Question 1

If you hear in the news that the Federal Reserve conducted open-market purchases, then you should expect ______ to increase.

Accepted Answer

A)   reserve requirements
B)   the discount rate
C)   the money supply
D)   the reserve-deposit ratio

Question 2

People use money as a unit of account when they:

Accepted Answer

A)   hold money to transfer purchasing power into the future.
B)   use money as a measure of economic transactions.
C)   use money to buy goods and services.
D)   hold money to gain power and esteem.

Question 3

The money supply consists of:

Accepted Answer

A)   currency plus reserves.
B)   currency plus the monetary base.
C)   currency plus demand deposits.
D)   the monetary base plus demand deposits.

Question 4

(Table: Bank Balance Sheet)  Based on the table, owners' equity will fall to zero if loan defaults reduce the value of total assets by _____ percent.

Accepted Answer

A)   10
B)   20
C)   30
D)   40

Question 5

The quantitative easing operations conducted by the Federal Reserve between 2007 and 2011 resulted in _____ increases in the monetary base and _____ increases in money supply.

Accepted Answer

A)   no; no
B)   large; larger
C)   large; smaller
D)   small; smaller

Question 6

Financial intermediation is the process of:

Accepted Answer

A)   settling disputes between borrowers and lenders.
B)   advising corporations on whether to expand using debt or equity.
C)   transferring funds from savers to borrowers.
D)   converting from a barter economy to a money economy.

Question 7

If the monetary base equals $400 billion and the money multiplier equals 2, then the money supply equals:

Accepted Answer

A)   $200 billion.
B)   $400 billion.
C)   $800 billion.
D)   $1,000 billion.

Question 8

The monetary base of Moneyland is $500 million. The current-deposit ratio (cr) is 0.2 and reserve-deposit ratio (rr) is 0.2. Calculate the money multiplier and money supply.

Accepted Answer

Money multiplier = (1 + cr) / ...

Question 9

Between August 1929 and March 1933, the money supply fell 28 percent. At that time the monetary base ______ and the currency-deposit and reserve-deposit ratios both ______.

Accepted Answer

A)   fell; fell
B)   fell; rose
C)   rose; fell
D)   rose; rose

Question 10

People use money as a store of value when they:

Accepted Answer

A)   hold money to transfer purchasing power into the future.
B)   use money as a measure of economic transactions.
C)   use money to buy goods and services.
D)   hold money to gain power and esteem.

Question 11

The Federal Reserve's tools to control the money supply include: open-market operations, the discount rate, and interest payments on reserves. a. How should each instrument be changed if the Fed wishes to decrease the money supply?
b. Will the change affect the monetary base and/or the money multiplier?

Accepted Answer

a. The Fed would conduct open-market sal...

Question 12

As the 2008-2009 financial crisis unfolded, one major U.S. bank had a leverage ratio of 54. In Canada regulators put a ceiling on bank leverage ratios of 20. Compare the change in asset values that would push the capital in the U.S. bank to zero with the change required to eliminate capital in a Canadian bank at the ceiling-leverage ratio. What is the implication of the differences in maximum leverage ratios for the stability of the banking system?

Accepted Answer

With a leverage ratio of 54, a 1. 85 per...

Question 13

Open-market operations change the ______; changes in interest rate paid on reserves change the ______; and changes in the discount rate change the ______.

Accepted Answer

A)   monetary base; monetary base; monetary base
B)   money multiplier; money multiplier; money multiplier
C)   monetary base; money multiplier; monetary base
D)   money multiplier; monetary base; money multiplier

Question 14

In a system with fractional-reserve banking:

Accepted Answer

A)   all banks must hold reserves equal to a fraction of their loans.
B)   no banks can make loans.
C)   the banking system completely controls the size of the money supply.
D)   all banks must hold reserves equal to a fraction of their deposits.

Question 15

If the ratio of currency to deposits (cr)  increases, while the ratio of reserves to deposits (rr)  is constant and the monetary base (B)  is constant, then:

Accepted Answer

A)   it cannot be determined whether the money supply increases or decreases.
B)   the money supply increases.
C)   the money supply decreases.
D)   the money supply does not change.

Question 16

The value of banks' owners' equity is called bank:

Accepted Answer

A)   deposits.
B)   reserves.
C)   capital.
D)   liquidity.

Question 17

For borrowing from the discount window, the Fed sets the _____ of borrowing, compared to borrowing using the Term Auction Facility, where the Fed sets the _____ of borrowing.

Accepted Answer

A)   maximum quantity; minimum quantity
B)   minimum price; maximum price
C)   quantity; price
D)   price; quantity

Question 18

The amount of capital that banks are required to hold depends on the:

Accepted Answer

A)   amount of deposits held at a bank.
B)   riskiness of the bank's assets.
C)   reserve requirements set by the Fed.
D)   level of deposit insurance coverage.

Exam 4: The Monetary System: What It Is and How It Works

The money supply consists of:

Correct Answer
verified

The value of banks' owners' equity is called bank:

Correct Answer
verified

If the monetary base equals $400 billion and the money multiplier equals 2, then the money supply equals:

Correct Answer
verified

Between August 1929 and March 1933, the money supply fell 28 percent. At that time the monetary base and the currency-deposit and reserve-deposit ratios both .

