Question 1

The majority of the Fed's assets are

Accepted Answer

A)  discount loans
B)  U.S.government securities
C)  loans to member banks
D)  Federal Reserve notes
E)  reserves of member banksF) C) and E)
G) B) and D)

Question 2

Asymmetric information in financial markets exists when

Accepted Answer

A)  teachers know more about banking than students do
B)  borrowers know more about their ability to repay loans than lenders do
C)  lenders know more about borrowers than borrowers know about themselves
D)  borrowers pay off a loan before it is due
E)  borrowers and lenders know more about banking than banks doF) None of the above
G) A) and D)

Question 3

The narrowest definition of the money supply includes only currency held by the nonbank public.

Accepted Answer

A) True 
 B)False

Question 4

The banking system creates money in the sense that it

Accepted Answer

A)  prints money
B)  creates excess reserves from loans
C)  creates loans from excess reserves
D)  creates required reserves from loans
E)  creates loans from required reservesF) A) and B)
G) B) and E)

Question 5

Banks create new deposits by

Accepted Answer

A)  lending out excess reserves
B)  lending out required reserves
C)  raising interest rates on loans
D)  calling in loans
E)  printing new checksF) D) and E)
G) All of the above

Question 6

Suppose the reserve requirement ratio is 20 percent.Assuming no bank holds excess reserves and nobody withdraws cash,a $10,000 injection of new excess reserves by the Fed can create

Accepted Answer

A)  $2,000 in new checkable deposits
B)  $10,000 in new checkable deposits
C)  $50,000 in new checkable deposits
D)  $500,000 in new checkable deposits
E)  $50,000 in cashF) A) and B)
G) D) and E)

Question 7

The money multiplier will be

Accepted Answer

A)  larger if banks hold on to excess reserves but smaller if private citizens hold on to cash
B)  smaller if banks hold on to excess reserves but larger if private citizens hold on to cash
C)  smaller if either banks hold on to excess reserves or private citizens hold on to cash
D)  larger if either banks hold on to excess reserves or private citizens hold on to cash
E)  constant whether or not banks and citizens try to alter their holdings of excess reserves and cashF) B) and E)
G) A) and C)

Question 8

If a bank borrows $1,000 from the Fed and lends it out,the bank sets in motion a process that will result in an expansion of the money supply by a multiple of that $1,000.

Accepted Answer

A) True 
 B)False

Question 9

The M1 money supply consists of

Accepted Answer

A)  coins and currency held by the nonbank public
B)  coins and currency held by the nonbank public and currency held in banks
C)  coins and currency held by the nonbank public,checkable deposits,and traveler's checks
D)  coins and currency held in banks and checkable deposits
E)  paper currencyF) B) and E)
G) C) and D)

Question 10

A counterfeit $100 bill of extremely high quality that began circulating around 1990 is called a

Accepted Answer

A)  false note
B)  superhero
C)  supernote
D)  C note
E)  None of the answers is correctF) B) and D)
G) A) and B)

Question 11

Which of the following make up the money supply as it is most narrowly defined?

Accepted Answer

A)  coins and currency held by the nonbank public,traveler's checks,and savings deposits
B)  all coins and currency held by the nonbank public
C)  coins and currency held by the nonbank public,checking deposits,and traveler's checks
D)  coins and currency held by the nonbank public,checking deposits,and savings deposits
E)  checking deposits,savings deposits,and money market mutual fund accountsF) C) and D)
G) B) and E)

Question 12

Banks act as financial intermediaries by

Accepted Answer

A)  bringing together car buyers and auto dealers
B)  bringing together real estate brokers and home buyers
C)  printing money for all to use
D)  serving the credit needs of borrowers and the security needs of savers
E)  selling shares of stock to investorsF) A) and E)
G) A) and D)

Question 13

Banks create money when they accept deposits.

Accepted Answer

A) True 
 B)False

Question 14

The Fed primarily uses the reserve requirement to control the money supply.

