Question 1

Related to the Economics in Practice on p. 189: In Santa Cruz, the red feathers of the Scarlet Honeyeater bird were used as currency. Using feathers to make a purchase would be using the feathers as a(n)

Accepted Answer

A)  medium of exchange. 
B)  store of value. 
C)  unit of account. 
D)  legal tender.

Question 2

Related to the Economics in Practice on p. 202: If the estate in the Chekhov play Uncle Vanya is earning 2 percent, the interest rate in suitable securities is 5 percent, and the estate is a better risk than the securities,

Accepted Answer

A)  the estate will not sell because the return is lower. 
B)  the securities will not sell because the risk is higher. 
C)  the buyer would have no preference between the two investments. 
D)  more information is needed to determine which is the better investment.

Question 3

As commercial banks keep fewer excess reserves, money creation

Accepted Answer

A)  increases. 
B)  decreases. 
C)  remains the same, as long as banks hold no excess reserves. 
D)  could either increase or decrease.

Question 4

Of the over $4.5 billion in assets on the Fed's balance sheet in April 2015, which of the following asset categories was of the smallest value?

Accepted Answer

A)  gold 
B)  U.S. Treasury securities 
C)  mortgage-backed securities 
D)  federal agency debt securities

Question 5

Aster won $5,000 on a slot machine. She deposits her $5,000 winnings into a money market fund so that she can use the money next year to help her pay for a new boat. This is an example of money serving as a(n)

Accepted Answer

A)  medium of exchange. 
B)  unit of account. 
C)  investment good. 
D)  store of value.

Question 6

Refer to the information provided in Table 10.8 below to answer the questions that follow.
Table 10.8 
-Refer to Table 10.8. Alamo Bank could make additional loans of $750,000, if the required reserve ratio were

Accepted Answer

A)  12.5%. 
B)  10%. 
C)  7.5%. 
D)  2.5%.

Question 7

When the manager of a department store attaches price tags to his/her products, he/she is using money as a

Accepted Answer

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

Question 8

Refer to the information provided in Scenario 10.1 below to answer the questions that follow.
SCENARIO 10.1: The following table shows the changes in deposits, reserves, and loans of 4 banks as a result of a $100,000 initial deposit in Bank No. 1. Assume all banks are loaned up. 
-Refer to Scenario 10.1. If the required reserve ratio were changed to 10%, total loans of Bank No. 2 will change to

Accepted Answer

A)  77,400. 
B)  81,000. 
C)  85,000. 
D)  90,000.

Question 9

The interest rate on a two-year security will continue to adjust until it is equal to

Accepted Answer

A)  half the interest rate on a one-year security. 
B)  twice the interest rate on a one-year security. 
C)  an average of the current one-year rate and the expected one-year rate for next year. 
D)  the sum of the current one-year rate and the expected one-year rate for next year.

Question 10

Refer to the information provided in Table 10.4 below to answer the questions that follow.
Table 10.4 
-Refer to Table 10.4. If the required reserve ratio is 15%, First Charter Bank

Accepted Answer

A)  is loaned up. 
B)  has too few reserves on hand. 
C)  is meeting its required reserve ratio and has $200,000 in excess reserves. 
D)  has excess reserves of $100,000.

Question 11

(Currency held outside banks + demand deposits + other checkable deposits + traveler's checks + savings accounts + money market accounts + other near monies) =

Accepted Answer

A)  M1. 
B)  M2. 
C)  M1 + M2. 
D)  M2 - M1.

Question 12

From time to time, the Federal Reserve buys back government bonds from the private sector through a process called

Accepted Answer

A)  open market purchases. 
B)  voluntary redemption procedures. 
C)  bond recall procedures. 
D)  backflip bond investments.

Question 13

Commercial banks create money through

Accepted Answer

A)  printing treasury notes. 
B)  making loans. 
C)  facilitating borrowing from the Federal Reserve to the public. 
D)  reducing risk in the economy.

Question 14

Which of the following is included in M2?

Accepted Answer

A)  commercial paper 
B)  U.S. Treasury bonds 
C)  savings accounts 
D)  stocks

Question 15

The President of the NY Federal Reserve Bank is always a member of the Federal Open Market Committee.

Accepted Answer

A) True 
 B)False

Question 16

Suppose the required reserve ratio is 15%. A $10 million deposit will, at most, allow an expansion of the money supply to

Accepted Answer

A)  $250 million. 
B)  $150 million. 
C)  $147.5 million. 
D)  $66.7 million.

Question 17

Refer to the information provided in Table 10.5 below to answer the questions that follow.
Table 10.5 
-Refer to Table 10.5. The required reserve ratio is 10%. If the Bloomington Bank is meeting its reserve requirement and has no excess reserves, its loans equal

Accepted Answer

A)  $1,080. 
B)  $1,530. 
C)  $1,580. 
D)  $1,700.

Question 18

If the Fed lowered the reserve requirement, banks would have less money to loan out.

Accepted Answer

A) True 
 B)False

Question 19

Refer to the information provided in Figure 10.2 below to answer the questions that follow.  Figure 10.2
-Refer to Figure 10.2. Suppose that money demand is currently at Point B. A movement to Point D could be caused by

Accepted Answer

A)  an increase in nominal income, ceteris paribus. 
B)  an increase in the price level, ceteris paribus. 
C)  a decrease in the price level, ceteris paribus. 
D)  a decrease in the interest rate, ceteris paribus.

Question 20

The treasury bill rate is the interest rate paid

Accepted Answer

A)  on government securities that mature in less than a year. 
B)  on government securities that mature in 5 years. 
C)  on government securities that mature in 10 years. 
D)  on government securities that mature in 30 years.

Exam 10: Money, the Federal Reserve, and the Interest Rate