Question 1

If the reserve requirement is 10 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $500, it

Accepted Answer

A)   must increase required reserves by $50.
B)   will initially see reserves increase by $500.
C)   will be able to use this deposit to make new loans amounting to $450.
D)   All of the above are correct.E) A) and B)
F) A) and D)

Question 2

Which of the following is correct?

Accepted Answer

A)   A bank's deposits at the Federal Reserve counts as part of the bank's reserves. The Federal Reserve pays interest on these deposits.
B)   A bank's deposits at the Federal Reserve counts as part of the bank's reserves. The Federal Reserve does not pay interest on these deposits.
C)   A bank's deposits at the Federal Reserve does not count as part of the bank's reserves. The Federal Reserve pays interest on these deposits.
D)   A bank's deposits at the Federal Reserve does not count as part of the bank's reserves. The Federal Reserve does not pay interest on these deposits.E) B) and C)
F) None of the above

Question 3

M1 includes

Accepted Answer

A)   currency.
B)   demand deposits.
C)   traveler's checks.
D)   All of the above are correct.E) None of the above
F) A) and D)

Question 4

The confidence you have that a retailer will accept dollars in exchange for goods is based primarily on money

Accepted Answer

A)   being a unit of account.
B)   being a medium of exchange.
C)   serving as a store of value.
D)   having intrinsic value.E) B) and D)
F) B) and C)

Question 5

A bank has a 20 percent reserve requirement, $8,000 in loans, and has loaned out all it can given the reserve requirement.

Accepted Answer

A)   It has $6,400 in deposits.
B)   It has $10,000 in deposits.
C)   It has $9,600 in deposits.
D)   It has $1,600 in deposits.E) A) and D)
F) A) and C)

Question 6

The discount rate is

Accepted Answer

A)   the rate at which public banks lend to other public banks.
B)   the rate at which the Fed lends to banks.
C)   the percentage difference between the face value of a Treasury bond and what the Fed pays for it.
D)   the percentage of deposits banks hold as excess reserves.E) B) and C)
F) None of the above

Question 7

Which of the following institutions is a central bank?

Accepted Answer

A)   the Bank of Japan
B)   the Bank of England
C)   the Federal Reserve System
D)   All of the above are correct.E) A) and B)
F) A) and D)

Question 8

The federal funds rate is the interest rate that

Accepted Answer

A)   banks charge one another for loans.
B)   banks charge the Fed for loans.
C)   the Fed charges banks for loans.
D)   the Fed charges Congress for loans.E) A) and B)
F) All of the above

Question 9

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) A) and B)
F) B) and C)

Question 10

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 11

Reserves decrease if the Federal Reserve

Accepted Answer

A)   raises the discount rate or auctions more credit.
B)   raises the discount rate but not if it auctions more credit.
C)   lowers the discount rate or auctions more credit.
D)   lowers the discount rate but not if it auctions more credit.E) A) and C)
F) B) and C)

Question 12

If the reserve ratio is 5 percent, then $500 of additional reserves can create up to

Accepted Answer

A)   $10,500 of new money.
B)   $10,000 of new money.
C)   $9,500 of new money.
D)   $2,500 of new money.E) All of the above
F) B) and D)

Question 13

Which of the following defer payments?

Accepted Answer

A)   credit cards and debit cards
B)   neither credit cards nor debit cards
C)   credit cards but not debit cards
D)   debit cards but not credit cardsE) A) and B)
F) A) and C)

Question 14

One of the features of money is its store of value. However, most people do not hold their wealth as currency. Given that currency is the most liquid type of asset, why don't people hold all their wealth as currency?

Accepted Answer

Currency is not a perfect store of value...

Question 15

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

Accepted Answer

A)   fewer reserves, so the money multiplier will fall.
B)   fewer reserves, so the money multiplier will rise.
C)   more reserves, so the money multiplier will fall.
D)   more reserves, so the money multiplier will rise.E) B) and D)
F) A) and C)

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

When the Soviet Union began breaking up in the late 1980s, cigarettes began replacing the ruble as the medium of exchange even though the ruble was legal tender. The cigarettes provide an example of commodity money.

