Question 1

Lowering the discount rate will

Accepted Answer

A)  decrease reserves, encourage banks to make fewer loans, and decrease the money supply. 
B)  decrease reserves, encourage banks to make fewer loans, and increase the money supply. 
C)  increase reserves, encourage banks to make more loans, and increase the money supply. 
D)  increase reserves, encourage banks to make more loans, and decrease the money supply.

Question 2

The German Hyperinflation of the early 1920s was caused by

Accepted Answer

A)  the German government raising funds for expenditures by selling bonds to the central bank. 
B)  an overly aggressive monetary policy implemented to combat a severe recession. 
C)  rising oil prices after World War I caused a severe stagflation and hyperinflation. 
D)  large deficits resulting from the high levels of war spending and falling taxes.

Question 3

The sale of Treasury securities by the Federal Reserve will, in general

Accepted Answer

A)  not change the money supply. 
B)  not change the quantity of reserves held by banks. 
C)  increase the quantity of reserves held by banks. 
D)  decrease the quantity of reserves held by banks.

Question 4

The process of bundling loans together and buying and selling these bundles in a secondary financial market is called

Accepted Answer

A)  open market operations. 
B)  securitization. 
C)  fractional reserve lending. 
D)  seigniorage.

Question 5

Money's most narrow definition is based on its function as a

Accepted Answer

A)  store of value. 
B)  unit of account. 
C)  standard of deferred payment. 
D)  medium of exchange. 
E)  standard of barter.

Question 6

Suppose that the required reserve ratio is 20 percent and you deposit $50,000 of currency into Comerica Bank. What is the potential increase in deposits in the banking system brought about by your deposit? What is the potential change in the money supply?

Accepted Answer

The answer of Suppose that the required reserve ratio is...

Question 7

Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 10 percent. If the Federal Reserve raises the required reserve ratio to 15 percent, then the bank will now have excess reserves of

Accepted Answer

A)  $0. 
B)  -$5 million. 
C)  $5 million. 
D)  $15 million.

Question 8

In the United States, businesses are not required to accept cash as payment for goods or services.

Accepted Answer

A) True 
 B)False

Question 9

To offset the effect of households and firms deciding to hold more of their money in checking account deposits and less in currency, the Federal Reserve could

Accepted Answer

A)  raise bank taxes. 
B)  sell Treasury securities. 
C)  raise government spending. 
D)  lower the required reserve ratio.

Question 10

Which of the following is a true statement?

Accepted Answer

A)  excess reserves = actual reserves - required reserves 
B)  excess reserves = deposits - required reserves 
C)  excess reserves = deposits - loans 
D)  excess reserves = loans - required reserves

Question 11

Which of the following is not one of the ways that the German government ended the hyperinflation of the 1920s?

Accepted Answer

A)  negotiating a new agreement with the Allies (the United States, Great Britain, France, and Italy) that reduced its reparations payments 
B)  reducing government expenditures and raising taxes to balance its budget 
C)  raising the required reserve ratio to reduce bank loans 
D)  replacing the existing mark with a new mark

Question 12

According to the quantity theory of money, if the money supply is growing at a rate of 5 percent, real GDP is growing at a rate of 2 percent, and velocity is constant, what will the inflation rate be?

Accepted Answer

The answer of According to the quantity theory of money,...

Question 13

Hyperinflations occur because governments want to spend more than they raise in taxes, and they pay for the extra purchases by printing money or selling large quantities of government bonds to the central bank.

Accepted Answer

A) True 
 B)False

Question 14

Soldiers in a World War II prisoner-of-war camp

Accepted Answer

A)  used gold as a fiat money. 
B)  used cowrie shells as money. 
C)  used cigarettes as money. 
D)  used U.S. dollars as a commodity money.

Question 15

________ sell shares to investors and use the money to buy short-term securities.

Accepted Answer

A)  Mortgage-backed securities dealers 
B)  Hedge funds 
C)  Money market mutual funds 
D)  Shadow banks

Question 16

Bank panics have largely disappeared in the United States because

Accepted Answer

A)  banks are now required to hold a larger fraction of deposits as reserves. 
B)  bank loans are more closely monitored by the Federal Reserve. 
C)  of low interest rates. 
D)  of deposit insurance.

Question 17

The Federal Reserve was established in 1913 to

Accepted Answer

A)  prevent inflation by decreasing the money supply. 
B)  stimulate the economy by increasing bank reserves. 
C)  stop bank panics by acting as a lender of last resort. 
D)  prevent bad loans by requiring banks to hold reserves.

Question 18

In 2008, Zimbabwe ran out of locally produced Coca Cola and local Coke bottlers were not able to import the concentrated syrup needed to make Coke from the United States because they could not obtain U.S. dollars. A small amount of Coke was imported from South Africa, but a single bottle sold for around 15 billion Zimbabwean dollars. Zimbabwe was experiencing rapid increases in the price level, which is known as

Accepted Answer

A)  stagflation. 
B)  deflation. 
C)  inflation. 
D)  hyperinflation.

Question 19

According to the quantity theory of money, inflation is caused by

Accepted Answer

A)  the money supply growing slower than real GDP. 
B)  GDP growing faster than the money supply. 
C)  GDP growing at the same rate as the money supply. 
D)  the money supply growing faster than real GDP.

Question 20

In economics, money is defined as

Accepted Answer

A)  the total value of one's assets in current prices. 
B)  the total value of one's assets minus the total value of one's debts, in current prices. 
C)  the total amount of salary, interest, and rental income earned during a year. 
D)  any asset people generally accept in exchange for goods and services.

Exam 25: Money, Banks, and the Federal Reserve System