Question 1

Which of the following institutions is a central bank?

Accepted Answer

A)   the Bank of Japan
B)   the Bank of England
C)   the Federal Reserve System
D)   All of the above are correct.E) All of the above
F) A) and B)

Question 2

As banks create money, they create wealth.

Accepted Answer

A) True 
 B)False

Question 3

Which list ranks assets from most to least liquid?

Accepted Answer

A)   currency, fine art, stocks
B)   currency, stocks, fine art
C)   fine art, currency, stocks
D)   fine art, stocks, currencyE) B) and C)
F) None of the above

Question 4

Which of the following does the U.S. president appoint and the U.S. Senate confirm?

Accepted Answer

A)   members of the Board of Governors and regional Federal Reserve Bank Presidents.
B)   members of the Board of Governors but not the regional Federal Reserve Bank Presidents.
C)   the regional Federal Reserve Bank Presidents, but not members of the Board of Governors.
D)   neither members of the Board of Governors nor regional Federal Reserve Bank Presidents.E) None of the above
F) B) and C)

Question 5

In 1991, the Federal Reserve lowered the reserve requirement from 12 percent to 10 percent. Other things the same this should have

Accepted Answer

A)   increased both the money multiplier and the money supply.
B)   decreased both the money multiplier and the money supply.
C)   increased the money multiplier and decreased the money supply.
D)   decreased the money multiplier and increased the money supply.E) B) and C)
F) A) and D)

Question 6

Describe the role of bank leverage in bank insolvency during times of falling asset prices.

Accepted Answer

As bank asset values fall, the effect on...

Question 7

In December 1999 people feared that there might be computer problems at banks as the century changed. Consequently, people wanted to hold relatively more in currency and relatively less in deposits. In anticipation banks raised their reserve ratios to have enough cash on hand to meet depositors' demands. These actions by the public

Accepted Answer

A)   would increase the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have sold bonds.
B)   would increase the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have bought bonds.
C)   would reduce the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have sold bonds.
D)   would reduce the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have bought bonds.E) A) and D)
F) A) and C)

Question 8

If the Fed decreases reserve requirements, the money supply will increase.

Accepted Answer

A) True 
 B)False

Question 9

The federal funds rate is the interest rate

Accepted Answer

A)   the Federal Reserve charges for loans it makes to the federal government.
B)   the Federal Reserve charges banks for short-term loans.
C)   banks charge each other for short-term loans of reserves.
D)   on newly issued one-year Treasury bonds.E) C) and D)
F) B) and D)

Question 10

The Board of Governors

Accepted Answer

A)   is chaired by the U.S. Secretary of the Treasury.
B)   members are elected by the U.S. public.
C)   has 7 members.
D)   All of the above are correct.E) B) and C)
F) A) and B)

Question 11

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

Question 12

Table 29-4.
 
-Refer to Table 29-4. The reserve ratio for this bank is

Accepted Answer

A)   8 percent.
B)   12.5 percent.
C)   87.5 percent.
D)   25 percent.E) A) and B)
F) All of the above

Question 13

Which of the following is not included in M1?

Accepted Answer

A)   currency
B)   demand deposits
C)   traveler's checks
D)   credit cardsE) All of the above
F) A) and B)

Question 14

If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by

Accepted Answer

A)   $64 of new reserves.
B)   $448 of new reserves.
C)   $700 of new reserves.
D)   $800 of new reserves.E) A) and D)
F) B) and C)

Question 15

When the Fed purchases $1000 worth of government bonds from the public, the U.S. money supply eventually increases by

Accepted Answer

A)   more than $1000.
B)   exactly $1000.
C)   less than $1000.
D)   None of the above are correct.E) A) and B)
F) C) and D)

Question 16

If the reserve ratio is 12 percent, then the money multiplier is

Accepted Answer

A)   9.3.
B)   8.3.
C)   7.3.
D)   12.E) All of the above
F) C) and D)

Question 17

The most common method employed by the Fed to increase the money supply is the

Accepted Answer

A)   sale of U.S. government bonds.
B)   purchase of U.S. government bonds.
C)   sale of gold.
D)   increase of the federal debt ceiling.E) All of the above
F) C) and D)

Question 18

The manager of the bank where you work tells you that the bank has $400 million in deposits and $340 million dollars in loans. The Fed then raises the reserve requirement from 5 percent to 10 percent. Assuming everything else stays the same, how much is the bank holding in excess reserves after the increase in the reserve requirement?

