Question 1

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 2

To increase the money supply, the Fed could

Accepted Answer

A)   sell government bonds.
B)   decrease the discount rate.
C)   increase the reserve requirement.
D)   None of the above is correct.E) C) and D)
F) A) and C)

Question 3

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 D)
F) None of the above

Question 4

Which of the following is included in M2 but not in M1?

Accepted Answer

A)   demand deposits
B)   corporate bonds
C)   large time deposits
D)   money market mutual fundsE) A) and B)
F) A) and C)

Question 5

Today, bank runs are not a major problem for the U.S. banking system because

Accepted Answer

A)   bank runs are now illegal.
B)   banks now hold 100 percent of their deposits in reserve.
C)   banks are now all government-operated.
D)   the federal government now guarantees the safety of deposits at most banks.E) A) and B)
F) All of the above

Question 6

Bottles of very fine wine are less liquid than demand deposits.

Accepted Answer

A) True 
 B)False

Question 7

If the reserve ratio is 7.5 percent, the money multiplier is

Accepted Answer

A)   7.5.
B)   10.3.
C)   13.3.
D)   11.3.E) B) and C)
F) A) and C)

Question 8

The prices of goods at a grocery store are listed in dollars. Which function of money does this illustrate?

Accepted Answer

The answer of The prices of goods at a grocery...

Question 9

Suppose a bank purchases $50 of government securities using funds from reserves. How much do bank assets change as a result of this transaction?

Accepted Answer

In this case, the value of bank assets d...

Question 10

Which of the following statements is correct? In the special case of the 100-percent reserve banking the money multiplier is

Accepted Answer

A)   0 and banks create money.
B)   0 and banks do not create money.
C)   1 and banks create money
D)   1 and banks do not create money.E) A) and B)
F) A) and C)

Question 11

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

Question 12

Which of the following does the Federal Reserve not do?

Accepted Answer

A)   It controls the supply of money.
B)   It acts as a lender of last resort to banks.
C)   It makes loans to any qualified business that requests one.
D)   It tries to ensure the health of the banking system.E) B) and C)
F) All of the above

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

Question 14

Which of the following is not included in M1?

Accepted Answer

A)   a $5 bill in your wallet
B)   $100 in your checking account
C)   $500 in your savings account
D)   All of the above are included in M1.E) None of the above
F) All of the above

Question 15

Reserve requirements are regulations concerning

Accepted Answer

A)   the amount banks are allowed to borrow from the Fed.
B)   the amount of reserves banks must hold against deposits.
C)   reserves banks must hold based on the number and type of loans they make.
D)   the interest rate at which banks can borrow from the Fed.E) None of the above
F) A) and D)

Question 16

Money allows people to specialize in what they do best, thereby raising everyone's standard of living.

Accepted Answer

A) True 
 B)False

Question 17

Bank regulators impose capital requirements in order to

Accepted Answer

A)   increase the amount of leverage in the economy.
B)   provide an incentive for banks to hold risky assets.
C)   ensure banks can pay off depositors.
D)   increase the probability of a credit crunch.E) A) and D)
F) A) and B)

Question 18

If the reserve ratio is 8 percent, then the money multiplier is

Accepted Answer

A)   12.5.
B)   11.5.
C)   13.5.
D)   8.E) None of the above
F) A) and B)

Question 19

The Federal Reserve

Accepted Answer

A)   was created in 1913.
B)   is the U.S.'s central bank.
C)   has other duties in addition to controlling the money supply.
D)   All of the above are correct.E) B) and C)
F) A) and C)

Question 20

Table 29-5. 
-Refer to Table 29-5. If the bank is holding $4,000 in excess reserves, then the reserve requirement with which it must comply is

Accepted Answer

A)   17 percent.
B)   12 percent.
C)   13 percent.
D)   14 percent.E) B) and C)
F) None of the above

Exam 29: The Monetary System

Which of the following does the Federal Reserve not do?

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

Which of the following statements is correct? In the special case of the 100-percent reserve banking the money multiplier is

Correct AnswerverifiedShow Answer

If the reserve ratio is 8 percent, then the money multiplier is

Correct AnswerverifiedShow Answer

Money allows people to specialize in what they do best, thereby raising everyone's standard of living.

Correct AnswerverifiedShow Answer

If the reserve ratio is 7.5 percent, the money multiplier is

Correct AnswerverifiedShow Answer

Bottles of very fine wine are less liquid than demand deposits.

Correct AnswerverifiedShow Answer

Reserve requirements are regulations concerning

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

The Federal Reserve

Correct AnswerverifiedShow Answer

Bank regulators impose capital requirements in order to

Correct AnswerverifiedShow Answer

The prices of goods at a grocery store are listed in dollars. Which function of money does this illustrate?

Correct AnswerverifiedShow Answer

Today, bank runs are not a major problem for the U.S. banking system because

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

Suppose a bank purchases $50 of government securities using funds from reserves. How much do bank assets change as a result of this transaction?

Correct AnswerverifiedIn this case, the value of bank assets d...View AnswerShow Answer

To increase the money supply, the Fed could

Correct AnswerverifiedShow Answer

Which of the following is not included in M1?

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

Table 29-5. -Refer to Table 29-5. If the bank is holding $4,000 in excess reserves, then the reserve requirement with which it must comply is

Correct AnswerverifiedShow Answer

Which of the following is included in M2 but not in M1?

Correct AnswerverifiedShow Answer

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In this case, the value of bank assets d...
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