Question 1

The reserve requirement is 4%,banks hold no excess reserves and people hold no currency.If the Fed sells $10,000 of bonds what happens to the money supply?

Accepted Answer

A)   it increases by $250,000
B)   it increases by $200,000
C)   it decreases by $200,000
D)   it decreases by $250,000E) B) and C)
F) A) and D)

Question 2

If a bank uses $100 of excess reserves to make a new loan when the reserve ratio is 20 percent,this action by itself initially makes the money supply

Accepted Answer

A)   and wealth increase by $100.
B)   and wealth decrease by $100.
C)   increase by $100 while wealth does not change.
D)   decrease by $100 while wealth decreases by $100.E) A) and B)
F) A) and C)

Question 3

If the reserve ratio increased from 10 percent to 20 percent,the money multiplier would

Accepted Answer

A)   rise from 10 to 20.
B)   rise from 5 to 10.
C)   fall from 10 to 5.
D)   not change.E) B) and D)
F) A) and C)

Question 4

Consider the following traders who meet.  Which,if any,pairs of traders has a double coincidence of wants?

Accepted Answer

A)   Bob with Alice
B)   Ted with Alice
C)   Bob with Mary,Ted with Bob,and Ted with Alice
D)   None of the pairs above has a double coincidence of wants.E) A) and B)
F) None of the above

Question 5

To increase the money supply,the Fed could

Accepted Answer

A)   sell government bonds.
B)   decrease the discount rate.
C)   increase the reserve requirement.
D)   None of the above is correct.E) A) and B)
F) B) and C)

Question 6

In a fractional-reserve banking system with no excess reserves and no currency holdings,if the central bank buys $100 million worth of bonds,

Accepted Answer

A)   reserves and the money supply increase by less than $100 million.
B)   reserves increase by $100 million and the money supply increases by $100 million.
C)   reserves increase by $100 million and the money supply increases by more than $100 million.
D)   both reserves and the money supply increase by more than $100 million.E) B) and D)
F) B) and C)

Question 7

Consider five individuals with different occupations.  In a barter system which of the following pairs has a double coincidence of wants?

Accepted Answer

A)   Allen and Eric
B)   Diedre and Calvin
C)   Both A and B are correct.
D)   None of the above are correct.E) A) and D)
F) None of the above

Question 8

Draw a simple T-account for First National Bank which has $5,000 of deposits,a required reserve ratio of 10 percent,and excess reserves of $300.Make sure your balance sheet balances.

Accepted Answer

The answer of Draw a simple T-account for First National...

Question 9

If the reserve ratio is 5 percent,then $2,500 of additional reserves can create up to

Accepted Answer

A)   $62,500 of new money.
B)   $50,000 of new money.
C)   $45,600 of new money.
D)   $37,500 of new money.E) C) and D)
F) B) and C)

Question 10

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

Question 11

A bank's reserve ratio is 5 percent and the bank has $1,000 in deposits.Its reserves amount to

Accepted Answer

A)   $5.
B)   $50.
C)   $95.
D)   $950.E) A) and D)
F) A) and C)

Question 12

Which of the following functions of money is also a common function of most other financial assets?

Accepted Answer

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

Question 13

Explain why banks can influence the money supply if the required reserve ratio is less than 100 percent.

Accepted Answer

When the reserve requirement is less tha...

Question 14

The "yardstick" people use to post prices and record debts is called

Accepted Answer

A)   a medium of exchange.
B)   a unit of account.
C)   a store of value.
D)   liquidity.E) A) and C)
F) B) and C)

Question 15

Reserve requirements are regulations concerning

Accepted Answer

A)   the amount banks are allowed to borrow from the Fed.
B)   the amount of reserves banks must hold against deposits.
C)   reserves banks must hold based on the number and type of loans they make.
D)   the interest rate at which banks can borrow from the Fed.E) C) and D)
F) A) and D)

Question 16

The Fed increases the reserve requirement,but it wants to offset the effects on the money supply.Which of the following should it do?

Accepted Answer

A)   sell bonds to increase reserves
B)   sell bonds to decrease reserves
C)   buy bonds to increase reserves
D)   buy bonds to decrease reservesE) A) and B)
F) A) and C)

Question 17

Which of the following is included in M1 and M2?

Accepted Answer

A)   traveler's checks
B)   savings deposits
C)   money market mutual funds
D)   small time depositsE) A) and B)
F) A) and C)

Question 18

Credit cards are a medium of exchange.

Accepted Answer

A) True 
 B)False

Question 19

Describe the two things that limit the precision of the Fed's control of the money supply and explain how each limits that control.

Accepted Answer

First,the Fed does not control the amoun...

Question 20

A bank operates with reserves of $100,loans of $300 and securities of $100.The bank's only liability is deposits of $400 since it has zero debt.Calculate the bank's leverage ratio.

Accepted Answer

Since Assets - Liabilities equ...

Exam 29: The Monetary System

A bank operates with reserves of $100,loans of $300 and securities of $100.The bank's only liability is deposits of $400 since it has zero debt.Calculate the bank's leverage ratio.

Correct AnswerverifiedSince Assets - Liabilities equ...View AnswerShow Answer

Consider five individuals with different occupations. In a barter system which of the following pairs has a double coincidence of wants?

Correct AnswerverifiedShow Answer

If the reserve ratio is 5 percent,then $2,500 of additional reserves can create up to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If a bank uses $100 of excess reserves to make a new loan when the reserve ratio is 20 percent,this action by itself initially makes the money supply

Correct AnswerverifiedShow Answer

Credit cards are a medium of exchange.

Correct AnswerverifiedShow Answer

A bank's reserve ratio is 5 percent and the bank has $1,000 in deposits.Its reserves amount to

Correct AnswerverifiedShow Answer

The "yardstick" people use to post prices and record debts is called

Correct AnswerverifiedShow Answer

If the reserve ratio increased from 10 percent to 20 percent,the money multiplier would

Correct AnswerverifiedShow Answer

The Fed increases the reserve requirement,but it wants to offset the effects on the money supply.Which of the following should it do?

Correct AnswerverifiedShow Answer

Consider the following traders who meet. Which,if any,pairs of traders has a double coincidence of wants?

Correct AnswerverifiedShow Answer

The reserve requirement is 4%,banks hold no excess reserves and people hold no currency.If the Fed sells $10,000 of bonds what happens to the money supply?

Correct AnswerverifiedShow Answer

In a fractional-reserve banking system with no excess reserves and no currency holdings,if the central bank buys $100 million worth of bonds,

Correct AnswerverifiedShow Answer

Reserve requirements are regulations concerning

Correct AnswerverifiedShow Answer

Draw a simple T-account for First National Bank which has $5,000 of deposits,a required reserve ratio of 10 percent,and excess reserves of $300.Make sure your balance sheet balances.

Correct AnswerverifiedShow Answer

To increase the money supply,the Fed could

Correct AnswerverifiedShow Answer

Describe the two things that limit the precision of the Fed's control of the money supply and explain how each limits that control.

Correct AnswerverifiedFirst,the Fed does not control the amoun...View AnswerShow Answer

Which of the following functions of money is also a common function of most other financial assets?

Correct AnswerverifiedShow Answer

Which of the following is included in M1 and M2?

Correct AnswerverifiedShow Answer

Explain why banks can influence the money supply if the required reserve ratio is less than 100 percent.

Correct AnswerverifiedWhen the reserve requirement is less tha...View AnswerShow Answer

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Since Assets - Liabilities equ...
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First,the Fed does not control the amoun...
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Correct Answer
verified

Correct Answer
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Correct Answer
verified
When the reserve requirement is less tha...
View Answer