Accepted Answer

A)   $0
B)   $20 million
C)   $40 million
D)   $60 millionE) B) and C)
F) A) and C)

Question 19

M1 includes

Accepted Answer

A)   currency.
B)   demand deposits.
C)   traveler's checks.
D)   All of the above are correct.E) B) and C)
F) A) and B)

Question 20

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

Exam 16: The Monetary System

Correct Answer
verified

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

Correct Answer
verified

As banks create money, they create wealth.

Correct Answer
verified

If the Fed decreases reserve requirements, the money supply will increase.

Correct Answer
verified

M1 includes

Correct Answer
verified

The Board of Governors

Correct Answer
verified

Which list ranks assets from most to least liquid?

Correct Answer
verified

Which of the following is not included in M1?

Correct Answer
verified

In 1991, the Federal Reserve lowered the reserve requirement from 12 percent to 10 percent. Other things the same this should have

Correct Answer
verified

When conducting an open-market sale, the Fed

Correct Answer
verified

Which of the following does the U.S. president appoint and the U.S. Senate confirm?

Correct Answer
verified

When the Fed purchases $1000 worth of government bonds from the public, the U.S. money supply eventually increases by

Correct Answer
verified

Table 29-4. -Refer to Table 29-4. The reserve ratio for this bank is

Correct Answer
verified

If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by

Correct Answer
verified

Which of the following institutions is a central bank?

Correct Answer
verified

The federal funds rate is the interest rate

Correct Answer
verified

The most common method employed by the Fed to increase the money supply is the

Correct Answer
verified

Describe the role of bank leverage in bank insolvency during times of falling asset prices.

Correct Answer
verified
As bank asset values fall, the effect on...
View Answer

If the reserve ratio is 12 percent, then the money multiplier is

Correct Answer
verified

Correct Answer
verified

Exam 16: The Monetary System

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

As banks create money, they create wealth.

Correct AnswerverifiedShow Answer

If the Fed decreases reserve requirements, the money supply will increase.

Correct AnswerverifiedShow Answer

M1 includes

Correct AnswerverifiedShow Answer

The Board of Governors

Correct AnswerverifiedShow Answer

Which list ranks assets from most to least liquid?

Correct AnswerverifiedShow Answer

Which of the following is not included in M1?

Correct AnswerverifiedShow Answer

In 1991, the Federal Reserve lowered the reserve requirement from 12 percent to 10 percent. Other things the same this should have

Correct AnswerverifiedShow Answer

When conducting an open-market sale, the Fed

Correct AnswerverifiedShow Answer

Which of the following does the U.S. president appoint and the U.S. Senate confirm?

Correct AnswerverifiedShow Answer

When the Fed purchases $1000 worth of government bonds from the public, the U.S. money supply eventually increases by

Correct AnswerverifiedShow Answer

Table 29-4. -Refer to Table 29-4. The reserve ratio for this bank is

Correct AnswerverifiedShow Answer

If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by

Correct AnswerverifiedShow Answer

Which of the following institutions is a central bank?

Correct AnswerverifiedShow Answer

The federal funds rate is the interest rate

Correct AnswerverifiedShow Answer

The most common method employed by the Fed to increase the money supply is the

Correct AnswerverifiedShow Answer

Describe the role of bank leverage in bank insolvency during times of falling asset prices.

Correct AnswerverifiedAs bank asset values fall, the effect on...View AnswerShow Answer

If the reserve ratio is 12 percent, then the money multiplier is

Correct AnswerverifiedShow Answer

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As bank asset values fall, the effect on...
View Answer

Correct Answer
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Correct Answer
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