Question 1

If the reserve requirement is 15 percent a bank desires to hold no excess reserves and it receives a new deposit of $10,then this bank

Accepted Answer

A)   must increase its required reserves by $10.
B)   will initially see its total reserves increase by $15.
C)   will be able to make new loans up to a maximum of $8.50.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 2

A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of $100.If customers deposit $50 into the bank,what is the value of the money supply?

Accepted Answer

A)   $50
B)   $100
C)   $150
D)   $200E) A) and B)
F) None of the above

Question 3

Derek decides to forego a major appliance purchase and save the money.He transfers $2,100 from his checking account to his savings account.As a result of this transfer by itself

Accepted Answer

A)   M1 increases by $2,100 and M2 stays the same.
B)   M1 increases by $2,100 and M2 increases by $2,100.
C)   M1 decreases by $2,100 and M2 increases by $2,100.
D)   M1 decreases by $2,100 and M2 stays the same.E) B) and C)
F) A) and B)

Question 4

Suppose that in a country the total holdings of banks were as follows:
required reserves = $45 million
excess reserves = $15 million
deposits = $750 million
loans = $600 million
Treasury bonds = $90 million
Show that the balance sheet balances if these are the only assets and liabilities.
Assuming that people hold no currency,what happens to each of these values if the central bank changes the reserve requirement ratio to 2%,banks still want to hold the same percentage of excess reserves,and banks don't change their holdings of Treasury bonds? How much does the money supply change by?

Accepted Answer

The only liability is deposits which equ...

Question 5

Which of the following does the Federal Reserve not do?

Accepted Answer

A)   It controls the supply of money.
B)   It acts as a lender of last resort to banks.
C)   It makes loans to any qualified business that requests one.
D)   It tries to ensure the health of the banking system.E) All of the above
F) A) and D)

Question 6

A debit card is more similar to a credit card than to a check.

Accepted Answer

A) True 
 B)False

Question 7

Money is

Accepted Answer

A)   the most liquid asset and a perfect store of value.
B)   the most liquid asset but an imperfect store of value.
C)   not the most liquid asset but a perfect store of value.
D)   neither the most liquid asset and nor a perfect store of value.E) A) and C)
F) A) and B)

Question 8

When the Fed buys government bonds,

Accepted Answer

A)   the money supply increases and the federal funds rate increases.
B)   the money supply increases and the federal funds rate decreases.
C)   the money supply decreases and the federal funds rate increases.
D)   the money supply decreases and the federal funds rate decreases.E) B) and D)
F) A) and B)

Question 9

One of the features of money is its store of value.However,most people do not hold their wealth as currency.Given that currency is the most liquid type of asset,why don't people hold all their wealth as currency?

Accepted Answer

Currency is not a perfect store of value...

Question 10

In the U.S. ,the average adult holds about $3,700 in

Accepted Answer

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

Question 11

When the Federal Reserve conducts open-market operations to increase the money supply,it

Accepted Answer

A)   redeems Federal Reserve notes.
B)   buys government bonds from the public.
C)   raises the discount rate.
D)   decreases its lending to member banks.E) None of the above
F) A) and B)

Question 12

If the money multiplier is 2 and the Fed wants to increase the money supply by $900,000,it could

Accepted Answer

A)   buy $300,000 worth of bonds.
B)   buy $450,000 worth of bonds.
C)   sell $300,000 worth of bonds.
D)   sell $450,000 worth of bonds.E) None of the above
F) A) and B)

Question 13

An important function of the U.S.Federal Reserve is to

Accepted Answer

A)   set the debt ceiling.
B)   fund Congressional spending.
C)   control the supply of money.
D)   mint coins.E) All of the above
F) B) and C)

Question 14

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) C) and D)
F) All of the above

Question 15

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

Question 16

Which of the following is a liability of a bank and an asset of its customers?

Accepted Answer

A)   deposits of its customers and loans to it customers
B)   deposits of its customers but not loans to its customers
C)   loans of its customers but not the deposits of its customers
D)   neither the deposits of its customers nor the loans to its customersE) A) and D)
F) B) and D)

Question 17

The Federal Reserve primarily uses open-market operations to change the money supply.

