Question 1

Credit cards are

Accepted Answer

A)   a medium of exchange.
B)   counted as part of M2 but not as part of M1.
C)   important for analyzing the monetary system.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 2

The New York Federal Reserve Bank

Accepted Answer

A)   president always gets to vote at the FOMC meetings.
B)   conducts open market transactions.
C)   is one of 12 regional Federal Reserve Banks.
D)   All of the above are correct.E) None of the above
F) B) and C)

Question 3

The interest rate that the Fed charges banks that borrow reserves from it is the

Accepted Answer

A)   federal funds rate.
B)   discount rate.
C)   reserve requirement.
D)   prime rate.E) All of the above
F) B) and D)

Question 4

The president of each regional Federal Reserve Bank is appointed by

Accepted Answer

A)   the U.S. president with the approval of the Senate.
B)   the Board of Governors.
C)   the voting members of the Federal Open Market Committee.
D)   the board of directors of that regional Federal Reserve Bank.E) All of the above
F) A) and B)

Question 5

The Federal Reserve can alter the size of the money supply by changing reserves or changing reserve requirements.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following items is included in M2?

Accepted Answer

A)   credit cards
B)   money market mutual funds
C)   corporate bonds
D)   large time depositsE) C) and D)
F) A) and C)

Question 7

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits. As a result, bank reserves will

Accepted Answer

A)   decrease and the money supply will eventually decrease.
B)   decrease and the money supply will eventually increase.
C)   increase and the money supply will eventually decrease.
D)   increase and the money supply will eventually increase.E) All of the above
F) A) and B)

Question 8

In the U.S., the average adult holds about $3,700 in

Accepted Answer

A)   currency.
B)   wealth.
C)   M1.
D)   M2.E) None of the above
F) A) and C)

Question 9

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

Accepted Answer

A)   demand deposits
B)   corporate bonds
C)   large time deposits
D)   money market mutual fundsE) B) and C)
F) All of the above

Question 10

Table 11-4.
 
-Refer to Table 11-4. If the bank is holding $4,000 in excess reserves, then the reserve requirement with which it must comply is

Accepted Answer

A)   4 percent.
B)   6 percent.
C)   12 percent.
D)   14 percent.E) C) and D)
F) A) and D)

Question 11

Over one time horizon or another, Fed policy decisions influence

Accepted Answer

A)   inflation and employment.
B)   inflation but not employment.
C)   employment but not inflation.
D)   neither inflation nor employment.E) A) and B)
F) A) and D)

Question 12

If $300 of new reserves generates $800 of new money in the economy, then the reserve ratio is

Accepted Answer

A)   2.7 percent.
B)   12.5 percent.
C)   37.5 percent.
D)   40 percent.E) A) and B)
F) B) and C)

Question 13

Most financial assets other than money function as

Accepted Answer

A)   a medium of exchange, a unit of account, and a store of value.
B)   a medium of exchange and a store of value, but not a unit of account.
C)   a store of value and a unit of account, but not a mediuim of exchange.
D)   a store of value, but not a unit of account nor a medium of exchangeE) All of the above
F) B) and C)

Question 14

Table 11-5.
 
-Refer to Table 11-5. From the table it follows that the Bank of Pleasantville operates in a

Accepted Answer

A)   fractional-reserve banking system, since its reserves are less than its deposits.
B)   fractional-reserve banking system, since its reserves are less than its loans.
C)   100-percent-reserve banking system, since its assets are equal to its liabilities.
D)   100-percent-reserve banking system if the Fed's reserve requirement is 10 percent; otherwise, it operates in a fractional-reserve banking system.E) A) and C)
F) None of the above

Question 15

A double coincidence of wants

Accepted Answer

A)   is required when there is no item in an economy that is widely accepted in exchange for goods and services.
B)   is required in an economy that relies on barter.
C)   is a hindrance to the allocation of resources when it is required for trade.
D)   All of the above are correct.E) All of the above
F) B) and C)

Question 16

Suppose 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) A) and B)
F) C) and D)

Question 17

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

Accepted Answer

A)   currency
B)   demand deposits
C)   other checkable deposits
D)   All of the above are correct.E) A) and B)
F) B) and C)

Question 18

The banking system currently has $50 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed raises the reserve requirement to 12.5 percent and at the same time sells $10 billion worth of bonds, then by how much does the money supply change?

