Question 1

If bankers become more uncertain regarding future deposits and withdrawals and choose to hold more excess reserves against deposits,the money multiplier will increase.

Accepted Answer

A) True 
 B)False

Question 2

To decrease the money supply,the Federal Reserve could

Accepted Answer

A) lower the discount rate. 
B) raise income taxes. 
C) lower the required reserve ratio. 
D) conduct an open market sale of Treasury securities. 
E) raise transfer payments.

Question 3

For the purchasing power of money to increase,the price level has to fall.

Accepted Answer

A) True 
 B)False

Question 4

In 2008,the Fed and the Treasury began attempting to stabilize the commercial banking system through the Troubled Asset Relief Program (TARP)by

Accepted Answer

A) allowing domestic banks to be taken over by foreign banks. 
B) permitting banks to sell commercial bonds to the Federal Reserve Bank. 
C) allowing banks to double any outstanding claims for federal deposit insurance reimbursements. 
D) providing funds to banks in exchange for stock.

Question 5

If the rate of growth in real GDP exceeds the rate of growth in the money supply,the quantity theory of money predicts a price deflation.

Accepted Answer

A) True 
 B)False

Question 6

Banks keep ________ of checking deposits as reserves because on a typical day withdrawals ________ deposits.

Accepted Answer

A) more than 100%;are much greater than 
B) exactly 100%;are about the same as 
C) less than 100%;are about the same as 
D) exactly 100%;are much greater than 
E) less than 100%;are much greater than

Question 7

Which of the following information about fiat money is false? Fiat money

Accepted Answer

A) is backed by gold. 
B) serves as a medium of exchange. 
C) has little to no value except as money. 
D) is authorized by a central bank or governmental body.

Question 8

If households choose to take some fraction of each check they deposit and hold it as currency,then the simple deposit multiplier ________ the real-world multiplier.

Accepted Answer

A) is greater than 
B) is less than 
C) is equal to 
D) bears no relationship to

Question 9

Which of the following is not a consequence of the Fed changing the reserve requirement?

Accepted Answer

A) Changes in the ratio are easily incorporated into banks' routine management. 
B) Decreasing the ratio will increase excess reserves. 
C) Increasing the ratio will decrease the amount of reserves banks have to loan. 
D) Changes in the ratio effectively places a tax on banks' deposit taking and lending activities.

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

Suppose you withdraw $1,000 from your savings account and put it in your checking account.Briefly explain how this will affect M₁and M₂.

Accepted Answer

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

Question 12

Suppose the velocity of money is not fixed,but stable at about two percent growth per year.How could the quantity theory of money be modified to include a stable growth rate of the velocity of money? In this modified quantity theory of money with velocity growing at two percent per year,what would the growth rate of the other variables in the theory need to be to cause inflation?

Accepted Answer

The answer of Suppose the velocity of money is not...

Question 13

To increase the money supply,the Federal Reserve could

Accepted Answer

A) raise the discount rate. 
B) decrease income taxes. 
C) raise the required reserve ratio. 
D) conduct an open market purchase of Treasury securities. 
E) lower transfer payments.

Question 14

Would the maximum loan that a bank can make be different when receiving a discount loan from the Federal Reserve of $1 million versus receiving a checking account deposit of $1 million? Explain why or why not.

Accepted Answer

The answer of Would the maximum loan that a bank...

Question 15

The Federal Reserve's narrowest definition of the money supply is

Accepted Answer

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

Question 16

Suppose that you deposit $2,000 in your bank and the required reserve ratio is 10 percent.The maximum loan your bank can made as a direct result of your deposit is

Accepted Answer

A) $200. 
B) $1,800. 
C) $2,000. 
D) $20,000.

Question 17

A series of bank runs in a country should have no effect on M1 as money simply moves from checking deposits to currency.

Accepted Answer

A) True 
 B)False

Question 18

Would the invention of money,as opposed to barter,increase the growth rate of real GDP in a country over time? Why or why not?

Accepted Answer

The answer of Would the invention of money,as opposed to...

