Question 1

If banks' desired reserve ratio increases from 0.10 to 0.15, the public still desires to hold the same amount of currency, the money supply will:

Accepted Answer

A)  increase.
B)  decrease.
C)  not change.
D)  either increase or decrease. B

Question 2

The Board of Governors consists of ________ governors appointed for staggered ________ terms.

Accepted Answer

A)  5; 12-year
B)  5; 14-year
C)  7; 12-year
D)  7; 14-year D

Question 3

Based on the following information, the value of the M1 measure of the money supply is ________ and the value of the M2 measure of the money supply is ________. $$\begin{array} { | l | r | } 
\hline { \text { Assets } } & \text { Billims af Dallars } \
\hline \text { Curency } & \mathbf { 2 0 } \
\hline \text { Demand deposits } & \mathbf { 3 0 0 } \
\hline \text { Money market rmutual Furds } & \mathbf { 8 0 0 } \
\hline \text { Traveler's checks } & 10 \
\hline \text { Bavings deposits } & \mathbf { 1 , 8 0 0 } \
\hline \text { Other checkable deposits } & \mathbf { 2 0 0 } \
\hline \text { Brmall denomination tirne deposits } & 1,100
\end{array}$$

Accepted Answer

A)  $530 billion; $3,700 billion
B)  $330 billion; $4,230 billion
C)  $520 billion; $4,320 billion
D)  $530 billion; $4,230 billion  D

Question 4

Based on the information in the table, we can conclude that, in 1932, each of the following events occurred except:

Accepted Answer

A)  The public increased the amount of currency it held.
B)  Banks were keeping more of their deposits in reserves, and making fewer loans.
C)  The Federal Reserve conducted open-market sales of U.S. government bonds.
D)  The Federal Reserve injected reserves into the banking system.

Question 5

Deposit insurance is a system in which the government guarantees that:

Accepted Answer

A)  depositors will not lose any money even if their bank goes bankrupt.
B)  people can have deposits at commercial banks.
C)  commercial banks will not go bankrupt.
D)  commercial banks will not lose any deposits.

Question 6

When the Federal Reserve buys government bonds from the public, this is an example of a(n):

Accepted Answer

A)  open-market sale.
B)  open-market purchase.
C)  discount loan.
D)  bank panic.

Question 7

Two countries, Alpha and Beta, have the same levels of nominal and real GDP. Each dollar in Alpha is used more frequently than each dollar in Beta. Therefore, it must be the case that ________ in Alpha than in Beta.

Accepted Answer

A)  the rate of inflation is greater
B)  the money stock is smaller
C)  the price level is greater
D)  the velocity is lower

Question 8

When the actual reserve-deposit ratio exceeds the desired reserve-deposit ratio banks:

Accepted Answer

A)  do nothing because this is a profitable situation.
B)  stop making loans.
C)  send the extra reserves to the central bank.
D)  make more loans.

Question 9

The introduction of credit cards and debit cards has ________ velocity.

Accepted Answer

A)  increased
B)  decreased
C)  had no impact on
D)  eliminated

Question 10

An open-market purchase of government securities by the Fed will:

Accepted Answer

A)  increase bank reserves, and the money supply will increase.
B)  decrease bank reserves, and the money supply will increase.
C)  increase bank reserves, and the money supply will decrease.
D)  decrease bank reserves, and the money supply will decrease.

Question 11

Commercial banks create new money:

Accepted Answer

A)  when they increase their desired reserve/deposit ratio.
B)  by issuing checks.
C)  through multiple rounds of lending.
D)  when they buy government bonds from the Federal Reserve.

Question 12

The reserve-deposit ratio equals:

Accepted Answer

A)  10 percent of bank reserves.
B)  10 percent of bank deposits.
C)  bank reserves divided by bank deposits.
D)  bank deposits divided by bank reserves.

Question 13

Bank reserves are:

Accepted Answer

A)  currency and customer checking deposits.
B)  currency, customer checking and savings deposits.
C)  any asset used to purchase goods and services.
D)  cash and similar assets held to meet depositor withdrawals or payments.

Question 14

The main disadvantage of using money as a store of value is that:

Accepted Answer

A)  other assets provide greater anonymity than cash.
B)  barter is a more efficient way to conduct transactions than using money.
C)  unlike other assets, money serves as a medium of exchange.
D)  other assets pay relatively higher rates of interest than money.

Question 15

If you use $1,000 to purchase silver bullion, which you plan to keep in a safe, you are using money as:

Accepted Answer

A)  bank reserves.
B)  a medium of exchange.
C)  a unit of account.
D)  a store of value.

Question 16

The M1 measure of money consists of the sum of:

Accepted Answer

A)  currency, checking deposits, and travelers' checks.
B)  currency and travelers' checks.
C)  currency, checking deposits, and savings deposits.
D)  checking deposits and travelers' checks.

Question 17

The amount of money in the United States is determined by:

Accepted Answer

A)  the Federal Reserve.
B)  the combined behavior of commercial banks and the public, as well as actions of the Federal Reserve.
C)  the public.
D)  the combined behavior of commercial banks and the public.

Question 18

Money serves as a medium of exchange when:

Accepted Answer

A)  it is used to purchase goods and services.
B)  there is direct trade of goods and services.
C)  it is a basic measure of economic value.
D)  it is a means of holding wealth.

Question 19

When a baker exchanges a pie for dollars, this is an example of dollars serving as:

Accepted Answer

A)  barter.
B)  a medium of exchange.
C)  a unit of account.
D)  a store of value.

Question 20

The U.S. Congress instituted a system of deposit insurance for banks in:

Accepted Answer

A)  1789.
B)  1865.
C)  1913.
D)  1934.

Exam 22: Money Prices and the Federal Reserve