Question 1

If the money multiplier decreased from 20 to 12.5,then

Accepted Answer

A)   the Fed increased the reserve ratio from 5 percent to 8 percent.
B)   the Fed increased the fed funds rate from 5 percent to 8 percent..
C)   the Fed decreased the reserve ratio from 8 percent to 5 percent.
D)   the Fed decreased the fed funds rate from 8 percent to 5 percent.E) C) and D)
F) B) and C)

Question 2

Scenario 21-2.
The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi.The local unit of currency is the taz.Aggregate banking statistics show that collectively the banks of Tazi hold 300 million tazes of required reserves,75 million tazes of excess reserves,have issued 7,500 million tazes of deposits,and hold 225 million tazes of Tazian Treasury bonds.Tazians prefer to use only demand deposits and so all money is on deposit at the bank.
-Refer to Scenario 21-2.Suppose the Bank of Tazi loaned the banks of Tazi 10 million tazes.Suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the same.By how much would the money supply change?

Accepted Answer

A)   250 million tazes
B)   200 million tazes
C)   125 million tazes
D)   None of the above is correct.E) B) and D)
F) A) and C)

Question 3

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) C) and D)

Question 4

A problem that the Fed faces when it attempts to control the money supply is that

Accepted Answer

A)   since the U.S.has a fractional-reserve banking system,the amount of money in the economy depends in part on the behavior of depositors and bankers.
B)   the Fed has to get the approval of the U.S.Treasury Department whenever it uses any of its monetary policy tools.
C)   while the Fed has the ability to change the money supply by a large amount,it does not have the ability to change it by a small amount.
D)   federal legislation in the 1950s stripped the Fed of its power to act as a lender of last resort to banks.E) A) and B)
F) C) and D)

Question 5

The banking system currently has $100 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 lowers the reserve requirement to 8 percent and at the same time buys $10 billion worth of bonds,then by how much does the money supply change?

Accepted Answer

A)   It rises by $225 billion.
B)   It rises by $375 billion.
C)   It rises by $675 billion.
D)   None of the above is correct.E) A) and D)
F) C) and D)

Question 6

In a fractional-reserve banking system,a decrease in reserve requirements

Accepted Answer

A)   increases both the money multiplier and the money supply.
B)   decreases both the money multiplier and the money supply.
C)   increases the money multiplier,but decreases the money supply.
D)   decreases the money multiplier,but increases the money supply.E) A) and D)
F) B) and D)

Question 7

On a bank's T-account,which are part of the banks liabilities?

Accepted Answer

A)   both deposits made by its customers and reserves
B)   deposits made by its customers but not reserves
C)   reserves but not deposits made by its customers
D)   neither deposits made by its customers nor reservesE) None of the above
F) A) and B)

Question 8

Fiat money

Accepted Answer

A)   has no intrinsic value.
B)   is backed by gold.
C)   is a medium of exchange but not a unit of account.
D)   is any close substitute for currency such as checkable deposits.E) All of the above
F) C) and D)

Question 9

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) All of the above
F) B) and C)

Question 10

Compare the Board of Governors and the Federal Open Market Committee.

Accepted Answer

The Board of Governors runs the Federal ...

Question 11

Banks can hold deposits at the Federal Reserve.Balances in these accounts can be used by banks to meet their reserve requirements,but the Fed pays no interest on these deposits.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following can banks use to borrow from the Federal Reserve?

Accepted Answer

A)   the discount window or the term auction facility
B)   the discount window but not the term auction facility
C)   the term auction facility but not the discount window
D)   Banks can not borrow from the Federal Reserve,only the government can.E) A) and B)
F) B) and C)

Question 13

A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of $100.If customers deposit $50 into the bank,what is the value of the money supply?

Accepted Answer

A)   $50
B)   $100
C)   $150
D)   $200E) B) and D)
F) A) and C)

Question 14

Roundabout trade decreases production.

Accepted Answer

A) True 
 B)False

Question 15

A problem that the Fed faces when it attempts to control the money supply is that

Accepted Answer

A)   the 100-percent-reserve banking system in the U.S.makes it difficult for the Fed to carry out its monetary policy.
B)   the Fed has to get the approval of the U.S.Treasury Department whenever it uses any of its monetary policy tools.
C)   the Fed does not have a tool that it can use to change the money supply by either a small amount or a large amount.
D)   the Fed does not control the amount of money that households choose to hold as deposits in banks.E) A) and B)
F) A) and D)

Question 16

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) A) and C)

Question 17

The Fed purchases $200 worth of government bonds from the public.The reserve requirement is 8 percent,people hold no currency,and the banking system keeps no excess reserves.The U.S.money supply eventually increases by

Accepted Answer

A)   $16.
B)   $200.
C)   $1,600.
D)   $2,500.E) A) and B)
F) A) and C)

Question 18

If the reserve ratio is 20 percent,then $100 of new reserves can generate

Accepted Answer

A)   $60 of new money in the economy.
B)   $250 of new money in the economy.
C)   $500 of new money in the economy.
D)   $2,000 of new money in the economy.E) A) and C)
F) All of the above

Question 19

Suppose the banking system currently has $300 billion in reserves; the reserve requirement is 10 percent; and excess reserves amount to $3 billion.What is the level of deposits?

