Question 1

If the reserve requirement is 10 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $500, it

Accepted Answer

A)   must increase required reserves by $50.
B)   will initially see reserves increase by $500.
C)   will be able to use this deposit to make new loans amounting to $450.
D)   All of the above are correct.

Question 2

If the Fed raised the reserve requirement, the demand for reserves would

Accepted Answer

A)   increase, so the federal funds rate would fall.
B)   increase, so the federal funds rate would rise.
C)   decrease, so the federal funds rate would fall.
D)   decrease, so the federal funds rate would rise.

Question 3

In December 1999 people feared that there might be computer problems at banks as the century changed. Consequently, people wanted to hold relatively more in currency and relatively less in deposits. In anticipation banks raised their reserve ratios to have enough cash on hand to meet depositors' demands. These actions by the public

Accepted Answer

A)   would increase the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have sold bonds.
B)   would increase the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have bought bonds.
C)   would reduce the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have sold bonds.
D)   would reduce the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have bought bonds.

Question 4

The discount rate is the rate the Federal Reserve charges banks for loans. By lowering this rate, the Fed provides banks with a greater incentive to borrow from it.

Accepted Answer

A) True 
 B)False

Question 5

The manager of the bank where you work tells you that your bank has $6 million in excess reserves. She also tells you that the bank has $400 million in deposits and $362 million dollars in loans. Given this information you find that the reserve requirement must be

Accepted Answer

A)   44/400.
B)   6/362.
C)   38/400.
D)   32/400.

Question 6

Which of the following best illustrates the medium of exchange function of money?

Accepted Answer

A)   You keep some money hidden in your shoe.
B)   You keep track of the value of your assets in terms of currency.
C)   You pay for your oil change using currency.
D)   None of the above is correct.

Question 7

Traveler's checks are included in

Accepted Answer

A)   M1 but not M2.
B)   M2 but not M1.
C)   M1 and M2.
D)   neither M1 nor M2.

Question 8

The banking system currently has $100 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed lowers the reserve requirement to 5 percent and at the same time buys $10 billion worth of bonds, then by how much does the money supply change?

Accepted Answer

A)   It rises by $200 billion.
B)   It rises by $800 billion.
C)   It rises by $1,200 billion.
D)   None of the above is correct.

Question 9

Which of the following individuals serve a four-year term?

Accepted Answer

A)   the members of the Board of Governors
B)   the Chair of the Board of Governors
C)   the members of the FOMC
D)   All of the above are correct.

Question 10

What is bank insolvancy?

Accepted Answer

Bank insolvancy is when bank c...

Question 11

What is the Term Auction Facility?

Accepted Answer

The Term Auction Facility is the market ...

Question 12

Consider five individuals with different occupations.  If this economy has money

Accepted Answer

A)   Allen will buy from Betty
B)   Betty will buy from Calvin
C)   Eric will buy from Allen
D)   None of the above are correct.

Question 13

Which of the following is correct concerning the FOMC?

Accepted Answer

A)   the members of the Board of Governors have the majority of the votes
B)   the New York Federal Reserve Bank District President is always a voting member
C)   all Federal Reserve Bank presidents attend the meetings
D)   All of the above are correct.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Scenario 29-1.
The monetary policy of Namdian is determined by the Namdian Central Bank. The local currency is the dia. Namdian banks collectively hold 100 million dias of required reserves, 25 million dias of excess reserves, 250 million dias of Namdian Treasury Bonds, and their customers hold 1,000 million dias of deposits. Namdians prefer to use only demand deposits and so the money supply consists of demand deposits.
-Refer to Scenario 29-1. Suppose the Central Bank of Namdia loaned the banks of Namdia 5 million dias. Suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the same. By how much would the money supply of Namdia change?

Accepted Answer

A)   60 million dias
B)   50 million dias
C)   40 million dias
D)   None of the above is correct.

Question 16

Which group within the Federal Reserve System meets to discuss changes in the economy and determine monetary policy?

Accepted Answer

A)   the Board of Governors
B)   the FOMC
C)   the regional Federal Reserve Bank presidents
D)   the Central Bank Policy Commission

Question 17

Gary's wealth is $1 million. Economists would say that Gary has $1 million worth of money.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following entities actually executes open-market operations?

