Question 1

The Bank of Arugula has $9 million in deposits and $900,000 in reserves. If the required reserve ratio is 10%, excess reserves are equal to

Accepted Answer

A)  $180,000. 
B)  $90,000. 
C)  $81,000. 
D)  zero. 
A)  $180,000. 
B)  $90,000. 
C)  $81,000. 
D)  zero.

Question 2

Refer to the information provided in Figure 10.1 below to answer the questions that follow.   Figure 10.1
-Refer to Figure 10.1. A movement from Point B to Point A can be caused by

Accepted Answer

A)  a decrease in nominal income. 
B)  an increase in the price level. 
C)  a decrease in the interest rate. 
D)  an increase in the interest rate. 
A)  a decrease in nominal income. 
B)  an increase in the price level. 
C)  a decrease in the interest rate. 
D)  an increase in the interest rate.

Question 3

Assume that all commercial banks are loaned up. Total deposits in the banking system are $800 million. The required reserve ratio is decreased. The money supply will

Accepted Answer

A)  decrease. 
B)  increase. 
C)  not change because there was no change in deposits. 
D)  not change because the required reserve ratio has no impact on money supply. 
A)  decrease. 
B)  increase. 
C)  not change because there was no change in deposits. 
D)  not change because the required reserve ratio has no impact on money supply.

Question 4

The M2 definition of money includes money market accounts.

Accepted Answer

A) True 
 B)False

Question 5

Among the assets of commercial banks are excess reserves.

Accepted Answer

A) True 
 B)False

Question 6

The rate that the least risky firms pay on bonds that they issue is the

Accepted Answer

A)  prime rate. 
B)  triple-A corporate bond rate. 
C)  commercial paper rate. 
D)  federal funds rate. 
A)  prime rate. 
B)  triple-A corporate bond rate. 
C)  commercial paper rate. 
D)  federal funds rate.

Question 7

The Federal Reserve System

Accepted Answer

A)  controls the Treasury Department. 
B)  oversees the Congress and Senate. 
C)  is the central bank of the United States. 
D)  is a branch of the Commerce Department. 
A)  controls the Treasury Department. 
B)  oversees the Congress and Senate. 
C)  is the central bank of the United States. 
D)  is a branch of the Commerce Department.

Question 8

The property that makes money a good medium of exchange and a good store of value is the

Accepted Answer

A)  transactions demand for money. 
B)  asset demand for money. 
C)  liquidity property of money. 
D)  unlimited supply of money. 
A)  transactions demand for money. 
B)  asset demand for money. 
C)  liquidity property of money. 
D)  unlimited supply of money.

Question 9

Checking account balances are included in

Accepted Answer

A)  M1 only. 
B)  M2 only. 
C)  both M1 and M2. 
D)  neither M1 nor M2. 
A)  M1 only. 
B)  M2 only. 
C)  both M1 and M2. 
D)  neither M1 nor M2.

Question 10

Among the liabilities of commercial banks are deposits.

Accepted Answer

A) True 
 B)False

Question 11

Assume the one-year interest rate on a bond is 8% and the expected one-year rate a year from now is 12%. According to the expectations theory of the term structure of interest rates, the two-year rate will be

Accepted Answer

A)  8%. 
B)  10%. 
C)  12%. 
D)  22%. 
A)  8%. 
B)  10%. 
C)  12%. 
D)  22%.

Question 12

Traveler's checks are

Accepted Answer

A)  not money. 
B)  included in M1 and M2. 
C)  not included in M2. 
D)  not included in M1. 
A)  not money. 
B)  included in M1 and M2. 
C)  not included in M2. 
D)  not included in M1.

Question 13

Refer to the information provided in Table 10.8 below to answer the questions that follow.
Table 10.8  
-Refer to Table 10.8. If the required reserve ratio were changed to 10% and Alamo Bank continues to hold $1,200,000 in reserves, its excess reserves will be

Accepted Answer

A)  $150,000. 
B)  $300,000. 
C)  $600,000. 
D)  $900,000. 
A)  $150,000. 
B)  $300,000. 
C)  $600,000. 
D)  $900,000.

Question 14

Jacob makes excellent tamales and Amanda is very good at mowing lawns. Amanda agrees to mow Jacob's lawn, if he makes her a dozen tamales. This is an example of

Accepted Answer

A)  legal tender. 
B)  barter. 
C)  commodity money. 
D)  fiat money. 
A)  legal tender. 
B)  barter. 
C)  commodity money. 
D)  fiat money.

