Question 1

Assume that when $100 of new reserves enter the banking system, the money supply ultimately increases by $625. Assume also that no banks hold excess reserves and that the entire money supply consists of bank deposits. If, at a point in time, reserves for all banks amount to $500, then at that same point in time, loans for all banks amount to $2,625.

Accepted Answer

A) True 
 B)False

Question 2

The primary difference between commodity money and fiat money is that

Accepted Answer

A)  commodity money is a medium of exchange but fiat money is not.
B)  fiat money is a medium of exchange but commodity money is not.
C)  commodity money has intrinsic value but fiat money does not.
D)  fiat money has intrinsic value but commodity money does not.E) A) and C)
F) B) and C)

Question 3

If the Fed sells government bonds to the public, then reserves

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) B) and D)
F) B) and C)

Question 4

Table 16-6. 
-Refer to Table 16-6. If the Bank of Springfield has lent out all the money it can given its level of deposits, then what is the reserve requirement?

Accepted Answer

A)  5.00 percent
B)  8.00 percent
C)  8.42 percent
D)  95.00 percentE) All of the above
F) C) and D)

Question 5

People hold $400 million of bank deposits but no currency. Banks have made $380 million dollars of loans and only hold enough reserves to satisfy reserve requirements. Because of uncertainty, banks choose to hold $10 million more in reserves. The Fed takes no action. What happens to bank loans?

Accepted Answer

A)  they fall $220 million
B)  they fall $200 million
C)  they rise $200 million
D)  they rise $220 millionE) A) and B)
F) All of the above

Question 6

When conducting an open-market sale, 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) All of the above
F) B) and C)

Question 7

Draw a simple T-account for First National Bank which has $5,000 of deposits, a required reserve ratio of 10 percent, and excess reserves of $300. Make sure your balance sheet balances.

Accepted Answer

The answer of Draw a simple T-account for First National...

Question 8

Table 16-2. An economy starts with $10,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $9,250. The T-account of the bank is shown below. 
-Refer to Table 16-2. If all banks in the economy have the same reserve ratio as this bank, then an increase in reserves of $150 for this bank has the potential to increase deposits for all banks by

Accepted Answer

A)  $866.67.
B)  $1,666.67.
C)  $2,000.00.
D)  an infinite amount.E) All of the above
F) B) and D)

Question 9

For purposes of analyzing the money stock and its relationship to relevant economic variables, money is best thought of as

Accepted Answer

A)  those items that can be readily accessed and used to buy goods and services.
B)  currency only.
C)  currency plus all bank accounts.
D)  currency plus all bank accounts plus bonds.E) None of the above
F) All of the above

Question 10

Economists argue that the move from barter to money increased trade and production. How is this possible?

Accepted Answer

The use of money allows people...

Question 11

Treasury Bonds are

Accepted Answer

A)  liquid, but not a store of value.
B)  a store of value, but not liquid.
C)  both liquid and a store of value.
D)  neither liquid nor a store of value.E) B) and C)
F) All of the above

Question 12

If banks hold any amount of their deposits in reserve, then they do not have the ability to influence the money supply.

Accepted Answer

A) True 
 B)False

Question 13

When the Federal Reserve sells assets from its portfolio to the public with the intent of changing the money supply,

Accepted Answer

A)  those assets are government bonds and the Fed's reason for selling them is to increase the money supply.
B)  those assets are government bonds and the Fed's reason for selling them is to decrease the money supply.
C)  those assets are items that are included in M2 and the Fed's reason for selling them is to increase the money supply.
D)  those assets are items that are included in M2 and the Fed's reason for selling them is to decrease the money supply.E) B) and C)
F) A) and D)

Question 14

Suppose that in a country the total holdings of banks were as follows:
required reserves = $45 million
excess reserves = $15 million
deposits = $750 million
loans = $600 million
Treasury bonds = $90 million
Show that the balance sheet balances if these are the only assets and liabilities.Assuming that people hold no currency, what happens to each of these values if the central bank changes the reserve requirement ratio to 2%, banks still want to hold the same percentage of excess reserves, and banks don't change their holdings of Treasury bonds? How much does the money supply change by?

Accepted Answer

The only liability is deposits which equ...

Question 15

If a bank uses $100 of excess reserves to make a new loan when the reserve ratio is 10 percent, this action by itself initially makes the money supply

Accepted Answer

A)  and wealth increase by $100.
B)  and wealth decrease by $100.
C)  increase by $100 while wealth does not change.
D)  decrease by $100 while wealth decreases by $100.E) C) and D)
F) B) and C)

Question 16

Table 16-7
Metropolis National Bank is currently holding 2% of its deposits as excess reserves. 
-Refer to Balance Sheet of Metropolis National Bank. Metropolis National Bank is currently holding 2% of deposits as excess reserves. What is the reserve requirement?

Accepted Answer

A)  12 percent
B)  10 percent
C)  8 percent
D)  6 percentE) All of the above
F) None of the above

Question 17

The manager of the bank where you work tells you that your bank has $5 million in excess reserves. She also tells you that the bank has $300 million in deposits and $255 million dollars in loans. Given this information you find that the reserve requirement must be

Accepted Answer

A)  50/255.
B)  40/255.
C)  50/300.
D)  40/300.E) A) and D)
F) A) and C)

Question 18

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) A) and B)
F) A) and C)

Question 19

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) A) and B)
F) A) and C)

Question 20

The Federal Reserve primarily uses open-market operations to change the money supply.

Accepted Answer

A) True 
 B)False

Exam 16: The Monetary System

Correct Answer
verified

Correct Answer
verified
The only liability is deposits which equ...
View Answer

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

Correct Answer
verified

For purposes of analyzing the money stock and its relationship to relevant economic variables, money is best thought of as

Correct Answer
verified

Draw a simple T-account for First National Bank which has $5,000 of deposits, a required reserve ratio of 10 percent, and excess reserves of $300. Make sure your balance sheet balances.

Correct Answer
verified

Economists argue that the move from barter to money increased trade and production. How is this possible?

Correct Answer
verified
The use of money allows people...
View 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 Answer
verified

When the Federal Reserve sells assets from its portfolio to the public with the intent of changing the money supply,

Correct Answer
verified

If the Fed sells government bonds to the public, then reserves

Correct Answer
verified

Table 16-7 Metropolis National Bank is currently holding 2% of its deposits as excess reserves. -Refer to Balance Sheet of Metropolis National Bank. Metropolis National Bank is currently holding 2% of deposits as excess reserves. What is the reserve requirement?

Correct Answer
verified

The Federal Reserve primarily uses open-market operations to change the money supply.

Correct Answer
verified

If banks hold any amount of their deposits in reserve, then they do not have the ability to influence the money supply.

Correct Answer
verified

Correct Answer
verified

People hold $400 million of bank deposits but no currency. Banks have made $380 million dollars of loans and only hold enough reserves to satisfy reserve requirements. Because of uncertainty, banks choose to hold $10 million more in reserves. The Fed takes no action. What happens to bank loans?

Correct Answer
verified

When conducting an open-market sale, the Fed

Correct Answer
verified

If a bank uses $100 of excess reserves to make a new loan when the reserve ratio is 10 percent, this action by itself initially makes the money supply

Correct Answer
verified

The primary difference between commodity money and fiat money is that

Correct Answer
verified

The manager of the bank where you work tells you that your bank has $5 million in excess reserves. She also tells you that the bank has $300 million in deposits and $255 million dollars in loans. Given this information you find that the reserve requirement must be

Correct Answer
verified

Table 16-6. -Refer to Table 16-6. If the Bank of Springfield has lent out all the money it can given its level of deposits, then what is the reserve requirement?

Correct Answer
verified

Treasury Bonds are

Correct Answer
verified

Exam 16: The Monetary System

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe only liability is deposits which equ...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

For purposes of analyzing the money stock and its relationship to relevant economic variables, money is best thought of as

Correct AnswerverifiedShow Answer

Draw a simple T-account for First National Bank which has $5,000 of deposits, a required reserve ratio of 10 percent, and excess reserves of $300. Make sure your balance sheet balances.

Correct AnswerverifiedShow Answer

Economists argue that the move from barter to money increased trade and production. How is this possible?

Correct AnswerverifiedThe use of money allows people...View AnswerShow 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

When the Federal Reserve sells assets from its portfolio to the public with the intent of changing the money supply,

Correct AnswerverifiedShow Answer

If the Fed sells government bonds to the public, then reserves

Correct AnswerverifiedShow Answer

Table 16-7 Metropolis National Bank is currently holding 2% of its deposits as excess reserves. -Refer to Balance Sheet of Metropolis National Bank. Metropolis National Bank is currently holding 2% of deposits as excess reserves. What is the reserve requirement?

Correct AnswerverifiedShow Answer

The Federal Reserve primarily uses open-market operations to change the money supply.

Correct AnswerverifiedShow Answer

If banks hold any amount of their deposits in reserve, then they do not have the ability to influence the money supply.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

People hold $400 million of bank deposits but no currency. Banks have made $380 million dollars of loans and only hold enough reserves to satisfy reserve requirements. Because of uncertainty, banks choose to hold $10 million more in reserves. The Fed takes no action. What happens to bank loans?

Correct AnswerverifiedShow Answer

When conducting an open-market sale, the Fed

Correct AnswerverifiedShow Answer

If a bank uses $100 of excess reserves to make a new loan when the reserve ratio is 10 percent, this action by itself initially makes the money supply

Correct AnswerverifiedShow Answer

The primary difference between commodity money and fiat money is that

Correct AnswerverifiedShow Answer

The manager of the bank where you work tells you that your bank has $5 million in excess reserves. She also tells you that the bank has $300 million in deposits and $255 million dollars in loans. Given this information you find that the reserve requirement must be

Correct AnswerverifiedShow Answer

Table 16-6. -Refer to Table 16-6. If the Bank of Springfield has lent out all the money it can given its level of deposits, then what is the reserve requirement?

Correct AnswerverifiedShow Answer

Treasury Bonds are

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
The only liability is deposits which equ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The use of money allows people...
View Answer

Correct Answer
verified

Correct Answer
verified

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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Correct Answer
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Correct Answer
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Correct Answer
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