Accepted Answer

A)   the Board of Governors
B)   the New York Federal Reserve Bank
C)   the Federal Open Market Committee
D)   the Open Market Committees of the regional Federal Reserve Banks

Question 19

A bank has $1000 in deposits and maintains a 12 percent reserve ratio. Its reserves are $ .

Accepted Answer

The answer of A bank has $1000 in deposits and...

Question 20

When the Fed conducts open-market sales,

Accepted Answer

A)   it sells Treasury securities, which increases the money supply.
B)   it sells Treasury securities, which decreases the money supply.
C)   it auctions term loans, which increases the money supply.
D)   it auctions term loans, which decreases the money supply.

Exam 29: The Monetary System

Correct Answer
verified

Which of the following is correct concerning the FOMC?

Correct Answer
verified

Correct Answer
verified

A bank has $1000 in deposits and maintains a 12 percent reserve ratio. Its reserves are $ .

Correct Answer
verified

What is bank insolvancy?

Correct Answer
verified
Bank insolvancy is when bank c...
View Answer

The manager of the bank where you work tells you that your bank has $6 million in excess reserves. She also tells you that the bank has $400 million in deposits and $362 million dollars in loans. Given this information you find that the reserve requirement must be

Correct Answer
verified

Consider five individuals with different occupations. If this economy has money

Correct Answer
verified

If the reserve requirement is 10 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $500, it

Correct Answer
verified

If the Fed raised the reserve requirement, the demand for reserves would

Correct Answer
verified

Which of the following best illustrates the medium of exchange function of money?

Correct Answer
verified

Gary's wealth is $1 million. Economists would say that Gary has $1 million worth of money.

Correct Answer
verified

What is the Term Auction Facility?

Correct Answer
verified
The Term Auction Facility is the market ...
View Answer

Which group within the Federal Reserve System meets to discuss changes in the economy and determine monetary policy?

Correct Answer
verified

Correct Answer
verified

Which of the following entities actually executes open-market operations?

Correct Answer
verified

The discount rate is the rate the Federal Reserve charges banks for loans. By lowering this rate, the Fed provides banks with a greater incentive to borrow from it.

Correct Answer
verified

When the Fed conducts open-market sales,

Correct Answer
verified

Traveler's checks are included in

Correct Answer
verified

Which of the following individuals serve a four-year term?

Correct Answer
verified

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

Correct Answer
verified

Exam 29: The Monetary System

Correct AnswerverifiedShow Answer

Which of the following is correct concerning the FOMC?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A bank has $1000 in deposits and maintains a 12 percent reserve ratio. Its reserves are $ .

Correct AnswerverifiedShow Answer

What is bank insolvancy?

Correct AnswerverifiedBank insolvancy is when bank c...View AnswerShow Answer

The manager of the bank where you work tells you that your bank has $6 million in excess reserves. She also tells you that the bank has $400 million in deposits and $362 million dollars in loans. Given this information you find that the reserve requirement must be

Correct AnswerverifiedShow Answer

Consider five individuals with different occupations. If this economy has money

Correct AnswerverifiedShow Answer

If the reserve requirement is 10 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $500, it

Correct AnswerverifiedShow Answer

If the Fed raised the reserve requirement, the demand for reserves would

Correct AnswerverifiedShow Answer

Which of the following best illustrates the medium of exchange function of money?

Correct AnswerverifiedShow Answer

Gary's wealth is $1 million. Economists would say that Gary has $1 million worth of money.

Correct AnswerverifiedShow Answer

What is the Term Auction Facility?

Correct AnswerverifiedThe Term Auction Facility is the market ...View AnswerShow Answer

Which group within the Federal Reserve System meets to discuss changes in the economy and determine monetary policy?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following entities actually executes open-market operations?

Correct AnswerverifiedShow Answer

The discount rate is the rate the Federal Reserve charges banks for loans. By lowering this rate, the Fed provides banks with a greater incentive to borrow from it.

Correct AnswerverifiedShow Answer

When the Fed conducts open-market sales,

Correct AnswerverifiedShow Answer

Traveler's checks are included in

Correct AnswerverifiedShow Answer

Which of the following individuals serve a four-year term?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified
Bank insolvancy is when bank c...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The Term Auction Facility is the market ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
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