Question 1

If the reserve ratio is 5 percent, then $1,000 of additional reserves can create up to

Accepted Answer

A)   $5,500 of new money.
B)   $5,000 of new money.
C)   $4,000 of new money.
D)   None of the above is correct.

Question 2

Any item that people can use to transfer purchasing power from the present to the future is called

Accepted Answer

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

Question 3

The set of items that serve as media of exchange clearly includes

Accepted Answer

A)   balances that lie behind debit cards.
B)   demand deposits.
C)   other checkable deposits.
D)   All of the above are correct.

Question 4

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

Accepted Answer

A)   U.S. Treasury bills
B)   small time deposits
C)   demand deposits
D)   money market mutual funds

Question 5

Table 29-5. 
-Refer to Table 29-5. If the bank faces a reserve requirement of 8 percent, then the bank

Accepted Answer

A)   is in a position to make a new loan of $14,000.
B)   has fewer reserves than are required.
C)   has excess reserves of $16,400.
D)   None of the above is correct.

Question 6

When colonists in Virginia used tobacco as money, their money

Accepted Answer

A)   was commodity money.
B)   had no intrinsic value.
C)   was fiat money.
D)   had no store of value.

Question 7

Bank capital is

Accepted Answer

A)   the machinery, structures, and equipment of the bank.
B)   the resources that owners have put into the bank.
C)   the reserves of the bank.
D)   the bank's total assets.

Question 8

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 9

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.

Question 10

During the Great Depression in the early 1930s,

Accepted Answer

A)   bank runs closed many banks.
B)   the money supply rose sharply.
C)   the Fed decreased reserve requirements.
D)   both a and b are correct.

Question 11

Money

Accepted Answer

A)   is a perfect store of value.
B)   is the most liquid asset.
C)   has intrinsic value, regardless of which form it takes.
D)   All of the above are correct.

Question 12

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

Accepted Answer

A)   fewer reserves, so the reserve ratio will fall.
B)   fewer reserves, so the reserve ratio will rise.
C)   more reserves, so the reserve ratio will fall.
D)   more reserves, so the reserve ratio will rise.

Question 13

To decrease the money supply, the Fed can

Accepted Answer

A)   buy government bonds or increase the discount rate.
B)   buy government bonds or decrease the discount rate.
C)   sell government bonds or increase the discount rate.
D)   sell government bonds or decrease the discount rate.

Question 14

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.

Question 15

Table 29-7. 
-Refer to Table 29-7. If the Fed requires a reserve ratio of 6 percent, then what quantity of excess reserves does the Bank of Springfield now hold?

Accepted Answer

A)   $9,600
B)   $10,800
C)   $10,200
D)   $9,000

Question 16

The Fed can influence unemployment in

Accepted Answer

A)   the short run and in the long run.
B)   the short run, but not in the long run.
C)   the long run, but not in the short run.
D)   neither the short nor the long run.

Question 17

Imagine an economy in which: (1)  pieces of paper called dollars are the only thing that buyers give to sellers when they buy goods and services, so it would be common to use, say, 50 dollars to buy a pair of shoes; (2)  prices are posted in terms of yardsticks, so you might walk into a grocery store and see that, today, an apple is worth 2 yardsticks; and (3)  yardsticks disintegrate overnight, so no yardstick has any value for more than 24 hours. In this economy,

Accepted Answer

A)   the yardstick is a medium of exchange but it cannot serve as a unit of account.
B)   the yardstick is a unit of account but it cannot serve as a store of value.
C)   the yardstick is a medium of exchange but it cannot serve as a store of value, and the yollar is a unit of account.
D)   the yollar is a unit of account, but it is not a medium of exchange and it is not a liquid asset.

Question 18

If the reserve ratio is 12.5 percent, then $1,000 of additional reserves can create up to

Accepted Answer

A)   $7,000 of new money.
B)   $8,000 of new money.
C)   $11,500 of new money.
D)   $12,500 of new money.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Table 29-6. 
-Refer to Table 29-6. The Bank of Pleasantville's reserve ratio is

Accepted Answer

A)   6.4 percent.
B)   16.7 percent.
C)   6.0 percent.
D)   15.7 percent.

Exam 29: The Monetary System

When colonists in Virginia used tobacco as money, their money

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

Correct Answer
verified

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

Correct Answer
verified

To decrease the money supply, the Fed can

Correct Answer
verified

If the reserve ratio is 12.5 percent, then $1,000 of additional reserves can create up to

Correct Answer
verified

Table 29-5. -Refer to Table 29-5. If the bank faces a reserve requirement of 8 percent, then the bank

Correct Answer
verified

Any item that people can use to transfer purchasing power from the present to the future is called

Correct Answer
verified

During the Great Depression in the early 1930s,

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

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

Correct Answer
verified

If the reserve ratio is 5 percent, then $1,000 of additional reserves can create up to

Correct Answer
verified

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

Correct Answer
verified

Bank capital is

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

Table 29-6. -Refer to Table 29-6. The Bank of Pleasantville's reserve ratio is

Correct Answer
verified

The set of items that serve as media of exchange clearly includes

Correct Answer
verified

Table 29-7. -Refer to Table 29-7. If the Fed requires a reserve ratio of 6 percent, then what quantity of excess reserves does the Bank of Springfield now hold?

Correct Answer
verified

Money

Correct Answer
verified

The Fed can influence unemployment in

Correct Answer
verified

Exam 29: The Monetary System

When colonists in Virginia used tobacco as money, their money

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

Correct AnswerverifiedShow Answer

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

Correct AnswerverifiedShow Answer

To decrease the money supply, the Fed can

Correct AnswerverifiedShow Answer

If the reserve ratio is 12.5 percent, then $1,000 of additional reserves can create up to

Correct AnswerverifiedShow Answer

Table 29-5. -Refer to Table 29-5. If the bank faces a reserve requirement of 8 percent, then the bank

Correct AnswerverifiedShow Answer

Any item that people can use to transfer purchasing power from the present to the future is called

Correct AnswerverifiedShow Answer

During the Great Depression in the early 1930s,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the reserve ratio is 5 percent, then $1,000 of additional reserves can create up to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Bank capital is

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

Table 29-6. -Refer to Table 29-6. The Bank of Pleasantville's reserve ratio is

Correct AnswerverifiedShow Answer

The set of items that serve as media of exchange clearly includes

Correct AnswerverifiedShow Answer

Table 29-7. -Refer to Table 29-7. If the Fed requires a reserve ratio of 6 percent, then what quantity of excess reserves does the Bank of Springfield now hold?

Correct AnswerverifiedShow Answer

Money

Correct AnswerverifiedShow Answer

The Fed can influence unemployment in

Correct AnswerverifiedShow Answer

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