Question 1

A primary function of a central bank is to

Accepted Answer

A)   regulate dividend payments by corporations.
B)   act as a regulator of banks.
C)   control the bond market.
D)   publish statistics on banking and related financial matters.

Question 2

Which of the following is an interest rate that is set directly by the Fed?

Accepted Answer

A)   the prime lending rate
B)   the required reserve rate
C)   the discount rate
D)   the federal funds rate

Question 3

Use the following to answer questions .
Exhibit: Deposit Expansion Stages
 
-(Exhibit: Deposit Expansion Stages)  What is the value of $H (the total loans) ?

Accepted Answer

A)   $1,000
B)   $4,000
C)   $5,000
D)   $6,000

Question 4

Discuss the three functions of money and give several examples in your own life when money performs these functions.

Accepted Answer

The three functions of money are as a me...

Question 5

Which of the following would lead to a change in the money measure, M1?

Accepted Answer

A)   a customer purchases music downloads with a debit card
B)   a customer withdraws funds from her checking account to purchase a 6-month time deposit
C)   depositing a paycheck drawn against Bank of America into your checking account in Wells Fargo Bank
D)   interest payments by the Treasury on its debt

Question 6

Use the following to answer questions .
Exhibit: Components of the Money System
 
-(Exhibit: Components of the Money System)  The difference between M1 and M2 amounts to

Accepted Answer

A)   $325 billion.
B)   $350 billion.
C)   $450 billion.
D)   $1,275 billion.

Question 7

The federal funds rate is the interest rate the Fed charges to banks when it lends reserves to them.

Accepted Answer

A) True 
 B)False

Question 8

When the Fed buys government bonds in the open market the money supply will increase.

Accepted Answer

A) True 
 B)False

Question 9

The federal funds rate is determined

Accepted Answer

A)   by the Board of Governors.
B)   by the supply and demand for bank reserves.
C)   directly by households' and firms' demands for funds.
D)   by the federal government.

Question 10

A financial institution that accepts deposits, makes loans, and offers checking accounts is

Accepted Answer

A)   an insurance company.
B)   the Federal Deposit Insurance Corporation.
C)   the Federal Reserve System.
D)   a commercial bank.

Question 11

Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel in exchange for goods and services. Why were they willing to accept mackerel in exchange for goods and services?

Accepted Answer

A)   because mackerel is a good source of protein
B)   because prison authorities deemed mackerel legal tender
C)   because the inmates know that they could use the packages of mackerel to buy other goods and services
D)   because the inmates do not wish to consume mackerel

Question 12

Use the following to answer questions .
Exhibit: Deposit Expansion Stages
 
-(Exhibit: Deposit Expansion Stages)  What is the value of $A in stage 1?

Accepted Answer

A)   $100
B)   $200
C)   $600
D)   $800

Question 13

If the banking system has $2,000 in excess reserves, then it can expand deposits at most by $10,000 if the required reserve ratio is 10%.

Accepted Answer

A) True 
 B)False

Question 14

In Romania under Communist Party rule in the 1980s, Kent cigarettes served as a medium of exchange. Given this, which of the following statements is true?

Accepted Answer

A)   This illustrates the use of Kent cigarettes as fiat money.
B)   Commodity money has no value apart from its use as money.
C)   This illustrates the use of Kent cigarettes as commodity money.
D)   Fiat money must be backed by gold; otherwise it is worthless.

Question 15

Which of the following is true regarding the interest rate earned on the reserves that bank's keep at the Fed?

Accepted Answer

A)   These reserves earn no interest.
B)   It is relatively low.
C)   It varies depending on the federal funds rate.
D)   It is equal to the discount rate.

Question 16

Rank the following items in terms of most liquid to least liquid.

Accepted Answer

A)   checkable deposits, cash, an office building your father owns
B)   cash, credit card, money market mutual funds, checkable deposits,
C)   cash, checkable deposits, savings deposits, an office building your father owns
D)   cash, Microsoft stock certificates you own, checkable deposits

Question 17

Which of the following is an advantage of using money as a medium of exchange?

Accepted Answer

A)   It simplifies purchases because all prices are specified in money values.
B)   There is no interest charged on using money for purchases.
C)   It is easy to mass produce money.
D)   It avoids having to rely on barter, the exchange of one good or service for another.

Question 18

When banks hold more reserves than are required, such reserves are called

Accepted Answer

A)   total reserves.
B)   required reserves.
C)   excess reserves.
D)   loan reserves.

Question 19

Suppose the Fed conducts an open market sale of $50 million in government securities. If the required reserve ratio is 20%, what is the maximum change in the money supply? Assume that banks try not to hold excess reserves and there is no currency withdrawal from the banking system.

Accepted Answer

A)   maximum increase in money supply = $250 million
B)   maximum decrease in money supply = $250 million
C)   maximum increase in money supply = $50 million
D)   maximum decrease in money supply = $50 million

Question 20

Excess reserves plus total reserves equal required reserves.

Accepted Answer

A) True 
 B)False

Exam 9: The Nature and Creation of Money

The federal funds rate is determined

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The federal funds rate is the interest rate the Fed charges to banks when it lends reserves to them.

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When banks hold more reserves than are required, such reserves are called

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In Romania under Communist Party rule in the 1980s, Kent cigarettes served as a medium of exchange. Given this, which of the following statements is true?

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When the Fed buys government bonds in the open market the money supply will increase.

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Use the following to answer questions . Exhibit: Components of the Money System -(Exhibit: Components of the Money System) The difference between M1 and M2 amounts to

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Discuss the three functions of money and give several examples in your own life when money performs these functions.

Correct AnswerAnswered by ExamLex AIThe three functions of money are as a me...View AnswerShow Answer

Which of the following is an interest rate that is set directly by the Fed?

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If the banking system has $2,000 in excess reserves, then it can expand deposits at most by $10,000 if the required reserve ratio is 10%.

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Use the following to answer questions . Exhibit: Deposit Expansion Stages -(Exhibit: Deposit Expansion Stages) What is the value of $H (the total loans) ?

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Which of the following is an advantage of using money as a medium of exchange?

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Which of the following is true regarding the interest rate earned on the reserves that bank's keep at the Fed?

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Rank the following items in terms of most liquid to least liquid.

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Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel in exchange for goods and services. Why were they willing to accept mackerel in exchange for goods and services?

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A financial institution that accepts deposits, makes loans, and offers checking accounts is

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Which of the following would lead to a change in the money measure, M1?

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Suppose the Fed conducts an open market sale of $50 million in government securities. If the required reserve ratio is 20%, what is the maximum change in the money supply? Assume that banks try not to hold excess reserves and there is no currency withdrawal from the banking system.

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A primary function of a central bank is to

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Excess reserves plus total reserves equal required reserves.

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Use the following to answer questions . Exhibit: Deposit Expansion Stages -(Exhibit: Deposit Expansion Stages) What is the value of $A in stage 1?

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The three functions of money are as a me...
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