Question 1

If a bank has $20,000 in deposits and $2,000 in legal reserves, then it is loaned up if the required reserve ratio is 10%.

Accepted Answer

A) True 
 B)False

Question 2

If the Fed increases the discount rate, it is pursuing

Accepted Answer

A)   a contractionary policy because it will be more costly for banks to borrow funds and this puts upward pressure on interest rates in the economy.
B)   a contractionary policy because it reduces banks' profit margins by raising the cost of borrowing and lowering the return on lending.
C)   an expansionary policy because it raises the cost of holding excess reserves in the banking system.
D)   an expansionary policy because it increases bank profits by putting upward pressure on the interest rates that banks can charge on its loans.E) A) and B)
F) B) and C)

Question 3

Table 9-6: Deposit Expansion Stages
  In Table 9-6, assume that banks loan out 100% of their excess banking reserves, there are no cash withdrawals, and all loan proceeds are spent. Figures have been rounded up to the nearest whole number.
-Refer to Table 9-6. What is the value of $B in stage 1?

Accepted Answer

A)   $100
B)   $200
C)   $600
D)   $800E) A) and B)
F) A) and C)

Question 4

Table 9-2
 
-Refer to Table 9-2. In Year 1, if savings deposits had been $200 billion instead of $150 billion, M1 would have been

Accepted Answer

A)   unaffected.
B)   larger by $50 billion.
C)   smaller by $50 billion.
D)   $100 billion.E) A) and C)
F) B) and C)

Question 5

Table 9-5
Bolton Bank: Partial Balance Sheet
(All figures in $ million) 
 
-Refer to Table 9-5. The required reserve ratio is 10%. What is the amount of Bolton Bank's excess reserves?

Accepted Answer

A)   $30 million
B)   $70 million
C)   $100 million
D)   zeroE) B) and D)
F) All of the above

Question 6

You spend $20 to buy a used textbook at the college bookstore. What function does money perform here?

Accepted Answer

A)   medium of exchange
B)   store of value
C)   unit of account
D)   standard of deferred paymentE) All of the above
F) A) and B)

Question 7

Banks play two primary roles in the economy: They take in deposits and lend them to borrowers, and they facilitate purchases of goods and services by allowing people to write checks against their deposits.

Accepted Answer

A) True 
 B)False

Question 8

Suppose a bank has $10,000 in deposits and $1,000 in reserves. The required reserve ratio is 5%. Which of the following occurs if the required reserve ratio is increased to 10%?

Accepted Answer

A)   The bank's required reserves will decrease to $500.
B)   The bank's excess reserves will increase to $1,000.
C)   The bank's required reserves will increase to $1,000.
D)   The bank's ability to create loans increases by 5%.E) A) and B)
F) A) and C)

Question 9

The Federal Depository Insurance Corporation (FDIC)  has the power to close a bank when

Accepted Answer

A)   the bank's net worth falls below a certain level.
B)   the bank's excess reserves fall below a certain level.
C)   the bank's total deposits fall below a certain level.
D)   the bank has inadequate insurance.E) All of the above
F) None of the above

Question 10

What happens when you withdraw cash from a bank?

Accepted Answer

A)   The bank's reserves are reduced.
B)   The bank's reserves are increased.
C)   The bank's reserves are not affected.
D)   The bank's total reserves remain unchanged but the composition of required reserves and excess reserves change.E) C) and D)
F) B) and C)

Question 11

The Federal Reserve buys $10,000 of government securities from commercial banks. If the required reserve ratio is 25%, what is the maximum amount of change in the nation's money supply? Assume that no banks keep excess reserves and no individuals or firms hold cash.

Accepted Answer

A)   expand by $10,000
B)   expand by $30,000
C)   expand by $40,000
D)   expand by $7,500E) All of the above
F) A) and B)

Question 12

Table 9-3
Balance Sheet of the Alpha-Beta Bank
(All figures in $ million) 
 
-Refer to Table 9-3. What is the value of the bank's net worth?

Accepted Answer

A)   $200 million
B)   $2,000 million
C)   $2,800 million
D)   $3,000 millionE) B) and D)
F) B) and C)

Question 13

When the Fed purchases government bonds it _____ reserves and ____ the money supply.

Accepted Answer

A)   decreases; increases
B)   increases; decreases
C)   decreases; decreases
D)   increases; increasesE) A) and C)
F) C) and D)

Question 14

Which of the following best illustrates the unit of account function of money?

