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) All of the above

Question 2

Suppose the Federal Reserve increases bank reserves and banks lend out some of these reserves,but at some point banks still have $5 million more they wish to lend out.If the reserve requirement is 10 percent,how much more money can banks create if they lend out the remaining amount?

Accepted Answer

A)   $55 million
B)   $50 million
C)   $45 million
D)   $40 millionE) B) and C)
F) C) and D)

Question 3

During the early 1930s there were a number of bank failures in the United States.What did this do to the money supply? The New York Federal Reserve Bank advocated open market purchases.Would these purchases have reversed the change in the money supply and helped banks? Explain.

Accepted Answer

Bank failures cause people to lose confi...

Question 4

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) None of the above
F) A) and C)

Question 5

The Federal Reserve

Accepted Answer

A)   is responsible for conducting the nation's monetary policy,and it plays a role in regulating banks.
B)   is responsible for conducing the nation's monetary policy,but it plays no role in regulating banks.
C)   is not responsible for conducting the nation's monetary policy,and it plays a role in regulating banks.
D)   is not responsible for conducing the nation's monetary policy,and it plays no role in regulating banks.E) C) and D)
F) A) and B)

Question 6

Suppose a bank is operating with a leverage rate of 10.A 6% increase in the value of assets

Accepted Answer

A)   will reduce liabilities by 6%.
B)   will result in a 60% increase in owner's equity.
C)   will result in a 60% decrease in owner's equity.
D)   will reduce liabilities by 10.E) A) and B)
F) A) and C)

Question 7

The federal funds rate is a long-term interest rate banks charge one another for loans.

Accepted Answer

A) True 
 B)False

Question 8

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) A) and C)
F) C) and D)

Question 9

If the reserve ratio is 4 percent,then $81,250 of new money can be generated by

Accepted Answer

A)   $325 of new reserves.
B)   $3,250 of new reserves.
C)   $20,312.50 of new reserves.
D)   $2,031,250 of new reserves.E) A) and B)
F) A) and C)

Question 10

Which group within the Federal Reserve System meets to discuss changes in the economy and determine monetary policy?

Accepted Answer

A)   the Board of Governors
B)   the FOMC
C)   the regional Federal Reserve Bank presidents
D)   the Central Bank Policy CommissionE) All of the above
F) C) and D)

Question 11

In the special case of the 100 percent-reserve banking the money multiplier is

Accepted Answer

A)   1 and banks create money.
B)   1 and banks do not create money.
C)   2 and banks create money
D)   2 and banks do not create money.E) A) and C)
F) A) and B)

Question 12

The Board of Governors

Accepted Answer

A)   is chaired by the U.S.Secretary of the Treasury.
B)   members are elected by the U.S.public.
C)   has 7 members.
D)   All of the above are correct.E) None of the above
F) B) and D)

Question 13

The leverage ratio is calculated as

Accepted Answer

A)   assets minus liabilities.
B)   assets divided by bank capital
C)   the reciprocal of the required reserve ratio
D)   the required reserve ratio multiplied by bank capital.E) A) and B)
F) None of the above

Question 14

If the reserve requirement is 10 percent and banks desire to hold no excess reserves,when a bank receives a new deposit of $100,

Accepted Answer

A)   it must increase its required reserves by $10.
B)   its total reserves initially increase by $10.
C)   it will be able to make new loans up to a maximum of $10.
D)   None of the above is correct.E) A) and D)
F) All of the above

Question 15

If R represents the reserve ratio for all banks in the economy,then the money multiplier is

Accepted Answer

A)   1/(1-R) .
B)   1/R.
C)   1/(1+R) .
D)   (1+R) /R.E) A) and C)
F) A) and B)

Question 16

Which of the following best illustrates the unit of account function of money?

Accepted Answer

A)   You list prices for candy sold on your Web site,www.sweettooth.com,in dollars.
B)   You pay for your theater tickets with dollars.
C)   You hold currency even though you don't intend to spend it right away.
D)   None of the above is correct.E) All of the above
F) A) and C)

Question 17

Describe the role of bank leverage in bank insolvency during times of falling asset prices.

Accepted Answer

As bank asset values fall,the effect on ...

Question 18

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

Question 19

The banking system currently has $200 billion of reserves,none of which are excess.People hold only deposits and no currency,and the reserve requirement is 4 percent.If the Fed raises the reserve requirement to 10 percent and at the same time buys $50 billion worth of bonds,then by how much does the money supply change?

