Question 1

If the reserve requirement is 10 percent, which of the following pairs of changes would both allow a bank to lend out an additional $10,000?

Accepted Answer

A)   the Fed buys a $10,000 bond from the bank or someone deposits $10,000 in the bank
B)   the Fed buys a $10,000 bond from the bank or the Fed lends the bank $10,000
C)   the Fed sells a $10,000 bond to the bank or someone deposits $10,000 in the bank
D)   the Fed sells a $10,000 bond to the bank or the Fed lends the bank $10,000E) None of the above
F) A) and B)

Question 2

When the Fed conducts open-market purchases,

Accepted Answer

A)   it buys Treasury securities, which increases the money supply.
B)   it buys Treasury securities, which decreases the money supply.
C)   it borrows money from member banks, which increases the money supply.
D)   it lends money to member banks, which decreases the money supply.E) A) and B)
F) All of the above

Question 3

The primary tool used by the Federal Reserve to change the money supply is .

Accepted Answer

open-marke...

Question 4

Under a fractional-reserve banking system, banks

Accepted Answer

A)   hold more reserves than deposits.
B)   generally lend out a majority of the funds deposited.
C)   cause the money supply to fall by lending out reserves.
D)   All of the above are correct.E) B) and C)
F) A) and D)

Question 5

The Fed can reduce the federal funds rate by

Accepted Answer

A)   decreasing the money supply. To decrease the money supply it could sell bonds.
B)   decreasing the money supply. To decrease the money supply it could buy bonds.
C)   increasing the money supply. To increase the money supply it could sell bonds.
D)   increasing the money supply. To increase the money supply it could buy bonds.E) A) and B)
F) A) and C)

Question 6

If you withdraw $500 from your savings account and deposit it in your checking account, then M1 will change by and M2 will change by .

Accepted Answer

The answer of If you withdraw $500 from your savings...

Question 7

The regional Federal Reserve Banks

Accepted Answer

A)   are not allowed to make loans to banks in their region.
B)   regulate banks in their regions.
C)   have more voting members on the FOMC than does the Board of Governors.
D)   are each headed by a member of the Board of Governors.E) A) and B)
F) A) and C)

Question 8

If the reserve requirement is 5 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $10, then this bank

Accepted Answer

A)   must increase its required reserves by $10.
B)   will initially see its total reserves increase by $10.50.
C)   will be able to make new loans up to a maximum of $9.50.
D)   All of the above are correct.E) A) and C)
F) All of the above

Question 9

Table 29-5.
 
-Refer to Table 29-5. Suppose the bank faces a reserve requirement of 10 percent. Starting from the situation as depicted by the T-account, a customer deposits an additional $60,000 into his account at the bank. If the bank takes no other action it will

Accepted Answer

A)   have $64,000 in excess reserves.
B)   have $4,000 in excess reserves.
C)   be in a position to make new loans equal to $6,000
D)   None of the above is correct.E) A) and D)
F) All of the above

Question 10

Today, bank runs are

Accepted Answer

A)   uncommon because of the high reserve requirement.
B)   uncommon because of FDIC deposit insurance.
C)   common because of the low reserve requirement.
D)   common because the FDIC is nearly bankrupt.E) A) and D)
F) All of the above

Question 11

A bank loans Greg's Ice Cream $250,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

Accepted Answer

A)   a liability for the bank and an asset for Greg's Ice Cream. The loan increases the money supply.
B)   a liability for the bank and an asset for Greg's Ice Cream. The loan does not increase the money supply.
C)   an asset for the bank and a liability for Greg's Ice Cream. The loan increases the money supply.
D)   an asset for the bank and a liability for Greg's Ice Cream. The loan does not increase the money supply.E) A) and B)
F) A) and C)

Question 12

At the Federal Reserve,

Accepted Answer

A)   the nation's monetary and fiscal policies are made by the Federal Open Market Committee, which meets about every six weeks.
B)   the nation's monetary and fiscal policies are made by the Federal Open Market Committee, which meets twice a year.
C)   the nation's monetary policy is made by the Federal Open Market Committee, which meets about every six weeks.
D)   the nation's monetary policy is made by the Federal Open Market Committee, which meets twice a year.E) None of the above
F) B) and C)

Question 13

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) A) and D)
F) A) and C)

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

In an economy that relies on barter, trade requires a double-coincidence of wants.

