Question 1

A central bank's setting (or altering)  of the money supply is known as

Accepted Answer

A)  open-market operation.
B)  interest rate policy.
C)  monetary policy.
D)  employment policy.E) A) and B)
F) A) and C)

Question 2

A bank operates with reserves of $100, loans of $300 and securities of $100. The bank's only liability is deposits of $400 since it has zero debt. Calculate the bank's leverage ratio.

Accepted Answer

Since Assets - Liabilities equals Bank C...

Question 3

Which of the following is not correct?

Accepted Answer

A)  The president of the New York Federal Reserve bank is the only Federal Reserve Regional Bank President who gets to vote at every meeting of the Federal Open Market Committee.
B)  The Fed's policy decisions influence the economy's rate of inflation in the short run and the economy's employment and production in the long run.
C)  The Fed's primary monetary policy tool is open-market operations.
D)  All of the above are correct.E) B) and C)
F) None of the above

Question 4

There is a

Accepted Answer

A)  short-run tradeoff between inflation and unemployment.
B)  short-run tradeoff between an increase in the money supply and inflation.
C)  long-run tradeoff between inflation and unemployment.
D)  long-run tradeoff between an increase in the money supply and inflation.E) C) and D)
F) B) and D)

Question 5

If the reserve ratio is 8 percent, then a decrease in reserves of $6,000 can cause the money supply to fall by as much as

Accepted Answer

A)  $48,000.
B)  $75,000.
C)  $55,200.
D)  $10,800.E) B) and C)
F) All of the above

Question 6

Table 29-4.
The First Bank of Fairfield 
-Refer to Table 29-4. If $800 is deposited into the First Bank of Fairfield, and the bank takes no other actions, its

Accepted Answer

A)  reserves will increase by $100.
B)  liabilities will increase by $800.
C)  assets will decrease by $800.
D)  loans will increase by $800.E) All of the above
F) None of the above

Question 7

Table 29-2. The information in the table pertains to an imaginary economy. 
-Refer to Table 29-2. What is the M2 money supply?

Accepted Answer

A)  $1,300 billion
B)  $580 billion
C)  $880 billion
D)  $1,000 billionE) A) and B)
F) B) and D)

Question 8

The Fed's control of the money supply is not precise because

Accepted Answer

A)  Congress can also make changes to the money supply.
B)  there are not always government bonds available for purchase when the Fed wants to perform open-market operations.
C)  the Fed does not know where all U.S. currency is located.
D)  the amount of money in the economy depends in part on the behavior of depositors and bankers.E) A) and B)
F) B) and C)

Question 9

Table 29-1. The information in the table pertains to an imaginary economy. 
-Refer to Table 29-1. What is the value of M2 in billions of dollars?

Accepted Answer

A)  $9,815 billion
B)  $8,315 billion
C)  $7,565 billion
D)  $7,405 billionE) None of the above
F) A) and D)

Question 10

Suppose a bank has $3,000 in reserves, $25,000 of deposits, and a 10 percent reserve requirement. What is the amount of excess reserves?

Accepted Answer

The answer of Suppose a bank has $3,000 in reserves,...

Question 11

Table 29-8 
-Refer to Table 29-8. The required reserve ratio is 12 percent and First National Bank sells $120 of its short-term securities to the Federal Reserve. This action will

Accepted Answer

A)  increase First National's reserves by $120. Its excess reserves are $240.
B)  decrease First National's reserves by $120. Its excess reserves are $0.
C)  increase First National's loans by $120. Its reserves decrease by $120.
D)  decrease First National's loans by $120. Its reserves increase by $120.E) A) and B)
F) A) and C)

Question 12

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

Question 13

A problem that the Fed faces when it attempts to control the money supply is that

Accepted Answer

A)  since the U.S. has a fractional-reserve banking system, the amount of money in the economy depends in part on the behavior of depositors and bankers.
B)  the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools.
C)  while the Fed has the ability to change the money supply by a large amount, it does not have the ability to change it by a small amount.
D)  federal legislation in the 1950s stripped the Fed of its power to act as a lender of last resort to banks.E) None of the above
F) All of the above

Question 14

The money multiplier equals 1/(1 - R), where R represents the reserve ratio.

