Question 1

Suppose the required reserve ratio is 20%. What is the maximum amount of total money supply that can be created from an initial deposit of $200? In general, why might the actual amount of total money creation be less than the maximum?

Accepted Answer

The money multiplier is the reciprocal o...

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

The banking system currently has $100 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed lowers the reserve requirement to 5 percent and at the same time buys $10 billion worth of bonds, then by how much does the money supply change?

Accepted Answer

A)   It rises by $200 billion.
B)   It rises by $800 billion.
C)   It rises by $1,200 billion.
D)   None of the above is correct.E) B) and C)
F) All of the above

Question 4

If a bank has a reserve ratio of 8 percent, then

Accepted Answer

A)   government regulation requires the bank to use at least 8 percent of its deposits to make loans.
B)   the bank's ratio of loans to deposits is 8 percent.
C)   the bank keeps 8 percent of its deposits as reserves and loans out the rest.
D)   the bank keeps 8 percent of its assets as reserves and loans out the rest.E) B) and C)
F) None of the above

Question 5

Table 29-9
Metropolis National Bank is currently holding 2% of its deposits as excess reserves.
 
-Refer to Table 29-9. Metropolis National Bank is holding 2% of its deposits as excess reserves. Assume that no banks in the economy want to maintain holdings of excess reserves and that people only hold deposits and no currency. The Fed makes open market purchases of $10,000. The person who sold bonds to the Fed deposits all the funds in Metropolis National Bank. If the bank now loans out all its excess reserves, by how much will the money supply increase?

Accepted Answer

A)   $190,000
B)   $200,000
C)   $240,000
D)   None of the above are correct.E) C) and D)
F) B) and C)

Question 6

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 7

Liquidity refers to

Accepted Answer

A)   the ease with which an asset is converted to the medium of exchange.
B)   the measurement of the intrinsic value of commodity money.
C)   the measurement of the durability of a good.
D)   how many time a dollar circulates in a given year.E) A) and C)
F) A) and B)

Question 8

If the reserve ratio is 5 percent, then $1,000 of additional reserves can create up to

Accepted Answer

A)   $5,500 of new money.
B)   $5,000 of new money.
C)   $4,000 of new money.
D)   None of the above is correct.E) All of the above
F) A) and B)

Question 9

The manager of the bank where you work tells you that the bank has $400 million in deposits and $340 million dollars in loans. The Fed then raises the reserve requirement from 5 percent to 10 percent. Assuming everything else stays the same, how much is the bank holding in excess reserves after the increase in the reserve requirement?

Accepted Answer

A)   $0
B)   $20 million
C)   $40 million
D)   $60 millionE) B) and C)
F) None of the above

Question 10

The interest rate that the Fed charges banks that borrow reserves from it is the

Accepted Answer

A)   federal funds rate.
B)   discount rate.
C)   reserve requirement.
D)   prime rate.E) C) and D)
F) A) and B)

Question 11

The existence of money leads to

Accepted Answer

A)   greater specialization in production, but not to a higher standard of living.
B)   a higher standard of living, but not to greater specialization.
C)   greater specialization and to a higher standard of living.
D)   neither greater specialization nor to a higher standard of living.E) A) and D)
F) None of the above

Question 12

Which type of money has intrinsic value?

Accepted Answer

A)   commodity money
B)   fiat money
C)   both commodity money and fiat money
D)   neither commodity money nor fiat moneyE) A) and D)
F) B) and C)

Question 13

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

Accepted Answer

A)   currency
B)   demand deposits
C)   other checkable deposits
D)   All of the above are correct.E) B) and C)
F) B) and D)

Question 14

How are Federal Reserve Board Governors selected?

Accepted Answer

The Fed Governors are appointed by the p...

Question 15

Table 29-3. An economy starts with $50,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $45,750. The T-account of the bank is shown below.
 
-Refer to Table 29-3. If all banks in the economy have the same reserve ratio as this bank, then the value of the economy's money multiplier is

Accepted Answer

A)   9.33.
B)   1.09.
C)   10.76.
D)   11.76.E) All of the above
F) C) and D)

Question 16

If the money multiplier is 3 and the Fed buys $50,000 worth of bonds, what happens to the money supply?

Accepted Answer

A)   it increases by $100,000
B)   it increases by $150,000
C)   it decreases by $100,000
D)   it decreases by $200,000E) A) and B)
F) None of the above

Question 17

A bank's reserve ratio is 8 percent and the bank has $1,000 in deposits. Its reserves amount to

Accepted Answer

A)   $8.
B)   $80.
C)   $92.
D)   $920.E) None of the above
F) B) and C)

Question 18

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) All of the above
F) None of the above

Question 19

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) C) and D)

Question 20

Economists use the word "money" to refer to

Accepted Answer

A)   income generated by the production of goods and services.
B)   those assets regularly used to buy goods and services.
C)   financial assets such as stocks and bonds.
D)   any type of wealth.E) B) and D)
F) B) and C)

Exam 11: The Monetary System

If a bank has a reserve ratio of 8 percent, then

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

If the money multiplier is 3 and the Fed buys $50,000 worth of bonds, what happens to the money supply?

Correct Answer
verified

Liquidity refers to

Correct Answer
verified

Suppose the required reserve ratio is 20%. What is the maximum amount of total money supply that can be created from an initial deposit of $200? In general, why might the actual amount of total money creation be less than the maximum?

Correct Answer
verified
The money multiplier is the reciprocal o...
View Answer

A bank's reserve ratio is 8 percent and the bank has $1,000 in deposits. Its reserves amount to

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 5 percent, then $1,000 of additional reserves can create up to

Correct Answer
verified

The interest rate that the Fed charges banks that borrow reserves from it is the

Correct Answer
verified

Which type of money has intrinsic value?

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The existence of money leads to

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Economists use the word "money" to refer to

Correct Answer
verified

How are Federal Reserve Board Governors selected?

Correct Answer
verified
The Fed Governors are appointed by the p...
View Answer

Exam 11: The Monetary System

If a bank has a reserve ratio of 8 percent, then

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the money multiplier is 3 and the Fed buys $50,000 worth of bonds, what happens to the money supply?

Correct AnswerverifiedShow Answer

Liquidity refers to

Correct AnswerverifiedShow Answer

Suppose the required reserve ratio is 20%. What is the maximum amount of total money supply that can be created from an initial deposit of $200? In general, why might the actual amount of total money creation be less than the maximum?

Correct AnswerverifiedThe money multiplier is the reciprocal o...View AnswerShow Answer

A bank's reserve ratio is 8 percent and the bank has $1,000 in deposits. Its reserves amount to

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 5 percent, then $1,000 of additional reserves can create up to

Correct AnswerverifiedShow Answer

The interest rate that the Fed charges banks that borrow reserves from it is the

Correct AnswerverifiedShow Answer

Which type of money has intrinsic value?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The existence of money leads to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Economists use the word "money" to refer to

Correct AnswerverifiedShow Answer

How are Federal Reserve Board Governors selected?

Correct AnswerverifiedThe Fed Governors are appointed by the p...View AnswerShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
verified
The money multiplier is the reciprocal o...
View 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

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
verified

Correct Answer
verified
The Fed Governors are appointed by the p...
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