Accepted Answer

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

Question 20

Given the following information,what are the values of M1 and M2? Small time deposits
$1,300 billion
Demand deposits and other checkable deposits
$600 billion
Savings deposits
$1,500 billion
Money market mutual funds
$1,200 billion
Traveler's checks
$50 billion
Large time deposits
$1,200 billion
Currency
$200 billion
Miscellaneous categories in M2
$50 billion

Accepted Answer

A)   M1 = $800 billion,M2 = $4,950 billion.
B)   M1 = $250 billion,M2 = $6,050 billion.
C)   M1 = $850 billion,M2 = $4,900 billion.
D)   M1 = $850 billion,M2 = $6,100 billion.E) C) and D)
F) All of the above

Exam 21: The Monetary System

Correct Answer
verified

Banks can hold deposits at the Federal Reserve.Balances in these accounts can be used by banks to meet their reserve requirements,but the Fed pays no interest on these deposits.

Correct Answer
verified

If the money multiplier decreased from 20 to 12.5,then

Correct Answer
verified

On a bank's T-account,which are part of the banks liabilities?

Correct Answer
verified

Roundabout trade decreases production.

Correct Answer
verified

If the reserve ratio is 20 percent,then $100 of new reserves can generate

Correct Answer
verified

The Fed purchases $200 worth of government bonds from the public.The reserve requirement is 8 percent,people hold no currency,and the banking system keeps no excess reserves.The U.S.money supply eventually increases by

Correct Answer
verified

Commodity money is

Correct Answer
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Suppose the banking system currently has $300 billion in reserves; the reserve requirement is 10 percent; and excess reserves amount to $3 billion.What is the level of deposits?

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Which of the following can banks use to borrow from the Federal Reserve?

Correct Answer
verified

When conducting an open-market purchase,the Fed

Correct Answer
verified

A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of $100.If customers deposit $50 into the bank,what is the value of the money supply?

Correct Answer
verified

A problem that the Fed faces when it attempts to control the money supply is that

Correct Answer
verified

Compare the Board of Governors and the Federal Open Market Committee.

Correct Answer
verified
The Board of Governors runs the Federal ...
View Answer

A problem that the Fed faces when it attempts to control the money supply is that

Correct Answer
verified

In a fractional-reserve banking system,a decrease in reserve requirements

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

Fiat money

Correct Answer
verified

Exam 21: The Monetary System

Correct AnswerverifiedShow Answer

Banks can hold deposits at the Federal Reserve.Balances in these accounts can be used by banks to meet their reserve requirements,but the Fed pays no interest on these deposits.

Correct AnswerverifiedShow Answer

If the money multiplier decreased from 20 to 12.5,then

Correct AnswerverifiedShow Answer

On a bank's T-account,which are part of the banks liabilities?

Correct AnswerverifiedShow Answer

Roundabout trade decreases production.

Correct AnswerverifiedShow Answer

If the reserve ratio is 20 percent,then $100 of new reserves can generate

Correct AnswerverifiedShow Answer

The Fed purchases $200 worth of government bonds from the public.The reserve requirement is 8 percent,people hold no currency,and the banking system keeps no excess reserves.The U.S.money supply eventually increases by

Correct AnswerverifiedShow Answer

Commodity money is

Correct AnswerverifiedShow Answer

Suppose the banking system currently has $300 billion in reserves; the reserve requirement is 10 percent; and excess reserves amount to $3 billion.What is the level of deposits?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following can banks use to borrow from the Federal Reserve?

Correct AnswerverifiedShow Answer

When conducting an open-market purchase,the Fed

Correct AnswerverifiedShow Answer

A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of $100.If customers deposit $50 into the bank,what is the value of the money supply?

Correct AnswerverifiedShow Answer

A problem that the Fed faces when it attempts to control the money supply is that

Correct AnswerverifiedShow Answer

Compare the Board of Governors and the Federal Open Market Committee.

Correct AnswerverifiedThe Board of Governors runs the Federal ...View AnswerShow Answer

A problem that the Fed faces when it attempts to control the money supply is that

Correct AnswerverifiedShow Answer

In a fractional-reserve banking system,a decrease in reserve requirements

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

Fiat money

Correct AnswerverifiedShow Answer

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The Board of Governors runs the Federal ...
View Answer

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Correct Answer
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