Question 1

Suppose a bank receives a new deposit of $500. The bank extends a new loan of $400 because it is required to hold the other $100 on reserve. What is the legal required reserve ratio?

Accepted Answer

A)   10 percent
B)   15 percent
C)   20 percent
D)   25 percentE) All of the above
F) A) and B)

Question 2

Suppose the Fed purchases $10 million of U.S. securities from the public. If the reserve requirement is 10 percent, the currency holdings of the public are unchanged, and banks have zero excess reserves both before and after the transaction, the total impact on the money supply will be a:

Accepted Answer

A)   $10 million decrease in the money supply.
B)   $10 million increase in the money supply.
C)   $100 million decrease in the money supply.
D)   $100 million increase in the money supply.E) B) and D)
F) All of the above

Question 3

If the Fed wanted to shift to a restrictive monetary policy and reduce the money supply, it could

Accepted Answer

A)   decrease the reserve requirements imposed on commercial banks.
B)   purchase U.S. government securities and other financial assets in the open market.
C)   decrease the interest rate on loans extended to banks and other financial institutions.
D)   increase the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans.E) B) and D)
F) B) and C)

Question 4

If First Guarantee Bank confronts a 10 percent reserve requirement and has excess reserves of $2,000,000, what is the maximum amount of additional loans that the bank can extend?

Accepted Answer

A)   $200,000
B)   $1,800,000
C)   $2,000,000
D)   $20,000,000E) None of the above
F) A) and B)

Question 5

Which of the following would cause the actual deposit expansion multiplier to be less than its potential?

Accepted Answer

A)   the general public holding of funds in the form of currency rather than bank deposits
B)   the holding of excess reserves by commercial banks
C)   the general public holding of funds in the form of coins rather than bills
D)   both a and bE) B) and C)
F) B) and D)

Question 6

Widespread use of credit cards

Accepted Answer

A)   will increase the M1 money supply figures.
B)   will increase the M2 money supply figures but not those for M1.
C)   tends to reduce the average quantity of money that people will choose to hold.
D)   tends to increase the average quantity of money that people will choose to hold.E) None of the above
F) All of the above

Question 7

When a commercial bank borrows from a Federal Reserve bank,

Accepted Answer

A)   the commercial bank's reserves are reduced.
B)   the commercial bank's lending ability is increased.
C)   the money supply automatically declines.
D)   the net worth of the bank will decline, indicating that the bank is having financial difficulties.E) All of the above
F) A) and D)

Question 8

The value (purchasing power)  of each unit of money

Accepted Answer

A)   does not depend on the amount of money in circulation.
B)   tends to increase as the money supply expands.
C)   increases as prices rise.
D)   is inversely related to prices (in other words, money's value falls as prices rise and vice versa) .E) C) and D)
F) None of the above

Question 9

If the prices of goods and services fall, the value of money (its purchasing power)

Accepted Answer

A)   increases.
B)   decreases.
C)   stays the same.
D)   can either increase or decrease.E) B) and D)
F) A) and B)

Question 10

You withdraw $100 from your checking account. How does this affect the money supply and the reserves of your bank?

Accepted Answer

A)   The money supply increases, and the reserves of your bank decline.
B)   Both money supply and the reserves of your bank increase.
C)   There is no change in the money supply, and the reserves of your bank decline.
D)   The money supply decreases, and the reserves of your bank increase.E) A) and B)
F) B) and C)

Question 11

When the Federal Reserve System wants to increase the money supply, what does it typically do?

Accepted Answer

A)   It purchases U.S. government securities.
B)   It increases the discount rate.
C)   It increases the required reserve ratio.
D)   It sells bonds on the open market.E) C) and D)
F) B) and D)

Question 12

The conduct of monetary policy is the responsibility of

Accepted Answer

A)   commercial banks.
B)   the U.S. Treasury.
C)   the Federal Reserve System.
D)   the Congress and the president.E) All of the above
F) B) and C)

Question 13

In order for barter trades to occur, there must be a

Accepted Answer

A)   singularity of interests.
B)   bargaining intermediary.
C)   double coincidence of wants.
D)   sufficient supply of cash.E) All of the above
F) A) and B)

Question 14

Suppose Simona deposits $10,000 of cash into a checking account at a commercial bank. The immediate effect is

