Question 1

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 2

If the Fed sells government bonds to the public, then reserves

Accepted Answer

A)   increase and the money supply increases.
B)   increase and the money supply decreases.
C)   decrease and the money supply increases.
D)   decrease and the money supply decreases.E) None of the above
F) A) and B)

Question 3

If the discount rate is raised then banks borrow

Accepted Answer

A)   more from the Fed so reserves increase.
B)   more from the Fed so reserves decrease.
C)   less from the Fed so reserves increase.
D)   less from the Fed so reserves decrease.E) None of the above
F) A) and B)

Question 4

People can write checks against

Accepted Answer

A)   demand deposits and money market mutual funds
B)   demand deposits but not money market mutual funds
C)   money market mutual funds but not demand deposits
D)   neither demand deposits nor money market mutual fundsE) All of the above
F) A) and B)

Question 5

The Federal Reserve Board of Governors

Accepted Answer

A)   rotate each four years.
B)   are appointed by the President and confirmed by the Senate.
C)   are elected by popular vote.
D)   hold lifetime appointments.E) All of the above
F) A) and D)

Question 6

Which of the following is not included in either M1 or M2?

Accepted Answer

A)   money market deposit accounts
B)   large time deposit
C)   demand deposits
D)   money market mutual fundsE) A) and C)
F) B) and D)

Question 7

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) A) and D)
F) C) and D)

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

If the reserve ratio is 6 percent, then $9,000 of additional reserves can create up to

Accepted Answer

A)   $159,000 of new money.
B)   $54,000 of new money.
C)   $150,000 of new money.
D)   $141,000 of new money.E) A) and C)
F) C) and D)

Question 10

Table 29-5.
 
-Refer to Table 29-5. If the bank is holding $4,000 in excess reserves, then the reserve requirement with which it must comply is

Accepted Answer

A)   17 percent.
B)   12 percent.
C)   13 percent.
D)   14 percent.E) A) and C)
F) B) and D)

Question 11

When conducting an open-market purchase, the Fed

Accepted Answer

A)   buys government bonds, and in so doing increases the money supply.
B)   buys government bonds, and in so doing decreases the money supply.
C)   sells government bonds, and in so doing increases the money supply.
D)   sells government bonds, and in so doing decreases the money supply.E) None of the above
F) All of the above

Question 12

The banking system currently has $200 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 4 percent. If the Fed raises the reserve requirement to 10 percent and at the same time buys $50 billion worth of bonds, then by how much does the money supply change?

Accepted Answer

A)   It rises by $600 billion.
B)   It rises by $125 billion.
C)   It falls by $2,500 billion.
D)   None of the above is correct.E) A) and D)
F) None of the above

Question 13

M1 includes savings deposits.

Accepted Answer

A) True 
 B)False

Question 14

Economists equate money with

Accepted Answer

A)   individual wealth.
B)   income regularly earned.
C)   assets people use regularly to buy goods and services.
D)   individual saving.E) C) and D)
F) All of the above

Question 15

M2 is both larger and less liquid than M1.

Accepted Answer

A) True 
 B)False

Question 16

As opposed to a payments system based on barter, a payments system based on money

Accepted Answer

A)   requires a double coincidence of wants.
B)   leads to less specialization.
C)   makes trades less costly.
D)   None of the above is correct.E) B) and C)
F) None of the above

Question 17

In a fractional-reserve banking system, a bank

Accepted Answer

A)   does not make loans.
B)   does not accept deposits.
C)   keeps only a fraction of its deposits in reserve.
D)   None of the above is correct.E) B) and C)
F) A) and D)

Question 18

Suppose banks decide to hold more excess reserves relative to deposits. Other things the same, this action will cause the

Accepted Answer

A)   money supply to fall. To reduce the impact of this the Fed could lower the discount rate.
B)   money supply to fall. To reduce the impact of this the Fed could raise the discount rate.
C)   money supply to rise. To reduce the impact of this the Fed could lower the discount rate.
D)   money supply to rise. To reduce the impact of this the Fed could raise the discount rate.E) None of the above
F) A) and B)

