Question 1

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 2

If the reserve ratio is 15 percent, and banks do not hold excess reserves, and people hold only deposits and no currency, then when the Fed sells $25.5 million worth of bonds to the public, bank reserves

Accepted Answer

A)   increase by $25.5 million and the money supply eventually increases by $382.5 million.
B)   increase by $25.5 million and the money supply eventually increases by $170 million.
C)   decrease by $25.5 million and the money supply eventually decreases by $382.5 million.
D)   decrease by $25.5 million and the money supply eventually decreases by $170 million.E) B) and D)
F) C) and D)

Question 3

If the reserve ratio is 7.5 percent, the money multiplier is

Accepted Answer

A)   7.5.
B)   10.3.
C)   13.3.
D)   11.3.E) A) 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)   Bill with Mike
B)   Time with Amy
C)   Bill with Mike, and Tim with Amy
D)   Bill with Tim, and Mike with AmyE) A) and B)
F) B) and C)

Question 5

The Fed can directly protect a bank during a bank run by

Accepted Answer

A)   increasing reserve requirements.
B)   selling government bonds to the bank.
C)   lending reserves to the bank.
D)   doing any of the above.E) A) and B)
F) C) and D)

Question 6

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 7

Which of the following is not a central bank?

Accepted Answer

A)   The Bank of England
B)   The Bank of Japan
C)   The Bank of America
D)   The Federal ReserveE) All of the above
F) A) and B)

Question 8

List the two main functions performed by the Fed?

Accepted Answer

The Fed performs two main func...

Question 9

You receive money as payment for babysitting your neighbors' children. This best illustrates which function of money?

Accepted Answer

A)   medium of exchange
B)   unit of account
C)   store of value
D)   liquidityE) All of the above
F) C) and D)

Question 10

When you purchase school supplies at the book store using cash, you are using money as a medium of exchange.

Accepted Answer

A) True 
 B)False

Question 11

Today, bank runs are not a major problem for the U.S. banking system because

Accepted Answer

A)   bank runs are now illegal.
B)   banks now hold 100 percent of their deposits in reserve.
C)   banks are now all government-operated.
D)   the federal government now guarantees the safety of deposits at most banks.E) C) and D)
F) All of the above

Question 12

If the Fed increases the reserve ratio from 5 percent to 12.5 percent, then the money multiplier

Accepted Answer

A)   decreases from 20 to 8.
B)   decreases from 12.5 to 5.
C)   increases from 8 to 20.
D)   increases from 5 to 12.5.E) None of the above
F) A) and B)

Question 13

Suppose the banking system currently has $300 billion in reserves, the reserve requirement is 5 percent, and excess reserves are $30 billion. What is the level of loans?

Accepted Answer

A)   $270 billion
B)   $5,400 billion
C)   $6,000 billion
D)   $5,100 billionE) A) and D)
F) A) and C)

Question 14

If the reserve ratio is 8 percent, then an additional $800 of reserves can increase the money supply by as much as

Accepted Answer

A)   $6,400.
B)   $8,000.
C)   $12,500.
D)   $10,000.E) B) and C)
F) None of the above

Question 15

In many circumstances, prisoners are not allowed to possess cash. Does this mean there is no money in prison? Explain.

Accepted Answer

No.
Any good that provides the three fun...

Question 16

Money is the only asset that functions as a store of value.

Accepted Answer

A) True 
 B)False

Question 17

Suppose the Fed requires banks to hold 9 percent of their deposits as reserves. A bank has $18,000 of excess reserves and then sells the Fed a Treasury bill for $9,000. How much does this bank now have to lend out if it decides to hold only required reserves?

Accepted Answer

A)   $27,000
B)   $27,190
C)   $26,190
D)   $9,000E) All of the above
F) A) and B)

Question 18

The Federal Reserve is a privately operated commercial bank.

Accepted Answer

A) True 
 B)False

Question 19

The reserve requirement is 12 percent. Lucy deposits $600 into a bank. By how much do excess reserves change?

Accepted Answer

A)   $600
B)   $528
C)   $72
D)   $12E) B) and C)
F) C) and D)

Question 20

M1 equals currency plus demand deposits plus

Accepted Answer

A)   nothing else.
B)   other checkable deposits.
C)   traveler's checks plus other checkable deposits.
D)   traveler's checks plus other checkable deposits plus savings deposits.E) A) and B)
F) All of the above

Exam 11: 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

When you purchase school supplies at the book store using cash, you are using money as a medium of exchange.

Correct AnswerverifiedShow Answer

In many circumstances, prisoners are not allowed to possess cash. Does this mean there is no money in prison? Explain.

Correct AnswerverifiedNo.Any good that provides the three fun...View AnswerShow Answer

Suppose the banking system currently has $300 billion in reserves, the reserve requirement is 5 percent, and excess reserves are $30 billion. What is the level of loans?

Correct AnswerverifiedShow Answer

If the reserve ratio is 7.5 percent, the money multiplier is

Correct AnswerverifiedShow Answer

The Federal Reserve is a privately operated commercial bank.

Correct AnswerverifiedShow Answer

M1 equals currency plus demand deposits plus

Correct AnswerverifiedShow Answer

Today, bank runs are not a major problem for the U.S. banking system because

Correct AnswerverifiedShow Answer

Suppose the Fed requires banks to hold 9 percent of their deposits as reserves. A bank has $18,000 of excess reserves and then sells the Fed a Treasury bill for $9,000. How much does this bank now have to lend out if it decides to hold only required reserves?

Correct AnswerverifiedShow Answer

The reserve requirement is 12 percent. Lucy deposits $600 into a bank. By how much do excess reserves change?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

You receive money as payment for babysitting your neighbors' children. This best illustrates which function of money?

Correct AnswerverifiedShow Answer

If the reserve ratio is 15 percent, and banks do not hold excess reserves, and people hold only deposits and no currency, then when the Fed sells $25.5 million worth of bonds to the public, bank reserves

Correct AnswerverifiedShow Answer

The Fed can directly protect a bank during a bank run by

Correct AnswerverifiedShow Answer

List the two main functions performed by the Fed?

Correct AnswerverifiedThe Fed performs two main func...View AnswerShow Answer

Money is the only asset that functions as a store of value.

Correct AnswerverifiedShow Answer

If the Fed increases the reserve ratio from 5 percent to 12.5 percent, then the money multiplier

Correct AnswerverifiedShow Answer

If the reserve ratio is 8 percent, then an additional $800 of reserves can increase the money supply by as much as

Correct AnswerverifiedShow Answer

Which of the following is not a central bank?

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

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

Correct Answer
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Correct Answer
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No.
Any good that provides the three fun...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The Fed performs two main func...
View Answer

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