Accepted Answer

A) True 
 B)False

Question 18

Which list ranks assets from most to least liquid?

Accepted Answer

A)   money, bonds, cars, houses
B)   money, cars, houses, bonds
C)   bonds, money, cars, houses
D)   bonds, cars, money, housesE) A) and B)
F) B) and C)

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

Question 20

Traveler's checks are included in

Accepted Answer

A)   M1 but not M2.
B)   M2 but not M1.
C)   M1 and M2.
D)   neither M1 nor M2.E) A) and B)
F) A) and C)

Exam 21: The Monetary System

The confidence you have that a retailer will accept dollars in exchange for goods is based primarily on money

Correct Answer
verified

Reserves decrease if the Federal Reserve

Correct Answer
verified

If the reserve ratio is 5 percent, then $500 of additional reserves can create up to

Correct Answer
verified

The discount rate is

Correct Answer
verified

Which list ranks assets from most to least liquid?

Correct Answer
verified

If the reserve requirement is 10 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $500, it

Correct Answer
verified

Which of the following defer payments?

Correct Answer
verified

The federal funds rate is the interest rate that

Correct Answer
verified

Traveler's checks are included in

Correct Answer
verified

When the Soviet Union began breaking up in the late 1980s, cigarettes began replacing the ruble as the medium of exchange even though the ruble was legal tender. The cigarettes provide an example of commodity money.

Correct Answer
verified

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

Correct Answer
verified

Which of the following institutions is a central bank?

Correct Answer
verified

M1 includes

Correct Answer
verified

A bank has a 20 percent reserve requirement, $8,000 in loans, and has loaned out all it can given the reserve requirement.

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

One of the features of money is its store of value. However, most people do not hold their wealth as currency. Given that currency is the most liquid type of asset, why don't people hold all their wealth as currency?

Correct Answer
verified
Currency is not a perfect store of value...
View 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 Answer
verified
Bank failures cause people to lose confi...
View 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 Answer
verified

Which of the following is correct?

Correct Answer
verified

Exam 21: The Monetary System

The confidence you have that a retailer will accept dollars in exchange for goods is based primarily on money

Correct AnswerverifiedShow Answer

Reserves decrease if the Federal Reserve

Correct AnswerverifiedShow Answer

If the reserve ratio is 5 percent, then $500 of additional reserves can create up to

Correct AnswerverifiedShow Answer

The discount rate is

Correct AnswerverifiedShow Answer

Which list ranks assets from most to least liquid?

Correct AnswerverifiedShow Answer

If the reserve requirement is 10 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $500, it

Correct AnswerverifiedShow Answer

Which of the following defer payments?

Correct AnswerverifiedShow Answer

The federal funds rate is the interest rate that

Correct AnswerverifiedShow Answer

Traveler's checks are included in

Correct AnswerverifiedShow Answer

When the Soviet Union began breaking up in the late 1980s, cigarettes began replacing the ruble as the medium of exchange even though the ruble was legal tender. The cigarettes provide an example of commodity money.

Correct AnswerverifiedShow Answer

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

Correct AnswerverifiedShow Answer

Which of the following institutions is a central bank?

Correct AnswerverifiedShow Answer

M1 includes

Correct AnswerverifiedShow Answer

A bank has a 20 percent reserve requirement, $8,000 in loans, and has loaned out all it can given the reserve requirement.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

One of the features of money is its store of value. However, most people do not hold their wealth as currency. Given that currency is the most liquid type of asset, why don't people hold all their wealth as currency?

Correct AnswerverifiedCurrency is not a perfect store of value...View AnswerShow 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

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

Which of the following is correct?

Correct AnswerverifiedShow 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
Currency is not a perfect store of value...
View Answer

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

Correct Answer
verified

Correct Answer
verified