Question 1

A problem that the Fed faces when it attempts to control the money supply is that

Accepted Answer

A)  the 100-percent-reserve banking system in the U.S. makes it difficult for the Fed to carry out its monetary policy. 
B)  the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools. 
C)  the Fed does not have a tool that it can use to change the money supply by either a small amount or a large amount. 
D)  the Fed does not control the amount of money that households choose to hold as deposits in banks. 
A)  the 100-percent-reserve banking system in the U.S. makes it difficult for the Fed to carry out its monetary policy. 
B)  the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools. 
C)  the Fed does not have a tool that it can use to change the money supply by either a small amount or a large amount. 
D)  the Fed does not control the amount of money that households choose to hold as deposits in banks.

Question 2

If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 15 percent receives a deposit of $600, it has a

Accepted Answer

A)  $600 increase in excess reserves and no increase in required reserves. 
B)  $600 increase in required reserves and no increase in excess reserves. 
C)  $510 increase in excess reserves and a $90 increase in required reserves. 
D)  $90 increase in excess reserves and a $510 increase in required reserves. 
A)  $600 increase in excess reserves and no increase in required reserves. 
B)  $600 increase in required reserves and no increase in excess reserves. 
C)  $510 increase in excess reserves and a $90 increase in required reserves. 
D)  $90 increase in excess reserves and a $510 increase in required reserves.

Question 3

If the money multiplier is 3 and the Fed wants to increase the money supply by $900,000, it could

Accepted Answer

A)  buy $300,000 worth of bonds. 
B)  buy $225,000 worth of bonds. 
C)  sell $300,000 worth of bonds. 
D)  sell $225,000 worth of bonds. 
A)  buy $300,000 worth of bonds. 
B)  buy $225,000 worth of bonds. 
C)  sell $300,000 worth of bonds. 
D)  sell $225,000 worth of bonds.

Question 4

Table 29-6.  
-Refer to Table 29-6. Assume the Fed's reserve requirement is 5 percent and all banks besides the Bank of Pleasantville are exactly in compliance with the 5 percent requirement. Further assume that people hold only deposits and no currency. Starting from the situation as depicted by the T-account, if the Bank of Pleasantville decides to make new loans so as to end up with no excess reserves, then by how much does the money supply eventually increase?

Accepted Answer

A)  $10,833.33. 
B)  $13,000. 
C)  $8,333.33. 
D)  $10,000. 
A)  $10,833.33. 
B)  $13,000. 
C)  $8,333.33. 
D)  $10,000.

Question 5

John and Jane decide to go on a vacation. As a result, they withdraw $2,500 from their savings account to purchase $2,500 worth of traveler's checks. As a result of these changes,

Accepted Answer

A)  M1 increases by $2,500 and M2 decrease by $2,500. 
B)  M1 increases by $2,500 and M2 stays the same. 
C)  M1 and M2 stay the same. 
D)  M1 decreases by $2,500 and M2 increases by $2,500. 
A)  M1 increases by $2,500 and M2 decrease by $2,500. 
B)  M1 increases by $2,500 and M2 stays the same. 
C)  M1 and M2 stay the same. 
D)  M1 decreases by $2,500 and M2 increases by $2,500.

Question 6

Table 29-7.  
-Refer to Table 29-7. Assume the Fed's reserve requirement is 10 percent and that the Bank of Springfield makes new loans so as to make its new reserve ratio 10 percent. From then on, no bank holds any excess reserves. Assume also that people hold only deposits and no currency. Then by what amount does the economy's money supply increase?

Accepted Answer

A)  $37,800 
B)  $18,000 
C)  $2,000 
D)  $16,300 
A)  $37,800 
B)  $18,000 
C)  $2,000 
D)  $16,300

Question 7

Table 29-4.  
-Refer to Table 29-4. Starting from the situation as depicted by the T-account, if someone deposits $500 into the First Bank of Fairfield, and if the bank makes new loans so as to keep its reserve ratio unchanged, then the amount of new loans that it makes will be

Accepted Answer

A)  $40. 
B)  $437.50. 
C)  $71.42. 
D)  $428.57. 
A)  $40. 
B)  $437.50. 
C)  $71.42. 
D)  $428.57.

Question 8

The existence of money

Accepted Answer

A)  reduces specialization. 
B)  makes trade easier. 
C)  allows for barter. 
D)  hinders production. 
A)  reduces specialization. 
B)  makes trade easier. 
C)  allows for barter. 
D)  hinders production.

Question 9

If the reserve ratio is 6 percent, then $9,000 of additional reserves can create up to

Accepted Answer

A)  $159,000 of new money. 
B)  $54,000 of new money. 
C)  $150,000 of new money. 
D)  $141,000 of new money. 
A)  $159,000 of new money. 
B)  $54,000 of new money. 
C)  $150,000 of new money. 
D)  $141,000 of new money.

Question 10

Table 29-3. An economy starts with $50,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $45,750. The T-account of the bank is shown below.  
-Refer to Table 29-3. The bank's reserve ratio is

Accepted Answer

A)  17.5 percent. 
B)  8.5 percent. 
C)  91.5 percent. 
D)  100 percent. 
A)  17.5 percent. 
B)  8.5 percent. 
C)  91.5 percent. 
D)  100 percent.