Accepted Answer

A) True 
 B)False

Question 15

Table 29-6. 
-Refer to Table 29-6. If the Fed's reserve requirement is 5 percent, then what quantity of excess reserves does the Bank of Pleasantville now hold?

Accepted Answer

A)  $500
B)  $250
C)  $2,000
D)  $3,600E) B) and D)
F) B) and C)

Question 16

The members of the Federal Reserve's Board of Governors

Accepted Answer

A)  are appointed by the president of the U.S. and confirmed by the U.S. Senate.
B)  serve six-year terms.
C)  are also the presidents of the regional Federal Reserve banks.
D)  share power equally, with no governor having any more influence or power than any other governor.E) A) and B)
F) B) and C)

Question 17

If the discount rate is raised then banks borrow

Accepted Answer

A)  more from the Fed so reserves increase.
B)  more from the Fed so reserves decrease.
C)  less from the Fed so reserves increase.
D)  less from the Fed so reserves decrease.E) None of the above
F) A) and B)

Question 18

​Which of the following policies is NOT in the Fed's monetary toolbox?

Accepted Answer

A)  ​Buying government bonds
B)  ​Increasing the quantity of reserves
C)  ​Lending reserves to banks
D)  ​Issuing a bank runE) C) and D)
F) A) and B)

Question 19

If traveler's checks were $1000 higher and saving deposits were $500 higher, M1 would be

Accepted Answer

A)  $500 higher and M2 would be $1,500 higher.
B)  $1,000 higher and M2 would be $1,500 higher.
C)  M2 and M1 would be $1,500 higher.
D)  $1,000 high and M2 would be $500 higher.E) A) and D)
F) B) and C)

Question 20

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 D)
F) None of the above

Exam 29: The Monetary System

If the reserve ratio is 8 percent, then a decrease in reserves of $6,000 can cause the money supply to fall by as much as

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Table 29-4. The First Bank of Fairfield -Refer to Table 29-4. If $800 is deposited into the First Bank of Fairfield, and the bank takes no other actions, its

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A bank operates with reserves of $100, loans of $300 and securities of $100. The bank's only liability is deposits of $400 since it has zero debt. Calculate the bank's leverage ratio.

Correct AnswerverifiedSince Assets - Liabilities equals Bank C...View AnswerShow Answer

The members of the Federal Reserve's Board of Governors

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Which of the following is not correct?

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

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A central bank's setting (or altering) of the money supply is known as

Correct AnswerverifiedShow Answer

Suppose a bank has $3,000 in reserves, $25,000 of deposits, and a 10 percent reserve requirement. What is the amount of excess reserves?

Correct AnswerverifiedShow Answer

The Fed's control of the money supply is not precise because

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There is a

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Table 29-1. The information in the table pertains to an imaginary economy. -Refer to Table 29-1. What is the value of M2 in billions of dollars?

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Table 29-8 -Refer to Table 29-8. The required reserve ratio is 12 percent and First National Bank sells $120 of its short-term securities to the Federal Reserve. This action will

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Table 29-2. The information in the table pertains to an imaginary economy. -Refer to Table 29-2. What is the M2 money supply?

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If traveler's checks were $1000 higher and saving deposits were $500 higher, M1 would be

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A problem that the Fed faces when it attempts to control the money supply is that

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The money multiplier equals 1/(1 - R), where R represents the reserve ratio.

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Table 29-6. -Refer to Table 29-6. If the Fed's reserve requirement is 5 percent, then what quantity of excess reserves does the Bank of Pleasantville now hold?

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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?

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​Which of the following policies is NOT in the Fed's monetary toolbox?

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If the discount rate is raised then banks borrow

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Since Assets - Liabilities equals Bank C...
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Which of the following policies is NOT in the Fed's monetary toolbox?

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