Accepted Answer

A)   a $10,000 decrease in the M1 money supply.
B)   no change in the M1 money supply, but in the future, the M1 money supply will tend to decrease because the bank now has excess reserves.
C)   no change in the M1 money supply, but in the future, the M1 money supply will tend to expand because the bank now has excess reserves.
D)   a $10,000 increase in the M1 money supply.E) None of the above
F) B) and C)

Question 15

Best National Bank is subject to a 10 percent required-reserve ratio. If this bank received a new checkable deposit of $1,000, it could make new loans of

Accepted Answer

A)   $100.
B)   $900.
C)   $1,000.
D)   $10,000.E) None of the above
F) A) and D)

Question 16

The federal funds market is the market where

Accepted Answer

A)   the federal government raises funds to cover its budget deficit.
B)   the Federal Reserve System makes loans to commercial banks.
C)   commercial banks with excess reserves make loans to commercial banks seeking reserves.
D)   commercial banks make loans to the Federal Reserve.E) A) and B)
F) All of the above

Question 17

Assuming a 20 percent legal reserve requirement, a new deposit of $10,000 in a commercial bank will place that bank in a position to lend out an additional

Accepted Answer

A)   $2,000.
B)   $8,000.
C)   $10,000.
D)   $50,000.E) A) and D)
F) All of the above

Question 18

Fiat money is money

Accepted Answer

A)   that has little intrinsic value and is not backed by a commodity.
B)   that is not included as part of the M1 money supply.
C)   that is backed by gold or silver held on reserve by the government.
D)   such as coins that are made from metal.E) A) and C)
F) C) and D)

Question 19

Money is

Accepted Answer

A)   valuable because it is backed by gold.
B)   whatever is generally accepted in exchange for goods and services.
C)   anything that is a liability of a commercial bank
D)   an object to be consumed.E) None of the above
F) C) and D)

Question 20

Which of the following will limit the money creation process to an amount less than the potential amount?

Accepted Answer

A)   bank pursuit of profits
B)   increase in currency holdings by the public
C)   business demand for loans
D)   increased use of credit cardsE) A) and C)
F) B) and D)

Exam 13: A : Money and the Banking System

The conduct of monetary policy is the responsibility of

Correct AnswerverifiedShow Answer

Suppose the Fed purchases $10 million of U.S. securities from the public. If the reserve requirement is 10 percent, the currency holdings of the public are unchanged, and banks have zero excess reserves both before and after the transaction, the total impact on the money supply will be a:

Correct AnswerverifiedShow Answer

Best National Bank is subject to a 10 percent required-reserve ratio. If this bank received a new checkable deposit of $1,000, it could make new loans of

Correct AnswerverifiedShow Answer

The federal funds market is the market where

Correct AnswerverifiedShow Answer

Which of the following will limit the money creation process to an amount less than the potential amount?

Correct AnswerverifiedShow Answer

Widespread use of credit cards

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When the Federal Reserve System wants to increase the money supply, what does it typically do?

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When a commercial bank borrows from a Federal Reserve bank,

Correct AnswerverifiedShow Answer

Suppose Simona deposits $10,000 of cash into a checking account at a commercial bank. The immediate effect is

Correct AnswerverifiedShow Answer

Money is

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Assuming a 20 percent legal reserve requirement, a new deposit of $10,000 in a commercial bank will place that bank in a position to lend out an additional

Correct AnswerverifiedShow Answer

If First Guarantee Bank confronts a 10 percent reserve requirement and has excess reserves of $2,000,000, what is the maximum amount of additional loans that the bank can extend?

Correct AnswerverifiedShow Answer

If the Fed wanted to shift to a restrictive monetary policy and reduce the money supply, it could

Correct AnswerverifiedShow Answer

If the prices of goods and services fall, the value of money (its purchasing power)

Correct AnswerverifiedShow Answer

In order for barter trades to occur, there must be a

Correct AnswerverifiedShow Answer

Fiat money is money

Correct AnswerverifiedShow Answer

The value (purchasing power) of each unit of money

Correct AnswerverifiedShow Answer

Which of the following would cause the actual deposit expansion multiplier to be less than its potential?

Correct AnswerverifiedShow Answer

Suppose a bank receives a new deposit of $500. The bank extends a new loan of $400 because it is required to hold the other $100 on reserve. What is the legal required reserve ratio?

Correct AnswerverifiedShow Answer

You withdraw $100 from your checking account. How does this affect the money supply and the reserves of your bank?

Correct AnswerverifiedShow Answer

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