Question 1

The banking system currently has $50 billion of reserves,none of which are excess.People hold only deposits and no currency,and the reserve requirement is 10 percent.If the Fed raises the reserve requirement to 12.5 percent and at the same time sells $10 billion worth of bonds,then by how much does the money supply change?

Accepted Answer

A)   It falls by $20 billion.
B)   It falls by $110 billion.
C)   It falls by $180 billion.
D)   None of the above is correct.E) A) and C)
F) C) and D)

Question 2

All U.S.paper dollars read "This note is legal tender for all debts,public and private." This statement represents which characteristic of US currency?

Accepted Answer

A)   The U.S.operates under the gold standard.
B)   U.S.paper money is commodity money.
C)   U.S.paper money is fiat money.
D)   U.S.paper money is a convenient store of wealth.E) B) and C)
F) A) and D)

Question 3

Table 16-3.
 
-Refer to Table 16-3.Starting from the situation as depicted by the T-account,if someone deposits $500 into the First Bank of Fairfield,and if the bank makes new loans so as to keep its reserve ratio unchanged,then the amount of new loans that it makes will be

Accepted Answer

A)   $320.
B)   $400.
C)   $680.
D)   $750.E) A) and C)
F) None of the above

Question 4

Table 16-7
Metropolis National Bank is currently holding 2% of its deposits as excess reserves.
 
-Refer to Balance Sheet of Metropolis National Bank.Metropolis National Bank is holding 2% of its deposits as excess reserves.Assume that no banks in the economy want to maintain holdings of excess reserves and that people only hold deposits and no currency.The Fed makes open market purchases of $10,000.The person who sold bonds to the Fed deposits all the funds in Metropolis National Bank.If the bank now loans out all its excess reserves,by how much will the money supply increase?

Accepted Answer

A)   $190,000
B)   $200,000
C)   $240,000
D)   None of the above are correct.E) All of the above
F) A) and C)

Question 5

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

Question 6

Table 16-3.
 
-Refer to Table 16-3.The reserve ratio for this bank is

Accepted Answer

A)   0 percent.
B)   20 percent.
C)   80 percent.
D)   100 percent.E) B) and C)
F) C) and D)

Question 7

Assume that when $100 of new reserves enter the banking system,the money supply ultimately increases by $800.Assume also that no banks hold excess reserves and that the entire money supply consists of bank deposits.If,at a point in time,reserves for all banks amount to $750,then at that same point in time,loans for all banks amount to $6,000.

Accepted Answer

A) True 
 B)False

Question 8

The set of items that serve as media of exchange clearly includes

Accepted Answer

A)   demand deposits.
B)   short-term bonds.
C)   credit cards.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 9

In December 1999 people feared that there might be computer problems at banks as the century changed.Consequently,people wanted to hold relatively more in currency and relatively less in deposits.In anticipation banks raised their reserve ratios to have enough cash on hand to meet depositors' demands.These actions by the public

Accepted Answer

A)   would increase the multiplier.If the Fed wanted to offset the effect of this on the size of the money supply,it could have sold bonds.
B)   would increase the multiplier.If the Fed wanted to offset the effect of this on the size of the money supply,it could have bought bonds.
C)   would reduce the multiplier.If the Fed wanted to offset the effect of this on the size of the money supply,it could have sold bonds.
D)   would reduce the multiplier.If the Fed wanted to offset the effect of this on the size of the money supply,it could have bought bonds.E) All of the above
F) A) and B)

Question 10

Which of the following does the Federal Reserve not do?

Accepted Answer

A)   conduct monetary policy
B)   act as a lender of last resort
C)   convert Federal Reserve Notes into gold
D)   serve as a bank regulatorE) A) and B)
F) None of the above

Question 11

Banks can hold deposits at the Federal Reserve.Balances in these accounts can be used by banks to meet their reserve requirements,but the Fed pays no interest on these deposits.

Accepted Answer

A) True 
 B)False

Question 12

Explain how each of the following changes the money supply.
a.
the Fed buys bonds
b.
the Fed auctions credit
c.
the Fed raises the discount rate
d.
the Fed raises the reserve requirement

Accepted Answer

a.
If the Fed buys bonds,it pays for the...

