Question 1

If the central bank in some country raised the reserve requirement, then the money multiplier for that country

Accepted Answer

A)   would increase.
B)   would not change.
C)   would decrease.
D)   could do any of the above.E) A) and B)
F) C) and D)

Question 2

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 currently holding 2% of deposits as excess reserves. Assuming that all banks have the same required reserve ratio, and then none want to hold excess reserves what is the value of the money multiplier?

Accepted Answer

A)   8.25
B)   10
C)   12
D)   20E) A) and D)
F) A) and C)

Question 3

If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 15 percent receives a deposit of $600, it has a

Accepted Answer

A)   $600 increase in excess reserves and no increase in required reserves.
B)   $600 increase in required reserves and no increase in excess reserves.
C)   $510 increase in excess reserves and a $90 increase in required reserves.
D)   $90 increase in excess reserves and a $510 increase in required reserves.E) All of the above
F) None of the above

Question 4

Suppose a bank purchases $50 of government securities using funds from reserves. How much do bank assets change as a result of this transaction?

Accepted Answer

In this case, the value of bank assets d...

Question 5

In recent years the Federal Open Market Committee has focused on a target for

Accepted Answer

A)   M1 growth.
B)   the federal funds rate.
C)   the number of Treasury Securities issued by the federal government.
D)   total reserves of banks.E) None of the above
F) A) and B)

Question 6

Which of the following is not included in M1?

Accepted Answer

A)   a $5 bill in your wallet
B)   $100 in your checking account
C)   $500 in your savings account
D)   All of the above are included in M1.E) All of the above
F) C) and D)

Question 7

Any item that people can use to transfer purchasing power from the present to the future is called

Accepted Answer

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

Question 8

If the reserve ratio is 20 percent, then $100 of new reserves can generate

Accepted Answer

A)   $60 of new money in the economy.
B)   $250 of new money in the economy.
C)   $500 of new money in the economy.
D)   $2,000 of new money in the economy.E) A) and D)
F) A) and B)

Question 9

Which two of the Ten Principles of Economics imply that the Fed can profoundly affect the economy?

Accepted Answer

1. Prices rise when the govern...

Question 10

Imagine an economy in which: 1)  pieces of paper called dollars are the only thing that buyers give to sellers when they buy goods and services, so it would be common to use, say, 50 dollars to buy a pair of shoes; 2)  prices are posted in terms of yardsticks, so you might walk into a grocery store and see that, today, an apple is worth 2 yardsticks; and 3)  yardsticks disintegrate overnight, so no yardstick has any value for more than 24 hours. In this economy,

Accepted Answer

A)   the yardstick is a medium of exchange but it cannot serve as a unit of account.
B)   the yardstick is a unit of account but it cannot serve as a store of value.
C)   the yardstick is a medium of exchange but it cannot serve as a store of value, and the yollar is a unit of account.
D)   the yollar is a unit of account, but it is not a medium of exchange and it is not a liquid asset.E) A) and B)
F) None of the above

Question 11

If the money multiplier decreased from 20 to 12.5, then

Accepted Answer

A)   the Fed increased the reserve ratio from 5 percent to 8 percent.
B)   the Fed increased the fed funds rate from 5 percent to 8 percent.
C)   the Fed decreased the reserve ratio from 8 percent to 5 percent.
D)   the Fed decreased the fed funds rate from 8 percent to 5 percent.E) All of the above
F) C) and D)

Question 12

In the nation of Wiknam, the money supply is $80,000 and reserves are $18,000. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

Accepted Answer

A)   29 percent.
B)   22.5 percent.
C)   16 percent.
D)   None of the above is correct.E) A) and B)
F) A) and C)

Question 13

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) A) and D)
F) A) and B)

Question 14

Suppose a bank is operating with a leverage ratio of 20. What is the maximum decrease in the market value of assets before the bank becomes insolvent?

Accepted Answer

A leverage ratio of 20 implies each perc...

Question 15

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits. As a result, bank reserves will

Accepted Answer

A)   decrease and the money supply will eventually decrease.
B)   decrease and the money supply will eventually increase.
C)   increase and the money supply will eventually decrease.
D)   increase and the money supply will eventually increase.E) C) and D)
F) A) and B)

Question 16

Paper money

Accepted Answer

A)   has a high intrinsic value.
B)   is the primary medium of exchange in a barter economy.
C)   is valuable because it is generally accepted in trade.
D)   is valuable only because of the legal tender requirement.E) None of the above
F) A) and B)

Question 17

Economists equate money with

Accepted Answer

A)   individual wealth.
B)   income regularly earned.
C)   assets people use regularly to buy goods and services.
D)   individual saving.E) C) and D)
F) A) and C)

Question 18

Suppose the Fed requires banks to hold 9 percent of their deposits as reserves. A bank has $18,000 of excess reserves and then sells the Fed a Treasury bill for $9,000. How much does this bank now have to lend out if it decides to hold only required reserves?

