Question 1

Which of the following statements is correct? In the special case of the 100-percent reserve banking the money multiplier is

Accepted Answer

A)   0 and banks create money.
B)   0 and banks do not create money.
C)   1 and banks create money
D)   1 and banks do not create money.E) A) and B)
F) A) and C)

Question 2

Demand deposits are a type of

Accepted Answer

A)   checking account.
B)   time deposit.
C)   money market mutual fund.
D)   savings deposit.E) All of the above
F) A) and D)

Question 3

One surprising thing about the U.S. money stock is that

Accepted Answer

A)   banks hold so much currency relative to the public.
B)   the public holds so much currency relative to banks.
C)   there is so little currency per person.
D)   there is so much currency per person.E) B) and C)
F) A) and B)

Question 4

Suppose banks decide to hold more excess reserves relative to deposits. Other things the same, this action will cause the

Accepted Answer

A)   money supply to fall. To reduce the impact of this the Fed could sell Treasury bonds.
B)   money supply to fall. To reduce the impact of this the Fed could buy Treasury bonds.
C)   money supply to rise. To reduce the impact of this the Fed could sell Treasury bonds.
D)   money supply to rise. To reduce the impact of this the Fed could buy Treasury bonds.E) A) and B)
F) B) and C)

Question 5

Consider five individuals with different occupations.  If this economy has money

Accepted Answer

A)   Allen will buy from Betty
B)   Betty will buy from Calvin
C)   Eric will buy from Allen
D)   None of the above are correct.E) A) and B)
F) A) and C)

Question 6

Other things the same, if banks decide to hold a smaller part of their deposits as excess reserves, the money supply will fall.

Accepted Answer

A) True 
 B)False

Question 7

When a bank loans out $1,000, the money supply

Accepted Answer

A)   does not change.
B)   decreases.
C)   increases.
D)   may do any of the above.E) All of the above
F) C) and D)

Question 8

The manager of the bank where you work tells you that the bank has $300 million in deposits and $255 million dollars in loans. If the reserve requirement is 10 percent, how much is the bank holding in excess reserves?

Accepted Answer

A)   $15 million
B)   $19.5 million
C)   $25.5 million
D)   $30 millionE) B) and C)
F) B) and D)

Question 9

If traveler's checks were $500 higher and saving deposits were $1,000 higher, M1 would be

Accepted Answer

A)   $500 higher and M2 would be $1,000 higher
B)   $500 higher and M2 would be $1,500 higher
C)   M2 and M1 would be $1,500 higher
D)   None of the above are correct.E) C) and D)
F) B) and D)

Question 10

The federal funds rate is the interest rate

Accepted Answer

A)   the Federal Reserves charges for loans it makes to the federal government.
B)   the Federal Reserve charges banks for short-term loans.
C)   banks charge each other for short-term loans of reserves.
D)   on newly issued one-year Treasury bonds.E) B) and D)
F) A) and C)

Question 11

Demand deposits 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) B) and D)

Question 12

Currency includes

Accepted Answer

A)   paper bills and coins.
B)   demand deposits.
C)   credit cards.
D)   Both (a)  and (b)  are correct.E) A) and B)
F) A) and C)

Question 13

At one time, people in a certain country had no access to banks; they relied exclusively on currency. Then, a fractional-reserve banking system was created. As a result, the money supply

Accepted Answer

A)   increased. The central bank could have reduced the size of this increase by buying bonds.
B)   increased. The central bank could have reduced the size of this increase by selling bonds.
C)   decreased. The central bank could have reduced the size of this decrease by buying bonds.
D)   decreased. The central bank could have reduced the size of this decrease by selling bonds.E) A) and B)
F) C) and D)

Question 14

Which of the following is included in M2 but not in M1?

