Question 1

Suppose banks desire to hold no excess reserves and that the Fed has set a reserve requirement of 10 percent.If you deposit $9,000 into First Jayhawk Bank,

Accepted Answer

A)   First Jayhawk's required reserves increase by $900.
B)   First Jayhawk will be able to lend out $8,100.
C)   First Jayhawk's assets and liabilities both will increase by $9,000.
D)   All of the above are correct.E) None of the above
F) A) and B)

Question 2

Which of the following statements is correct?

Accepted Answer

A)   Credit cards are important for our system of payments,but they are not important for analyzing the monetary system.
B)   Account balances that lie behind debit cards are included in neither M1 nor M2.
C)   People who have credit cards probably hold less money on average than people who do not have credit cards.
D)   A debit card allows its user to postpone payment for a purchase.E) C) and D)
F) A) and B)

Question 3

Paper dollars

Accepted Answer

A)   are commodity money and gold coins are fiat money.
B)   are fiat money and gold coins are commodity money.
C)   and gold coins are both commodity monies.
D)   and gold coins are both fiat monies.E) C) and D)
F) A) and D)

Question 4

The Federal Reserve

Accepted Answer

A)   was created in 1836.
B)   was created to facilitate the federal government's collection of taxes as well as its expenditures.
C)   is an example of a central bank.
D)   All of the above are correct.E) C) and D)
F) A) and D)

Question 5

The Federal Reserve

Accepted Answer

A)   was created in 1913.
B)   has more than one specific job to perform.
C)   is an example of a central bank.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 6

As banks create money,they create wealth.

Accepted Answer

A) True 
 B)False

Question 7

Bank runs

Accepted Answer

A)   will affect neither the money supply nor the money multiplier.
B)   are only a problem for insolvent banks.
C)   can be neither prevented nor mitigated by the Federal Reserve.
D)   are a problem because banks only hold a fraction of deposits as reserves.E) A) and C)
F) None of the above

Question 8

If the reserve ratio for all banks is 12.5 percent,then $2,000 of additional reserves can create up to

Accepted Answer

A)   $8,000 of new money.
B)   $16,000 of new money.
C)   $32,000 of new money.
D)   None of the above is correct.E) B) and C)
F) None of the above

Question 9

Table 29-5.
Bank of Kopeka
 
-Refer to Table 29-5.Assume the Fed's reserve requirement is 9 percent and all banks besides the Bank of Kopeka are exactly in compliance with the 9 percent requirement.Further assume that people hold only deposits and no currency.Starting from the situation as depicted by the T-account,if the Bank of Kopeka decides to make new loans so as to end up with no excess reserves,then by how much does the money supply eventually increase?

Accepted Answer

A)   $555.00.
B)   $1,200.00.
C)   $1,777.78.
D)   $2,222.22.E) A) and C)
F) B) and C)

Question 10

Money is the most liquid asset available because

Accepted Answer

A)   it is a store of value.
B)   it is a medium of exchange.
C)   it is a unit of account.
D)   it has intrinsic value.E) C) and D)
F) A) and D)

Question 11

The use of money allows trade to be roundabout.

Accepted Answer

A) True 
 B)False

Question 12

Table 29-6.
Bank of Springfield
 
-Refer to Table 29-6.Assuming the Bank of Springfield and all other banks have the same reserve ratio,then what is the value of the money multiplier?

Accepted Answer

A)   5.0
B)   7.5
C)   10.00
D)   12.5E) A) and B)
F) A) and D)

Question 13

The Fed can decrease the money supply by conducting open market

Accepted Answer

A)   sales or by raising the discount rate.
B)   sales or by lowering the discount rate.
C)   purchases or by raising the discount rate.
D)   purchases or by lowering the discount rate.E) None of the above
F) B) and D)

Question 14

Table 29-3.
The First Bank of Johnson City
 
-Refer to Table 29-3.If $1,000 is deposited into the First Bank of Johnson City,and the bank takes no other actions,its

Accepted Answer

A)   reserves will increase by $200.
B)   liabilities will decrease by $1,000.
C)   assets will increase by $1,000.
D)   reserves will increase by $800.E) All of the above
F) C) and D)

Question 15

Because of the multiple tools at its disposal,the Fed can control the money supply very precisely.

