Question 1

During the financial crisis of 2008-2010,the Fed

Accepted Answer

A)  increased its purchases of securities and other financial assets and extended more loans,which expanded the monetary base.
B)  increased its purchases of securities and other financial assets and extended more loans,which reduced the monetary base.
C)  reduced its purchases of securities and other financial assets and extended fewer loans,which expanded the monetary base.
D)  reduced its purchases of securities and other financial assets and extended fewer loans,which caused the monetary base to decline.E) A) and B)
F) None of the above

Question 2

Explain how the Fed would use its four tools to decrease and to increase the money supply.

Accepted Answer

The Fed would raise reserve requirements...

Question 3

One advantage of a money system compared to a barter system is that

Accepted Answer

A)  barter never works.
B)  money creates the need for banks.
C)  money is more efficient.
D)  everyone has money.E) None of the above
F) A) and B)

Question 4

Which of the following guarantees the deposits in almost all banks up to a $250,000 limit per account?

Accepted Answer

A)  the Federal Reserve
B)  the FDIC
C)  the U.S.Treasury
D)  Bank of America CorporationE) None of the above
F) A) and D)

Question 5

If people decide to hold less money as currency and more as checking deposits,this will most likely cause a(n)

Accepted Answer

A)  decrease in bank reserves.
B)  decrease in required reserves.
C)  increase in the discount rate.
D)  increase in the money supply.E) C) and D)
F) A) and B)

Question 6

The large increase in the excess reserves held by the commercial banking system during the second half of 2008,

Accepted Answer

A)  increases the likelihood of a sharp contraction in the money supply,which would increase the length and severity of the recession.
B)  increases the likelihood of a rapid increase in the money supply,potentially leading to future inflation.
C)  is merely a continuation of the trend present since 1990.
D)  reduces the ability of banks to extend additional loans.E) A) and B)
F) A) and C)

Question 7

An individual bank can lend out at most its

Accepted Answer

A)  actual reserves.
B)  fractional reserves.
C)  legal reserves.
D)  checkable deposits.
E)  excess reserves.F) A) and B)
G) B) and C)

Question 8

A reserve requirement of 5 percent implies a potential money deposit multiplier of

Accepted Answer

A)  5.
B)  10.
C)  20.
D)  25.E) A) and C)
F) A) and B)

Question 9

The Fed is institutionally independent.A major advantage of this is that monetary policy

Accepted Answer

A)  is subject to regular congressional scrutiny.
B)  will often offset fiscal policy.
C)  is not controlled by politicians.
D)  is usually coordinated with fiscal policy.E) A) and B)
F) A) and C)

Question 10

The interest rate in the federal funds market

Accepted Answer

A)  is determined by the imposition of price controls imposed by the Fed.
B)  will tend to rise when the quantity of funds demanded by banks seeking additional reserves exceeds the quantity supplied by banks with excess reserves.
C)  will tend to fall if the Fed sells bonds and,thereby,reduces the reserves available to banks.
D)  is an interest rate that is largely unaffected by the policies of the Fed.E) C) and D)
F) A) and D)

Question 11

The total expansion in the money supply can be less than is predicted by the deposit expansion multiplier if

Accepted Answer

A)  banks choose to hold some excess reserves rather than lending all excess reserves.
B)  some individuals prefer to hold cash instead of depositing their money in banks.
C)  instead of a monopoly banking system,there are many banks.
D)  both a and b are correct.E) C) and D)
F) All of the above

Question 12

The federal funds rate is the interest rate paid when

Accepted Answer

A)  the Federal Reserve makes loans to member banks.
B)  taxpayers pay overdue taxes.
C)  one bank borrows reserves from another bank.
D)  banks make loans to the federal government.
E)  the federal debt is refinanced.F) A) and C)
G) A) and D)

Question 13

Suppose the Fed purchases $100 million of U.S.securities from the public.If the reserve requirement is 20 percent,the currency holdings of the public are unchanged,and banks have zero excess reserves both before and after the transaction,the total impact on the money supply will be a

Accepted Answer

A)  $100 million decrease in the money supply.
B)  $100 million increase in the money supply.
C)  $200 million increase in the money supply.
D)  $500 million increase in the money supply.E) B) and C)
F) All of the above

