Question 1

If Jose deposits $2,000 in his bank and the desired reserve ratio is 10 percent, what is the amount of new loans that the bank can make?

Accepted Answer

A) $2,000 
B) $200 
C) $1,800 
D) $1,900 
E) $2,200

Question 2

The Fed conducts an open market purchase of securities of $5,000. If the currency drain ratio is 0 percent and the desired reserve ratio is 10 percent, then the total increase in the quantity of money is

Accepted Answer

A) $5,000. 
B) $20,000. 
C) $50,000. 
D) $10,000. 
E) $4,000.

Question 3

If Federal Reserve notes and coins are $765 billion, and banks' reserves at the Fed are $8 billion, the gold stock is $11 billion, and the Fed owns $725 billion of government securities, what does the monetary base equal?

Accepted Answer

A) $765 billion 
B) $773 billion 
C) $776 billion 
D) $744 billion 
E) $1,509 billion

Question 4

The discount rate is

Accepted Answer

A) the interest rate that commercial banks have to pay for any reserves that they borrow from the non-bank public. 
B) the interest rate that commercial banks have to pay to the owners of bank deposits. 
C) equal to the nominal interest rate minus the inflation rate. 
D) the interest rate that commercial banks pay for reserves that they borrow from the Fed. 
E) the interest rate that commercial banks receive for the reserves that they have on reserve at the Fed.

Question 5

Briefly describe the Federal Reserve System, how it is governed, and its roles in the economy.

Accepted Answer

The answer of Briefly describe the Federal Reserve System, how...

Question 6

When you use a credit card to pay your tuition,

Accepted Answer

A) you've used the credit card as money because it is a means of payment. 
B) the credit card is not money but is an ID card for an instant loan. 
C) the credit card is not money because it involves an electronic transaction. 
D) the credit card is not money because it is not officially issued by the government. 
E) you've used the credit card as money because you received something in return.

Question 7

The Fed makes an open market operation purchase of $200,000. The currency drain ratio is 33.33 percent and the desired reserve ratio is 10 percent. By how much does the quantity of money increase?

Accepted Answer

A) $800,000 
B) $333,333 
C) $2,000,000 
D) $618,604 
E) $465,116

Question 8

If the currency drain ratio is 40 percent and the desired reserve ratio is 15 percent, what does the money multiplier equal?

Accepted Answer

The answer of If the currency drain ratio is 40...

Question 9

The required reserve ratio is the minimum percentage of ________ that banks are required to hold by regulation.

Accepted Answer

A) reserves as total assets 
B) deposits as total assets 
C) reserves as deposits 
D) deposits as reserves 
E) reserves as total liabilities

Question 10

Suppose the currency drain is 20 ratio percent and the desired reserve ratio is 10 percent.
a. What does the money multiplier equal?
b. If the Fed purchases $10 million of U.S. government securities, by how much will the quantity of money increase or decrease?

Accepted Answer

The answer of Suppose the currency drain is 20 ratio...

Question 11

Which of the following best describes a double coincidence of wants?

Accepted Answer

A) Two buyers want the same good. 
B) Neither buyer wants a good. 
C) You have what another wants and you want what they have. 
D) A buyer and a seller rather than two buyers or two sellers must meet. 
E) None of the above answers is correct.

Question 12

New money is created in the U.S. economy by

Accepted Answer

A) increased federal government expenditures. 
B) banks that create checkable deposits. 
C) the U.S. Treasury. 
D) U.S. Department of Mint. 
E) the U.S. Congress.

Question 13

A new bank has reserves of $600,000, checkable deposits of $500,000, and government securities of $100,000. If the desired reserve ratio is 10 percent, the amount of loans this bank can make is

Accepted Answer

A) $50,000. 
B) $60,000. 
C) $540,000. 
D) $550,000. 
E) $600,000.

Question 14

If you hold $25 in cash, have $150 in a checking account, and have $250 in a savings account, how much of M2 do you have?

Accepted Answer

The answer of If you hold $25 in cash, have...

Question 15

The goal of a commercial bank is to

Accepted Answer

A) establish good regulations for commercial activities. 
B) make only safe, no-risk loans. 
C) maximize its stockholders' wealth. 
D) minimize its taxes paid to state governments. 
E) accept only deposits made in money.

Question 16

Which of the following is an example of money?

Accepted Answer

A) currency in your wallet 
B) currency inside the banks 
C) checks written as payment for a good or service 
D) credit card used as a payment for a good or service 
E) a debit card

Question 17

A common trait of money through history and across cultures is that money

Accepted Answer

A) always had mystical properties. 
B) was always issued by the local government. 
C) was always based on gold or some other precious commodity. 
D) was always generally accepted as a means of payment. 
E) was always fiat money.

Question 18

The Federal Reserve reports that it has coins valued at $10 billion, bank reserves at the Fed of $15 billion, gold valued at $10 billion, Federal Reserve notes of $400 billion, and U.S. government securities of $300 billion. What is the size of the monetary base?

Accepted Answer

The answer of The Federal Reserve reports that it has...

Question 19

If you use a check to pay your monthly rent,

Accepted Answer

A) the check is considered money because you received something in return. 
B) the check is not money because it is just an instruction to your bank to make a payment. 
C) you have used money because the landlord accepted it as a means of payment. 
D) the check becomes money when it arrives at the landlord's bank. 
E) the check is not money because it is not part of M1.

Question 20

The minimum percent of deposits that banks must hold and cannot loan is determined by the

Accepted Answer

A) interest rate. 
B) discount rate. 
C) required reserve ratio. 
D) federal funds rate. 
E) ratio of M2 to M1.

Exam 18: Money and the Monetary System