Accepted Answer

A) True 
 B)False

Question 16

Fiat money

Accepted Answer

A)   has no intrinsic value.
B)   is backed by gold.
C)   has intrinsic value equal to its value in exchange.
D)   is any close substitute for currency such as checkable deposits.E) A) and D)
F) A) and C)

Question 17

If the Fed buys bonds in the open market,the money supply decreases.

Accepted Answer

A) True 
 B)False

Question 18

M1 includes

Accepted Answer

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

Question 19

All Fed purchases and sales of

Accepted Answer

A)   corporate stocks and bonds are conducted at the New York Fed's trading desk.
B)   government bonds are conducted at the New York Fed's trading desk.
C)   real estate and other real assets are conducted by the Federal Open Market Committee.
D)   All of the above are correct.E) A) and C)
F) C) and D)

Question 20

During the stock market crash of October 1987,the Fed

Accepted Answer

A)   nearly created a financial panic by not acting as a lender of last resort.
B)   nearly created a financial panic by raising the discount rate.
C)   prevented a financial panic by raising reserve requirements.
D)   prevented a financial panic by providing liquidity to the financial system.E) A) and B)
F) None of the above

Exam 29: The Monetary System

Table 29-3. The First Bank of Johnson City -Refer to Table 29-3.If $1,000 is deposited into the First Bank of Johnson City,and the bank takes no other actions,its

Correct Answer
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M1 includes

Correct Answer
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Money is the most liquid asset available because

Correct Answer
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All Fed purchases and sales of

Correct Answer
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Paper dollars

Correct Answer
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The Federal Reserve

Correct Answer
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If the reserve ratio for all banks is 12.5 percent,then $2,000 of additional reserves can create up to

Correct Answer
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During the stock market crash of October 1987,the Fed

Correct Answer
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Which of the following statements is correct?

Correct Answer
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The use of money allows trade to be roundabout.

Correct Answer
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If the Fed buys bonds in the open market,the money supply decreases.

Correct Answer
verified

Because of the multiple tools at its disposal,the Fed can control the money supply very precisely.

Correct Answer
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Table 29-6. Bank of Springfield -Refer to Table 29-6.Assuming the Bank of Springfield and all other banks have the same reserve ratio,then what is the value of the money multiplier?

Correct Answer
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As banks create money,they create wealth.

Correct Answer
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Suppose banks desire to hold no excess reserves and that the Fed has set a reserve requirement of 10 percent.If you deposit $9,000 into First Jayhawk Bank,

Correct Answer
verified

The Fed can decrease the money supply by conducting open market

Correct Answer
verified

Correct Answer
verified

Bank runs

Correct Answer
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The Federal Reserve

Correct Answer
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Fiat money

Correct Answer
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Exam 29: The Monetary System

Table 29-3. The First Bank of Johnson City -Refer to Table 29-3.If $1,000 is deposited into the First Bank of Johnson City,and the bank takes no other actions,its

Correct AnswerverifiedShow Answer

M1 includes

Correct AnswerverifiedShow Answer

Money is the most liquid asset available because

Correct AnswerverifiedShow Answer

All Fed purchases and sales of

Correct AnswerverifiedShow Answer

Paper dollars

Correct AnswerverifiedShow Answer

The Federal Reserve

Correct AnswerverifiedShow Answer

If the reserve ratio for all banks is 12.5 percent,then $2,000 of additional reserves can create up to

Correct AnswerverifiedShow Answer

During the stock market crash of October 1987,the Fed

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

The use of money allows trade to be roundabout.

Correct AnswerverifiedShow Answer

If the Fed buys bonds in the open market,the money supply decreases.

Correct AnswerverifiedShow Answer

Because of the multiple tools at its disposal,the Fed can control the money supply very precisely.

Correct AnswerverifiedShow Answer

Table 29-6. Bank of Springfield -Refer to Table 29-6.Assuming the Bank of Springfield and all other banks have the same reserve ratio,then what is the value of the money multiplier?

Correct AnswerverifiedShow Answer

As banks create money,they create wealth.

Correct AnswerverifiedShow Answer

Suppose banks desire to hold no excess reserves and that the Fed has set a reserve requirement of 10 percent.If you deposit $9,000 into First Jayhawk Bank,

Correct AnswerverifiedShow Answer

The Fed can decrease the money supply by conducting open market

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Bank runs

Correct AnswerverifiedShow Answer

The Federal Reserve

Correct AnswerverifiedShow Answer

Fiat money

Correct AnswerverifiedShow Answer

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