Question 14

Compared to a barter economy,using money increases efficiency by reducing

Accepted Answer

A)  transaction costs.
B)  the need to exchange goods.
C)  the need to specialize.
D)  inflation.E) None of the above
F) A) and B)

Question 15

If a number of people suddenly deposit into their checking accounts a great deal of cash previously kept in their pockets or at home,other things constant,their actions will

Accepted Answer

A)  create excess reserves and place banks in a position to extend additional loans,which will reduce the money supply.
B)  create excess reserves and place banks in a position to extend additional loans,which will expand the money supply.
C)  lead to higher interest rates.
D)  force the Fed to reduce its discount rate.E) None of the above
F) C) and D)

Question 16

In order for barter to occur,traders must have a

Accepted Answer

A)  unit of account.
B)  coincidence of wants.
C)  medium of exchange.
D)  central banking facility.E) B) and D)
F) A) and B)

Question 17

Which of the following is not a depository institution?

Accepted Answer

A)  commercial bank
B)  credit union
C)  finance company
D)  savings and loan associationE) C) and D)
F) B) and D)

Question 18

Suppose the Fed bought $150 million of U.S.securities from the public.The reserve requirement is 20 percent,and there are no initial excess reserves.A few weeks later,if the public's holdings of currency are constant and the banks have loaned all excess reserves,the money supply will increase by

Accepted Answer

A)  $150 million.
B)  $300 million.
C)  $600 million.
D)  $750 million.E) All of the above
F) A) and D)

Question 19

If the public decides to hold more currency and fewer deposits in banks,bank reserves

Accepted Answer

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

Question 20

Which of the following would appear on the liability side of the balance sheet of a commercial bank?

Accepted Answer

A)  demand and other transaction deposits
B)  loans outstanding
C)  U.S.government securities
D)  vault cashE) None of the above
F) All of the above

Exam 13: Amoney and the Banking System

Suppose the Fed bought $150 million of U.S.securities from the public.The reserve requirement is 20 percent,and there are no initial excess reserves.A few weeks later,if the public's holdings of currency are constant and the banks have loaned all excess reserves,the money supply will increase by

Correct AnswerverifiedShow Answer

Which of the following guarantees the deposits in almost all banks up to a $250,000 limit per account?

Correct AnswerverifiedShow Answer

The Fed is institutionally independent.A major advantage of this is that monetary policy

Correct AnswerverifiedShow Answer

The federal funds rate is the interest rate paid when

Correct AnswerverifiedShow Answer

Suppose the Fed purchases $100 million of U.S.securities from the public.If the reserve requirement is 20 percent,the currency holdings of the public are unchanged,and banks have zero excess reserves both before and after the transaction,the total impact on the money supply will be a

Correct AnswerverifiedShow Answer

Which of the following is not a depository institution?

Correct AnswerverifiedShow Answer

If a number of people suddenly deposit into their checking accounts a great deal of cash previously kept in their pockets or at home,other things constant,their actions will

Correct AnswerverifiedShow Answer

In order for barter to occur,traders must have a

Correct AnswerverifiedShow Answer

The large increase in the excess reserves held by the commercial banking system during the second half of 2008,

Correct AnswerverifiedShow Answer

The total expansion in the money supply can be less than is predicted by the deposit expansion multiplier if

Correct AnswerverifiedShow Answer

During the financial crisis of 2008-2010,the Fed

Correct AnswerverifiedShow Answer

If people decide to hold less money as currency and more as checking deposits,this will most likely cause a(n)

Correct AnswerverifiedShow Answer

One advantage of a money system compared to a barter system is that

Correct AnswerverifiedShow Answer

Compared to a barter economy,using money increases efficiency by reducing

Correct AnswerverifiedShow Answer

Which of the following would appear on the liability side of the balance sheet of a commercial bank?

Correct AnswerverifiedShow Answer

Explain how the Fed would use its four tools to decrease and to increase the money supply.

Correct AnswerverifiedThe Fed would raise reserve requirements...View AnswerShow Answer

If the public decides to hold more currency and fewer deposits in banks,bank reserves

Correct AnswerverifiedShow Answer

The interest rate in the federal funds market

Correct AnswerverifiedShow Answer

A reserve requirement of 5 percent implies a potential money deposit multiplier of

Correct AnswerverifiedShow Answer

An individual bank can lend out at most its

Correct AnswerverifiedShow Answer

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The Fed would raise reserve requirements...
View Answer

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