Question 1

Which of the following groups is largely responsible for carrying out the Fed's tasks of regulating banks and ensuring the health of the financial system?

Accepted Answer

A)   FOMC
B)   the Board of Governors
C)   the New York Fed
D)   the regional Federal Reserve BanksE) B) and C)
F) C) and D)

Question 2

The Federal Reserve was created

Accepted Answer

A)   in 1913 by Congress
B)   as a result of the Great Depression
C)   according to the standards enforced by NATO
D)   by President KennedyE) A) and D)
F) C) and D)

Question 3

The prices of goods at a grocery store are listed in dollars. Which function of money does this illustrate?

Accepted Answer

The answer of The prices of goods at a grocery...

Question 4

When prisoners use cigarettes or some other good as money, cigarettes become

Accepted Answer

A)   commodity money, but do not function as a unit of account.
B)   commodity money and function as a unit of account.
C)   fiat money, but do not function as a unit of account.
D)   fiat money and function as a unit of account.E) A) and B)
F) None of the above

Question 5

During recessions, banks typically choose to hold more excess reserves relative to their deposits. This action

Accepted Answer

A)   increases the money multiplier and increases the money supply.
B)   decreases the money multiplier and decreases the money supply.
C)   does not change the money multiplier, but increases the money supply.
D)   does not change the money multiplier, but decreases the money supply.E) All of the above
F) A) and B)

Question 6

If the reserve ratio is 8 percent, then the money multiplier is

Accepted Answer

A)   12.5.
B)   11.5.
C)   13.5.
D)   8.E) B) and D)
F) B) and C)

Question 7

Today, bank runs are

Accepted Answer

A)   uncommon because of the high reserve requirement.
B)   uncommon because of FDIC deposit insurance.
C)   common because of the low reserve requirement.
D)   common because the FDIC is nearly bankrupt.E) A) and D)
F) A) and C)

Question 8

Because of the multiple tools at its disposal, the Fed can control the money supply very precisely.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is correct?

Accepted Answer

A)   The Fed can control the money supply precisely.
B)   The amount of money in the economy does not depend on the behavior of depositors.
C)   The amount of money in the economy depends in part on the behavior of banks.
D)   None of the above is correct.E) A) and D)
F) All of the above

Question 10

A bank loans Greg's Ice Cream $250,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

Accepted Answer

A)   a liability for the bank and an asset for Greg's Ice Cream. The loan increases the money supply.
B)   a liability for the bank and an asset for Greg's Ice Cream. The loan does not increase the money supply.
C)   an asset for the bank and a liability for Greg's Ice Cream. The loan increases the money supply.
D)   an asset for the bank and a liability for Greg's Ice Cream. The loan does not increase the money supply.E) B) and D)
F) A) and D)

Question 11

When the Federal Reserve sells assets from its portfolio to the public with the intent of changing the money supply,

Accepted Answer

A)   those assets are government bonds and the Fed's reason for selling them is to increase the money supply.
B)   those assets are government bonds and the Fed's reason for selling them is to decrease the money supply.
C)   those assets are items that are included in M2 and the Fed's reason for selling them is to increase the money supply.
D)   those assets are items that are included in M2 and the Fed's reason for selling them is to decrease the money supply.E) B) and C)
F) A) and D)

Question 12

A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of $150. 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 D)
F) B) and C)

Question 13

The money supply decreases if the Fed

Accepted Answer

A)   sells Treasury bonds. The larger the reserve requirement, the larger the decrease will be.
B)   sells Treasury bonds. The smaller the reserve requirement, the larger the decrease will be.
C)   buys Treasury bonds. The larger the reserve requirement, the larger the decrease will be.
D)   buys Treasury bonds. The smaller the reserve requirement, the larger the decrease will be.E) C) and D)
F) None of the above

Question 14

The fractional reserve characteristic of the banking system allows banks to create money and also create wealth from bank deposits. Describe why this statement is or is not true.

Accepted Answer

This statement is not true.
Banks can cr...

Question 15

The Fed began paying interest on reserves in October 2008. Holding all else constant, what effect would this have on the money supply?

Accepted Answer

This would...

Question 16

Which of the following is included in M2 but not in M1?

Accepted Answer

A)   currency
B)   demand deposits
C)   savings deposits
D)   All of the above are included in both M1 and M2.E) B) and D)
F) B) and C)

Question 17

Demand deposits are balances in bank accounts that depositors can access by writing a check or using a debit card.

Accepted Answer

A) True 
 B)False

Question 18

If the reserve ratio is 20 percent, how much money can be created from $100 of reserves? Show your work.

Accepted Answer

1/.20) <img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> $1...