Accepted Answer

A)   It rises by $600 billion.
B)   It rises by $125 billion.
C)   It falls by $2,500 billion.
D)   None of the above is correct.E) None of the above
F) A) and C)

Question 20

Discuss why the Fed rarely changes the reserve requirements.

Accepted Answer

There are two main reasons the Fed does ...

Exam 29: The Monetary System

Suppose the Federal Reserve increases bank reserves and banks lend out some of these reserves,but at some point banks still have $5 million more they wish to lend out.If the reserve requirement is 10 percent,how much more money can banks create if they lend out the remaining amount?

Correct Answer
verified

Describe the role of bank leverage in bank insolvency during times of falling asset prices.

Correct Answer
verified
As bank asset values fall,the effect on ...
View Answer

If the reserve ratio is 4 percent,then $81,250 of new money can be generated by

Correct Answer
verified

Suppose a bank is operating with a leverage rate of 10.A 6% increase in the value of assets

Correct Answer
verified

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

Correct Answer
verified

Discuss why the Fed rarely changes the reserve requirements.

Correct Answer
verified
There are two main reasons the Fed does ...
View Answer

Which group within the Federal Reserve System meets to discuss changes in the economy and determine monetary policy?

Correct Answer
verified

During the early 1930s there were a number of bank failures in the United States.What did this do to the money supply? The New York Federal Reserve Bank advocated open market purchases.Would these purchases have reversed the change in the money supply and helped banks? Explain.

Correct Answer
verified
Bank failures cause people to lose confi...
View Answer

The federal funds rate is a long-term interest rate banks charge one another for loans.

Correct Answer
verified

In the special case of the 100 percent-reserve banking the money multiplier is

Correct Answer
verified

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

Correct Answer
verified

The leverage ratio is calculated as

Correct Answer
verified

If the reserve requirement is 10 percent and banks desire to hold no excess reserves,when a bank receives a new deposit of $100,

Correct Answer
verified

The Federal Reserve

Correct Answer
verified

Correct Answer
verified

Which of the following best illustrates the unit of account function of money?

Correct Answer
verified

The Board of Governors

Correct Answer
verified

Dollar bills,rare paintings,and emerald necklaces are all

Correct Answer
verified

Bank regulators impose capital requirements in order to

Correct Answer
verified

If R represents the reserve ratio for all banks in the economy,then the money multiplier is

Correct Answer
verified

Exam 29: The Monetary System

Suppose the Federal Reserve increases bank reserves and banks lend out some of these reserves,but at some point banks still have $5 million more they wish to lend out.If the reserve requirement is 10 percent,how much more money can banks create if they lend out the remaining amount?

Correct AnswerverifiedShow Answer

Describe the role of bank leverage in bank insolvency during times of falling asset prices.

Correct AnswerverifiedAs bank asset values fall,the effect on ...View AnswerShow Answer

If the reserve ratio is 4 percent,then $81,250 of new money can be generated by

Correct AnswerverifiedShow Answer

Suppose a bank is operating with a leverage rate of 10.A 6% increase in the value of assets

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Discuss why the Fed rarely changes the reserve requirements.

Correct AnswerverifiedThere are two main reasons the Fed does ...View AnswerShow Answer

Which group within the Federal Reserve System meets to discuss changes in the economy and determine monetary policy?

Correct AnswerverifiedShow Answer

During the early 1930s there were a number of bank failures in the United States.What did this do to the money supply? The New York Federal Reserve Bank advocated open market purchases.Would these purchases have reversed the change in the money supply and helped banks? Explain.

Correct AnswerverifiedBank failures cause people to lose confi...View AnswerShow Answer

The federal funds rate is a long-term interest rate banks charge one another for loans.

Correct AnswerverifiedShow Answer

In the special case of the 100 percent-reserve banking the money multiplier is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The leverage ratio is calculated as

Correct AnswerverifiedShow Answer

If the reserve requirement is 10 percent and banks desire to hold no excess reserves,when a bank receives a new deposit of $100,

Correct AnswerverifiedShow Answer

The Federal Reserve

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following best illustrates the unit of account function of money?

Correct AnswerverifiedShow Answer

The Board of Governors

Correct AnswerverifiedShow Answer

Dollar bills,rare paintings,and emerald necklaces are all

Correct AnswerverifiedShow Answer

Bank regulators impose capital requirements in order to

Correct AnswerverifiedShow Answer

If R represents the reserve ratio for all banks in the economy,then the money multiplier is

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
As bank asset values fall,the effect on ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
There are two main reasons the Fed does ...
View Answer

Correct Answer
verified

Correct Answer
verified
Bank failures cause people to lose confi...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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