Question 1

Given the following information, what are the values of M1 and M2? Small time deposits $1,800 billion
Demand deposits and other checkable deposits $1,000 billion
Savings deposits $1,400 billion
Money market mutual funds $1,000 billion
Traveler's checks $50 billion
Large time deposits $600 billion
Currency $300 billion
Miscellaneous categories in M2 $50 billion

Accepted Answer

A)   M1 = $3,150 billion, M2 = $6,200 billion.
B)   M1 = $1,350 billion, M2 = $5,600 billion.
C)   M1 = $1,400 billion, M2 = $6,200 billion.
D)   M1 = $1,300 billion, M2 = $5,600 billion.E) A) and B)
F) None of the above

Question 2

Which of the following groups is largely responsible for carrying out the Fed's tasks of regulating banks and ensuring the health of the financial system?

Accepted Answer

A)   FOMC
B)   the Board of Governors
C)   the New York Fed
D)   the regional Federal Reserve BanksE) A) and B)
F) B) and C)

Question 3

In Ugoland, the money supply is $8 million and reserves are $1 million. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

Accepted Answer

A)   14 percent.
B)   12.5 percent.
C)   8 percent.
D)   None of the above is correct.E) All of the above
F) C) and D)

Question 4

There is a

Accepted Answer

A)   short-run tradeoff between inflation and unemployment.
B)   short-run tradeoff between an increase in the money supply and inflation.
C)   long-run tradeoff between inflation and unemployment.
D)   long-run tradeoff between an increase in the money supply and inflation.E) None of the above
F) A) and C)

Question 5

The money multiplier equals

Accepted Answer

A)   1/R, where R represents the quantity of reserves in the economy.
B)   1/R, where R represents the reserve ratio for all banks in the economy.
C)   1/1+R) , where R represents the quantity of reserves in the economy.
D)   1/1+R) , where R represents the reserve ratio for all banks in the economy.E) A) and C)
F) C) and D)

Question 6

In the 19th century, when crop failures often led to bank runs, banks would make relatively fewer loans and hold relatively more excess reserves. By itself, these actions by the banks should have

Accepted Answer

A)   increased the money multiplier and the money supply.
B)   decreased the money multiplier and increased the money supply.
C)   increased the money multiplier and decreased the money supply.
D)   decreased both the money multiplier and the money supply.E) None of the above
F) B) and C)

Question 7

A decrease in the money supply might indicate that the Fed had

Accepted Answer

A)   purchased bonds in an attempt to increase the federal funds rate.
B)   purchased bonds in an attempt to reduce the federal funds rate.
C)   sold bonds in an attempt to increase the federal funds rate.
D)   sold bonds in an attempt to reduce the federal funds rate.E) B) and D)
F) A) and B)

Question 8

If the Federal Open Market Committee decides to increase the money supply, then the Federal Reserve

Accepted Answer

A)   creates dollars and uses them to purchase government bonds from the public.
B)   sells government bonds from its portfolio to the public.
C)   creates dollars and uses them to purchase various types of stocks and bonds from the public.
D)   sells various types of stocks and bonds from its portfolio to the public.E) A) and B)
F) B) and C)

Question 9

The manager of the bank where you work tells you that your bank has $10 million in excess reserves. She also tells you that the bank has $400 million in deposits and $375 million dollars in loans. Given this information you find that the reserve requirement must be

Accepted Answer

A)   10/400.
B)   25/400.
C)   35/400.
D)   15/400.E) All of the above
F) None of the above

Question 10

The Fed's primary tool to change the money supply is

Accepted Answer

A)   changing the interest rate on reserves.
B)   changing the reserve requirement.
C)   conducting open market operations.
D)   redeeming Federal Reserve notes.E) A) and B)
F) A) and C)

Question 11

If the reserve ratio increased from 10 percent to 20 percent, the money multiplier would

Accepted Answer

A)   rise from 10 to 20.
B)   rise from 5 to 10.
C)   fall from 10 to 5.
D)   not change.E) A) and B)
F) A) and C)

Question 12

If the discount rate is raised then banks borrow

Accepted Answer

A)   more from the Fed so reserves increase.
B)   more from the Fed so reserves decrease.
C)   less from the Fed so reserves increase.
D)   less from the Fed so reserves decrease.E) A) and D)
F) A) and C)

Question 13

A bank has a 20 percent reserve requirement, $8,000 in loans, and has loaned out all it can given the reserve requirement.

Accepted Answer

A)   It has $6,400 in deposits.
B)   It has $10,000 in deposits.
C)   It has $9,600 in deposits.
D)   It has $1,600 in deposits.E) C) and D)
F) A) and C)

Question 14

How are Federal Reserve Board Governors selected?

Accepted Answer

The Fed Governors are appointed by the p...

Question 15

Bank regulators impose capital requirements in order to

Accepted Answer

A)   increase the amount of leverage in the economy.
B)   provide an incentive for banks to hold risky assets.
C)   ensure banks can pay off depositors.
D)   increase the probability of a credit crunch.E) None of the above
F) A) and B)

Question 16

Money allows people to specialize in what they do best, thereby raising everyone's standard of living.

Accepted Answer

A) True 
 B)False

Question 17

The fractional reserve characteristic of the banking system allows banks to create money and also create wealth from bank deposits. Describe why this statement is or is not true.

Accepted Answer

This statement is not true.
Banks can cr...

Question 18

Money is the only asset that functions as a store of value.

Accepted Answer

A) True 
 B)False

Question 19

Table 29-2.
The information in the table pertains to an imaginary economy.
 
-Refer to Table 29-2. What is the M1 money supply?

Accepted Answer

A)   $705 billion
B)   $570 billion
C)   $505 billion
D)   $585 billionE) A) and B)
F) None of the above

Question 20

When conducting an open-market purchase, the Fed

Accepted Answer

A)   buys government bonds, and in so doing increases the money supply.
B)   buys government bonds, and in so doing decreases the money supply.
C)   sells government bonds, and in so doing increases the money supply.
D)   sells government bonds, and in so doing decreases the money supply.E) A) and B)
F) C) and D)

Exam 16: The Monetary System

Correct Answer
verified

If the reserve ratio increased from 10 percent to 20 percent, the money multiplier would

Correct Answer
verified

Which of the following groups is largely responsible for carrying out the Fed's tasks of regulating banks and ensuring the health of the financial system?

Correct Answer
verified

Bank regulators impose capital requirements in order to

Correct Answer
verified

In Ugoland, the money supply is $8 million and reserves are $1 million. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

Correct Answer
verified

Table 29-2. The information in the table pertains to an imaginary economy. -Refer to Table 29-2. What is the M1 money supply?

Correct Answer
verified

A decrease in the money supply might indicate that the Fed had

Correct Answer
verified

How are Federal Reserve Board Governors selected?

Correct Answer
verified
The Fed Governors are appointed by the p...
View Answer

When conducting an open-market purchase, the Fed

Correct Answer
verified

The fractional reserve characteristic of the banking system allows banks to create money and also create wealth from bank deposits. Describe why this statement is or is not true.

Correct Answer
verified
This statement is not true.
Banks can cr...
View Answer

The money multiplier equals

Correct Answer
verified

If the Federal Open Market Committee decides to increase the money supply, then the Federal Reserve

Correct Answer
verified

The manager of the bank where you work tells you that your bank has $10 million in excess reserves. She also tells you that the bank has $400 million in deposits and $375 million dollars in loans. Given this information you find that the reserve requirement must be

Correct Answer
verified

Money allows people to specialize in what they do best, thereby raising everyone's standard of living.

Correct Answer
verified

A bank has a 20 percent reserve requirement, $8,000 in loans, and has loaned out all it can given the reserve requirement.

Correct Answer
verified

If the discount rate is raised then banks borrow

Correct Answer
verified

In the 19th century, when crop failures often led to bank runs, banks would make relatively fewer loans and hold relatively more excess reserves. By itself, these actions by the banks should have

Correct Answer
verified

There is a

Correct Answer
verified

The Fed's primary tool to change the money supply is

Correct Answer
verified

Money is the only asset that functions as a store of value.

Correct Answer
verified

Exam 16: The Monetary System

Correct AnswerverifiedShow Answer

If the reserve ratio increased from 10 percent to 20 percent, the money multiplier would

Correct AnswerverifiedShow Answer

Which of the following groups is largely responsible for carrying out the Fed's tasks of regulating banks and ensuring the health of the financial system?

Correct AnswerverifiedShow Answer

Bank regulators impose capital requirements in order to

Correct AnswerverifiedShow Answer

In Ugoland, the money supply is $8 million and reserves are $1 million. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

Correct AnswerverifiedShow Answer

Table 29-2. The information in the table pertains to an imaginary economy. -Refer to Table 29-2. What is the M1 money supply?

Correct AnswerverifiedShow Answer

A decrease in the money supply might indicate that the Fed had

Correct AnswerverifiedShow Answer

How are Federal Reserve Board Governors selected?

Correct AnswerverifiedThe Fed Governors are appointed by the p...View AnswerShow Answer

When conducting an open-market purchase, the Fed

Correct AnswerverifiedShow Answer

The fractional reserve characteristic of the banking system allows banks to create money and also create wealth from bank deposits. Describe why this statement is or is not true.

Correct AnswerverifiedThis statement is not true.Banks can cr...View AnswerShow Answer

The money multiplier equals

Correct AnswerverifiedShow Answer

If the Federal Open Market Committee decides to increase the money supply, then the Federal Reserve

Correct AnswerverifiedShow Answer

The manager of the bank where you work tells you that your bank has $10 million in excess reserves. She also tells you that the bank has $400 million in deposits and $375 million dollars in loans. Given this information you find that the reserve requirement must be

Correct AnswerverifiedShow Answer

Money allows people to specialize in what they do best, thereby raising everyone's standard of living.

Correct AnswerverifiedShow Answer

A bank has a 20 percent reserve requirement, $8,000 in loans, and has loaned out all it can given the reserve requirement.

Correct AnswerverifiedShow Answer

If the discount rate is raised then banks borrow

Correct AnswerverifiedShow Answer

In the 19th century, when crop failures often led to bank runs, banks would make relatively fewer loans and hold relatively more excess reserves. By itself, these actions by the banks should have

Correct AnswerverifiedShow Answer

There is a

Correct AnswerverifiedShow Answer

The Fed's primary tool to change the money supply is

Correct AnswerverifiedShow Answer

Money is the only asset that functions as a store of value.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

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verified

Correct Answer
verified
The Fed Governors are appointed by the p...
View Answer

Correct Answer
verified

Correct Answer
verified
This statement is not true.
Banks can cr...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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