Accepted Answer

A) True 
 B)False

Question 15

Assume there are no excess reserves in the banking system when the reserve requirement is 20%.The purchase by the Fed of $10,000 in U.S.government securities from Academy National Bank has the potential of ultimately increasing the money supply by a total of

Accepted Answer

A)  $2,000
B)  $8,000
C)  $10,000
D)  $20,000
E)  $50,000F) A) and D)
G) A) and C)

Question 16

A higher discount rate generally

Accepted Answer

A)  leads more banks to borrow from the Fed
B)  increases required reserves
C)  decreases excess reserves
D)  increases the money supply
E)  encourages savers to put more into checking accountsF) C) and D)
G) A) and D)

Question 17

If a customer deposits $1,000 cash into her checking account,the bank's

Accepted Answer

A)  assets rise by $1,000 and liabilities fall by $1,000
B)  assets fall by $1,000 and liabilities rise by $1,000
C)  assets and liabilities both fall by $1,000
D)  assets and liabilities both rise by $1,000
E)  profits rise by $1,000F) A) and E)
G) B) and D)

Question 18

Under which of the following circumstances will the simple money multiplier most overstate the change in checkable deposits arising from a change in excess reserves?

Accepted Answer

A)  The public withdraws no cash and banks hold no excess reserves.
B)  The public withdraws no cash and banks hold excess reserves.
C)  The public withdraws cash and banks hold no excess reserves.
D)  The public withdraws cash and banks hold excess reserves.
E)  The required reserve ratio equals 1.F) A) and B)
G) A) and C)

Question 19

Banks are required to hold reserves against the total value of all their assets.

Accepted Answer

A) True 
 B)False

Question 20

In order to meet a deficiency of excess reserves,a bank could

Accepted Answer

A)  buy securities
B)  deposit vault cash with the Fed
C)  turn some of its deposit at the Fed into cash
D)  close some checking accounts
E)  borrow from another bank in the federal funds marketF) A) and B)
G) C) and D)

Exam 15: Banking and the Money Supply

Banks are required to hold reserves against the total value of all their assets.

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The M1 money supply consists of

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If a customer deposits $1,000 cash into her checking account,the bank's

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The majority of the Fed's assets are

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If a bank borrows $1,000 from the Fed and lends it out,the bank sets in motion a process that will result in an expansion of the money supply by a multiple of that $1,000.

Correct AnswerverifiedShow Answer

Under which of the following circumstances will the simple money multiplier most overstate the change in checkable deposits arising from a change in excess reserves?

Correct AnswerverifiedShow Answer

The banking system creates money in the sense that it

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A higher discount rate generally

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Banks create new deposits by

Correct AnswerverifiedShow Answer

Assume there are no excess reserves in the banking system when the reserve requirement is 20%.The purchase by the Fed of $10,000 in U.S.government securities from Academy National Bank has the potential of ultimately increasing the money supply by a total of

Correct AnswerverifiedShow Answer

Banks create money when they accept deposits.

Correct AnswerverifiedShow Answer

The money multiplier will be

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Which of the following make up the money supply as it is most narrowly defined?

Correct AnswerverifiedShow Answer

Suppose the reserve requirement ratio is 20 percent.Assuming no bank holds excess reserves and nobody withdraws cash,a $10,000 injection of new excess reserves by the Fed can create

Correct AnswerverifiedShow Answer

The narrowest definition of the money supply includes only currency held by the nonbank public.

Correct AnswerverifiedShow Answer

A counterfeit $100 bill of extremely high quality that began circulating around 1990 is called a

Correct AnswerverifiedShow Answer

Banks act as financial intermediaries by

Correct AnswerverifiedShow Answer

Asymmetric information in financial markets exists when

Correct AnswerverifiedShow Answer

The Fed primarily uses the reserve requirement to control the money supply.

Correct AnswerverifiedShow Answer

In order to meet a deficiency of excess reserves,a bank could

Correct AnswerverifiedShow Answer

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