Question 1

Between 1929 and 1933, bank deposits fell:

Accepted Answer

A) as consumers spent more money to buy goods. 
B) as fears of bank failures compelled depositors to withdraw their deposits. 
C) and M1 rose as the currency holdings by customers decreased. 
D) and banks lent more money to customers.

Question 2

All of the following are roles of money EXCEPT a:

Accepted Answer

A) measure of wealth. 
B) medium of exchange. 
C) unit of account. 
D) store of value.

Question 3

Changing the reserve requirement is the main tool of monetary policy.

Accepted Answer

A) True 
 B)False

Question 4

Reserve requirements:

Accepted Answer

A) set the maximum amount of reserves a bank must hold. 
B) set the minimum amount of reserves a bank must hold. 
C) are established by Congress. 
D) are set by the American Bankers Association.

Question 5

Suppose that the money supply increases by $150 million after the Federal Reserve engages in an open market purchase of $50 million. Then the reserve ratio is:

Accepted Answer

A) 0.1. 
B) 0.5. 
C) 0.33. 
D) 0.2.

Question 6

Use the following to answer questions :
Scenario: Money Supply Changes
The reserve requirement is 10% and Jack withdraws $5,000 travel money from his checkable deposit. Assume that banks do not hold any excess reserves and that the public holds no currency, only checkable bank deposits.
-(Scenario: Money Supply Changes) Look at the scenario Money Supply Changes. As a result of the withdrawal, excess reserves _____ by _____.

Accepted Answer

A) increase; $5,000 
B) increase; $500 
C) decrease; $4,500 
D) decrease; $500

Question 7

In a deposits-only monetary system with a 5% required reserve ratio, a bank deposit of $1,000 will increase the total amount of bank deposits by:

Accepted Answer

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

Question 8

When, in The Wealth of Nations, Adam Smith wrote of "a sort of waggon-way through the air," he was referring to:

Accepted Answer

A) the invisible hand. 
B) the forces of competition. 
C) mass transit systems of the future. 
D) paper money.

Question 9

According to the Glass-Steagall Act of 1933:

Accepted Answer

A) investment banks could accept deposits, which were covered by deposit insurance. 
B) commercial banks could set up and trade financial assets, such as stocks and bonds. 
C) investment banks could set up and trade financial assets, such as stocks and bonds, but commercial banks could not trade stocks and bonds. 
D) there was no difference between commercial banks and investment banks.

Question 10

The two parts of the U.S. Federal Reserve are the Board of Governors and 50 regional banks.

Accepted Answer

A) True 
 B)False

Question 11

The government has almost eliminated the possibility of bank runs by instituting protective measures. All of the following are such measures EXCEPT:

Accepted Answer

A) capital requirements. 
B) reserve requirements. 
C) loan guarantees. 
D) deposit insurance.

Question 12

Money that has value apart from its use as money is:

Accepted Answer

A) fiat money. 
B) currency. 
C) convertible paper money. 
D) commodity money.

Question 13

Money is whatever the government decrees is money.

Accepted Answer

A) True 
 B)False

Question 14

When the Federal Reserve was established in 1913, it was granted the authority to:
I. require all depository institutions to hold reserves.
II. inspect all deposit-taking institutions.
III. issue currency.

Accepted Answer

A) I only 
B) II only 
C) III only 
D) I, II, and III

Question 15

The original purpose of savings and loans was to:

Accepted Answer

A) help businesses issue stocks and bonds. 
B) invest in money market mutual funds. 
C) accept deposits from state and local governments and loan them to businesses in need of short-term loans. 
D) accept savings and loan them to home buyers for long-term mortgages.

Question 16

Which of the following is a function of the Federal Reserve System?
I. conducting fiscal policy
II. examining and supervising commercial banks in the Fed regions
III. evaluating corporate mergers

Accepted Answer

A) I only 
B) II only 
C) III only 
D) I,II, and III

Question 17

Holding everything else constant, if the required reserve ratio falls:

Accepted Answer

A) the money multiplier increases. 
B) a $1 loan can lead to a smaller change in the money supply than before the change in the required reserve ratio. 
C) the amount of excess reserves falls also. 
D) the money multiplier decreases.

Question 18

The reserve ratio is the fraction of its:

Accepted Answer

A) deposits that a bank holds as reserves. 
B) loans that a bank is required to hold as reserves. 
C) loans that a bank holds as reserves. 
D) assets that a bank is required to hold as reserves.

Question 19

Use the following to answer questions :
Scenario: Money Supply Changes
The reserve requirement is 10% and Jack withdraws $5,000 travel money from his checkable deposit. Assume that banks do not hold any excess reserves and that the public holds no currency, only checkable bank deposits.
-(Scenario: Money Supply Changes) Look at the scenario Money Supply Changes. By how much must the bank's loans decrease as a result of the withdrawal?

Accepted Answer

A) $5,000 
B) $4,500 
C) $500 
D) $0

Question 20

In the United States, the institution that is charged with determining the size of the monetary base and with regulating the banking system is the:

Accepted Answer

A) Treasury Department. 
B) Commerce Department. 
C) U.S. Senate Banking Committee. 
D) Federal Reserve.

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

Between 1929 and 1933, bank deposits fell:

All of the following are roles of money EXCEPT a:

Changing the reserve requirement is the main tool of monetary policy.

Reserve requirements:

Suppose that the money supply increases by $150 million after the Federal Reserve engages in an open market purchase of $50 million. Then the reserve ratio is:

In a deposits-only monetary system with a 5% required reserve ratio, a bank deposit of $1,000 will increase the total amount of bank deposits by:

When, in The Wealth of Nations, Adam Smith wrote of "a sort of waggon-way through the air," he was referring to:

According to the Glass-Steagall Act of 1933:

The two parts of the U.S. Federal Reserve are the Board of Governors and 50 regional banks.

The government has almost eliminated the possibility of bank runs by instituting protective measures. All of the following are such measures EXCEPT:

Money that has value apart from its use as money is:

Money is whatever the government decrees is money.

When the Federal Reserve was established in 1913, it was granted the authority to: I. require all depository institutions to hold reserves. II. inspect all deposit-taking institutions. III. issue currency.

The original purpose of savings and loans was to:

Which of the following is a function of the Federal Reserve System? I. conducting fiscal policy II. examining and supervising commercial banks in the Fed regions III. evaluating corporate mergers

Holding everything else constant, if the required reserve ratio falls:

The reserve ratio is the fraction of its:

In the United States, the institution that is charged with determining the size of the monetary base and with regulating the banking system is the: