Question 1

The tool most often used by the Fed to control the money supply is

Accepted Answer

A)   changing reserve requirements.
B)   open market operations.
C)   buying and selling of equities.
D)   altering the discount rate.E) None of the above
F) C) and D)

Question 2

If the reserve ratio is 100-percent, then a new deposit of $1000 into a bank account

Accepted Answer

A)   eventually increases the money supply by $1000.
B)   leaves the size of the money supply unchanged.
C)   eventually decreases the size of the money supply by $1000.
D)   eventually increases the money supply by $2000.E) None of the above
F) A) and C)

Question 3

Many societies used gold as money, because

Accepted Answer

A)   it is relatively rare.
B)   it is durable.
C)   it has a relatively low melting point.
D)   All of the above are correct.E) B) and D)
F) A) and B)

Question 4

A double coincidence of wants

Accepted Answer

A)   is required when there is no item in an economy that is widely accepted in exchange for goods and services.
B)   is required in an economy that relies on barter.
C)   is a hindrance to the allocation of resources when it is required for trade.
D)   All of the above are correct.E) None of the above
F) B) and D)

Question 5

The fractional reserve characteristic of the banking system allows banks to create money and also create wealth from bank deposits. Describe why this statement is or is not true.

Accepted Answer

This statement is not true.
Banks can cr...

Question 6

The discount rate is the interest rate that

Accepted Answer

A)   banks charge one another for loans.
B)   banks charge the Fed for loans.
C)   the Fed charges banks for loans.
D)   the Fed charges Congress for loans.E) A) and B)
F) B) and D)

Question 7

Which list ranks assets from most to least liquid?

Accepted Answer

A)   currency, demand deposits, money market mutual funds
B)   currency, money market mutual funds, demand deposits
C)   money market mutual funds, demand deposits, currency
D)   demand deposits, money market mutual funds, currencyE) B) and C)
F) A) and B)

Question 8

Currently, U.S. currency is

Accepted Answer

A)   fiat money with intrinsic value.
B)   fiat money with no intrinsic value.
C)   commodity money with intrinsic value.
D)   commodity money with no intrinsic value.E) A) and D)
F) All of the above

Question 9

The money supply decreases if

Accepted Answer

A)   households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively more excess reserves and make fewer loans.
B)   households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively fewer excess reserves and make more loans.
C)   households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively more excess reserves and make fewer loans.
D)   households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively less excess reserves and make more loans.E) A) and C)
F) A) and B)

Question 10

Which of the following functions of money is also a common function of most other financial assets?

Accepted Answer

A)   a unit of account
B)   a store of value
C)   medium of exchange
D)   None of the above is correct.E) A) and C)
F) B) and D)

Question 11

If a bank uses $200 of excess reserves to make a new loan when the reserve ratio is 15 percent, this action by itself initially makes the money supply

Accepted Answer

A)   and wealth increase by $200.
B)   and wealth decrease by $200.
C)   increase by $200 while wealth does not change.
D)   decrease by $200 while wealth decreases by $200.E) B) and C)
F) A) and D)

Question 12

Which of the following is included in both M1 and M2?

Accepted Answer

A)   savings deposits
B)   demand deposits
C)   small time deposits
D)   money market mutual fundsE) C) and D)
F) A) and D)

Question 13

What is meant by the term "lender of last resort?" In what circumstances might the Fed be a lender of last resort?

Accepted Answer

A "lender of last resort" is a lender to...

Question 14

Suppose that in a country the total holdings of banks were as follows: required reserves = $45 million excess reserves = $15 million deposits = $750 million loans = $600 million
Treasury bonds = $90 million. Show that the balance sheet balances if these are the only assets and liabilities. Assuming that people hold no currency, what happens to each of these values if the central bank changes the reserve requirement ratio to 2%, banks still want to hold the same percentage of excess reserves, and banks don't change their holdings of Treasury bonds? How much does the money supply change by?

Accepted Answer

The only liability is deposits which equ...

Question 15

Why is the president of the New York Fed always a voting member of the FOMC?

Accepted Answer

New York is the financial capitol of the...

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

Table 29-6. 
-Refer to Table 29-6. From the table it follows that the Bank of Pleasantville operates in a

Accepted Answer

A)   fractional-reserve banking system, since its reserves are less than its deposits.
B)   fractional-reserve banking system, since its reserves are less than its loans.
C)   100-percent-reserve banking system, since its assets are equal to its liabilities.
D)   100­percent­reserve banking system if the Fed's reserve requirement is 10 percent; otherwise, it operates in a fractional-reserve banking system.E) A) and C)
F) A) and B)

Question 18

All U.S. paper dollars read "This note is legal tender for all debts, public and private." This statement represents which characteristic of US currency?

