Question 1

The federal funds rate is the

Accepted Answer

A)   percentage of face value that the Federal Reserve is willing to pay for Treasury Securities.
B)   percentage of deposits that banks must hold as reserves.
C)   interest rate at which the Federal Reserve makes short-term loans to banks.
D)   interest rate at which banks lend reserves to each other overnight.E) B) and D)
F) A) and B)

Question 2

The problem faced by the Fed stems from two of the Ten Principles of Economics.Those principles are as follows:

Accepted Answer

A)   (1) Governments can usually improve market outcomes,and (2) society faces a short-run trade-off between inflation and unemployment.
B)   (1) Governments can sometimes improve market outcomes,and (2) interest rates fall when the government prints too much money.
C)   (1) Society faces a short-run trade-off between inflation and unemployment,and (2) prices rise when the government prints too much money.
D)   (1) Society faces a long-run trade-off between inflation and unemployment,and (2) prices rise when the government prints too much money.E) All of the above
F) C) and D)

Question 3

If the reserve ratio is 20 percent,how much money can be created from $100 of reserves? Show your work.

Accepted Answer

(1/.20) <img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> $...

Question 4

In the U.S. ,the average adult holds about $3,300 in

Accepted Answer

A)   currency.
B)   wealth.
C)   M1.
D)   M2.E) A) and D)
F) C) and D)

Question 5

Suppose banks desire to hold no excess reserves.If the reserve requirement is 10 percent and if a bank receives a new deposit of $10,then this bank

Accepted Answer

A)   must increase its required reserves by $1.
B)   will initially see its total reserves increase by $1.
C)   will be able to make new loans up to a maximum of $1.
D)   All of the above are correct.E) A) and C)
F) C) and D)

Question 6

If the Federal Open Market Committee decides to increase the money supply,then the Federal Reserve

Accepted Answer

A)   creates dollars and uses them to purchase government bonds from the public.
B)   sells government bonds from its portfolio to the public.
C)   creates dollars and uses them to purchase various types of stocks and bonds from the public.
D)   sells various types of stocks and bonds from its portfolio to the public.E) A) and C)
F) C) and D)

Question 7

Regulations on the

Accepted Answer

A)   maximum amount of reserves that banks can hold against deposits are called reserve requirements.
B)   minimum amount of reserves that banks must hold against deposits are called reserve requirements.
C)   extent to which banks can buy and sell bonds are called open-market requirements.
D)   extent to which banks can make new loans are called open-market requirements.E) A) and D)
F) A) and B)

Question 8

Suppose that banks desire to hold no excess reserves,the reserve requirement is 5 percent,and a bank receives a new deposit of $1,000.This bank

Accepted Answer

A)   will increase its required reserves by $50.
B)   will initially see its total reserves increase by $1,000.
C)   will be able to make a new loan of $950.
D)   All of the above are correct.E) B) and C)
F) All of the above

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) None of the above
F) B) and C)

Question 10

Which of the following functions of money is also a common function of most other financial assets?

Accepted Answer

A)   a unit of account
B)   a store of value
C)   medium of exchange
D)   None of the above is correct.E) A) and B)
F) A) and C)

Question 11

Scenario 29-1.
The monetary policy of Salidiva is determined by the Salidivian Central Bank.The local currency is the salido.Salidivian banks collectively hold 100 million salidos of required reserves,25 million salidos of excess reserves,250 million salidos of Salidivian Treasury Bonds,and their customers hold 1,000 million salidos of deposits.Salidivians prefer to use only demand deposits and so the money supply consists of demand deposits.
-Refer to Scenario 29-1.Assume that banks desire to continue holding the same ratio of excess reserves to deposits.What is the reserve requirement and what is the reserve ratio?

Accepted Answer

A)   2 percent,8 percent
B)   8 percent,10 percent
C)   10 percent,12.5 percent
D)   None of the above is correct.E) B) and C)
F) B) and D)

Question 12

Scenario 29-2.
The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi.The local unit of currency is the Taz.Aggregate banking statistics show that collectively the banks of Tazi hold 300 million Tazes of required reserves,75 million Tazes of excess reserves,have issued 7,500 million Tazes of deposits,and hold 225 million Tazes of Tazian Treasury bonds.Tazians prefer to use only demand deposits and so all money is on deposit at the bank.
-Refer to Scenario 29-2.Suppose the Bank of Tazi loaned the banks of Tazi 10 million Tazes.Suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the same.By how much would the money supply change?

Accepted Answer

A)   250 million Tazes
B)   200 million Tazes
C)   125 million Tazes
D)   None of the above is correct.E) B) and C)
F) A) and B)

Question 13

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

Accepted Answer

A)   the 100-percent-reserve banking system in the U.S.makes it difficult for the Fed to carry out its monetary policy.
B)   the Fed has to get the approval of the U.S.Treasury Department whenever it uses any of its monetary policy tools.
C)   the Fed does not have a tool that it can use to change the money supply by either a small amount or a large amount.
D)   the Fed does not control the amount of money that households choose to hold as deposits in banks.E) A) and B)
F) A) and C)

Question 14

Which of the following lists two things that both decrease the money supply?