Question 19

Imagine an economy in which: 1)  pieces of paper called dollars are the only thing that buyers give to sellers when they buy goods and services, so it would be common to use, say, 50 dollars to buy a pair of shoes; 2)  prices are posted in terms of yardsticks, so you might walk into a grocery store and see that, today, an apple is worth 2 yardsticks; and 3)  yardsticks disintegrate overnight, so no yardstick has any value for more than 24 hours. In this economy,

Accepted Answer

A)   the yardstick is a medium of exchange but it cannot serve as a unit of account.
B)   the yardstick is a unit of account but it cannot serve as a store of value.
C)   the yardstick is a medium of exchange but it cannot serve as a store of value, and the yollar is a unit of account.
D)   the yollar is a unit of account, but it is not a medium of exchange and it is not a liquid asset.E) None of the above
F) B) and D)

Question 20

If the money multiplier decreased from 20 to 12.5, then

Accepted Answer

A)   the Fed increased the reserve ratio from 5 percent to 8 percent.
B)   the Fed increased the fed funds rate from 5 percent to 8 percent.
C)   the Fed decreased the reserve ratio from 8 percent to 5 percent.
D)   the Fed decreased the fed funds rate from 8 percent to 5 percent.E) None of the above
F) B) and D)

Exam 11: The Monetary System

If the money multiplier decreased from 20 to 12.5, then

Correct Answer
verified

A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of $150. If customers deposit $50 into the bank, what is the value of the money supply?

Correct Answer
verified

Correct Answer
verified

Which of the following is included in M2 but not in M1?

Correct Answer
verified

Demand deposits are balances in bank accounts that depositors can access by writing a check or using a debit card.

Correct Answer
verified

Which of the following is correct?

Correct Answer
verified

The Federal Reserve was created

Correct Answer
verified

During recessions, banks typically choose to hold more excess reserves relative to their deposits. This action

Correct Answer
verified

Which of the following groups is largely responsible for carrying out the Fed's tasks of regulating banks and ensuring the health of the financial system?

Correct Answer
verified

The Fed began paying interest on reserves in October 2008. Holding all else constant, what effect would this have on the money supply?

Correct Answer
verified
This would...
View Answer

A bank loans Greg's Ice Cream $250,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

Correct Answer
verified

The money supply decreases if the Fed

Correct Answer
verified

When the Federal Reserve sells assets from its portfolio to the public with the intent of changing the money supply,

Correct Answer
verified

The prices of goods at a grocery store are listed in dollars. Which function of money does this illustrate?

Correct Answer
verified

The fractional reserve characteristic of the banking system allows banks to create money and also create wealth from bank deposits. Describe why this statement is or is not true.

Correct Answer
verified
This statement is not true.
Banks can cr...
View Answer

Because of the multiple tools at its disposal, the Fed can control the money supply very precisely.

Correct Answer
verified

If the reserve ratio is 8 percent, then the money multiplier is

Correct Answer
verified

Today, bank runs are

Correct Answer
verified

When prisoners use cigarettes or some other good as money, cigarettes become

Correct Answer
verified

If the reserve ratio is 20 percent, how much money can be created from $100 of reserves? Show your work.

Correct Answer
verified
1/.20) $1...
View Answer

Exam 11: The Monetary System

If the money multiplier decreased from 20 to 12.5, then

Correct AnswerverifiedShow Answer

A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of $150. If customers deposit $50 into the bank, what is the value of the money supply?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is included in M2 but not in M1?

Correct AnswerverifiedShow Answer

Demand deposits are balances in bank accounts that depositors can access by writing a check or using a debit card.

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

The Federal Reserve was created

Correct AnswerverifiedShow Answer

During recessions, banks typically choose to hold more excess reserves relative to their deposits. This action

Correct AnswerverifiedShow Answer

Which of the following groups is largely responsible for carrying out the Fed's tasks of regulating banks and ensuring the health of the financial system?

Correct AnswerverifiedShow Answer

The Fed began paying interest on reserves in October 2008. Holding all else constant, what effect would this have on the money supply?

Correct AnswerverifiedThis would...View AnswerShow Answer

A bank loans Greg's Ice Cream $250,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

Correct AnswerverifiedShow Answer

The money supply decreases if the Fed

Correct AnswerverifiedShow Answer

When the Federal Reserve sells assets from its portfolio to the public with the intent of changing the money supply,

Correct AnswerverifiedShow Answer

The prices of goods at a grocery store are listed in dollars. Which function of money does this illustrate?

Correct AnswerverifiedShow Answer

The fractional reserve characteristic of the banking system allows banks to create money and also create wealth from bank deposits. Describe why this statement is or is not true.

Correct AnswerverifiedThis statement is not true.Banks can cr...View AnswerShow Answer

Because of the multiple tools at its disposal, the Fed can control the money supply very precisely.

Correct AnswerverifiedShow Answer

If the reserve ratio is 8 percent, then the money multiplier is

Correct AnswerverifiedShow Answer

Today, bank runs are

Correct AnswerverifiedShow Answer

When prisoners use cigarettes or some other good as money, cigarettes become

Correct AnswerverifiedShow Answer

If the reserve ratio is 20 percent, how much money can be created from $100 of reserves? Show your work.

Correct Answerverified1/.20) $1...View AnswerShow Answer

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This would...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
This statement is not true.
Banks can cr...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
1/.20) $1...
View Answer