Question 19

Scenario 29-1.
The monetary policy of Namdian is determined by the Namdian Central Bank. The local currency is the dia. Namdian banks collectively hold 100 million dias of required reserves, 25 million dias of excess reserves, 250 million dias of Namdian Treasury Bonds, and their customers hold 1,000 million dias of deposits. Namdians prefer to use only demand deposits and so the money supply consists of demand deposits.
-Refer to Scenario 29-1 . Suppose the Central Bank of Namdia purchases 25 million dias of Namdian Treasury Bonds from banks. Suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the same. By how much would the money supply of Namdia change?

Accepted Answer

A)   200 million dias
B)   150 million dias
C)   100 million dias
D)   None of the above is correct.E) C) and D)
F) A) and D)

Question 20

If the reserve ratio is 5 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed purchases $20 million worth of government bonds, bank reserves

Accepted Answer

A)   increase by $20 million and the money supply eventually increases by $400 million.
B)   decrease by $20 million and the money supply eventually decreases by $400 million.
C)   increase by $20 million and the money supply eventually increases by $100 million.
D)   decrease by $20 million and the money supply eventually decreases by $100 million.E) B) and D)
F) B) and C)

Exam 11: The Monetary System

Which of the following is not included in either M1 or M2?

Correct Answer
verified

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

Correct Answer
verified

M2 is both larger and less liquid than M1.

Correct Answer
verified

When conducting an open-market purchase, the Fed

Correct Answer
verified

Economists equate money with

Correct Answer
verified

M1 includes savings deposits.

Correct Answer
verified

As opposed to a payments system based on barter, a payments system based on money

Correct Answer
verified

If the reserve ratio is 5 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed purchases $20 million worth of government bonds, bank reserves

Correct Answer
verified

Correct Answer
verified

If the discount rate is raised then banks borrow

Correct Answer
verified

Suppose banks decide to hold more excess reserves relative to deposits. Other things the same, this action will cause the

Correct Answer
verified

In a fractional-reserve banking system, a bank

Correct Answer
verified

The Federal Reserve Board of Governors

Correct Answer
verified

If the reserve ratio is 6 percent, then $9,000 of additional reserves can create up to

Correct Answer
verified

People can write checks against

Correct Answer
verified

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 Answer
verified

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

Correct Answer
verified

Table 29-5. -Refer to Table 29-5. If the bank is holding $4,000 in excess reserves, then the reserve requirement with which it must comply is

Correct Answer
verified

Correct Answer
verified

If the Fed sells government bonds to the public, then reserves

Correct Answer
verified

Exam 11: The Monetary System

Which of the following is not included in either M1 or M2?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

M2 is both larger and less liquid than M1.

Correct AnswerverifiedShow Answer

When conducting an open-market purchase, the Fed

Correct AnswerverifiedShow Answer

Economists equate money with

Correct AnswerverifiedShow Answer

M1 includes savings deposits.

Correct AnswerverifiedShow Answer

As opposed to a payments system based on barter, a payments system based on money

Correct AnswerverifiedShow Answer

If the reserve ratio is 5 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed purchases $20 million worth of government bonds, bank reserves

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the discount rate is raised then banks borrow

Correct AnswerverifiedShow Answer

Suppose banks decide to hold more excess reserves relative to deposits. Other things the same, this action will cause the

Correct AnswerverifiedShow Answer

In a fractional-reserve banking system, a bank

Correct AnswerverifiedShow Answer

The Federal Reserve Board of Governors

Correct AnswerverifiedShow Answer

If the reserve ratio is 6 percent, then $9,000 of additional reserves can create up to

Correct AnswerverifiedShow Answer

People can write checks against

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

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

Correct AnswerverifiedShow Answer

Table 29-5. -Refer to Table 29-5. If the bank is holding $4,000 in excess reserves, then the reserve requirement with which it must comply is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the Fed sells government bonds to the public, then reserves

Correct AnswerverifiedShow Answer

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