Question 1

Jim transfers money from his money market account to his savings account. This action

Accepted Answer

A)  reduced M1 and increases M2.
B)  increases M1 and reduces M2.
C)  has no effect on M1 or M2.
D)  increases M1 and M2.E) A) and D)
F) None of the above

Question 2

In recent years the Federal Open Market Committee has focused on a target for

Accepted Answer

A)  M1 growth.
B)  the federal funds rate.
C)  the number of Treasury Securities issued by the federal government.
D)  total reserves of banks.E) C) and D)
F) None of the above

Question 3

Name three actions the Fed can take to increase the money supply.

Accepted Answer

Open-market purchases (buy gov...

Question 4

When the Federal Reserve conducts open-market operations to increase the money supply, it

Accepted Answer

A)  redeems Federal Reserve notes.
B)  buys government bonds from the public.
C)  raises the discount rate.
D)  decreases its lending to member banks.E) A) and B)
F) None of the above

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Which of the following can banks use to borrow from the Federal Reserve?

Accepted Answer

A)  the discount window or the term auction facility
B)  the discount window but not the term auction facility
C)  the term auction facility but not the discount window
D)  Banks cannot borrow from the Federal Reserve, only the government can.E) All of the above
F) A) and D)

Question 7

The rate at which the Fed lends money to banks is

Accepted Answer

A)  the prime rate.
B)  fixed at 4%.
C)  the federal funds rate.
D)  the discount rate.E) A) and B)
F) A) and C)

Question 8

If the reserve ratio is 12.5 percent, then $1,000 of additional reserves can create up to

Accepted Answer

A)  $7,000 of new money.
B)  $8,000 of new money.
C)  $11,500 of new money.
D)  $12,500 of new money.E) B) and C)
F) A) and D)

Question 9

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 10

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 11

Fractional reserve banking is a system where banks must hold an amount of cash based on a percentage of its loans.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following will not help to prevent bank runs?

Accepted Answer

A)  government insurance of deposits
B)  fractional reserve banking
C)  100% reserve banking
D)  All of the above prevent bank runs.E) A) and B)
F) A) and C)

Question 13

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 14

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

Question 15

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 cre...

Question 16

If the reserve ratio is 15 percent, and banks do not hold excess reserves, and people hold only deposits and no currency, then when the Fed sells $25.5 million worth of bonds to the public, bank reserves

Accepted Answer

A)  increase by $25.5 million and the money supply eventually increases by $382.5 million.
B)  increase by $25.5 million and the money supply eventually increases by $170 million.
C)  decrease by $25.5 million and the money supply eventually decreases by $382.5 million.
D)  decrease by $25.5 million and the money supply eventually decreases by $170 million.E) A) and B)
F) B) and C)

Question 17

Why do Federal Reserve Board of Governors have long (14 year) terms?

Accepted Answer

Long terms allow Fed Board of ...

Question 18

The money supply decreases if the Fed

Accepted Answer

A)  sells Treasury bonds. The larger the reserve requirement, the larger the decrease will be.
B)  sells Treasury bonds. The smaller the reserve requirement, the larger the decrease will be.
C)  buys Treasury bonds. The larger the reserve requirement, the larger the decrease will be.
D)  buys Treasury bonds. The smaller the reserve requirement, the larger the decrease will be.E) All of the above
F) B) and D)

Question 19

Which of the following increase when the Fed makes open market purchases?

Accepted Answer

A)  currency and reserves
B)  currency but not reserves
C)  reserves but not currency
D)  neither currency nor reservesE) C) and D)
F) A) and C)

Question 20

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

Accepted Answer

A)  falls. The Fed could lessen the impact of this by buying Treasury bonds.
B)  falls. The Fed could lessen the impact of this by selling Treasury bonds.
C)  rises. The Fed could lessen the impact of this by buying Treasury bonds.
D)  rises. The Fed could lessen the impact of this by selling Treasury bonds.E) C) and D)
F) A) and B)

Exam 29: The Monetary System

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

Correct Answer
verified

Fractional reserve banking is a system where banks must hold an amount of cash based on a percentage of its loans.

Correct Answer
verified

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

Correct Answer
verified

Which of the following will not help to prevent bank runs?

Correct Answer
verified

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

Correct Answer
verified

Name three actions the Fed can take to increase the money supply.

Correct Answer
verified
Open-market purchases (buy gov...
View Answer

Why do Federal Reserve Board of Governors have long (14 year) terms?

Correct Answer
verified
Long terms allow Fed Board of ...
View Answer

Which list ranks assets from most to least liquid?

Correct Answer
verified

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

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

Correct Answer
verified

The rate at which the Fed lends money to banks is

Correct Answer
verified

When the Federal Reserve conducts open-market operations to increase the money supply, it

Correct Answer
verified

If the reserve ratio is 15 percent, and banks do not hold excess reserves, and people hold only deposits and no currency, then when the Fed sells $25.5 million worth of bonds to the public, bank reserves

Correct Answer
verified

Jim transfers money from his money market account to his savings account. This action

Correct Answer
verified

Which of the following increase when the Fed makes open market purchases?

Correct Answer
verified

Which of the following can banks use to borrow from the Federal Reserve?

Correct Answer
verified

The money supply decreases if the Fed

Correct Answer
verified

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 cre...
View Answer

If the reserve ratio is 12.5 percent, then $1,000 of additional reserves can create up to

Correct Answer
verified

In recent years the Federal Open Market Committee has focused on a target for

Correct Answer
verified

Exam 29: The Monetary System

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

Correct AnswerverifiedShow Answer

Fractional reserve banking is a system where banks must hold an amount of cash based on a percentage of its loans.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following will not help to prevent bank runs?

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

Name three actions the Fed can take to increase the money supply.

Correct AnswerverifiedOpen-market purchases (buy gov...View AnswerShow Answer

Why do Federal Reserve Board of Governors have long (14 year) terms?

Correct AnswerverifiedLong terms allow Fed Board of ...View AnswerShow Answer

Which list ranks assets from most to least liquid?

Correct AnswerverifiedShow Answer

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

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

Correct AnswerverifiedShow Answer

The rate at which the Fed lends money to banks is

Correct AnswerverifiedShow Answer

When the Federal Reserve conducts open-market operations to increase the money supply, it

Correct AnswerverifiedShow Answer

If the reserve ratio is 15 percent, and banks do not hold excess reserves, and people hold only deposits and no currency, then when the Fed sells $25.5 million worth of bonds to the public, bank reserves

Correct AnswerverifiedShow Answer

Jim transfers money from his money market account to his savings account. This action

Correct AnswerverifiedShow Answer

Which of the following increase when the Fed makes open market purchases?

Correct AnswerverifiedShow Answer

Which of the following can banks use to borrow from the Federal Reserve?

Correct AnswerverifiedShow Answer

The money supply decreases if the Fed

Correct AnswerverifiedShow Answer

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 cre...View AnswerShow Answer

If the reserve ratio is 12.5 percent, then $1,000 of additional reserves can create up to

Correct AnswerverifiedShow Answer

In recent years the Federal Open Market Committee has focused on a target for

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Open-market purchases (buy gov...
View Answer

Correct Answer
verified
Long terms allow Fed Board of ...
View Answer

Correct Answer
verified

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

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

Correct Answer
verified

Correct Answer
verified