Accepted Answer

A)   You list prices for clothing sold on your Web site, www.nattydresser.com, in dollars.
B)   You pay for your cruise tickets with dollars.
C)   You keep $50 in your backpack for emergencies.
D)   You keep your tips earned from your tour guide job in a separate jar at home.E) C) and D)
F) B) and C)

Question 15

The Federal Reserve does all of the following except

Accepted Answer

A)   make loans to individuals
B)   influence the supply of money
C)   influence the value of money
D)   regulate the banking systemE) B) and C)
F) C) and D)

Question 16

The Board of Governors of the Federal Reserve System is

Accepted Answer

A)   elected by the member banks' presidents.
B)   appointed by the Secretary of the Treasury.
C)   appointed by the state governors in each Federal Reserve district.
D)   appointed by the president of the United States and confirmed by the Senate.E) A) and D)
F) All of the above

Question 17

The three main monetary policy instruments are

Accepted Answer

A)   the money supply, the market interest rate, and deposit insurance.
B)   open market operations, reserve requirement ratio, and the discount rate.
C)   open market operations, deposit insurance, and the money supply.
D)   open market operations, reserve requirement ratio, and the market interest rate.E) A) and B)
F) All of the above

Question 18

Which of the following is an advantage of using money as a medium of exchange?

Accepted Answer

A)   It simplifies purchases because all prices are specified in money values.
B)   There is no interest charged on using money for purchases.
C)   It is easy to mass produce money.
D)   It avoids having to rely on barter, the exchange of one good or service for another.E) A) and B)
F) C) and D)

Question 19

The Fed seldom uses the reserve requirement ratio to influence the money supply. What is the reason for this?

Accepted Answer

A)   It is difficult and costly for the Fed to monitor compliance.
B)   Frequent manipulation of reserve requirements would require bankers to constantly adjust their lending policies to changing requirements, which could be destabilizing for financial markets.
C)   The Fed would like to discourage banks from making loans indiscriminately and therefore sets just one standard.
D)   Reserves in excess of a certain amount will not be covered by the Federal Depository Insurance Corporation.E) All of the above
F) B) and C)

Question 20

Which of the following is included in M2 but not in M1?

Accepted Answer

A)   currency
B)   demand deposits
C)   small-denomination time deposits
D)   debit cardsE) B) and C)
F) A) and C)

Exam 24: The Aggregate Demandaggregate Supply Model

Which of the following best illustrates the unit of account function of money?

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The Fed seldom uses the reserve requirement ratio to influence the money supply. What is the reason for this?

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If a bank has $20,000 in deposits and $2,000 in legal reserves, then it is loaned up if the required reserve ratio is 10%.

Correct AnswerverifiedShow Answer

The three main monetary policy instruments are

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You spend $20 to buy a used textbook at the college bookstore. What function does money perform here?

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What happens when you withdraw cash from a bank?

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The Board of Governors of the Federal Reserve System is

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Table 9-5 Bolton Bank: Partial Balance Sheet (All figures in $ million) -Refer to Table 9-5. The required reserve ratio is 10%. What is the amount of Bolton Bank's excess reserves?

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Which of the following is an advantage of using money as a medium of exchange?

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The Federal Depository Insurance Corporation (FDIC) has the power to close a bank when

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Suppose a bank has $10,000 in deposits and $1,000 in reserves. The required reserve ratio is 5%. Which of the following occurs if the required reserve ratio is increased to 10%?

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Which of the following is included in M2 but not in M1?

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Table 9-6: Deposit Expansion Stages In Table 9-6, assume that banks loan out 100% of their excess banking reserves, there are no cash withdrawals, and all loan proceeds are spent. Figures have been rounded up to the nearest whole number. -Refer to Table 9-6. What is the value of $B in stage 1?

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Table 9-2 -Refer to Table 9-2. In Year 1, if savings deposits had been $200 billion instead of $150 billion, M1 would have been

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The Federal Reserve buys $10,000 of government securities from commercial banks. If the required reserve ratio is 25%, what is the maximum amount of change in the nation's money supply? Assume that no banks keep excess reserves and no individuals or firms hold cash.

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When the Fed purchases government bonds it _____ reserves and ____ the money supply.

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Table 9-3 Balance Sheet of the Alpha-Beta Bank (All figures in $ million) -Refer to Table 9-3. What is the value of the bank's net worth?

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Banks play two primary roles in the economy: They take in deposits and lend them to borrowers, and they facilitate purchases of goods and services by allowing people to write checks against their deposits.

Correct AnswerverifiedShow Answer

If the Fed increases the discount rate, it is pursuing

Correct AnswerverifiedShow Answer

The Federal Reserve does all of the following except

Correct AnswerverifiedShow Answer

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When the Fed purchases government bonds it _ reserves and the money supply.

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