Question 13

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

Question 14

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 15

If the federal funds rate were above 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 increase the money supply.
B)   buying bonds.This buying would reduce the money supply.
C)   selling bonds.This selling would increase the money supply.
D)   selling bonds.This selling would reduce the money supply.E) A) and B)
F) C) and D)

Question 16

The Fed sets the interest that borrowers pay on loans from

Accepted Answer

A)   the discount window and the term auction facility
B)   the discount window but not the term auction facility
C)   the term auction facility but not the discount window
D)   neither the discount window nor the term auction facilityE) A) and C)
F) A) and B)

Question 17

If the reserve ratio is 12.5 percent,then $5,600 of money can be generated by

Accepted Answer

A)   $64 of new reserves.
B)   $448 of new reserves.
C)   $700 of new reserves.
D)   $800 of new reserves.E) C) and D)
F) B) and C)

Question 18

At any given time,the voting members of the Federal Open Market Committee include

Accepted Answer

A)   five of the presidents of the regional Federal Reserve banks.
B)   the president of the Federal Reserve Bank of New York.
C)   the seven members of the Board of Governors.
D)   All of the above are correct.E) None of the above
F) B) and C)

Question 19

Which of the following is included in both M1 and M2?

Accepted Answer

A)   currency
B)   demand deposits
C)   other checkable deposits
D)   All of the above are correct.E) A) and C)
F) None of the above

Question 20

Small time 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) B) and D)
F) C) and D)

Exam 29: The Monetary System

Small time deposits are included in

Correct Answer
verified

Which of the following is included in both M1 and M2?

Correct Answer
verified

Table 16-3. -Refer to Table 16-3.The reserve ratio for this bank is

Correct Answer
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Correct Answer
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Which of the following does the Federal Reserve not do?

Correct Answer
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At any given time,the voting members of the Federal Open Market Committee include

Correct Answer
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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 Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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The Fed sets the interest that borrowers pay on loans from

Correct Answer
verified

Table 16-3. -Refer to Table 16-3.Starting from the situation as depicted by the T-account,if someone deposits $500 into the First Bank of Fairfield,and if the bank makes new loans so as to keep its reserve ratio unchanged,then the amount of new loans that it makes will be

Correct Answer
verified

Explain how each of the following changes the money supply. a. the Fed buys bonds b. the Fed auctions credit c. the Fed raises the discount rate d. the Fed raises the reserve requirement

Correct Answer
verified
a.
If the Fed buys bonds,it pays for the...
View Answer

If the reserve ratio is 12.5 percent,then $5,600 of money can be generated by

Correct Answer
verified

The set of items that serve as media of exchange clearly includes

Correct Answer
verified

Banks can hold deposits at the Federal Reserve.Balances in these accounts can be used by banks to meet their reserve requirements,but the Fed pays no interest on these deposits.

Correct Answer
verified

All U.S.paper dollars read "This note is legal tender for all debts,public and private." This statement represents which characteristic of US currency?

Correct Answer
verified

The discount rate is

Correct Answer
verified

If the federal funds rate were above the level the Federal Reserve had targeted,the Fed could move the rate back towards its target by

Correct Answer
verified

The federal funds rate is the

Correct Answer
verified

Exam 29: The Monetary System

Small time deposits are included in

Correct AnswerverifiedShow Answer

Which of the following is included in both M1 and M2?

Correct AnswerverifiedShow Answer

Table 16-3. -Refer to Table 16-3.The reserve ratio for this bank is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following does the Federal Reserve not do?

Correct AnswerverifiedShow Answer

At any given time,the voting members of the Federal Open Market Committee include

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Fed sets the interest that borrowers pay on loans from

Correct AnswerverifiedShow Answer

Table 16-3. -Refer to Table 16-3.Starting from the situation as depicted by the T-account,if someone deposits $500 into the First Bank of Fairfield,and if the bank makes new loans so as to keep its reserve ratio unchanged,then the amount of new loans that it makes will be

Correct AnswerverifiedShow Answer

Explain how each of the following changes the money supply. a. the Fed buys bonds b. the Fed auctions credit c. the Fed raises the discount rate d. the Fed raises the reserve requirement

Correct Answerverifieda.If the Fed buys bonds,it pays for the...View AnswerShow Answer

If the reserve ratio is 12.5 percent,then $5,600 of money can be generated by

Correct AnswerverifiedShow Answer

The set of items that serve as media of exchange clearly includes

Correct AnswerverifiedShow Answer

Banks can hold deposits at the Federal Reserve.Balances in these accounts can be used by banks to meet their reserve requirements,but the Fed pays no interest on these deposits.

Correct AnswerverifiedShow Answer

All U.S.paper dollars read "This note is legal tender for all debts,public and private." This statement represents which characteristic of US currency?

Correct AnswerverifiedShow Answer

The discount rate is

Correct AnswerverifiedShow Answer

If the federal funds rate were above the level the Federal Reserve had targeted,the Fed could move the rate back towards its target by

Correct AnswerverifiedShow Answer

The federal funds rate is the

Correct AnswerverifiedShow Answer

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a.
If the Fed buys bonds,it pays for the...
View Answer

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Correct Answer
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