Correct Answer
verified

People use money as a unit of account when they:

Correct Answer
verified

Financial intermediation is the process of:

Correct Answer
verified

Correct Answer
verified
a. The Fed would conduct open-market sal...
View Answer

If the ratio of currency to deposits (cr) increases, while the ratio of reserves to deposits (rr) is constant and the monetary base (B) is constant, then:

Correct Answer
verified

For borrowing from the discount window, the Fed sets the _ of borrowing, compared to borrowing using the Term Auction Facility, where the Fed sets the _ of borrowing.

Correct Answer
verified

Correct Answer
verified
With a leverage ratio of 54, a 1. 85 per...
View Answer

The amount of capital that banks are required to hold depends on the:

Correct Answer
verified

In a system with fractional-reserve banking:

Correct Answer
verified

The quantitative easing operations conducted by the Federal Reserve between 2007 and 2011 resulted in _ increases in the monetary base and _ increases in money supply.

Correct Answer
verified

People use money as a store of value when they:

Correct Answer
verified

(Table: Bank Balance Sheet) Based on the table, owners' equity will fall to zero if loan defaults reduce the value of total assets by _____ percent.

Correct Answer
verified

Open-market operations change the ; changes in interest rate paid on reserves change the ; and changes in the discount rate change the __.

Correct Answer
verified

The monetary base of Moneyland is $500 million. The current-deposit ratio (cr) is 0.2 and reserve-deposit ratio (rr) is 0.2. Calculate the money multiplier and money supply.

Correct Answer
verified
Money multiplier = (1 + cr) / ...
View Answer

If you hear in the news that the Federal Reserve conducted open-market purchases, then you should expect ______ to increase.

Correct Answer
verified

Exam 4: The Monetary System: What It Is and How It Works

The money supply consists of:

Correct AnswerverifiedShow Answer

The value of banks' owners' equity is called bank:

Correct AnswerverifiedShow Answer

If the monetary base equals $400 billion and the money multiplier equals 2, then the money supply equals:

Correct AnswerverifiedShow Answer

Between August 1929 and March 1933, the money supply fell 28 percent. At that time the monetary base ______ and the currency-deposit and reserve-deposit ratios both ______.

Correct AnswerverifiedShow Answer

People use money as a unit of account when they:

Correct AnswerverifiedShow Answer

Financial intermediation is the process of:

Correct AnswerverifiedShow Answer

Correct Answerverifieda. The Fed would conduct open-market sal...View AnswerShow Answer

If the ratio of currency to deposits (cr) increases, while the ratio of reserves to deposits (rr) is constant and the monetary base (B) is constant, then:

Correct AnswerverifiedShow Answer

For borrowing from the discount window, the Fed sets the _____ of borrowing, compared to borrowing using the Term Auction Facility, where the Fed sets the _____ of borrowing.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedWith a leverage ratio of 54, a 1. 85 per...View AnswerShow Answer

The amount of capital that banks are required to hold depends on the:

Correct AnswerverifiedShow Answer

In a system with fractional-reserve banking:

Correct AnswerverifiedShow Answer

The quantitative easing operations conducted by the Federal Reserve between 2007 and 2011 resulted in _____ increases in the monetary base and _____ increases in money supply.

Correct AnswerverifiedShow Answer

People use money as a store of value when they:

Correct AnswerverifiedShow Answer

(Table: Bank Balance Sheet) Based on the table, owners' equity will fall to zero if loan defaults reduce the value of total assets by _____ percent.

Correct AnswerverifiedShow Answer

Open-market operations change the ______; changes in interest rate paid on reserves change the ______; and changes in the discount rate change the ______.

Correct AnswerverifiedShow Answer

The monetary base of Moneyland is $500 million. The current-deposit ratio (cr) is 0.2 and reserve-deposit ratio (rr) is 0.2. Calculate the money multiplier and money supply.

Correct AnswerverifiedMoney multiplier = (1 + cr) / ...View AnswerShow Answer

If you hear in the news that the Federal Reserve conducted open-market purchases, then you should expect ______ to increase.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Between August 1929 and March 1933, the money supply fell 28 percent. At that time the monetary base and the currency-deposit and reserve-deposit ratios both .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
a. The Fed would conduct open-market sal...
View Answer

Correct Answer
verified

For borrowing from the discount window, the Fed sets the _ of borrowing, compared to borrowing using the Term Auction Facility, where the Fed sets the _ of borrowing.

Correct Answer
verified

Correct Answer
verified
With a leverage ratio of 54, a 1. 85 per...
View Answer

Correct Answer
verified

Correct Answer
verified

The quantitative easing operations conducted by the Federal Reserve between 2007 and 2011 resulted in _ increases in the monetary base and _ increases in money supply.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Open-market operations change the ; changes in interest rate paid on reserves change the ; and changes in the discount rate change the __.

Correct Answer
verified

Correct Answer
verified
Money multiplier = (1 + cr) / ...
View Answer

Correct Answer
verified