Accepted Answer

A) True 
 B)False

Question 16

Just after the terrorist attack on September 11, 2001, the Fed stood ready to lend financial institutions funds. When the Fed did this, it was acting in its role of lender of last resort.

Accepted Answer

A) True 
 B)False

Question 17

Banks cannot influence the money supply if they are required to hold all deposits in reserve.

Accepted Answer

A) True 
 B)False

Question 18

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

Question 19

Scenario 29-1.
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 29-1. Assume that banks desire to continue holding the same ratio of excess reserves to deposits. What is the reserve requirement and what is the reserve ratio?

Accepted Answer

A)   2 percent, 8 percent
B)   8 percent, 10 percent
C)   10 percent, 12.5 percent
D)   None of the above is correct.E) All of the above
F) A) and B)

Question 20

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

Exam 21: The Monetary System

Under a fractional-reserve banking system, banks

Correct Answer
verified

Correct Answer
verified

A bank loans Greg's Ice Cream $250,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

Correct Answer
verified

The legal tender requirement means that

Correct Answer
verified

The Fed can reduce the federal funds rate by

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

The regional Federal Reserve Banks

Correct Answer
verified

Table 29-5. -Refer to Table 29-5. Suppose the bank faces a reserve requirement of 10 percent. Starting from the situation as depicted by the T-account, a customer deposits an additional $60,000 into his account at the bank. If the bank takes no other action it will

Correct Answer
verified

If the reserve requirement is 5 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $10, then this bank

Correct Answer
verified

At the Federal Reserve,

Correct Answer
verified

The primary tool used by the Federal Reserve to change the money supply is .

Correct Answer
verified
open-marke...
View Answer

If you withdraw $500 from your savings account and deposit it in your checking account, then M1 will change by and M2 will change by .

Correct Answer
verified

In an economy that relies on barter, trade requires a double-coincidence of wants.

Correct Answer
verified

Treasury Bonds are

Correct Answer
verified

Today, bank runs are

Correct Answer
verified

Just after the terrorist attack on September 11, 2001, the Fed stood ready to lend financial institutions funds. When the Fed did this, it was acting in its role of lender of last resort.

Correct Answer
verified

Banks cannot influence the money supply if they are required to hold all deposits in reserve.

Correct Answer
verified

If the reserve requirement is 10 percent, which of the following pairs of changes would both allow a bank to lend out an additional $10,000?

Correct Answer
verified

When the Fed conducts open-market purchases,

Correct Answer
verified

Exam 21: The Monetary System

Under a fractional-reserve banking system, banks

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A bank loans Greg's Ice Cream $250,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

Correct AnswerverifiedShow Answer

The legal tender requirement means that

Correct AnswerverifiedShow Answer

The Fed can reduce the federal funds rate by

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The regional Federal Reserve Banks

Correct AnswerverifiedShow Answer

Table 29-5. -Refer to Table 29-5. Suppose the bank faces a reserve requirement of 10 percent. Starting from the situation as depicted by the T-account, a customer deposits an additional $60,000 into his account at the bank. If the bank takes no other action it will

Correct AnswerverifiedShow Answer

If the reserve requirement is 5 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $10, then this bank

Correct AnswerverifiedShow Answer

At the Federal Reserve,

Correct AnswerverifiedShow Answer

The primary tool used by the Federal Reserve to change the money supply is .

Correct Answerverifiedopen-marke...View AnswerShow Answer

If you withdraw $500 from your savings account and deposit it in your checking account, then M1 will change by and M2 will change by .

Correct AnswerverifiedShow Answer

In an economy that relies on barter, trade requires a double-coincidence of wants.

Correct AnswerverifiedShow Answer

Treasury Bonds are

Correct AnswerverifiedShow Answer

Today, bank runs are

Correct AnswerverifiedShow Answer

Just after the terrorist attack on September 11, 2001, the Fed stood ready to lend financial institutions funds. When the Fed did this, it was acting in its role of lender of last resort.

Correct AnswerverifiedShow Answer

Banks cannot influence the money supply if they are required to hold all deposits in reserve.

Correct AnswerverifiedShow Answer

If the reserve requirement is 10 percent, which of the following pairs of changes would both allow a bank to lend out an additional $10,000?

Correct AnswerverifiedShow Answer

When the Fed conducts open-market purchases,

Correct AnswerverifiedShow Answer

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open-marke...
View Answer

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