Question 1

Which of the following is a function of money?

Accepted Answer

A)   a unit of account
B)   a store of value
C)   medium of exchange
D)   All of the above are correct.

Question 2

Suppose the banking system currently has $400 billion in reserves,the reserve requirement is 10 percent,and excess reserves are $3 billion.What is the level of loans?

Accepted Answer

A)   $3,603 billion
B)   $3,600 billion
C)   $3,573 billion
D)   $3,570 billion

Question 3

The amount of currency per person in the United States is about

Accepted Answer

A)   $125.
B)   $300.
C)   $2,500.
D)   $3,700.

Question 4

The Fed can directly protect a bank during a bank run by

Accepted Answer

A)   increasing reserve requirements.
B)   selling government bonds to the bank.
C)   lending reserves to the bank.
D)   doing any of the above.

Question 5

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 6

If the reserve ratio is 15 percent,and banks do not hold excess reserves,and people hold only deposits and no currency,then when the Fed sells $65 million worth of bonds to the public,bank reserves

Accepted Answer

A)   increase by $65 million and the money supply eventually increases by $266.67 million.
B)   increase by $65 million and the money supply eventually increases by $433.33 million.
C)   decrease by $65 million and the money supply eventually decreases by $266.67 million.
D)   decrease by $65 million and the money supply eventually decreases by $433.33 million.

Question 7

A bank's assets equal its liabilities under

Accepted Answer

A)   both 100-percent-reserve banking and fractional-reserve banking.
B)   100-percent-reserve banking but not under fractional-reserve banking.
C)   fractional-reserve banking but not under 100-percent-reserve banking.
D)   neither 100-percent-reserve banking nor fractional-reserve banking.

Question 8

The fractional reserve characteristic of the banking system allows banks to create money and also create wealth from bank deposits.Describe why this statement is or is not true.

Accepted Answer

This statement is not true.
Banks can cr...

Question 9

Economists use the term "money" to refer to

Accepted Answer

A)   all wealth.
B)   all assets,including real assets and financial assets.
C)   all financial assets,but not real assets.
D)   those types of wealth that are regularly accepted by sellers in exchange for goods and services.

Question 10

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 11

M1 equals currency plus demand deposits plus

Accepted Answer

A)   nothing else.
B)   other checkable deposits.
C)   traveler's checks plus other checkable deposits.
D)   traveler's checks plus other checkable deposits plus savings deposits.

Question 12

Members of the Board of Governors are appointed by the president of the U.S.and confirmed by the U.S.Senate.

Accepted Answer

A) True 
 B)False

Question 13

When you purchase school supplies at the book store using cash,you are using money as a medium of exchange.

Accepted Answer

A) True 
 B)False

Question 14

At any meeting of the Federal Open Market Committee,that committee's voting members consist of

Accepted Answer

A)   5 Federal Reserve Regional Bank Presidents and all the members of the Board of Governors.
B)   5 Federal Reserve Regional Bank Presidents and 5 members of the Board of Governors.
C)   12 Federal Reserve Regional Bank Presidents and all the members of the Board of Governors.
D)   12 Federal Reserve Regional Bank Presidents and 5 members of the Board of Governors.

Question 15

Marc puts prices on surfboards and skateboards at his sporting goods store.He is using money as a unit of account.

Accepted Answer

A) True 
 B)False

Question 16

Under a fractional-reserve banking system,banks

Accepted Answer

A)   hold more reserves than deposits.
B)   generally lend out a majority of the funds deposited.
C)   cause the money supply to fall by lending out reserves.
D)   All of the above are correct.

Question 17

When conducting an open-market sale,the Fed

Accepted Answer

A)   buys government bonds,and in so doing increases the money supply.
B)   buys government bonds,and in so doing decreases the money supply.
C)   sells government bonds,and in so doing increases the money supply.
D)   sells government bonds,and in so doing decreases the money supply.

Question 18

Table 16-1.The information in the table pertains to an imaginary economy.
 
-Refer to Table 16-1.What is the M2 money supply?

Accepted Answer

A)   $125 billion
B)   $296 billion
C)   $351 billion
D)   $431 billion

Question 19

Suppose a bank purchases $50 of government securities using funds from reserves.How much do bank assets change as a result of this transaction?

Accepted Answer

In this case,the value of bank assets do...

Question 20

Liquidity refers to

Accepted Answer

A)   the ease with which an asset is converted to the medium of exchange.
B)   the measurement of the intrinsic value of commodity money.
C)   the measurment of the durability of a good.
D)   how many time a dollar circulates in a given year.

Exam 29: The Monetary System

Under a fractional-reserve banking system,banks

Correct AnswerverifiedShow Answer

At any meeting of the Federal Open Market Committee,that committee's voting members consist of

Correct AnswerverifiedShow Answer

Suppose the banking system currently has $400 billion in reserves,the reserve requirement is 10 percent,and excess reserves are $3 billion.What is the level of loans?

Correct AnswerverifiedShow Answer

When conducting an open-market sale,the Fed

Correct AnswerverifiedShow Answer

The amount of currency per person in the United States is about

Correct AnswerverifiedShow Answer

When you purchase school supplies at the book store using cash,you are using money as a medium of exchange.

Correct AnswerverifiedShow Answer

The fractional reserve characteristic of the banking system allows banks to create money and also create wealth from bank deposits.Describe why this statement is or is not true.

Correct AnswerverifiedThis statement is not true.Banks can cr...View AnswerShow Answer

Liquidity refers to

Correct AnswerverifiedShow Answer

Members of the Board of Governors are appointed by the president of the U.S.and confirmed by the U.S.Senate.

Correct AnswerverifiedShow Answer

Which of the following is a function of money?

Correct AnswerverifiedShow Answer

A bank's assets equal its liabilities under

Correct AnswerverifiedShow Answer

M1 equals currency plus demand deposits plus

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

Marc puts prices on surfboards and skateboards at his sporting goods store.He is using money as a unit of account.

Correct AnswerverifiedShow Answer

Table 16-1.The information in the table pertains to an imaginary economy. -Refer to Table 16-1.What is the M2 money supply?

Correct AnswerverifiedShow Answer

The Fed can directly protect a bank during a bank run by

Correct AnswerverifiedShow Answer

Suppose a bank purchases $50 of government securities using funds from reserves.How much do bank assets change as a result of this transaction?

Correct AnswerverifiedIn this case,the value of bank assets do...View AnswerShow Answer

Economists use the term "money" to refer to

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 reserve ratio is 15 percent,and banks do not hold excess reserves,and people hold only deposits and no currency,then when the Fed sells $65 million worth of bonds to the public,bank reserves

Correct AnswerverifiedShow Answer

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This statement is not true.
Banks can cr...
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In this case,the value of bank assets do...
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