Question 1

Suppose the required reserve ratio is 20 percent.If banks are conservative and choose not to loan all of their excess reserves,the real-world deposit multiplier is

Accepted Answer

A)  less than 5. 
B)  equal to 5. 
C)  greater than 5. 
D)  equal to 20.

Question 2

In 1980,one Zimbabwean dollar was worth 1.47 U.S.dollars.By the end of 2008,the exchange rate was one U.S.dollar to 2 billion Zimbabwean dollars.When an economy experiences rapid increases in the price level such as what occurred in Zimbabwe,the economy is said to experience

Accepted Answer

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

Question 3

A series of bank runs in a country should have no effect on M1 as money simply moves from checking deposits to currency.

Accepted Answer

A) True 
 B)False

Question 4

People hold money as opposed to financial assets because money

Accepted Answer

A)  earns interest. 
B)  is perfectly liquid. 
C)  earns no interest. 
D)  earns a higher return than other financial assets.

Question 5

Liquidity increases as we move from the M1 to the M2 definition of the money supply.

Accepted Answer

A) True 
 B)False

Question 6

Scenario 25-2
Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%.
-Refer to Scenario 25-2.As a result of Kristy's deposit,Bank A can make a maximum loan of

Accepted Answer

A)  $2,000. 
B)  $8,000. 
C)  $10,000. 
D)  $50,000.

Question 7

Suppose that you deposit $2,000 in your bank and the required reserve ratio is 10 percent.The maximum loan your bank can made as a direct result of your deposit is

Accepted Answer

A)  $200. 
B)  $1,800. 
C)  $2,000. 
D)  $20,000.

Question 8

In 2008,the Fed and the Treasury began attempting to stabilize the commercial banking system through the Troubled Asset Relief Program (TARP)by

Accepted Answer

A)  allowing domestic banks to be taken over by foreign banks. 
B)  permitting banks to sell commercial bonds to the Federal Reserve Bank. 
C)  allowing banks to double any outstanding claims for federal deposit insurance reimbursements. 
D)  providing funds to banks in exchange for stock.

Question 9

The U.S.government makes a profit from issuing fiat money.

Accepted Answer

A) True 
 B)False

Question 10

The Federal Reserve's narrowest definition of the money supply is

Accepted Answer

A)  M0. 
B)  M1. 
C)  M2. 
D)  M3.

Question 11

Scenario 25-1
  
Consider the information above for a simple economy. Assume there are no traveler's checks.
-Refer to Scenario 25-1.M1 in this simple economy equals

Accepted Answer

A)  $1,000. 
B)  $2,000. 
C)  $3,000. 
D)  $8,000.

Question 12

If gold is used as money in an economy,the money supply is easy to control.

Accepted Answer

A) True 
 B)False

Question 13

If bankers become more uncertain regarding future deposits and withdrawals and choose to hold more excess reserves against deposits,the money multiplier will increase.

Accepted Answer

A) True 
 B)False

Question 14

Suppose you withdraw $1,000 in cash from your checking account.Draw a T-account to show the effect of this transaction on your bank's balance sheet.

Accepted Answer

The answer of Suppose you withdraw $1,000 in cash from...

Question 15

One way investment banks differ from commercial banks is that investment banks

Accepted Answer

A)  lend exclusively to households. 
B)  do not take in deposits. 
C)  only buy and sell mortgages. 
D)  trade only in foreign exchange markets.

Question 16

Money market mutual funds sell shares to investors and use the money to buy

Accepted Answer

A)  mortgage-backed securities. 
B)  foreign currency. 
C)  short-term securities. 
D)  overseas assets through foreign direct investment.

Question 17

If the required reserve ratio is 10 percent,an increase in bank reserves of $1,000 can support an increase in checking account deposits (including the original deposit)in the banking system as a whole of up to

Accepted Answer

A)  $100. 
B)  $1,000. 
C)  $10,000. 
D)  $100,000.

Question 18

Suppose Warren Buffet withdraws $1 million from his checking account at Chase Manhattan Bank.If the required reserve ratio is 20 percent,what is the maximum change in deposits in the banking system?

Accepted Answer

A)  -$5 million 
B)  -$4 million 
C)  -$200,000 
D)  $1 million 
E)  $5 million

Question 19

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.

Question 20

Why do banks create money? Do they create money to help the Federal Reserve control the money supply or is there a more basic reason?

Accepted Answer

The answer of Why do banks create money? Do they...

Exam 14: Money,banks,and the Federal Reserve System

Suppose the required reserve ratio is 20 percent.If banks are conservative and choose not to loan all of their excess reserves,the real-world deposit multiplier is

In 1980,one Zimbabwean dollar was worth 1.47 U.S.dollars.By the end of 2008,the exchange rate was one U.S.dollar to 2 billion Zimbabwean dollars.When an economy experiences rapid increases in the price level such as what occurred in Zimbabwe,the economy is said to experience

A series of bank runs in a country should have no effect on M1 as money simply moves from checking deposits to currency.

People hold money as opposed to financial assets because money

Liquidity increases as we move from the M1 to the M2 definition of the money supply.

Scenario 25-2 Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. -Refer to Scenario 25-2.As a result of Kristy's deposit,Bank A can make a maximum loan of

Suppose that you deposit $2,000 in your bank and the required reserve ratio is 10 percent.The maximum loan your bank can made as a direct result of your deposit is

In 2008,the Fed and the Treasury began attempting to stabilize the commercial banking system through the Troubled Asset Relief Program (TARP) by

The U.S.government makes a profit from issuing fiat money.

The Federal Reserve's narrowest definition of the money supply is

Scenario 25-1 Consider the information above for a simple economy. Assume there are no traveler's checks. -Refer to Scenario 25-1.M1 in this simple economy equals

If gold is used as money in an economy,the money supply is easy to control.

If bankers become more uncertain regarding future deposits and withdrawals and choose to hold more excess reserves against deposits,the money multiplier will increase.

Suppose you withdraw $1,000 in cash from your checking account.Draw a T-account to show the effect of this transaction on your bank's balance sheet.

One way investment banks differ from commercial banks is that investment banks

Money market mutual funds sell shares to investors and use the money to buy

If the required reserve ratio is 10 percent,an increase in bank reserves of $1,000 can support an increase in checking account deposits (including the original deposit) in the banking system as a whole of up to

Suppose Warren Buffet withdraws $1 million from his checking account at Chase Manhattan Bank.If the required reserve ratio is 20 percent,what is the maximum change in deposits in the banking system?

In economics,money is defined as

Why do banks create money? Do they create money to help the Federal Reserve control the money supply or is there a more basic reason?