Accepted Answer

A) True 
 B)False

Question 18

There is a

Accepted Answer

A)   short-run tradeoff between inflation and unemployment.
B)   short-run tradeoff between an increase in the money supply and inflation.
C)   long-run tradeoff between inflation and unemployment.
D)   long-run tradeoff between an increase in the money supply and inflation.E) None of the above
F) A) and B)

Question 19

The confidence you have that a retailer will accept dollars in exchange for goods is based primarily on money

Accepted Answer

A)   being a unit of account.
B)   being a medium of exchange.
C)   serving as a store of value.
D)   having intrinsic value.E) All of the above
F) A) and D)

Question 20

Which list ranks assets from most to least liquid?

Accepted Answer

A)   currency,demand deposits,money market mutual funds
B)   currency,money market mutual funds,demand deposits
C)   money market mutual funds,demand deposits,currency
D)   demand deposits,money market mutual funds,currencyE) A) and B)
F) C) and D)

Exam 29: The Monetary System

One of the features of money is its store of value.However,most people do not hold their wealth as currency.Given that currency is the most liquid type of asset,why don't people hold all their wealth as currency?

Correct Answer
verified
Currency is not a perfect store of value...
View Answer

If the reserve requirement is 15 percent a bank desires to hold no excess reserves and it receives a new deposit of $10,then this bank

Correct Answer
verified

Derek decides to forego a major appliance purchase and save the money.He transfers $2,100 from his checking account to his savings account.As a result of this transfer by itself

Correct Answer
verified

Paper money

Correct Answer
verified

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

Correct Answer
verified

Money is

Correct Answer
verified

A debit card is more similar to a credit card than to a check.

Correct Answer
verified

A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of $100.If customers deposit $50 into the bank,what is the value of the money supply?

Correct Answer
verified

Which of the following is a liability of a bank and an asset of its customers?

Correct Answer
verified

When the Federal Reserve conducts open-market operations to increase the money supply,it

Correct Answer
verified

Which list ranks assets from most to least liquid?

Correct Answer
verified

When the Fed buys government bonds,

Correct Answer
verified

Which of the following does the Federal Reserve not do?

Correct Answer
verified

There is a

Correct Answer
verified

In the U.S. ,the average adult holds about $3,700 in

Correct Answer
verified

The confidence you have that a retailer will accept dollars in exchange for goods is based primarily on money

Correct Answer
verified

Correct Answer
verified
The only liability is deposits which equ...
View Answer

The Federal Reserve primarily uses open-market operations to change the money supply.

Correct Answer
verified

An important function of the U.S.Federal Reserve is to

Correct Answer
verified

If the money multiplier is 2 and the Fed wants to increase the money supply by $900,000,it could

Correct Answer
verified

Exam 29: The Monetary System

One of the features of money is its store of value.However,most people do not hold their wealth as currency.Given that currency is the most liquid type of asset,why don't people hold all their wealth as currency?

Correct AnswerverifiedCurrency is not a perfect store of value...View AnswerShow Answer

If the reserve requirement is 15 percent a bank desires to hold no excess reserves and it receives a new deposit of $10,then this bank

Correct AnswerverifiedShow Answer

Derek decides to forego a major appliance purchase and save the money.He transfers $2,100 from his checking account to his savings account.As a result of this transfer by itself

Correct AnswerverifiedShow Answer

Paper money

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Money is

Correct AnswerverifiedShow Answer

A debit card is more similar to a credit card than to a check.

Correct AnswerverifiedShow Answer

A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of $100.If customers deposit $50 into the bank,what is the value of the money supply?

Correct AnswerverifiedShow Answer

Which of the following is a liability of a bank and an asset of its customers?

Correct AnswerverifiedShow Answer

When the Federal Reserve conducts open-market operations to increase the money supply,it

Correct AnswerverifiedShow Answer

Which list ranks assets from most to least liquid?

Correct AnswerverifiedShow Answer

When the Fed buys government bonds,

Correct AnswerverifiedShow Answer

Which of the following does the Federal Reserve not do?

Correct AnswerverifiedShow Answer

There is a

Correct AnswerverifiedShow Answer

In the U.S. ,the average adult holds about $3,700 in

Correct AnswerverifiedShow Answer

The confidence you have that a retailer will accept dollars in exchange for goods is based primarily on money

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe only liability is deposits which equ...View AnswerShow Answer

The Federal Reserve primarily uses open-market operations to change the money supply.

Correct AnswerverifiedShow Answer

An important function of the U.S.Federal Reserve is to

Correct AnswerverifiedShow Answer

If the money multiplier is 2 and the Fed wants to increase the money supply by $900,000,it could

Correct AnswerverifiedShow Answer

Correct Answer
verified
Currency is not a perfect store of value...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The only liability is deposits which equ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified