C)  other checkable deposits. 
D)  All of the above are correct. 
A)  balances that lie behind debit cards. 
B)  demand deposits. 
C)  other checkable deposits. 
D)  All of the above are correct.

Question 19

Bank capital is

Accepted Answer

A)  the machinery, structures, and equipment of the bank. 
B)  the resources that owners have put into the bank. 
C)  the reserves of the bank. 
D)  the bank's total assets. 
A)  the machinery, structures, and equipment of the bank. 
B)  the resources that owners have put into the bank. 
C)  the reserves of the bank. 
D)  the bank's total assets.

Question 20

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

Accepted Answer

A)  fewer reserves, so the reserve ratio will fall. 
B)  fewer reserves, so the reserve ratio will rise. 
C)  more reserves, so the reserve ratio will fall. 
D)  more reserves, so the reserve ratio will rise. 
A)  fewer reserves, so the reserve ratio will fall. 
B)  fewer reserves, so the reserve ratio will rise. 
C)  more reserves, so the reserve ratio will fall. 
D)  more reserves, so the reserve ratio will rise.

Exam 29: The Monetary System

Table 29-7. -Refer to Table 29-7. If the Fed requires a reserve ratio of 6 percent, then what quantity of excess reserves does the Bank of Springfield now hold?

If the public decides to hold more currency and fewer deposits in banks, bank reserves

When colonists in Virginia used tobacco as money, their money

Members of the Board of Governors of the Federal Reserve System are appointed for life.

To decrease the money supply, the Fed can

Table 29-5. -Refer to Table 29-5. If the bank faces a reserve requirement of 8 percent, then the bank

Table 29-6. -Refer to Table 29-6. The Bank of Pleasantville's reserve ratio is

During the Great Depression in the early 1930s,

Money

Other things the same, if banks decide to hold a smaller part of their deposits as excess reserves, the money supply will fall.

If the reserve ratio is 5 percent, then $1,000 of additional reserves can create up to

Which of the following is not included in either M1 or M2?

The Fed can influence unemployment in

Suppose banks decide to hold more excess reserves relative to deposits. Other things the same, this action will cause the

If the reserve ratio is 12.5 percent, then $1,000 of additional reserves can create up to

Any item that people can use to transfer purchasing power from the present to the future is called

The set of items that serve as media of exchange clearly includes

Bank capital is

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

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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