Question 1

If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

Accepted Answer

A)   buying bonds. This buying would increase the money supply.
B)   buying bonds. This buying would reduce the money supply.
C)   selling bonds. This selling would increase the money supply.
D)   selling bonds. This selling would reduce the money supply.E) A) and B)
F) C) and D)

Question 2

List two reasons why the Fed cannot control the exact size of the money supply.

Accepted Answer

1) The Fed cannot control how much money...

Question 3

Members of the Board of Governors of the Federal Reserve System are appointed for life.

Accepted Answer

A) True 
 B)False

Question 4

The Fed increases reserves if it conducts open market

Accepted Answer

A)   purchases or auctions term credit.
B)   purchases but not if it auctions term credit
C)   sales or auctions term credit
D)   sales but not if it auctions term creditE) B) and C)
F) A) and B)

Question 5

The existence of money leads to

Accepted Answer

A)   greater specialization in production, but not to a higher standard of living.
B)   a higher standard of living, but not to greater specialization.
C)   greater specialization and to a higher standard of living.
D)   neither greater specialization nor to a higher standard of living.E) A) and B)
F) A) and C)

Question 6

What is the difference between money and wealth?

Accepted Answer

Money is defined as the set of...

Question 7

M2 is both larger and less liquid than M1.

Accepted Answer

A) True 
 B)False

Question 8

The use of money allows trade to be roundabout.

Accepted Answer

A) True 
 B)False

Question 9

Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate?

Accepted Answer

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

Question 10

Most financial assets other than money function as

Accepted Answer

A)   a medium of exchange, a unit of account, and a store of value.
B)   a medium of exchange and a store of value, but not a unit of account.
C)   a store of value and a unit of account, but not a medium of exchange.
D)   a store of value, but not a unit of account nor a medium of exchangeE) B) and D)
F) All of the above

Question 11

An increase in the money supply might indicate that the Fed had

Accepted Answer

A)   purchased bonds in an attempt to increase the federal funds rate.
B)   purchased bonds in an attempt to reduce the federal funds rate.
C)   sold bonds in an attempt to increase the federal funds rate.
D)   sold bonds in an attempt to reduce the federal funds rate.E) A) and D)
F) None of the above

Question 12

Monetary policy affects employment

Accepted Answer

A)   only in the long run.
B)   only in the short run.
C)   in both the long run and the short run.
D)   in neither the long run nor the short run.E) None of the above
F) A) and B)

Question 13

A bank's reserve ratio is 8 percent and the bank has $1,000 in deposits. Its reserves amount to

Accepted Answer

A)   $8.
B)   $80.
C)   $92.
D)   $920.E) C) and D)
F) All of the above

Question 14

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 15

If the reserve requirement is 10 percent, which of the following pairs of changes would both allow a bank to lend out an additional $10,000?

Accepted Answer

A)   the Fed buys a $10,000 bond from the bank or someone deposits $10,000 in the bank
B)   the Fed buys a $10,000 bond from the bank or the Fed lends the bank $10,000
C)   the Fed sells a $10,000 bond to the bank or someone deposits $10,000 in the bank
D)   the Fed sells a $10,000 bond to the bank or the Fed lends the bank $10,000E) A) and B)
F) None of the above

Question 16

The primary tool used by the Federal Reserve to change the money supply is .

Accepted Answer

open-marke...

Question 17

Table 29-6.
 
-Refer to Table 29-6. Assume the Fed's reserve requirement is 5 percent and all banks besides the Bank of Pleasantville are exactly in compliance with the 5 percent requirement. Further assume that people hold only deposits and no currency. Starting from the situation as depicted by the T-account, if the Bank of Pleasantville decides to make new loans so as to end up with no excess reserves, then by how much does the money supply eventually increase?

