Question 1

The narrowest official definition of the money supply is

Accepted Answer

A)   M1.
B)   M2.
C)   M3.
D)   L.

Question 2

Fiat money

Accepted Answer

A)   has no or very little value except as money.
B)   is rarely used in modern economies.
C)   functions well only if can be redeemed for gold or other precious metals.
D)   serves well as a medium of exchange, but not as a store of value.

Question 3

A bank's largest liability is its

Accepted Answer

A)   short-term borrowing.
B)   long-term debt.
C)   deposits of its customers.
D)   shareholder equity.

Question 4

A central bank like the Federal Reserve in the United States can help banks survive a bank run by

Accepted Answer

A)   printing money.
B)   acting as a lender of last resort.
C)   raising the discount rate.
D)   increasing the required reserve ratio.

Question 5

Which of the following is an appropriate policy for the Fed to pursue if it wants to increase the money supply?

Accepted Answer

A)   raise the reserve requirement
B)   raise the discount rate
C)   buy U.S. Treasury bills
D)   lower taxes

Question 6

Suppose a transaction changes the balance sheet of Wells Fargo bank as indicated in the following T-account.  At this point, what percentage of the new deposits does Wells Fargo hold in reserves?

Accepted Answer

A)   100 percent
B)   10 percent
C)   5 percent
D)   1 percent

Question 7

The process of bundling financial assets together and buying and selling these bundles in a secondary financial market is called

Accepted Answer

A)   open market operations.
B)   securitization.
C)   fractional reserve lending.
D)   seigniorage.

Question 8

A bank's liabilities are

Accepted Answer

A)   things owned by or owed to the bank.
B)   things the bank owes to someone else.
C)   a measure of the bank's net losses.
D)   included as part of the bank's reserves.

Question 9

If the required reserve ratio is RR, the simple deposit multiplier is defined as

Accepted Answer

A)    .
B)    .
C)    × change in bank reserves.
D)    × change in bank reserves.

Question 10

The Fed has more control over open market operations as compared to discount policy.

Accepted Answer

A) True 
 B)False

Question 11

If banks receive a greater amount of reserves and do not hold all of these reserves as excess reserves, the money supply expands.

Accepted Answer

A) True 
 B)False

Question 12

During World War II, prisoners of war used ________ as money.

Accepted Answer

A)   bullets
B)   cowrie shells
C)   chocolate
D)   cigarettes

Question 13

Suppose that the bank has the following balance sheet:
  If the required reserve ratio is 10 percent, what is the maximum the bank can loan out? Suppose the bank makes this loan and the borrower spends the money, which is deposited in a different bank. Show the impact of these transactions on the bank's balance sheet.

Accepted Answer

Since the required reserve ratio is 10 p...

Question 14

Banks keep ________ of checking deposits as reserves because on a typical day withdrawals ________ deposits.

Accepted Answer

A)   more than 100%; are much greater than
B)   exactly 100%; are about the same as
C)   less than 100%; are about the same as
D)   exactly 100%; are much greater than
E)   less than 100%; are much greater than

Question 15

Which of the following is an asset for a bank?

Accepted Answer

A)   deposits of its customers
B)   short-term borrowing
C)   shareholders' equity
D)   loans

Question 16

In an economy with ________, there are more prices than in an economy with ________.

Accepted Answer

A)   barter; money
B)   money; barter
C)   fiat money; commodity money
D)   fiat money; barter

Question 17

Most U.S. currency held outside the U.S. banking system is held by foreigners.

Accepted Answer

A) True 
 B)False

Question 18

Bank reserves include

Accepted Answer

A)   vault cash and deposits with the Federal Reserve.
B)   loans to bank customers and deposits with the Federal Reserve.
C)   vault cash and loans to bank customers.
D)   customer checking accounts and vault cash.
E)   deposits with the Federal Reserve and holdings of securities.

Question 19

Economies where goods and services are traded directly for other goods and services are called ________ economies.

Accepted Answer

A)   trade
B)   barter
C)   direct
D)   seigniorage

Question 20

If a person withdraws $500 from his/her checking account and holds it as currency, then M1 will ________ and M2 will ________.

