Question 1

The Federal Reserve System is organized into

Accepted Answer

A) one large district covering the entire United States. 
B) three districts,one for each of the countries in North America. 
C) 12 districts,dividing up the United States. 
D) 12 districts,dividing up the countries in North America. 
E) 50 districts,one per state.

Question 2

The Second National Bank of Townville has $400,000 in checking deposits,$125,000 in savings deposits,$500,000 in loans,$20,000 in its reserve account at the Fed,and $5,000 of currency in its vault.What is the amount of its reserves?

Accepted Answer

The answer of The Second National Bank of Townville has...

Question 3

If the Fed increases the discount rate,

Accepted Answer

A) commercial banks pay a higher interest rate if they borrow from the Fed. 
B) commercial banks pay a lower interest rate if they borrow from the Fed. 
C) commercial banks' assets increase. 
D) commercial banks find it more profitable to increase their loans to businesses. 
E) commercial banks increase their lending to the Fed.

Question 4

When goldsmiths issued receipts to gold owners,and those gold receipts circulated while gold stayed in the goldsmiths' safes,

Accepted Answer

A) the gold receipts were considered money because they were used as a means of payment. 
B) an infant banking system developed in sixteenth century Europe. 
C) fiat money was created. 
D) money was invented. 
E) Both A and B are correct.

Question 5

In December 2009,currency outside of banks was $400 billion,traveler's checks were $5 billion;checkable deposits owned by individuals and businesses were $600 billion,saving deposits were $2,000 billion,time deposits were $1,500 billion;and money market funds were $1,200 billion.What was the M2 in December 2009?

Accepted Answer

A) M2 = $5,705 billion 
B) M2 = $3,705 billion 
C) M2 = $1,005 billion 
D) M2 = $2,505 billion 
E) M2 = $5,700 billion

Question 6

Actual reserves are equal to

Accepted Answer

A) minimum balances plus desired reserves. 
B) required reserves plus fractional deposits. 
C) excess reserves plus liabilities. 
D) desired reserves plus excess reserves. 
E) government securities plus cash in the bank's vault.

Question 7

-The above table has information about the hypothetical economy of Robotica.Based on the data,the size of M1 is

Accepted Answer

A) $610 billion. 
B) $1,510 billion. 
C) $600 billion. 
D) $1,110 billion. 
E) $2,600 billion.

Question 8

A barter system of payment is

Accepted Answer

A) similar to a money system of payment because both require a double coincidence of wants. 
B) similar to a money system of payment because both use one asset as a unit of account. 
C) different from a money system of payment because the barter system is a better unit of account. 
D) different from a money system of payment because money does not require a double coincidence of wants. 
E) similar to a money system of payment because both are used as stores of value and units of account.

Question 9

The four main policy tools the Federal Reserve System uses to influence the interest rate are setting

Accepted Answer

A) the prime rate,open market operations,extraordinary crisis management and setting the excess reserve ratio. 
B) quantitative easing,market interest rate and the discount rate,as well as open market operations. 
C) the discount rate,open market operations,extraordinary crisis measures and setting the required reserve ratio. 
D) credit easing,the discount rate,setting tax rates,and setting the required reserve ratio. 
E) quantitative easing,open market operations,setting tax rates,and setting the required reserve ratio.

Question 10

The Board of Governors has

Accepted Answer

A) seven members appointed to 14-year terms. 
B) 14 members appointed to 10-year terms. 
C) four members appointed to seven-year terms. 
D) 14 members appointed to four-year terms. 
E) seven members appointed for life.

Question 11

In December 2009,currency was $400 billion,traveler's checks were $5 billion;checkable deposits owned by individuals and businesses were $600 billion,saving deposits were $2,00 billion,time deposits were $1,500 billion;and money market funds were $1,200 billion.What was the M1 in December 2009?

Accepted Answer

A) M1 = $405 billion 
B) M1 = $1,005 billion 
C) M1 = $3,005 billion 
D) M1 = $3,500 billion 
E) M1 = $3,505 billion

Question 12

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 13

If the money multiplier is 3.0,a $1,000 increase in the monetary base

Accepted Answer

A) increases quantity of money by $3,000. 
B) decreases quantity of money by $3,000. 
C) increases the monetary base by $300. 
D) increases the money multiplier by 3 percent. 
E) decreases the quantity of money by 3 percent.

Question 14

Which of the following are policy tools used by the Federal Reserve?
I.the federal personal income tax
Ii.open market operations
Iii.changing the required reserve ratio

Accepted Answer

A) i only 
B) ii only 
C) iii only 
D) ii and iii 
E) i,ii,and iii

Question 15

If the Fed buys $10 million of government securities when the desired reserve ratio is 20 percent and the currency drain ratio is 5 percent,the quantity of money

Accepted Answer

A) increases by $42 million. 
B) increases by $50 million. 
C) decreases by $42 million. 
D) decreases by $50 million. 
E) increases by $7.5 million.

Question 16

As of 2013,the U.S.monetary base has ________ its 2007 level,the level held before the 2008 financial crisis,as a direct result of ________.

Accepted Answer

A) quadrupled;the Fed's actions with quantitative easing 
B) doubled;the Fed's actions with quantitative easing 
C) tripled;the Fed's actions with quantitative easing 
D) quadrupled;the Fed's actions and the resulting reduction of the money multiplier 
E) tripled;the Fed's actions and the resulting reduction of the currency drain

Question 17

The Board of Governors of the Federal Reserve is

Accepted Answer

A) the collection of the 12 presidents of the Federal Reserve Banks. 
B) a seven-member board,each one serving a 14-year term. 
C) a 14-member board,each one serving a seven-year term. 
D) the main policy-making body of the Fed. 
E) a seven-member board,each one serving a one-year term.

Question 18

The Fed buys $100 million U.S.government securities from Bank of America.Bank of America's balance sheet shows this transaction as ________ in total assets and ________ in reserves.

Accepted Answer

A) no change;a $100 million decrease 
B) no change;a $100 million increase 
C) a $100 million increase;no change 
D) a $100 million increase;a $100 million increase 
E) a $100 million decrease;a $100 million decrease

Question 19

Which of the following are included in the M1 definition of money?

Accepted Answer

A) currency and checkable deposits 
B) currency and savings deposits 
C) traveler's checks and money market mutual funds 
D) currency and small time deposits 
E) traveler's checks and savings deposits

Question 20

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

Exam 18: Money and the Monetary System