Question 1

Discuss why the Fed rarely changes the reserve requirements.

Accepted Answer

There are two main reasons the Fed does ...

Question 2

Monetary policy is made by the .

Accepted Answer

Federal Op...

Question 3

Which of the following best illustrates the unit of account function of money?

Accepted Answer

A)   You list prices for candy sold on your Web site, HYPERLINK "http://www.sweettooth.com/" www.sweettooth.com, in dollars.
B)   You pay for your theater tickets with dollars.
C)   You hold currency even though you don't intend to spend it right away.
D)   None of the above is correct.

Question 4

The Fed can decrease the money supply by conducting open-market

Accepted Answer

A)   sales or by raising the discount rate.
B)   sales or by lowering the discount rate.
C)   purchases or by raising the discount rate.
D)   purchases or by lowering the discount rate.

Question 5

If an economy uses silver as money, then that economy's money

Accepted Answer

A)   serves as a store of value but not as a medium of exchange.
B)   serves as a medium of exchange but not as a unit of account.
C)   is commodity money.
D)   has no intrinsic value.

Question 6

If the federal funds rate were above 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.

Question 7

In the United States, currency holdings per person average about

Accepted Answer

A)   $110; one explanation for this relatively small average is that many people use credit and debit cards to make transactions.
B)   $110; one explanation for this relatively small average is that U.S. citizens hold a lot of foreign currency.
C)   $4,490; one explanation for this relatively large amount is that criminals probably prefer currency as a medium of exchange.
D)   $4,490; one explanation for this relatively large average is that U.S. citizens hold a lot of foreign currency.

Question 8

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.

Question 9

If the Fed buys bonds in the open market, the money supply decreases.

Accepted Answer

A) True 
 B)False

Question 10

When there is a reserve requirement, banks

Accepted Answer

A)   must hold exactly the required quantity of reserves.
B)   may hold more than, but not less than, the required quantity of reserves.
C)   may hold less than, but not more than, the required quantity of reserves.
D)   must seek the Fed's permission whenever they wish to expand or contract their loans to customers.

Question 11

Other things the same, if banks decide to hold a smaller part of their deposits as excess reserves, the money supply will fall.

Accepted Answer

A) True 
 B)False

Question 12

At any given time, the voting members of the Federal Open Market Committee include

Accepted Answer

A)   five of the presidents of the regional Federal Reserve banks.
B)   the president of the Federal Reserve Bank of New York.
C)   the seven members of the Board of Governors.
D)   All of the above are correct.

Question 13

Fiat money

Accepted Answer

A)   has no intrinsic value.
B)   is backed by gold.
C)   is a medium of exchange but not a unit of account.
D)   is any close substitute for currency such as checkable deposits.

Question 14

Paper dollars

Accepted Answer

A)   are commodity money and gold coins are fiat money.
B)   are fiat money and gold coins are commodity money.
C)   and gold coins are both commodity monies.
D)   and gold coins are both fiat monies.

Question 15

The money multiplier equals 1/1 - R), where R represents the reserve ratio.

Accepted Answer

A) True 
 B)False

Question 16

If a bank uses $500 of excess reserves to make a new loan when the reserve ratio is 8 percent, this action by itself initially makes the money supply

Accepted Answer

A)   and wealth increase by $500.
B)   and wealth decrease by $500.
C)   increase by $500 while wealth does not change.
D)   decrease by $500 while wealth decreases by $500.

Question 17

Table 29-9
Metropolis National Bank is currently holding 2% of its deposits as excess reserves.
 
-Refer to Table 29-9. Metropolis National Bank is holding 2% of its deposits as excess reserves. Assume that no banks in the economy want to maintain holdings of excess reserves and that people only hold deposits and no currency. The Fed makes open market purchases of $10,000. The person who sold bonds to the Fed deposits all the funds in Metropolis National Bank. If the bank now loans out all its excess reserves, by how much will the money supply increase?

Accepted Answer

A)   $190,000
B)   $200,000
C)   $240,000
D)   None of the above are correct.

Question 18

Fractional reserve banking is a system where banks must hold an amount of cash based on a percentage of its loans.