Accepted Answer

A)   increase; decrease
B)   not change; not change
C)   not change; increase
D)   decrease; increase
E)   decrease: decrease

Exam 25: Money, Banks, and the Federal Reserve System

The narrowest official definition of the money supply is

Correct Answer
verified

Which of the following is an asset for a bank?

Correct Answer
verified

Economies where goods and services are traded directly for other goods and services are called ________ economies.

Correct Answer
verified

In an economy with , there are more prices than in an economy with .

Correct Answer
verified

Suppose a transaction changes the balance sheet of Wells Fargo bank as indicated in the following T-account. At this point, what percentage of the new deposits does Wells Fargo hold in reserves?

Correct Answer
verified

Which of the following is an appropriate policy for the Fed to pursue if it wants to increase the money supply?

Correct Answer
verified

Bank reserves include

Correct Answer
verified

Fiat money

Correct Answer
verified

A bank's liabilities are

Correct Answer
verified

The Fed has more control over open market operations as compared to discount policy.

Correct Answer
verified

If a person withdraws $500 from his/her checking account and holds it as currency, then M1 will and M2 will .

Correct Answer
verified

During World War II, prisoners of war used ________ as money.

Correct Answer
verified

A bank's largest liability is its

Correct Answer
verified

If the required reserve ratio is RR, the simple deposit multiplier is defined as

Correct Answer
verified

Most U.S. currency held outside the U.S. banking system is held by foreigners.

Correct Answer
verified

If banks receive a greater amount of reserves and do not hold all of these reserves as excess reserves, the money supply expands.

Correct Answer
verified

A central bank like the Federal Reserve in the United States can help banks survive a bank run by

Correct Answer
verified

Banks keep of checking deposits as reserves because on a typical day withdrawals deposits.

Correct Answer
verified

Correct Answer
verified
Since the required reserve ratio is 10 p...
View Answer

The process of bundling financial assets together and buying and selling these bundles in a secondary financial market is called

Correct Answer
verified

Exam 25: Money, Banks, and the Federal Reserve System

The narrowest official definition of the money supply is

Correct AnswerverifiedShow Answer

Which of the following is an asset for a bank?

Correct AnswerverifiedShow Answer

Economies where goods and services are traded directly for other goods and services are called ________ economies.

Correct AnswerverifiedShow Answer

In an economy with ________, there are more prices than in an economy with ________.

Correct AnswerverifiedShow Answer

Suppose a transaction changes the balance sheet of Wells Fargo bank as indicated in the following T-account. At this point, what percentage of the new deposits does Wells Fargo hold in reserves?

Correct AnswerverifiedShow Answer

Which of the following is an appropriate policy for the Fed to pursue if it wants to increase the money supply?

Correct AnswerverifiedShow Answer

Bank reserves include

Correct AnswerverifiedShow Answer

Fiat money

Correct AnswerverifiedShow Answer

A bank's liabilities are

Correct AnswerverifiedShow Answer

The Fed has more control over open market operations as compared to discount policy.

Correct AnswerverifiedShow Answer

If a person withdraws $500 from his/her checking account and holds it as currency, then M1 will ________ and M2 will ________.

Correct AnswerverifiedShow Answer

During World War II, prisoners of war used ________ as money.

Correct AnswerverifiedShow Answer

A bank's largest liability is its

Correct AnswerverifiedShow Answer

If the required reserve ratio is RR, the simple deposit multiplier is defined as

Correct AnswerverifiedShow Answer

Most U.S. currency held outside the U.S. banking system is held by foreigners.

Correct AnswerverifiedShow Answer

If banks receive a greater amount of reserves and do not hold all of these reserves as excess reserves, the money supply expands.

Correct AnswerverifiedShow Answer

A central bank like the Federal Reserve in the United States can help banks survive a bank run by

Correct AnswerverifiedShow Answer

Banks keep ________ of checking deposits as reserves because on a typical day withdrawals ________ deposits.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedSince the required reserve ratio is 10 p...View AnswerShow Answer

The process of bundling financial assets together and buying and selling these bundles in a secondary financial market is called

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

In an economy with , there are more prices than in an economy with .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

If a person withdraws $500 from his/her checking account and holds it as currency, then M1 will and M2 will .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Banks keep of checking deposits as reserves because on a typical day withdrawals deposits.

Correct Answer
verified

Correct Answer
verified
Since the required reserve ratio is 10 p...
View Answer

Correct Answer
verified