Accepted Answer

A)   raise the discount rate,make open market purchases
B)   raise the discount rate,make open market sales
C)   lower the discount rate,make open market purchases
D)   lower the discount rate,make open market salesE) All of the above
F) A) and B)

Question 15

Which of the following is not correct?

Accepted Answer

A)   The twelve regional Federal Reserve Banks play a role in regulating banks and ensuring the health of the banking system.
B)   U.S.monetary policy is made by the Federal Open Market Committee.
C)   The Federal Open Market Committee meets every 12 weeks.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 16

The legal tender requirement means that

Accepted Answer

A)   people are more likely to accept the dollar as a medium of exchange.
B)   the government must hold enough gold to redeem all currency.
C)   people may not make trades with anything else.
D)   All of the above are correct.E) All of the above
F) B) and C)

Question 17

Table 29-6.
Bank of Springfield
 
-Refer to Table 29-6.Assume the Fed's reserve requirement is 6 percent and that the Bank of Springfield makes new loans so as to make its new reserve ratio 6 percent.From then on,no bank holds any excess reserves.Assume also that people hold only deposits and no currency.Then by what amount does the economy's money supply increase?

Accepted Answer

A)   $50,200
B)   $72,000
C)   $80,000
D)   $106,000E) None of the above
F) B) and D)

Question 18

Credit cards

Accepted Answer

A)   are included in M1 but not M2.
B)   are included in M1 and M2.
C)   are included in M2 but not M1
D)   are not included in any measure of the money supply.E) C) and D)
F) A) and B)

Question 19

Money allows people to specialize in what they do best,thereby raising everyone's standard of living.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is not included in M1?

Accepted Answer

A)   currency
B)   demand deposits
C)   traveler's checks
D)   credit cardsE) A) and B)
F) A) and C)

Exam 29: The Monetary System

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 Answer
verified

Regulations on the

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The legal tender requirement means that

Correct Answer
verified

Correct Answer
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Which of the following functions of money is also a common function of most other financial assets?

Correct Answer
verified

The federal funds rate is the

Correct Answer
verified

Which of the following lists two things that both decrease the money supply?

Correct Answer
verified

If the reserve ratio is 20 percent,how much money can be created from $100 of reserves? Show your work.

Correct Answer
verified
(1/.20) $...
View Answer

Money allows people to specialize in what they do best,thereby raising everyone's standard of living.

Correct Answer
verified

Suppose that banks desire to hold no excess reserves,the reserve requirement is 5 percent,and a bank receives a new deposit of $1,000.This bank

Correct Answer
verified

If the Federal Open Market Committee decides to increase the money supply,then the Federal Reserve

Correct Answer
verified

The problem faced by the Fed stems from two of the Ten Principles of Economics.Those principles are as follows:

Correct Answer
verified

In the U.S. ,the average adult holds about $3,300 in

Correct Answer
verified

Credit cards

Correct Answer
verified

Suppose banks desire to hold no excess reserves.If the reserve requirement is 10 percent and if a bank receives a new deposit of $10,then this bank

Correct Answer
verified

Which of the following is not correct?

Correct Answer
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Which of the following is not included in M1?

Correct Answer
verified

Exam 29: The Monetary System

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

Regulations on the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The legal tender requirement means that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following functions of money is also a common function of most other financial assets?

Correct AnswerverifiedShow Answer

The federal funds rate is the

Correct AnswerverifiedShow Answer

Which of the following lists two things that both decrease the money supply?

Correct AnswerverifiedShow Answer

If the reserve ratio is 20 percent,how much money can be created from $100 of reserves? Show your work.

Correct Answerverified(1/.20) $...View AnswerShow Answer

Money allows people to specialize in what they do best,thereby raising everyone's standard of living.

Correct AnswerverifiedShow Answer

Suppose that banks desire to hold no excess reserves,the reserve requirement is 5 percent,and a bank receives a new deposit of $1,000.This bank

Correct AnswerverifiedShow Answer

If the Federal Open Market Committee decides to increase the money supply,then the Federal Reserve

Correct AnswerverifiedShow Answer

The problem faced by the Fed stems from two of the Ten Principles of Economics.Those principles are as follows:

Correct AnswerverifiedShow Answer

In the U.S. ,the average adult holds about $3,300 in

Correct AnswerverifiedShow Answer

Credit cards

Correct AnswerverifiedShow Answer

Suppose banks desire to hold no excess reserves.If the reserve requirement is 10 percent and if a bank receives a new deposit of $10,then this bank

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

Which of the following is not included in M1?

Correct AnswerverifiedShow Answer

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(1/.20) $...
View Answer

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