Question 19

Your roommate argues that he can think of no better situation than living in a deflationary economy,as prices of goods and services would continuously fall.You disagree and argue that during a deflation,people can be made worse off because

Accepted Answer

A) the purchasing power of people's incomes would increase. 
B) the purchasing power of the currency would decrease. 
C) the value of the real interest rate will drop below the nominal interest rate. 
D) borrowers will have to pay increasing amounts in real terms over time.

Question 20

Economies cannot function without money.

Accepted Answer

A) True 
 B)False

Exam 16: Money, banks, and the Federal Reserve System

If bankers become more uncertain regarding future deposits and withdrawals and choose to hold more excess reserves against deposits,the money multiplier will increase.

To decrease the money supply,the Federal Reserve could

For the purchasing power of money to increase,the price level has to fall.

In 2008,the Fed and the Treasury began attempting to stabilize the commercial banking system through the Troubled Asset Relief Program (TARP) by

If the rate of growth in real GDP exceeds the rate of growth in the money supply,the quantity theory of money predicts a price deflation.

Banks keep of checking deposits as reserves because on a typical day withdrawals deposits.

Which of the following information about fiat money is false? Fiat money

If households choose to take some fraction of each check they deposit and hold it as currency,then the simple deposit multiplier ________ the real-world multiplier.

Which of the following is not a consequence of the Fed changing the reserve requirement?

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

Suppose you withdraw $1,000 from your savings account and put it in your checking account.Briefly explain how this will affect M₁and M₂.

To increase the money supply,the Federal Reserve could

Would the maximum loan that a bank can make be different when receiving a discount loan from the Federal Reserve of $1 million versus receiving a checking account deposit of $1 million? Explain why or why not.

The Federal Reserve's narrowest definition of the money supply is

Suppose that you deposit $2,000 in your bank and the required reserve ratio is 10 percent.The maximum loan your bank can made as a direct result of your deposit is

A series of bank runs in a country should have no effect on M₁ as money simply moves from checking deposits to currency.

Would the invention of money,as opposed to barter,increase the growth rate of real GDP in a country over time? Why or why not?

Your roommate argues that he can think of no better situation than living in a deflationary economy,as prices of goods and services would continuously fall.You disagree and argue that during a deflation,people can be made worse off because

Economies cannot function without money.

Exam 16: Money, banks, and the Federal Reserve System

If bankers become more uncertain regarding future deposits and withdrawals and choose to hold more excess reserves against deposits,the money multiplier will increase.

To decrease the money supply,the Federal Reserve could

For the purchasing power of money to increase,the price level has to fall.

In 2008,the Fed and the Treasury began attempting to stabilize the commercial banking system through the Troubled Asset Relief Program (TARP) by

If the rate of growth in real GDP exceeds the rate of growth in the money supply,the quantity theory of money predicts a price deflation.

Banks keep ________ of checking deposits as reserves because on a typical day withdrawals ________ deposits.

Which of the following information about fiat money is false? Fiat money

If households choose to take some fraction of each check they deposit and hold it as currency,then the simple deposit multiplier ________ the real-world multiplier.

Which of the following is not a consequence of the Fed changing the reserve requirement?

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

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.

To increase the money supply,the Federal Reserve could

Would the maximum loan that a bank can make be different when receiving a discount loan from the Federal Reserve of $1 million versus receiving a checking account deposit of $1 million? Explain why or why not.

The Federal Reserve's narrowest definition of the money supply is

Suppose that you deposit $2,000 in your bank and the required reserve ratio is 10 percent.The maximum loan your bank can made as a direct result of your deposit is

A series of bank runs in a country should have no effect on M1 as money simply moves from checking deposits to currency.

Would the invention of money,as opposed to barter,increase the growth rate of real GDP in a country over time? Why or why not?

Your roommate argues that he can think of no better situation than living in a deflationary economy,as prices of goods and services would continuously fall.You disagree and argue that during a deflation,people can be made worse off because

Economies cannot function without money.

Banks keep of checking deposits as reserves because on a typical day withdrawals deposits.

Suppose you withdraw $1,000 from your savings account and put it in your checking account.Briefly explain how this will affect M₁and M₂.

A series of bank runs in a country should have no effect on M₁ as money simply moves from checking deposits to currency.