Question 1

U.S.dollars are an example of commodity money and hides used to make trades are an example of fiat money.

Accepted Answer

A) True 
 B)False

Question 2

The Federal Open Market Committee meets approximately

Accepted Answer

A)   every three weeks
B)   every six weeks
C)   every 3 months
D)   every 6 months.E) None of the above
F) All of the above

Question 3

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 C)
F) A) and B)

Question 4

If the money multiplier is 2 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 $150,000E) A) and D)
F) A) and B)

Question 5

People can write checks against

Accepted Answer

A)   demand deposits and money market mutual funds
B)   demand deposits but not money market mutual funds
C)   money market mutual funds but not demand deposits
D)   neither demand deposits nor money market mutual fundsE) A) and D)
F) C) and D)

Question 6

A bank has a 10 percent reserve requirement,$5,000 in deposits,and has loaned out all it can given the reserve requirement.

Accepted Answer

A)   It has $50 in reserves and $4,950 in loans.
B)   It has $500 in reserves and $4,500 in loans.
C)   It has $555 in reserves and $4,445 in loans.
D)   None of the above is correct.E) None of the above
F) C) and D)

Question 7

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

Question 8

When the Fed makes open-market purchases bank

Accepted Answer

A)   withdrawals and lending increase.
B)   withdrawals increase and lending decreases.
C)   deposits and lending increase.
D)   deposits increase and lending decreases.E) All of the above
F) B) and C)

Question 9

A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new store.On their respective balance sheets,this loan is

Accepted Answer

A)   an asset for the bank and a liability for Kellie's Print Shop.The loan increases the money supply.
B)   an asset for the bank and a liability for Kellie's Print Shop.The loan does not increase the money supply.
C)   a liability for the bank and an asset for Kellie's Print Shop.The loan increases the money supply.
D)   a liability for the bank and an asset for Kellie's Print Shop.The loan does not increase the money supply.E) All of the above
F) A) and B)

Question 10

Economists use the term "money" to refer to

Accepted Answer

A)   all wealth.
B)   all assets,including real assets and financial assets.
C)   all financial assets,but not real assets.
D)   those types of wealth that are regularly accepted by sellers in exchange for goods and services.E) A) and D)
F) B) and D)

Question 11

When the Federal Reserve sells assets from its portfolio to the public with the intent of changing the money supply,

Accepted Answer

A)   those assets are government bonds and the Fed's reason for selling them is to increase the money supply.
B)   those assets are government bonds and the Fed's reason for selling them is to decrease the money supply.
C)   those assets are items that are included in M2 and the Fed's reason for selling them is to increase the money supply.
D)   those assets are items that are included in M2 and the Fed's reason for selling them is to decrease the money supply.E) A) and D)
F) All of the above

Question 12

Which of the following is correct?

Accepted Answer

A)   A bank's deposits at the Federal Reserves counts as part of the bank's reserves.The Federal Reserve pays interest on these deposits.
B)   A bank's deposits at the Federal Reserves 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 Reserves 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 Reserves does not counts as part of the bank's reserves.The Federal Reserve does not pay interest on these deposits.E) B) and D)
F) B) and C)

Question 13

If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 10 percent receives a deposit of $400 it has a

Accepted Answer

A)   $400 increase in excess reserves and no increase in required reserves.
B)   $400 increase in required reserves and no increase in excess reserves.
C)   $360 increase in excess reserves and a $40 increase in required reserves.
D)   $40 increase in excess reserves and a $360 increase in required reserves.E) B) and D)
F) B) and C)

Question 14

The Fed can reduce the federal funds rate by

Accepted Answer

A)   decreasing the money supply.To decrease the money supply it could sell bonds.
B)   decreasing the money supply.To decrease the money supply it could buy bonds.
C)   increasing the money supply.To increase the money supply it could sell bonds.
D)   increasing the money supply.To increase the money supply it could buy bonds.E) A) and C)
F) All of the above

Question 15

Members of the Board of Governors of the Federal Reserve System are appointed for life.

Accepted Answer

A) True 
 B)False

Question 16

If $300 of new reserves generates $800 of new money in the economy,then the reserve ratio is

Accepted Answer

A)   2.7 percent.
B)   12.5 percent.
C)   37.5 percent.
D)   40 percent.E) A) and B)
F) All of the above

Question 17

When the Fed conducts open-market purchases,

Accepted Answer

A)   it buys Treasury securities,which increases the money supply.
B)   it buys Treasury securities,which decreases the money supply.
C)   it borrows money from member banks,which increases the money supply.
D)   it lends money to member banks,which decreases the money supply.E) None of the above
F) C) and D)

Question 18

An increase in the money supply might indicate that the Fed had

Accepted Answer

A)   purchased bonds in an attempt to increase the federal funds rate.
B)   purchased bonds in an attempt to reduce the federal funds rate.
C)   sold bonds in an attempt to increase the federal funds rate.
D)   sold bonds in an attempt to reduce the federal funds rate.E) All of the above
F) B) and C)

Question 19

M1 includes savings deposits.

Accepted Answer

A) True 
 B)False

Question 20

In 1991,the Federal Reserve lowered the reserve requirement from 12 percent to 10 percent.Other things the same this should have

Accepted Answer

A)   increased both the money multiplier and the money supply.
B)   decreased both the money multiplier and the money supply.
C)   increased the money multiplier and decreased the money supply.
D)   decreased the money multiplier and increased the money supply.E) B) and C)
F) B) and D)

Exam 21: The Monetary System

When the Federal Reserve sells assets from its portfolio to the public with the intent of changing the money supply,

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A bank has a 10 percent reserve requirement,$5,000 in deposits,and has loaned out all it can given the reserve requirement.

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Which of the following is correct?

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In 1991,the Federal Reserve lowered the reserve requirement from 12 percent to 10 percent.Other things the same this should have

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If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 10 percent receives a deposit of $400 it has a

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The Fed can reduce the federal funds rate by

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U.S.dollars are an example of commodity money and hides used to make trades are an example of fiat money.

Correct AnswerverifiedShow Answer

Economists use the term "money" to refer to

Correct AnswerverifiedShow Answer

A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new store.On their respective balance sheets,this loan is

Correct AnswerverifiedShow Answer

The Federal Open Market Committee meets approximately

Correct AnswerverifiedShow Answer

Members of the Board of Governors of the Federal Reserve System are appointed for life.

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

An increase in the money supply might indicate that the Fed had

Correct AnswerverifiedShow Answer

People can write checks against

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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

If $300 of new reserves generates $800 of new money in the economy,then the reserve ratio is

Correct AnswerverifiedShow Answer

If the money multiplier is 2 and the Fed buys $50,000 worth of bonds,what happens to the money supply?

Correct AnswerverifiedShow Answer

When the Fed makes open-market purchases bank

Correct AnswerverifiedShow Answer

M1 includes savings deposits.

Correct AnswerverifiedShow Answer

When the Fed conducts open-market purchases,

Correct AnswerverifiedShow Answer

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