Accepted Answer

A)   The U.S. operates under the gold standard.
B)   U.S. paper money is commodity money.
C)   U.S. paper money is fiat money.
D)   U.S. paper money is a convenient store of wealth.E) None of the above
F) A) and C)

Question 19

List the two main functions performed by the Fed?

Accepted Answer

The Fed performs two main func...

Question 20

When the Fed buys government bonds,

Accepted Answer

A)   the money supply increases and the federal funds rate increases.
B)   the money supply increases and the federal funds rate decreases.
C)   the money supply decreases and the federal funds rate increases.
D)   the money supply decreases and the federal funds rate decreases.E) None of the above
F) A) and B)

Exam 29: The Monetary System

The fractional reserve characteristic of the banking system allows banks to create money and also create wealth from bank deposits. Describe why this statement is or is not true.

Correct Answer
verified
This statement is not true.
Banks can cr...
View Answer

Correct Answer
verified

Which list ranks assets from most to least liquid?

Correct Answer
verified

Why is the president of the New York Fed always a voting member of the FOMC?

Correct Answer
verified
New York is the financial capitol of the...
View Answer

Which of the following is included in both M1 and M2?

Correct Answer
verified

The money supply decreases if

Correct Answer
verified

Currently, U.S. currency is

Correct Answer
verified

The tool most often used by the Fed to control the money supply is

Correct Answer
verified

What is meant by the term "lender of last resort?" In what circumstances might the Fed be a lender of last resort?

Correct Answer
verified
A "lender of last resort" is a lender to...
View Answer

If the reserve ratio is 100-percent, then a new deposit of $1000 into a bank account

Correct Answer
verified

All U.S. paper dollars read "This note is legal tender for all debts, public and private." This statement represents which characteristic of US currency?

Correct Answer
verified

List the two main functions performed by the Fed?

Correct Answer
verified
The Fed performs two main func...
View Answer

The discount rate is the interest rate that

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

When the Fed buys government bonds,

Correct Answer
verified

Which of the following functions of money is also a common function of most other financial assets?

Correct Answer
verified

A double coincidence of wants

Correct Answer
verified

Many societies used gold as money, because

Correct Answer
verified

If a bank uses $200 of excess reserves to make a new loan when the reserve ratio is 15 percent, this action by itself initially makes the money supply

Correct Answer
verified

Correct Answer
verified
The only liability is deposits which equ...
View Answer

Exam 29: The Monetary System

The fractional reserve characteristic of the banking system allows banks to create money and also create wealth from bank deposits. Describe why this statement is or is not true.

Correct AnswerverifiedThis statement is not true.Banks can cr...View AnswerShow Answer

Table 29-6. -Refer to Table 29-6. From the table it follows that the Bank of Pleasantville operates in a

Correct AnswerverifiedShow Answer

Which list ranks assets from most to least liquid?

Correct AnswerverifiedShow Answer

Why is the president of the New York Fed always a voting member of the FOMC?

Correct AnswerverifiedNew York is the financial capitol of the...View AnswerShow Answer

Which of the following is included in both M1 and M2?

Correct AnswerverifiedShow Answer

The money supply decreases if

Correct AnswerverifiedShow Answer

Currently, U.S. currency is

Correct AnswerverifiedShow Answer

The tool most often used by the Fed to control the money supply is

Correct AnswerverifiedShow Answer

What is meant by the term "lender of last resort?" In what circumstances might the Fed be a lender of last resort?

Correct AnswerverifiedA "lender of last resort" is a lender to...View AnswerShow Answer

If the reserve ratio is 100-percent, then a new deposit of $1000 into a bank account

Correct AnswerverifiedShow Answer

All U.S. paper dollars read "This note is legal tender for all debts, public and private." This statement represents which characteristic of US currency?

Correct AnswerverifiedShow Answer

List the two main functions performed by the Fed?

Correct AnswerverifiedThe Fed performs two main func...View AnswerShow Answer

The discount rate is the interest rate that

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

When the Fed buys government bonds,

Correct AnswerverifiedShow Answer

Which of the following functions of money is also a common function of most other financial assets?

Correct AnswerverifiedShow Answer

A double coincidence of wants

Correct AnswerverifiedShow Answer

Many societies used gold as money, because

Correct AnswerverifiedShow Answer

If a bank uses $200 of excess reserves to make a new loan when the reserve ratio is 15 percent, this action by itself initially makes the money supply

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe only liability is deposits which equ...View AnswerShow Answer

Correct Answer
verified
This statement is not true.
Banks can cr...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
New York is the financial capitol of the...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A "lender of last resort" is a lender to...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The Fed performs two main func...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The only liability is deposits which equ...
View Answer