Accepted Answer

A)   It falls by $20 billion.
B)   It falls by $110 billion.
C)   It falls by $180 billion.
D)   None of the above is correct.E) All of the above
F) A) and B)

Question 19

Scenario 11-1.
The monetary policy of Namdian is determined by the Namdian Central Bank. The local currency is the dia. Namdian banks collectively hold 100 million dias of required reserves, 25 million dias of excess reserves, 250 million dias of Namdian Treasury Bonds, and their customers hold 1,000 million dias of deposits. Namdians prefer to use only demand deposits and so the money supply consists of demand deposits.
-Refer to Scenario 11-1. Assuming the only other item Namdian banks have on their balance sheets is loans, what is the value of existing loans made by Namdian banks?

Accepted Answer

A)   625 million dias
B)   875 million dias
C)   1,125 million dias
D)   None of the above is correct.E) B) and C)
F) A) and D)

Question 20

If R represents the reserve ratio for all banks in the economy, then the money multiplier is

Accepted Answer

A)   1/(1-R) .
B)   1/R.
C)   1/(1+R) .
D)   (1+R) /R.E) None of the above
F) A) and B)

Exam 11: The Monetary System

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

Correct Answer
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Correct Answer
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Over one time horizon or another, Fed policy decisions influence

Correct Answer
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A double coincidence of wants

Correct Answer
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Table 11-4. -Refer to Table 11-4. If the bank is holding $4,000 in excess reserves, then the reserve requirement with which it must comply is

Correct Answer
verified

If $300 of new reserves generates $800 of new money in the economy, then the reserve ratio is

Correct Answer
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Which of the following items is included in M2?

Correct Answer
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In the U.S., the average adult holds about $3,700 in

Correct Answer
verified

The Federal Reserve can alter the size of the money supply by changing reserves or changing reserve requirements.

Correct Answer
verified

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits. As a result, bank reserves will

Correct Answer
verified

The interest rate that the Fed charges banks that borrow reserves from it is the

Correct Answer
verified

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

Correct Answer
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Correct Answer
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Most financial assets other than money function as

Correct Answer
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The New York Federal Reserve Bank

Correct Answer
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Correct Answer
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If R represents the reserve ratio for all banks in the economy, then the money multiplier is

Correct Answer
verified

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

Correct Answer
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Credit cards are

Correct Answer
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The president of each regional Federal Reserve Bank is appointed by

Correct Answer
verified

Exam 11: The Monetary System

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

Correct AnswerverifiedShow Answer

Table 11-5. -Refer to Table 11-5. From the table it follows that the Bank of Pleasantville operates in a

Correct AnswerverifiedShow Answer

Over one time horizon or another, Fed policy decisions influence

Correct AnswerverifiedShow Answer

A double coincidence of wants

Correct AnswerverifiedShow Answer

Table 11-4. -Refer to Table 11-4. If the bank is holding $4,000 in excess reserves, then the reserve requirement with which it must comply is

Correct AnswerverifiedShow Answer

If $300 of new reserves generates $800 of new money in the economy, then the reserve ratio is

Correct AnswerverifiedShow Answer

Which of the following items is included in M2?

Correct AnswerverifiedShow Answer

In the U.S., the average adult holds about $3,700 in

Correct AnswerverifiedShow Answer

The Federal Reserve can alter the size of the money supply by changing reserves or changing reserve requirements.

Correct AnswerverifiedShow Answer

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits. As a result, bank reserves will

Correct AnswerverifiedShow Answer

The interest rate that the Fed charges banks that borrow reserves from it is the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Most financial assets other than money function as

Correct AnswerverifiedShow Answer

The New York Federal Reserve Bank

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If R represents the reserve ratio for all banks in the economy, then the money multiplier is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Credit cards are

Correct AnswerverifiedShow Answer

The president of each regional Federal Reserve Bank is appointed by

Correct AnswerverifiedShow Answer

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