Accepted Answer

A)   $27,000
B)   $27,190
C)   $26,190
D)   $9,000E) B) and D)
F) B) and C)

Question 19

Money is the most liquid asset available because

Accepted Answer

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

Question 20

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 D)
F) A) and C)

Exam 21: The Monetary System

Economists use the word "money" to refer to

Correct Answer
verified

If the reserve ratio is 20 percent, then $100 of new reserves can generate

Correct Answer
verified

Suppose a bank is operating with a leverage ratio of 20. What is the maximum decrease in the market value of assets before the bank becomes insolvent?

Correct Answer
verified
A leverage ratio of 20 implies each perc...
View Answer

Money is the most liquid asset available because

Correct Answer
verified

If the central bank in some country raised the reserve requirement, then the money multiplier for that country

Correct Answer
verified

Any item that people can use to transfer purchasing power from the present to the future is called

Correct Answer
verified

If the money multiplier decreased from 20 to 12.5, then

Correct Answer
verified

Suppose a bank purchases $50 of government securities using funds from reserves. How much do bank assets change as a result of this transaction?

Correct Answer
verified
In this case, the value of bank assets d...
View Answer

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits. As a result, bank reserves will

Correct Answer
verified

If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 15 percent receives a deposit of $600, it has a

Correct Answer
verified

Which two of the Ten Principles of Economics imply that the Fed can profoundly affect the economy?

Correct Answer
verified
1. Prices rise when the govern...
View Answer

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Economists equate money with

Correct Answer
verified

In recent years the Federal Open Market Committee has focused on a target for

Correct Answer
verified

Suppose the Fed requires banks to hold 9 percent of their deposits as reserves. A bank has $18,000 of excess reserves and then sells the Fed a Treasury bill for $9,000. How much does this bank now have to lend out if it decides to hold only required reserves?

Correct Answer
verified

Which of the following is not included in M1?

Correct Answer
verified

Paper money

Correct Answer
verified

In the nation of Wiknam, the money supply is $80,000 and reserves are $18,000. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

Correct Answer
verified

Exam 21: The Monetary System

Economists use the word "money" to refer to

Correct AnswerverifiedShow Answer

If the reserve ratio is 20 percent, then $100 of new reserves can generate

Correct AnswerverifiedShow Answer

Suppose a bank is operating with a leverage ratio of 20. What is the maximum decrease in the market value of assets before the bank becomes insolvent?

Correct AnswerverifiedA leverage ratio of 20 implies each perc...View AnswerShow Answer

Money is the most liquid asset available because

Correct AnswerverifiedShow Answer

If the central bank in some country raised the reserve requirement, then the money multiplier for that country

Correct AnswerverifiedShow Answer

Any item that people can use to transfer purchasing power from the present to the future is called

Correct AnswerverifiedShow Answer

If the money multiplier decreased from 20 to 12.5, then

Correct AnswerverifiedShow Answer

Suppose a bank purchases $50 of government securities using funds from reserves. How much do bank assets change as a result of this transaction?

Correct AnswerverifiedIn this case, the value of bank assets d...View AnswerShow Answer

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits. As a result, bank reserves will

Correct AnswerverifiedShow Answer

If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 15 percent receives a deposit of $600, it has a

Correct AnswerverifiedShow Answer

Which two of the Ten Principles of Economics imply that the Fed can profoundly affect the economy?

Correct Answerverified1. Prices rise when the govern...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Economists equate money with

Correct AnswerverifiedShow Answer

In recent years the Federal Open Market Committee has focused on a target for

Correct AnswerverifiedShow Answer

Suppose the Fed requires banks to hold 9 percent of their deposits as reserves. A bank has $18,000 of excess reserves and then sells the Fed a Treasury bill for $9,000. How much does this bank now have to lend out if it decides to hold only required reserves?

Correct AnswerverifiedShow Answer

Which of the following is not included in M1?

Correct AnswerverifiedShow Answer

Paper money

Correct AnswerverifiedShow Answer

In the nation of Wiknam, the money supply is $80,000 and reserves are $18,000. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A leverage ratio of 20 implies each perc...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
In this case, the value of bank assets d...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
1. Prices rise when the govern...
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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