Accepted Answer

A)   $10,833.33.
B)   $13,000.
C)   $8,333.33.
D)   $10,000.E) A) and C)
F) B) and C)

Question 18

If traveler's checks were $1000 higher and saving deposits were $500 higher, M1 would be

Accepted Answer

A)   $500 higher and M2 would be $1,500 higher.
B)   $1,000 higher and M2 would be $1,500 higher.
C)   M2 and M1 would be $1,500 higher.
D)   $1,000 high and M2 would be $500 higher..E) A) and D)
F) None of the above

Question 19

Suppose that in a country the total holdings of banks were as follows: required reserves = $45 million excess reserves = $15 million deposits = $750 million loans = $600 million
Treasury bonds = $90 million. Show that the balance sheet balances if these are the only assets and liabilities. Assuming that people hold no currency, what happens to each of these values if the central bank changes the reserve requirement ratio to 2%, banks still want to hold the same percentage of excess reserves, and banks don't change their holdings of Treasury bonds? How much does the money supply change by?

Accepted Answer

The only liability is deposits which equ...

Question 20

Federal Reserve governors are given long terms to insulate them from politics.

Accepted Answer

A) True 
 B)False

Exam 16: The Monetary System

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 Answer
verified

An increase in the money supply might indicate that the Fed had

Correct Answer
verified

If traveler's checks were $1000 higher and saving deposits were $500 higher, M1 would be

Correct Answer
verified

A bank's reserve ratio is 8 percent and the bank has $1,000 in deposits. Its reserves amount to

Correct Answer
verified

The primary tool used by the Federal Reserve to change the money supply is .

Correct Answer
verified
open-marke...
View Answer

List two reasons why the Fed cannot control the exact size of the money supply.

Correct Answer
verified
1) The Fed cannot control how much money...
View Answer

Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate?

Correct Answer
verified

If the reserve requirement is 10 percent, which of the following pairs of changes would both allow a bank to lend out an additional $10,000?

Correct Answer
verified

Federal Reserve governors are given long terms to insulate them from politics.

Correct Answer
verified

M2 is both larger and less liquid than M1.

Correct Answer
verified

Members of the Board of Governors of the Federal Reserve System are appointed for life.

Correct Answer
verified

If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

Correct Answer
verified

Correct Answer
verified

Monetary policy affects employment

Correct Answer
verified

Most financial assets other than money function as

Correct Answer
verified

The existence of money leads to

Correct Answer
verified

What is the difference between money and wealth?

Correct Answer
verified
Money is defined as the set of...
View Answer

The use of money allows trade to be roundabout.

Correct Answer
verified

The Fed increases reserves if it conducts open market

Correct Answer
verified

Correct Answer
verified
The only liability is deposits which equ...
View Answer

Exam 16: The Monetary System

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

An increase in the money supply might indicate that the Fed had

Correct AnswerverifiedShow Answer

If traveler's checks were $1000 higher and saving deposits were $500 higher, M1 would be

Correct AnswerverifiedShow Answer

A bank's reserve ratio is 8 percent and the bank has $1,000 in deposits. Its reserves amount to

Correct AnswerverifiedShow Answer

The primary tool used by the Federal Reserve to change the money supply is .

Correct Answerverifiedopen-marke...View AnswerShow Answer

List two reasons why the Fed cannot control the exact size of the money supply.

Correct Answerverified1) The Fed cannot control how much money...View AnswerShow Answer

Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate?

Correct AnswerverifiedShow Answer

If the reserve requirement is 10 percent, which of the following pairs of changes would both allow a bank to lend out an additional $10,000?

Correct AnswerverifiedShow Answer

Federal Reserve governors are given long terms to insulate them from politics.

Correct AnswerverifiedShow Answer

M2 is both larger and less liquid than M1.

Correct AnswerverifiedShow Answer

Members of the Board of Governors of the Federal Reserve System are appointed for life.

Correct AnswerverifiedShow Answer

If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Monetary policy affects employment

Correct AnswerverifiedShow Answer

Most financial assets other than money function as

Correct AnswerverifiedShow Answer

The existence of money leads to

Correct AnswerverifiedShow Answer

What is the difference between money and wealth?

Correct AnswerverifiedMoney is defined as the set of...View AnswerShow Answer

The use of money allows trade to be roundabout.

Correct AnswerverifiedShow Answer

The Fed increases reserves if it conducts open market

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe only liability is deposits which equ...View AnswerShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
open-marke...
View Answer

Correct Answer
verified
1) The Fed cannot control how much money...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Money is defined as the set of...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The only liability is deposits which equ...
View Answer