Accepted Answer

A)   currency
B)   demand deposits
C)   savings deposits
D)   All of the above are included in both M1 and M2.E) None of the above
F) A) and B)

Question 15

If people decide to hold less currency relative to deposits, the money supply

Accepted Answer

A)   falls. The Fed could lessen the impact of this by buying Treasury bonds.
B)   falls. The Fed could lessen the impact of this by selling Treasury bonds.
C)   rises. The Fed could lessen the impact of this by buying Treasury bonds.
D)   rises. The Fed could lessen the impact of this by selling Treasury bonds.E) A) and C)
F) A) and B)

Question 16

Table 11-4.
 
-Refer to Table 11-4. Suppose the bank faces a reserve requirement of 10 percent. Starting from the situation as depicted by the T-account, a customer deposits an additional $50,000 into his account at the bank. If the bank takes no other action it will

Accepted Answer

A)   have $65,000 in excess reserves.
B)   have $55,000 in excess reserves.
C)   need to raise an additional $5,000 of reserves to meet the reserve requirement ratio
D)   None of the above is correct.E) All of the above
F) A) and D)

Question 17

The money supply of Granov is $10,000 in a 100-percent-reserve banking system. If the Central Bank of Granov decreases the reserve requirement ratio to 10 percent, the money supply could increase by no more than $9,000.

Accepted Answer

A) True 
 B)False

Question 18

A bank's reserve ratio is 6.5 percent and the bank has $1,950 in reserve. Its deposits amount to

Accepted Answer

A)   $62.25.
B)   $126.75.
C)   $22,500.00
D)   $30,000.00.E) A) and D)
F) B) and D)

Question 19

Federal Reserve governors are given long terms to insulate them from politics.

Accepted Answer

A) True 
 B)False

Question 20

The members of the Federal Reserve's Board of Governors

Accepted Answer

A)   are elected to office by the public every fourteen years.
B)   are nominated by the U.S. Senate banking committee and confirmed by the U.S. house of representatives.
C)   are elected by bankers in each Federal Reserve Region.
D)   are appointed by the president of the U.S. and confirmed by the U.S. Senate.E) None of the above
F) A) and B)

Exam 11: The Monetary System

At one time, people in a certain country had no access to banks; they relied exclusively on currency. Then, a fractional-reserve banking system was created. As a result, the money supply

Correct AnswerverifiedShow Answer

Suppose banks decide to hold more excess reserves relative to deposits. Other things the same, this action will cause the

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If traveler's checks were $500 higher and saving deposits were $1,000 higher, M1 would be

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Demand deposits are included in

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Consider five individuals with different occupations. If this economy has money

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The money supply of Granov is $10,000 in a 100-percent-reserve banking system. If the Central Bank of Granov decreases the reserve requirement ratio to 10 percent, the money supply could increase by no more than $9,000.

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When a bank loans out $1,000, the money supply

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Table 11-4. -Refer to Table 11-4. Suppose the bank faces a reserve requirement of 10 percent. Starting from the situation as depicted by the T-account, a customer deposits an additional $50,000 into his account at the bank. If the bank takes no other action it will

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Demand deposits are a type of

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Federal Reserve governors are given long terms to insulate them from politics.

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Which of the following is included in M2 but not in M1?

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The federal funds rate is the interest rate

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Other things the same, if banks decide to hold a smaller part of their deposits as excess reserves, the money supply will fall.

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Which of the following statements is correct? In the special case of the 100-percent reserve banking the money multiplier is

Correct AnswerverifiedShow Answer

The manager of the bank where you work tells you that the bank has $300 million in deposits and $255 million dollars in loans. If the reserve requirement is 10 percent, how much is the bank holding in excess reserves?

Correct AnswerverifiedShow Answer

Currency includes

Correct AnswerverifiedShow Answer

One surprising thing about the U.S. money stock is that

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The members of the Federal Reserve's Board of Governors

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If people decide to hold less currency relative to deposits, the money supply

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A bank's reserve ratio is 6.5 percent and the bank has $1,950 in reserve. Its deposits amount to

Correct AnswerverifiedShow Answer

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