Question 1

Which of the following is correct?

Accepted Answer

A)  The Fed can control the money supply precisely.
B)  The amount of money in the economy does not depend on the behavior of depositors.
C)  The amount of money in the economy depends in part on the behavior of banks.
D)  None of the above is correct.E) All of the above
F) A) and B)

Question 2

The legal tender requirement means that

Accepted Answer

A)  people are more likely to accept the dollar as a medium of exchange.
B)  the government must hold enough gold to redeem all currency.
C)  people may not make trades with anything else.
D)  All of the above are correct.E) A) and B)
F) B) and D)

Question 3

Suppose the banking system currently has $300 billion in reserves,that the reserve requirement is 10%,and that $3 billion of the reserves are excess reserves that will not be lent out.What is the value of deposits?

Accepted Answer

A)  $3,300 billion
B)  $2,970 billion
C)  $2,700 billion
D)  $2,673 billionE) A) and B)
F) All of the above B

Question 4

Which of the following lists two things that both decrease the money supply?

Accepted Answer

A)  raise the discount rate, make open market purchases
B)  raise the discount rate, make open market sales
C)  lower the discount rate, make open market purchases
D)  lower the discount rate, make open market salesE) A) and B)
F) B) and D) B

Question 5

Use the balance sheet for the following questions.
Table 29-2
 
-Refer to Table 29-2.If someone deposits $400 into the First Bank of Mason City,

Accepted Answer

A)  the bank will be able to make additional loans totaling $320.
B)  excess reserves initially increase by $320.
C)  required reserves initially increase by $80.
D)  All of the above are correct.E) C) and D)
F) A) and B)

Question 6

Suppose that banks decide to hold more excess reserves relative to deposits.Other things the same,this action will cause the

Accepted Answer

A)  money supply to fall.To reduce the impact of this the Fed could sell Treasury bonds.
B)  money supply to fall.To reduce the impact of this the Fed could buy Treasury bonds.
C)  money supply to rise.To reduce the impact of this the Fed could sell Treasury bonds.
D)  money supply to rise.To reduce the impact of this the Fed could buy Treasury bonds.E) A) and C)
F) A) and D)

Question 7

Bottles of very fine wine are less liquid than demand deposits.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following lists two things that both increase the money supply?

Accepted Answer

A)  make open market purchases, raise the reserve requirement ratio
B)  make open market purchases, lower the reserve requirement ratio
C)  make open market sales, raise the reserve requirement ratio
D)  make open market sales, lower the reserve requirement ratioE) A) and B)
F) A) and C)

Question 9

Suppose a bank has $200,000 in deposits and $190,000 in loans.It has loaned out all it can.It has a reserve ratio of

Accepted Answer

A)  2.5 percent.
B)  5 percent.
C)  9.5 percent.
D)  10 percent.E) B) and C)
F) All of the above

Question 10

U.S.dollars are an example of commodity money and hides used to make trades are an example of fiat money.

Accepted Answer

A) True 
 B)False  False

Question 11

Suppose that banks decide to hold fewer excess reserves relative to deposits.Other things the same,this action will cause the

Accepted Answer

A)  money supply to fall.To reduce the impact of this the Fed could sell Treasury bonds.
B)  money supply to fall.To reduce the impact of this the Fed could buy Treasury bonds.
C)  money supply to rise.To reduce the impact of this the Fed could sell Treasury bonds.
D)  money supply to rise.To reduce the impact of this the Fed could buy Treasury bonds.E) B) and C)
F) A) and D)

Question 12

If banks desire to hold no excess reserves,the reserve ratio is 10 percent,and a bank that was previously just meeting its reserve requirement receives a new deposit of $400,then initially the bank has a

Accepted Answer

A)  $400 increase in excess reserves and no increase in required reserves.
B)  $400 increase in required reserves and no increase in excess reserves.
C)  $360 increase in excess reserves and $40 increase in required reserves.
D)  $40 increase in excess reserves and $360 increase in required reserves.E) C) and D)
F) All of the above

Question 13

The Federal Funds rate is the interest rate

Accepted Answer

A)  the Federal Reserves charges for loans it makes to the federal government.
B)  the Federal Reserve charges banks for short-term loans.
C)  banks charge each other for short-term loans of reserves.
D)  on newly issued one-year Treasury bonds.E) B) and D)
F) B) and C)

Question 14

If the Fed sells government bonds to the public,bank reserves tend to

Accepted Answer

A)  increase and the money supply increases.
B)  increase and the money supply decreases.
C)  decrease and the money supply increases.
D)  decrease and the money supply decreases.E) A) and C)
F) A) and D)

Question 15

Table 29-5
 
-Refer to Figure 29-5.If the Fed requires a reserve ratio of 4%,how much in excess reserves does the Bank of Springfield now hold?