Question 15

Refer to the information provided in Figure 10.1 below to answer the questions that follow.   Figure 10.1
-Refer to Figure 10.1. A movement from Point A to Point D can be caused by

Accepted Answer

A)  a decrease in nominal income. 
B)  an increase in the interest rate. 
C)  a decrease in the interest rate. 
D)  an increase in nominal income. 
A)  a decrease in nominal income. 
B)  an increase in the interest rate. 
C)  a decrease in the interest rate. 
D)  an increase in nominal income.

Question 16

The M1 definition of money includes money market accounts.

Accepted Answer

A) True 
 B)False

Question 17

By influencing the current one-year rate and by affecting people's expectations of future short-term rates, the Fed can

Accepted Answer

A)  influence long term interest rates. 
B)  set the prime rate. 
C)  set the reserve rate. 
D)  all of the above 
A)  influence long term interest rates. 
B)  set the prime rate. 
C)  set the reserve rate. 
D)  all of the above

Question 18

If the interest rate on a 2-year security was higher than the average expected interest rate on consecutive 1-year securities, people would be indifferent as to which security they held.

Accepted Answer

A) True 
 B)False

Question 19

Refer to the information provided in Figure 10.1 below to answer the questions that follow.   Figure 10.1
-Refer to Figure 10.1. A movement from Point D to Point E can be caused by

Accepted Answer

A)  a decrease in the interest rate. 
B)  an increase in nominal income. 
C)  a decrease in nominal income. 
D)  an increase in the interest rate. 
A)  a decrease in the interest rate. 
B)  an increase in nominal income. 
C)  a decrease in nominal income. 
D)  an increase in the interest rate.

Question 20

Which of the following factors causes the barter system to be inefficient?

Accepted Answer

A)  Its cost of transaction is too low. 
B)  The cost associated with information search is too low. 
C)  It requires a double coincidence of wants. 
D)  It requires high liquidity. 
A)  Its cost of transaction is too low. 
B)  The cost associated with information search is too low. 
C)  It requires a double coincidence of wants. 
D)  It requires high liquidity.

Exam 10: Money, the Federal Reserve, and the Interest Rate

The Bank of Arugula has $9 million in deposits and $900,000 in reserves. If the required reserve ratio is 10%, excess reserves are equal to

Refer to the information provided in Figure 10.1 below to answer the questions that follow. Figure 10.1 -Refer to Figure 10.1. A movement from Point B to Point A can be caused by

Assume that all commercial banks are loaned up. Total deposits in the banking system are $800 million. The required reserve ratio is decreased. The money supply will

The M2 definition of money includes money market accounts.

Among the assets of commercial banks are excess reserves.

The rate that the least risky firms pay on bonds that they issue is the

The Federal Reserve System

The property that makes money a good medium of exchange and a good store of value is the

Checking account balances are included in

Among the liabilities of commercial banks are deposits.

Assume the one-year interest rate on a bond is 8% and the expected one-year rate a year from now is 12%. According to the expectations theory of the term structure of interest rates, the two-year rate will be

Traveler's checks are

Refer to the information provided in Table 10.8 below to answer the questions that follow. Table 10.8 -Refer to Table 10.8. If the required reserve ratio were changed to 10% and Alamo Bank continues to hold $1,200,000 in reserves, its excess reserves will be

Jacob makes excellent tamales and Amanda is very good at mowing lawns. Amanda agrees to mow Jacob's lawn, if he makes her a dozen tamales. This is an example of

Refer to the information provided in Figure 10.1 below to answer the questions that follow. Figure 10.1 -Refer to Figure 10.1. A movement from Point A to Point D can be caused by

The M1 definition of money includes money market accounts.

By influencing the current one-year rate and by affecting people's expectations of future short-term rates, the Fed can

If the interest rate on a 2-year security was higher than the average expected interest rate on consecutive 1-year securities, people would be indifferent as to which security they held.

Refer to the information provided in Figure 10.1 below to answer the questions that follow. Figure 10.1 -Refer to Figure 10.1. A movement from Point D to Point E can be caused by

Which of the following factors causes the barter system to be inefficient?

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Introduction to Macroeconomics

Measuring National Output and National Income

Unemployment, Inflation, and Long-Run Growth

Aggregate Expenditure and Equilibrium Output

The Government and Fiscal Policy

The Determination of Aggregate Output, the Price Level, and the Interest Rate

Policy Effects and Cost Shocks in the Asad Model

The Labor Market in the Macroeconomy

Financial Crises, Stabilization, and Deficits

Household and Firm Behavior in the Macroeconomy: a Further Look

Long-Run Growth

Alternative Views in Macroeconomics

International Trade, Comparative Advantage, and Protectionism

Open-Economy Macroeconomics: the Balance of Payments and Exchange Rates

Economic Growth in Developing Economies

Critical Thinking About Research

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