Question 1

Discuss why the Fed rarely changes the reserve requirements.

Accepted Answer

There are two main reasons the Fed does ...

Question 2

Which of the following is a store of value?

Accepted Answer

A)   cash and stocks
B)   cash but not stocks
C)   stocks but not cash
D)   neither cash nor stocksE) All of the above
F) C) and D) A

Question 3

The tool most often used by the Fed to control the money supply is

Accepted Answer

A)   changing reserve requirements.
B)   open market operations.
C)   buying and selling of equities.
D)   altering the discount rate.E) B) and C)
F) All of the above

Question 4

The regional Federal Reserve Banks

Accepted Answer

A)   are not allowed to make loans to banks in their region.
B)   regulate banks in their regions.
C)   have more voting members on the FOMC than does the Board of Governors.
D)   are each headed by a member of the Board of Governors.E) B) and C)
F) None of the above B

Question 5

The agency responsible for regulating the money supply in the United States is

Accepted Answer

A)   the Comptroller of the Currency.
B)   the U.S. Treasury.
C)   the Federal Reserve.
D)   the U.S. Bank.E) C) and D)
F) A) and C) C

Question 6

Just after the terrorist attack on September 11, 2001, the Fed stood ready to lend financial institutions funds. When the Fed did this, it was acting in its role of lender of last resort.

Accepted Answer

A) True 
 B)False

Question 7

The "yardstick" people use to post prices and record debts is called

Accepted Answer

A)   a medium of exchange.
B)   a unit of account.
C)   a store of value.
D)   liquidity.E) A) and B)
F) B) and C)

Question 8

All Fed purchases and sales of

Accepted Answer

A)   corporate stocks and bonds are conducted at the New York Fed's trading desk.
B)   government bonds are conducted at the New York Fed's trading desk.
C)   real estate and other real assets are conducted by the Federal Open Market Committee.
D)   All of the above are correct.E) None of the above
F) B) and D)

Question 9

In a fractional-reserve banking system with no excess reserves and no currency holdings, if the central bank buys $100 million worth of bonds,

Accepted Answer

A)   reserves and the money supply increase by less than $100 million.
B)   reserves increase by $100 million and the money supply increases by $100 million.
C)   reserves increase by $100 million and the money supply increases by more than $100 million.
D)   both reserves and the money supply increase by more than $100 million.E) B) and D)
F) A) and B)

Question 10

Which of the following is an example of barter?

Accepted Answer

A)   A parent gives a teenager a $10 bill in exchange for her babysitting services.
B)   A homeowner gives an exterminator a check for $50 in exchange for extermination services.
C)   A barber gives a plumber a haircut in exchange for the plumber fixing the barber's leaky faucet.
D)   All of the above are examples of barter.E) A) and B)
F) B) and C)

Question 11

Which of the following is not included in M1?

Accepted Answer

A)   currency
B)   demand deposits
C)   savings deposits
D)   traveler's checksE) A) and B)
F) None of the above

Question 12

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.E) A) and D)
F) B) and D)

Question 13

Which of the following items is not included in the most narrow definition of money, M1?

Accepted Answer

A)   currency
B)   savings deposits
C)   traveler's checks
D)   demand depositsE) None of the above
F) A) and B)

Question 14

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.E) A) and D)
F) A) and C)

Question 15

The Fed decreases 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) All of the above
F) C) and D)

Question 16

An increase in the reserve requirement increases reserves and decreases the money supply.

Accepted Answer

A) True 
 B)False

Question 17

If the reserve requirement is 5 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $10, then this bank

Accepted Answer

A)   must increase its required reserves by $10.
B)   will initially see its total reserves increase by $10.50.
C)   will be able to make new loans up to a maximum of $9.50.
D)   All of the above are correct.E) None of the above
F) A) and B)

Question 18

In the nation of Wiknam, the money supply is $80,000 and reserves are $18,000. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

Accepted Answer

A)   29 percent.
B)   22.5 percent.
C)   16 percent.
D)   None of the above is correct.E) B) and D)
F) All of the above

Question 19

If the reserve ratio is 10 percent, the money multiplier is

Accepted Answer

A)   100.
B)   10.
C)   9/10.
D)   1/10.E) A) and B)
F) A) and C)

Question 20

The Federal Reserve can alter the size of the money supply by changing reserves or changing reserve requirements.

Accepted Answer

A) True 
 B)False

Exam 16: The Monetary System

Discuss why the Fed rarely changes the reserve requirements.

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

Which of the following is a store of value?

Correct AnswerverifiedA

The tool most often used by the Fed to control the money supply is

Correct AnswerverifiedShow Answer

The regional Federal Reserve Banks

Correct AnswerverifiedB

The agency responsible for regulating the money supply in the United States is

Correct AnswerverifiedC

Just after the terrorist attack on September 11, 2001, the Fed stood ready to lend financial institutions funds. When the Fed did this, it was acting in its role of lender of last resort.

Correct AnswerverifiedShow Answer

The "yardstick" people use to post prices and record debts is called

Correct AnswerverifiedShow Answer

All Fed purchases and sales of

Correct AnswerverifiedShow Answer

In a fractional-reserve banking system with no excess reserves and no currency holdings, if the central bank buys $100 million worth of bonds,

Correct AnswerverifiedShow Answer

Which of the following is an example of barter?

Correct AnswerverifiedShow Answer

Which of the following is not included in M1?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following items is not included in the most narrow definition of money, M1?

Correct AnswerverifiedShow Answer

In the United States, currency holdings per person average about

Correct AnswerverifiedShow Answer

The Fed decreases reserves if it conducts open market

Correct AnswerverifiedShow Answer

An increase in the reserve requirement increases reserves and decreases the money supply.

Correct AnswerverifiedShow Answer

If the reserve requirement is 5 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $10, then this bank

Correct AnswerverifiedShow Answer

In the nation of Wiknam, the money supply is $80,000 and reserves are $18,000. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

Correct AnswerverifiedShow Answer

If the reserve ratio is 10 percent, the money multiplier is

Correct AnswerverifiedShow Answer

The Federal Reserve can alter the size of the money supply by changing reserves or changing reserve requirements.

Correct AnswerverifiedShow Answer

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There are two main reasons the Fed does ...
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