Question 11

During a bank run, depositors decide to hold more currency relative to deposits and banks decide to hold more excess reserves relative to deposits.

Accepted Answer

A)  Both the decision to hold relatively more currency and the decision to hold relatively more excess reserves would make the money supply increase. 
B)  Both the decision to hold relatively more currency and the decision to hold relatively more excess reserves would make the money supply decrease. 
C)  The decision to hold relatively more currency would make the money supply increase. The decision to hold relatively more excess reserves would make the money supply decrease. 
D)  The decision to hold relatively more currency would make the money supply increase. The decision to hold relatively more excess reserves would make the money supply decrease. 
A)  Both the decision to hold relatively more currency and the decision to hold relatively more excess reserves would make the money supply increase. 
B)  Both the decision to hold relatively more currency and the decision to hold relatively more excess reserves would make the money supply decrease. 
C)  The decision to hold relatively more currency would make the money supply increase. The decision to hold relatively more excess reserves would make the money supply decrease. 
D)  The decision to hold relatively more currency would make the money supply increase. The decision to hold relatively more excess reserves would make the money supply decrease.

Question 12

Discuss why the Fed rarely changes the reserve requirements.

Accepted Answer

There are two main reasons the Fed does

Question 13

Which of the following is included in M2 but not in M1?

Accepted Answer

A)  currency 
B)  demand deposits 
C)  savings deposits 
D)  All of the above are included in both M1 and M2. 
A)  currency 
B)  demand deposits 
C)  savings deposits 
D)  All of the above are included in both M1 and M2.

Question 14

The Federal Reserve was created

Accepted Answer

A)  in 1913 by Congress 
B)  as a result of the Great Depression 
C)  according to the standards enforced by NATO 
D)  by President Kennedy 
A)  in 1913 by Congress 
B)  as a result of the Great Depression 
C)  according to the standards enforced by NATO 
D)  by President Kennedy

Question 15

M1 equals currency plus demand deposits plus

Accepted Answer

A)  nothing else. 
B)  other checkable deposits. 
C)  traveler's checks plus other checkable deposits. 
D)  traveler's checks plus other checkable deposits plus savings deposits. 
A)  nothing else. 
B)  other checkable deposits. 
C)  traveler's checks plus other checkable deposits. 
D)  traveler's checks plus other checkable deposits plus savings deposits.

Question 16

If the reserve ratio is 20 percent, how much money can be created from $100 of reserves? Show your work.

Accepted Answer

(1/.20) @#IMG-DLM& $

Question 17

When banks decide to increase their reserves, the money supply will (holding all else constant).

Accepted Answer

The answer of When banks decide to increase their reserves,...

Question 18

The chair of the Board of Governors regularly testifies to Congress about Fed policy.

Accepted Answer

A) True 
 B)False

Question 19

If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

Accepted Answer

A)  buying bonds. This buying would reduce reserves. 
B)  buying bonds. This buying would increase reserves. 
C)  selling bonds. This selling would reduce reserves. 
D)  selling bonds. This selling would increase reserves. 
A)  buying bonds. This buying would reduce reserves. 
B)  buying bonds. This buying would increase reserves. 
C)  selling bonds. This selling would reduce reserves. 
D)  selling bonds. This selling would increase reserves.

Question 20

Which of the following is a function of money?

Accepted Answer

A)  a unit of account 
B)  a store of value 
C)  medium of exchange 
D)  All of the above are correct. 
A)  a unit of account 
B)  a store of value 
C)  medium of exchange 
D)  All of the above are correct.

Exam 29: The Monetary System

A problem that the Fed faces when it attempts to control the money supply is that

If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 15 percent receives a deposit of $600, it has a

If the money multiplier is 3 and the Fed wants to increase the money supply by $900,000, it could

John and Jane decide to go on a vacation. As a result, they withdraw $2,500 from their savings account to purchase $2,500 worth of traveler's checks. As a result of these changes,

Table 29-4. -Refer to Table 29-4. Starting from the situation as depicted by the T-account, if someone deposits $500 into the First Bank of Fairfield, and if the bank makes new loans so as to keep its reserve ratio unchanged, then the amount of new loans that it makes will be

The existence of money

If the reserve ratio is 6 percent, then $9,000 of additional reserves can create up to

Table 29-3. An economy starts with $50,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $45,750. The T-account of the bank is shown below. -Refer to Table 29-3. The bank's reserve ratio is

During a bank run, depositors decide to hold more currency relative to deposits and banks decide to hold more excess reserves relative to deposits.

Discuss why the Fed rarely changes the reserve requirements.

Which of the following is included in M2 but not in M1?

The Federal Reserve was created

M1 equals currency plus demand deposits plus

If the reserve ratio is 20 percent, how much money can be created from $100 of reserves? Show your work.

When banks decide to increase their reserves, the money supply will (holding all else constant).

The chair of the Board of Governors regularly testifies to Congress about Fed policy.

If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

Which of the following is a function of money?

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