Question 1

Commodity money cannot be used as a unit of account.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is not included in either M1 or M2?

Accepted Answer

A)   money market deposit accounts
B)   large time deposit
C)   demand deposits
D)   money market mutual fundsE) A) and B)
F) B) and D)

Question 3

Which of the following items is not included in the most narrow definition of money, M1?

Accepted Answer

A)   currency
B)   savings deposits
C)   traveler's checks
D)   demand depositsE) A) and B)
F) B) and C)

Question 4

If people decide to hold more currency relative to deposits, the money supply

Accepted Answer

A)   falls. The larger the reserve ratio is, the more the money supply falls.
B)   falls. The larger the reserve ratio is, the less the money supply falls.
C)   rises. The larger the reserve ratio is, the more the money supply rises.
D)   rises. The larger the reserve ratio is, the less the money supply rises.E) A) and C)
F) B) and C)

Question 5

If the reserve ratio is 4 percent, then $81,250 of new money can be generated by

Accepted Answer

A)   $325 of new reserves.
B)   $3,250 of new reserves.
C)   $20,312.50 of new reserves.
D)   $2,031,250 of new reserves.E) A) and B)
F) A) and C)

Question 6

If the money multiplier is 3 and the Fed buys $50,000 worth of bonds, what happens to the money supply?

Accepted Answer

A)   it increases by $100,000
B)   it increases by $150,000
C)   it decreases by $100,000
D)   it decreases by $200,000E) B) and C)
F) A) and D)

Question 7

Demand deposits are a type of

Accepted Answer

A)   checking account.
B)   time deposit.
C)   money market mutual fund.
D)   savings deposit.E) A) and D)
F) B) and C)

Question 8

Suppose a bank is operating with a leverage rate of 10. A 6 percent increase in the value of assets

Accepted Answer

A)   will reduce liabilities by 6 percent.
B)   will result in a 60 percent increase in owner's equity.
C)   will result in a 60percent decrease in owner's equity.
D)   will reduce liabilities by 10 percent.E) All of the above
F) A) and B)

Question 9

Which list ranks assets from most to least liquid?

Accepted Answer

A)   money, bonds, cars, houses
B)   money, cars, houses, bonds
C)   bonds, money, cars, houses
D)   bonds, cars, money, housesE) None of the above
F) All of the above

Question 10

How does the Fed Open Market Committee increase the money supply?

Accepted Answer

The answer of How does the Fed Open Market Committee...

Question 11

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 D)
F) None of the above

Question 12

If you deposit $100 of currency into a demand deposit at a bank, this action by itself

Accepted Answer

A)   does not change the money supply.
B)   increases the money supply.
C)   decreases the money supply.
D)   has an indeterminate effect on the money supply.E) None of the above
F) A) and B)

Question 13

Over one time horizon or another, Fed policy decisions influence

Accepted Answer

A)   inflation and employment.
B)   inflation but not employment.
C)   employment but not inflation.
D)   neither inflation nor employment.E) A) and D)
F) A) and C)

Question 14

If a bank uses $500 of excess reserves to make a new loan when the reserve ratio is 8 percent, this action by itself initially makes the money supply

Accepted Answer

A)   and wealth increase by $500.
B)   and wealth decrease by $500.
C)   increase by $500 while wealth does not change.
D)   decrease by $500 while wealth decreases by $500.E) C) and D)
F) B) and D)

Question 15

Describe the role of the Federal Deposit Insurance Corporation (FDIC).

Accepted Answer

The FDIC is the primary mechanism by whi...

Question 16

In a system of 100-percent-reserve banking, the purpose of a bank is to

Accepted Answer

A)   make loans to households.
B)   influence the money supply.
C)   give depositors a safe place to keep their money.
D)   buy and sell gold.E) A) and D)
F) B) and D)

Question 17

The Fed has the power to increase or decrease the number of dollars in the economy through the decisions of

Accepted Answer

A)   the Board of Governors.
B)   the FOMC.
C)   the regional Federal Reserve Bank presidents.
D)   the U.S. Treasury.E) B) and C)
F) A) and D)

Question 18

A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

Accepted Answer

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

Question 19

A bank has a 10 percent reserve requirement, $36,000 in loans, and has loaned out all it can given the reserve requirement.

Accepted Answer

A)   It has $3,600 in deposits.
B)   It has $32,400 in deposits.
C)   It has $39,600 in deposits.
D)   It has $40,000 in deposits.E) None of the above
F) B) and C)

Question 20

The banking system currently has $10 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 raises the reserve requirement to 12.5 percent and at the same time buys $1 billion worth of bonds, then by how much does the money supply change?

Accepted Answer

A)   It falls by $12 billion.
B)   It falls by $19 billion.
C)   It falls by $21 billion.
D)   None of the above is correct.E) A) and B)
F) A) and C)

Exam 29: The Monetary System

If the money multiplier is 3 and the Fed buys $50,000 worth of bonds, what happens to the money supply?

Correct Answer
verified

If the reserve ratio is 4 percent, then $81,250 of new money can be generated by

Correct Answer
verified

Suppose a bank is operating with a leverage rate of 10. A 6 percent increase in the value of assets

Correct Answer
verified

The Fed has the power to increase or decrease the number of dollars in the economy through the decisions of

Correct Answer
verified

How does the Fed Open Market Committee increase the money supply?

Correct Answer
verified

If people decide to hold more currency relative to deposits, the money supply

Correct Answer
verified

Over one time horizon or another, Fed policy decisions influence

Correct Answer
verified

If you deposit $100 of currency into a demand deposit at a bank, this action by itself

Correct Answer
verified

Demand deposits are a type of

Correct Answer
verified

If a bank uses $500 of excess reserves to make a new loan when the reserve ratio is 8 percent, this action by itself initially makes the money supply

Correct Answer
verified

A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

Correct Answer
verified

Which list ranks assets from most to least liquid?

Correct Answer
verified

A bank has a 10 percent reserve requirement, $36,000 in loans, and has loaned out all it can given the reserve requirement.

Correct Answer
verified

Commodity money cannot be used as a unit of account.

Correct Answer
verified

In a system of 100-percent-reserve banking, the purpose of a bank is to

Correct Answer
verified

Correct Answer
verified

Which of the following is not included in either M1 or M2?

Correct Answer
verified

Describe the role of the Federal Deposit Insurance Corporation (FDIC).

Correct Answer
verified
The FDIC is the primary mechanism by whi...
View Answer

Which of the following items is not included in the most narrow definition of money, M1?

Correct Answer
verified

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

Exam 29: The Monetary System

If the money multiplier is 3 and the Fed buys $50,000 worth of bonds, what happens to the money supply?

Correct AnswerverifiedShow Answer

If the reserve ratio is 4 percent, then $81,250 of new money can be generated by

Correct AnswerverifiedShow Answer

Suppose a bank is operating with a leverage rate of 10. A 6 percent increase in the value of assets

Correct AnswerverifiedShow Answer

The Fed has the power to increase or decrease the number of dollars in the economy through the decisions of

Correct AnswerverifiedShow Answer

How does the Fed Open Market Committee increase the money supply?

Correct AnswerverifiedShow Answer

If people decide to hold more currency relative to deposits, the money supply

Correct AnswerverifiedShow Answer

Over one time horizon or another, Fed policy decisions influence

Correct AnswerverifiedShow Answer

If you deposit $100 of currency into a demand deposit at a bank, this action by itself

Correct AnswerverifiedShow Answer

Demand deposits are a type of

Correct AnswerverifiedShow Answer

If a bank uses $500 of excess reserves to make a new loan when the reserve ratio is 8 percent, this action by itself initially makes the money supply

Correct AnswerverifiedShow Answer

A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

Correct AnswerverifiedShow Answer

Which list ranks assets from most to least liquid?

Correct AnswerverifiedShow Answer

A bank has a 10 percent reserve requirement, $36,000 in loans, and has loaned out all it can given the reserve requirement.

Correct AnswerverifiedShow Answer

Commodity money cannot be used as a unit of account.

Correct AnswerverifiedShow Answer

In a system of 100-percent-reserve banking, the purpose of a bank is to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is not included in either M1 or M2?

Correct AnswerverifiedShow Answer

Describe the role of the Federal Deposit Insurance Corporation (FDIC).

Correct AnswerverifiedThe FDIC is the primary mechanism by whi...View AnswerShow Answer

Which of the following items is not included in the most narrow definition of money, M1?

Correct AnswerverifiedShow 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

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
verified
The FDIC is the primary mechanism by whi...
View Answer

Correct Answer
verified

Correct Answer
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