Question 1

A commercial bank like Comerica creates money by

Accepted Answer

A) printing paper money. 
B) earning profits. 
C) selling corporate bonds. 
D) making loans.

Question 2

Most U.S.currency held outside the U.S.banking system is held by foreigners.

Accepted Answer

A) True 
 B)False

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

If banks do not loan out all their excess reserves,then the real world multiplier is

Accepted Answer

A) smaller than 1/RR. 
B) larger than 1/RR. 
C) equal to 1/RR. 
D) not related to 1/RR.

Question 5

The major assets on a bank's balance sheet are its

Accepted Answer

A) checking and savings account deposits. 
B) loans,and checking and savings account deposits. 
C) reserves,loans,and holdings of securities. 
D) reserves,checking and savings account deposits. 
E) reserves,loans,and checking account deposits.

Question 6

Suppose you withdraw $1,000 from your savings account and put it in your checking account.Briefly explain how this will affect M1 and M2.

Accepted Answer

The answer of Suppose you withdraw $1,000 from your savings...

Question 7

Suppose you withdraw $500 from your checking account deposit and bury it in a jar in your back yard.If the required reserve ratio is 10 percent,checking account deposits in the banking system as a whole could drop up to a maximum of

Accepted Answer

A) $0. 
B) $50. 
C) $500. 
D) $5,000.

Question 8

When you open a checking account at Bank of America,Bank of America

Accepted Answer

A) has more reserves and more excess reserves. 
B) has more reserves,but excess reserves remain unchanged. 
C) has more deposits and less in excess reserves. 
D) has more deposits,but excess reserves remain unchanged.

Question 9

A bank's assets are

Accepted Answer

A) things owned by or owed to the bank. 
B) things the bank owes to someone else. 
C) a measure of the bank's net worth. 
D) always greater than the bank's liabilities.

Question 10

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 11

Money is

Accepted Answer

A) an asset that people are willing to accept in exchange for goods and services. 
B) a liability that people are willing to accept in exchange for goods and services. 
C) the income one earns over a period of time. 
D) one's assets net of one's liabilities at any point in time.

Question 12

Which of the following is not a tool the Fed uses to manage the money supply?

Accepted Answer

A) open market operations 
B) setting the discount rate 
C) expanding and contracting deposit insurance 
D) setting reserve requirements for deposits in the banking system

Question 13

Which of the following assets is most liquid?

Accepted Answer

A) money 
B) bond 
C) savings account 
D) stock

Question 14

The most liquid measure of money supply is

Accepted Answer

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

Question 15

The quantity theory of money implies that the price level will be stable (no inflation or deflation)when the growth rate of the money supply equals

Accepted Answer

A) 0. 
B) the growth rate of the price level. 
C) the growth rate of the velocity of money. 
D) the growth rate of real GDP.

Question 16

Consider the following T-account for National City Bank:  If the required reserve ratio is lowered to 8 percent,how much can National City loan out?

Accepted Answer

A) $10,000 
B) $8,000 
C) $2,000 
D) $0

Question 17

Suppose a transaction changes the balance sheet of Wells Fargo bank as indicated in the following T-account.  At this point,what percentage of the new deposits does Wells Fargo hold in reserves?

Accepted Answer

A) 100 percent 
B) 10 percent 
C) 5 percent 
D) 1 percent

Question 18

Which of the following describes the degree of control that the Fed has over the money supply?

Accepted Answer

A) The Fed has absolute control over the money supply. 
B) The Fed has no control of the money supply. 
C) The Fed has substantial control over the money supply. 
D) The Fed is not concerned about the level of the money supply,and does not attempt to control it.

Question 19

Liquidity is defined as

Accepted Answer

A) the ease with which a given asset can be converted to a store of value. 
B) the ease with which a given asset can be converted to a unit of account. 
C) the ease with which a given asset can be converted to a medium of exchange. 
D) the ease with which a given asset can be converted to a standard of deferred payment.

Question 20

The quantity equation states that the

Accepted Answer

A) money supply divided by the velocity of money equals the price level divided by real output. 
B) money supply times the velocity of money equals the price level times real output. 
C) money supply times the price level equals real output divided by the velocity of money. 
D) money supply times the price level equals real output times the velocity of money.

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