Question 1

Describe the two things that limit the precision of the Fed's control of the money supply and explain how each limits that control.

Accepted Answer

First, the Fed does not control the amou...

Question 2

A bank has a 10 percent reserve requirement, $4,000 in deposits, and has loaned out all it can given the reserve requirement.

Accepted Answer

A)   It has $40 in reserves and $3,960 in loans.
B)   It has $400 in reserves and $3,600 in loans.
C)   It has $444 in reserves and $3,556 in loans.
D)   None of the above is correct.E) A) and D)
F) None of the above

Question 3

The Fed's policy decisions have an important influence on

Accepted Answer

A)   inflation in the long run and employment and production in the short run.
B)   inflation in the long run and employment and production in the long run.
C)   inflation in the short run and employment and production in the short run.
D)   inflation in the short run and employment and production in the long run.E) A) and D)
F) B) and D)

Question 4

The reserve requirement is 4%, banks hold no excess reserves and people hold no currency. If the Fed sells $10,000 of bonds what happens to the money supply?

Accepted Answer

A)   it increases by $250,000
B)   it increases by $200,000
C)   it decreases by $200,000
D)   it decreases by $250,000E) A) and B)
F) A) and C)

Question 5

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

Accepted Answer

A)   U.S. Treasury bills
B)   small time deposits
C)   demand deposits
D)   money market mutual fundsE) None of the above
F) B) and C)

Question 6

Dollar bills, rare paintings, and emerald necklaces are all

Accepted Answer

A)   media of exchange.
B)   units of account.
C)   stores of value.
D)   All of the above are correct.E) A) and B)
F) B) and D)

Question 7

Members of the Board of Governors are appointed by the president of the U.S. and confirmed by the U.S. Senate.

Accepted Answer

A) True 
 B)False

Question 8

The use of money allows trade to be roundabout.

Accepted Answer

A) True 
 B)False

Question 9

Are credit cards and debit cards money? What's the difference between credit and debit cards?

Accepted Answer

Neither credit cards nor debit cards are...

Question 10

The chair of the Board of Governors regularly testifies to Congress about Fed policy.

Accepted Answer

A) True 
 B)False

Question 11

If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

Accepted Answer

A)   buying bonds. This buying would increase the money supply.
B)   buying bonds. This buying would reduce the money supply.
C)   selling bonds. This selling would increase the money supply.
D)   selling bonds. This selling would reduce the money supply.E) All of the above
F) C) and D)

Question 12

Suppose the banking system currently has $300 billion in reserves; the reserve requirement is 10 percent; and excess reserves amount to $3 billion. What is the level of deposits?

Accepted Answer

A)   $3,300 billion
B)   $2,970 billion
C)   $2,700 billion
D)   $2,673 billionE) None of the above
F) A) and B)

Question 13

In Ugoland, the money supply is $8 million and reserves are $1 million. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

Accepted Answer

A)   14 percent.
B)   12.5 percent.
C)   8 percent.
D)   None of the above is correct.E) All of the above
F) A) and B)

Question 14

The Fed can increase 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) A) and B)
F) All of the above

Question 15

When the Fed conducts open-market purchases,

Accepted Answer

A)   banks buy Treasury securities from Fed, which increases the money supply.
B)   banks buy Treasury securities from the Fed, which decreases the money supply.
C)   it buys Treasury securities, which increases the money supply.
D)   it buys Treasury securities, which decreases the money supply.E) A) and D)
F) B) and D)

Question 16

If the Fed decreases reserve requirements, the money supply will increase.

Accepted Answer

A) True 
 B)False

Question 17

Table 11-4.
 
-Refer to Table 11-4. If the bank faces a reserve requirement of 20 percent, then it

Accepted Answer

A)   has $10,000 of excess reserves.
B)   needs $10,000 more reserves to meet its reserve requirements.
C)   needs $5,000 more reserves to meet its reserve requirements.
D)   just meets its reserve requirement.E) All of the above
F) A) and D)

Question 18

Treasury Bonds are

Accepted Answer

A)   liquid, but not a store of value.
B)   a store of value, but not liquid.
C)   both liquid and a store of value.
D)   neither liquid nor a store of value.E) A) and B)
F) A) and C)

Question 19

Sam wants to trade eggs for sausage. Sally wants to trade sausage for eggs. Sam and Sally have a double-coincidence of wants.

Accepted Answer

A) True 
 B)False

Question 20

Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate?

Accepted Answer

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

Exam 11: The Monetary System

Treasury Bonds are

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The use of money allows trade to be roundabout.

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

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Members of the Board of Governors are appointed by the president of the U.S. and confirmed by the U.S. Senate.

Correct AnswerverifiedShow Answer

The reserve requirement is 4%, banks hold no excess reserves and people hold no currency. If the Fed sells $10,000 of bonds what happens to the money supply?

Correct AnswerverifiedShow Answer

In Ugoland, the money supply is $8 million and reserves are $1 million. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

Correct AnswerverifiedShow Answer

The chair of the Board of Governors regularly testifies to Congress about Fed policy.

Correct AnswerverifiedShow Answer

A bank has a 10 percent reserve requirement, $4,000 in deposits, and has loaned out all it can given the reserve requirement.

Correct AnswerverifiedShow Answer

The Fed can increase the money supply by conducting open-market

Correct AnswerverifiedShow Answer

Are credit cards and debit cards money? What's the difference between credit and debit cards?

Correct AnswerverifiedNeither credit cards nor debit cards are...View AnswerShow Answer

Dollar bills, rare paintings, and emerald necklaces are all

Correct AnswerverifiedShow Answer

Sam wants to trade eggs for sausage. Sally wants to trade sausage for eggs. Sam and Sally have a double-coincidence of wants.

Correct AnswerverifiedShow Answer

When the Fed conducts open-market purchases,

Correct AnswerverifiedShow Answer

Suppose the banking system currently has $300 billion in reserves; the reserve requirement is 10 percent; and excess reserves amount to $3 billion. What is the level of deposits?

Correct AnswerverifiedShow Answer

If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

Correct AnswerverifiedShow Answer

The Fed's policy decisions have an important influence on

Correct AnswerverifiedShow Answer

Table 11-4. -Refer to Table 11-4. If the bank faces a reserve requirement of 20 percent, then it

Correct AnswerverifiedShow Answer

Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate?

Correct AnswerverifiedShow Answer

If the Fed decreases reserve requirements, the money supply will increase.

Correct AnswerverifiedShow Answer

Describe the two things that limit the precision of the Fed's control of the money supply and explain how each limits that control.

Correct AnswerverifiedFirst, the Fed does not control the amou...View AnswerShow Answer

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Neither credit cards nor debit cards are...
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First, the Fed does not control the amou...
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