Accepted Answer

A) True 
 B)False

Question 19

Bank runs and the accompanying increase in the money multiplier caused the U.S. money supply to rise by 28 percent from 1929 to 1933.

Accepted Answer

A) True 
 B)False

Question 20

When the Fed conducts open-market sales,

Accepted Answer

A)   it sells Treasury securities, which increases the money supply.
B)   it sells Treasury securities, which decreases the money supply.
C)   it auctions term loans, which increases the money supply.
D)   it auctions term loans, which decreases the money supply.

Exam 21: The Monetary System

In the United States, currency holdings per person average about

Correct Answer
verified

When the Fed conducts open-market sales,

Correct Answer
verified

The Federal Reserve Board of Governors

Correct Answer
verified

When there is a reserve requirement, banks

Correct Answer
verified

Fractional reserve banking is a system where banks must hold an amount of cash based on a percentage of its loans.

Correct Answer
verified

Correct Answer
verified

The money multiplier equals 1/1 - R), where R represents the reserve ratio.

Correct Answer
verified

If the Fed buys bonds in the open market, the money supply decreases.

Correct Answer
verified

Monetary policy is made by the .

Correct Answer
verified
Federal Op...
View Answer

Fiat money

Correct Answer
verified

Paper dollars

Correct Answer
verified

Which of the following best illustrates the unit of account function of money?

Correct Answer
verified

The Fed can decrease the money supply by conducting open-market

Correct Answer
verified

Other things the same, if banks decide to hold a smaller part of their deposits as excess reserves, the money supply will fall.

Correct Answer
verified

At any given time, the voting members of the Federal Open Market Committee include

Correct Answer
verified

If a bank uses $500 of excess reserves to make a new loan when the reserve ratio is 8 percent, this action by itself initially makes the money supply

Correct Answer
verified

Bank runs and the accompanying increase in the money multiplier caused the U.S. money supply to rise by 28 percent from 1929 to 1933.

Correct Answer
verified

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

Correct Answer
verified

If an economy uses silver as money, then that economy's money

Correct Answer
verified

Discuss why the Fed rarely changes the reserve requirements.

Correct Answer
verified
There are two main reasons the Fed does ...
View Answer

Exam 21: The Monetary System

In the United States, currency holdings per person average about

Correct AnswerverifiedShow Answer

When the Fed conducts open-market sales,

Correct AnswerverifiedShow Answer

The Federal Reserve Board of Governors

Correct AnswerverifiedShow Answer

When there is a reserve requirement, banks

Correct AnswerverifiedShow Answer

Fractional reserve banking is a system where banks must hold an amount of cash based on a percentage of its loans.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The money multiplier equals 1/1 - R), where R represents the reserve ratio.

Correct AnswerverifiedShow Answer

If the Fed buys bonds in the open market, the money supply decreases.

Correct AnswerverifiedShow Answer

Monetary policy is made by the .

Correct AnswerverifiedFederal Op...View AnswerShow Answer

Fiat money

Correct AnswerverifiedShow Answer

Paper dollars

Correct AnswerverifiedShow Answer

Which of the following best illustrates the unit of account function of money?

Correct AnswerverifiedShow Answer

The Fed can decrease the money supply by conducting open-market

Correct AnswerverifiedShow Answer

Other things the same, if banks decide to hold a smaller part of their deposits as excess reserves, the money supply will fall.

Correct AnswerverifiedShow Answer

At any given time, the voting members of the Federal Open Market Committee include

Correct AnswerverifiedShow Answer

If a bank uses $500 of excess reserves to make a new loan when the reserve ratio is 8 percent, this action by itself initially makes the money supply

Correct AnswerverifiedShow Answer

Bank runs and the accompanying increase in the money multiplier caused the U.S. money supply to rise by 28 percent from 1929 to 1933.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If an economy uses silver as money, then that economy's money

Correct AnswerverifiedShow Answer

Discuss why the Fed rarely changes the reserve requirements.

Correct AnswerverifiedThere are two main reasons the Fed does ...View AnswerShow Answer

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Federal Op...
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There are two main reasons the Fed does ...
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