Accepted Answer

A)  $1,200
B)  $2,400
C)  $2,880
D)  $3,000E) All of the above
F) A) and B)

Question 16

The Fed can increase the money supply by conducting open market

Accepted Answer

A)  sales and raising the discount rate.
B)  sales and lowering the discount rate.
C)  purchases and raising the discount rate.
D)  purchases and lowering the discount rate.E) C) and D)
F) B) and D)

Question 17

Which of the following is included in both M1 and M2?

Accepted Answer

A)  savings deposits
B)  demand deposits
C)  small time deposits
D)  money market mutual fundsE) A) and C)
F) None of the above

Question 18

Commodity money is

Accepted Answer

A)  backed by gold.
B)  the principal type of money in use today.
C)  money with intrinsic value.
D)  receipts created in international trade that are used as a medium of exchange.E) A) and D)
F) A) and B)

Question 19

The Federal Reserve is a privately operated commercial bank.

Accepted Answer

A) True 
 B)False

Question 20

If the reserve ratio is 20 percent,the money multiplier is

Accepted Answer

A)  2.
B)  4.
C)  5.
D)  8.E) None of the above
F) A) and D)

Exam 29: The Monetary System

Which of the following is correct?

Correct AnswerverifiedShow Answer

The legal tender requirement means that

Correct AnswerverifiedShow Answer

Suppose the banking system currently has $300 billion in reserves,that the reserve requirement is 10%,and that $3 billion of the reserves are excess reserves that will not be lent out.What is the value of deposits?

Correct AnswerverifiedB

Which of the following lists two things that both decrease the money supply?

Correct AnswerverifiedB

Use the balance sheet for the following questions. Table 29-2 -Refer to Table 29-2.If someone deposits $400 into the First Bank of Mason City,

Correct AnswerverifiedShow Answer

Suppose that banks decide to hold more excess reserves relative to deposits.Other things the same,this action will cause the

Correct AnswerverifiedShow Answer

Bottles of very fine wine are less liquid than demand deposits.

Correct AnswerverifiedShow Answer

Which of the following lists two things that both increase the money supply?

Correct AnswerverifiedShow Answer

Suppose a bank has $200,000 in deposits and $190,000 in loans.It has loaned out all it can.It has a reserve ratio of

Correct AnswerverifiedShow Answer

U.S.dollars are an example of commodity money and hides used to make trades are an example of fiat money.

Correct AnswerverifiedFalse

Suppose that banks decide to hold fewer excess reserves relative to deposits.Other things the same,this action will cause the

Correct AnswerverifiedShow Answer

If banks desire to hold no excess reserves,the reserve ratio is 10 percent,and a bank that was previously just meeting its reserve requirement receives a new deposit of $400,then initially the bank has a

Correct AnswerverifiedShow Answer

The Federal Funds rate is the interest rate

Correct AnswerverifiedShow Answer

If the Fed sells government bonds to the public,bank reserves tend to

Correct AnswerverifiedShow Answer

Table 29-5 -Refer to Figure 29-5.If the Fed requires a reserve ratio of 4%,how much in excess reserves does the Bank of Springfield now hold?

Correct AnswerverifiedShow Answer

The Fed can increase the money supply by conducting open market

Correct AnswerverifiedShow Answer

Which of the following is included in both M1 and M2?

Correct AnswerverifiedShow Answer

Commodity money is

Correct AnswerverifiedShow Answer

The Federal Reserve is a privately operated commercial bank.

Correct AnswerverifiedShow Answer

If the reserve ratio is 20 percent,the money multiplier is

Correct AnswerverifiedShow Answer

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B

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False

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