Question 1

The Fed's policy is determined by the

Accepted Answer

A)  Federal Open Market Committee.
B)  Regional Federal Reserve Banks.
C)  Federal Monetary Policy Committee.
D)  Board of Governors.
E)  Executive Council to the Governor.

Question 2

--------------------like a check and--------------------considered money.

Accepted Answer

A)  E-checks work; are
B)  E-cash works; is
C)  Debit cards work; are
D)  E-cash works; is not
E)  Debit cards work; are not

Question 3

A currency drain occurs when the

Accepted Answer

A)  Fed increases the required reserve ratio.
B)  Fed buys U.S. government securities.
C)  banks reduce the number of loans they create with their excess reserves.
D)  non-bank public increases its holdings of currency outside the banking system.
E)  Fed sells U.S. government securities.

Question 4

The desired reserve ratio is 3 percent. Robert deposits $3,000 in Bank America. Bank America keeps its minimum desired reserves and lends the excess to Fredrica. How much does Bank America lend to Fredrica?

Accepted Answer

A)  $3,000
B)  $2,910
C)  $2700
D)  $900
E)  $300

Question 5

If the currency drain ratio is 30 percent and the desired reserve ratio is 10 percent, the money
Multiplier is

Accepted Answer

A)  1.25.
B)  10.0.
C)  0.80.
D)  3.25.
E)  5.00.

Question 6

The unit of account is defined as

Accepted Answer

A)  the exchange of goods and services directly for other goods and services.
B)  barter.
C)  the medium of exchange.
D)  an object that is accepted in return for goods and services.
E)  an agreed upon measure for stating prices of goods and services.

Question 7

Assume First Central Bank has a desired reserve ratio of 15 percent; $80,000 in total deposits, loans equal to $60,000, and has $20,000 in actual reserves. First Central can make additional loans totaling

Accepted Answer

A)  $12,000.
B)  $8,000.
C)  $60,000.
D)  $80,000.
E)  $20,000.

Question 8

The Federal Open Market Committee is

Accepted Answer

A)  comprised of the presidents of the 12 Federal Reserve banks.
B)  the main policy making body of the Fed.
C)  the government committee charged with determining income tax rates.
D)  a seven-member board, each serving a 14-year term.
E)  another name for the Board of Governors.

Question 9

M1 is composed of

Accepted Answer

A)  currency held by individuals and businesses, traveler's checks, and checkable deposits owned by individuals and businesses.
B)  traveler's checks, credit cards, and e-cash.
C)  currency held by individuals and businesses, traveler's checks, and the credit line on credit cards.
D)  checkable deposits owned by individuals and businesses, saving deposits, and certificates of deposit.
E)  currency inside of banks, traveler's checks, and government-issued checks.

Question 10

A commercial bank is defined as

Accepted Answer

A)  a firm that is chartered to accept deposits and make loans.
B)  the institution that sets regulations for commercial activities.
C)  any institution that accepts deposits.
D)  a firm that obtains funds by selling shares and then buys U.S. Treasury bills.
E)  any institution that makes loans.

Question 11

Actual reserves are equal to

Accepted Answer

A)  required reserves plus fractional deposits.
B)  minimum balances plus desired reserves.
C)  excess reserves plus liabilities.
D)  desired reserves plus excess reserves.
E)  government securities plus cash in the bank's vault.

Question 12

The desired reserve ratio is 10 percent and banks have no excess reserves. Juliet deposits $300 in her bank. What is the maximum that Juliet's bank can now loan?

Accepted Answer

A)  $330
B)  $270
C)  $300
D)  $30
E)  $3,000

Question 13

The monetary base is equal to

Accepted Answer

A)  the sum of coins, Federal Reserve notes, and banks' reserves at the Fed.
B)  the sum of coins, Federal Reserve notes, and gold at the Fed.
C)  M1.
D)  M2.
E)  currency and coins in circulation plus checkable deposits.

Question 14

Which of the following reduces the money multiplier?

Accepted Answer

A)  The Fed reduces the required reserve ratio.
B)  Banks loan all their excess reserves.
C)  Banks impose a currency drain on bank customers.
D)  The Fed sells U.S. government securities.
E)  Bank customers hold some of the loan proceeds as currency outside the banking system.

Question 15

Fiat money means

Accepted Answer

A)  the money can be converted into gold.
B)  only currency counts as money.
C)  money's value does not change.
D)  Italian currency.
E)  the government has decreed that something is money.

Question 16

The Board of Governors of the Federal Reserve System has

Accepted Answer

A)  seven members serving life terms.
B)  12 members serving for seven-year terms.
C)  seven members serving for seven-year terms.
D)  seven members serving for 14-year terms.
E)  seven members serving for 12-year terms.

Question 17

If you deposit $1,000 in cash in your checkable deposit at your bank, the quantity of M1 immediately

Accepted Answer

A)  decreases by $1,000.
B)  changes, but more information about the required reserve ratio is necessary to determine the amount of the change.
C)  increases by $2,000.
D)  does not change in size.
E)  increases by $1,000.

Question 18

If the currency drain ratio is zero, which of the following situations leads to the greatest total increase in the quantity of money?

Accepted Answer

A)  an increase in the monetary base of $100,000 when the desired reserve ratio is 50 percent
B)  an increase in the monetary base of $200,000 when the desired reserve ratio is 20 percent
C)  an increase in the monetary base of $120,000 when the desired reserve ratio is 10 percent
D)  an increase in the monetary base of $100,000 when the desired reserve ratio is 5 percent
E)  an increase in the monetary base of $250,000 when the desired reserve ratio is 15 percent

Question 19

An open market purchase of securities by the Fed leads to all of the following EXCEPT

Accepted Answer

A)  an increase in the monetary base.
B)  an initial increase in excess reserves.
C)  an increase in banks' reserves.
D)  a decrease in the quantity of money.
E)  an increase in bank lending.

Question 20

A credit card is

Accepted Answer

A)  not money.
B)  money.
C)  not money but the card's credit line is money.
D)  barter money.
E)  fiat money.

Exam 11: The Monetary System

M1 is composed of

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A currency drain occurs when the

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Assume First Central Bank has a desired reserve ratio of 15 percent; $80,000 in total deposits, loans equal to $60,000, and has $20,000 in actual reserves. First Central can make additional loans totaling

Correct AnswerverifiedShow Answer

The Fed's policy is determined by the

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If you deposit $1,000 in cash in your checkable deposit at your bank, the quantity of M1 immediately

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The unit of account is defined as

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If the currency drain ratio is zero, which of the following situations leads to the greatest total increase in the quantity of money?

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The desired reserve ratio is 3 percent. Robert deposits $3,000 in Bank America. Bank America keeps its minimum desired reserves and lends the excess to Fredrica. How much does Bank America lend to Fredrica?

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The desired reserve ratio is 10 percent and banks have no excess reserves. Juliet deposits $300 in her bank. What is the maximum that Juliet's bank can now loan?

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The Federal Open Market Committee is

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--------------------like a check and--------------------considered money.

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A credit card is

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An open market purchase of securities by the Fed leads to all of the following EXCEPT

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The monetary base is equal to

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Fiat money means

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Actual reserves are equal to

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If the currency drain ratio is 30 percent and the desired reserve ratio is 10 percent, the money Multiplier is

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The Board of Governors of the Federal Reserve System has

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Which of the following reduces the money multiplier?

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A commercial bank is defined as

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_{--------------------}like a check and_{--------------------}considered money.

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