Question 1

If the Fed increases the discount rate,

Accepted Answer

A)  commercial banks pay a lower interest rate if they borrow from the Fed.
B)  commercial banks increase their lending to the Fed.
C)  commercial banks pay a higher interest rate if they borrow from the Fed.
D)  commercial banks' assets increase.
E)  commercial banks find it more profitable to increase their loans to businesses.F) C) and E)
G) A) and B)

Question 2

When money is used to compare the relative price of a burrito and a taco, money is being used as a

Accepted Answer

A)  measurement of inflation.
B)  token of bartering.
C)  store of value.
D)  unit of account.
E)  medium of exchange.F) D) and E)
G) A) and B)

Question 3

The monetary base is equal to

Accepted Answer

A)  Federal Reserve notes plus coins plus banks' reserves at the Fed.
B)  banks' assets plus liabilities.
C)  M2 minus M1.
D)  checkable deposits plus coins plus and traveler's checks.
E)  checkable deposits plus coins plus banks' assets.F) B) and C)
G) D) and E)

Question 4

If someone buries money in a tin can beneath a tree, the money is functioning as a

Accepted Answer

A)  unit of account.
B)  medium of exchange.
C)  bartering tool.
D)  store of value.
E)  means of payment.F) A) and B)
G) A) and C)

Question 5

If the desired reserve ratio is 7 percent and a bank has $10,000 of deposits, then its desired reserves are

Accepted Answer

A)  $7.
B)  $9,300.
C)  $700.
D)  $930.
E)  $7,000.F) A) and D)
G) A) and E)

Question 6

Required reserve ratios are the minimum amount of

Accepted Answer

A)  deposits any one bank must hold as a percentage of its reserves.
B)  deposits any one bank is allowed to accept as percentage of its capital.
C)  reserves any one bank must hold as a percentage of its total assets.
D)  reserves any one bank must hold as a percentage of its loans.
E)  reserves any one bank must hold as a percentage of its deposits.F) A) and C)
G) B) and C)

Question 7

The goal of a commercial bank is to

Accepted Answer

A)  minimize its taxes paid to state governments.
B)  maximize its stockholders' wealth.
C)  establish good regulations for commercial activities.
D)  accept only deposits made in money.
E)  make only safe, no-risk loans.F) B) and E)
G) A) and D)

Question 8

The process of money creation by the banking system is limited, in part, by the

Accepted Answer

A)  laws passed each year by the U.S. Congress.
B)  Comptroller of the Currency.
C)  desired reserve ratio.
D)  number of banks.
E)  number of depositors.F) C) and D)
G) A) and B)

Question 9

During the 2008 financial crisis, banks restricted--------------------and the M2 money multiplier--------------------

Accepted Answer

A)  lending; increased
B)  lending; decreased
C)  deposits; decreased
D)  deposits; increased
E)  buying securities; increasedF) A) and D)
G) A) and E)

Question 10

For anything to be considered money it must be

Accepted Answer

A)  a mystical token, such as whale teeth.
B)  a token, such as a green piece of paper.
C)  either a commodity or a token, as long as it is generally accepted as a means of payment.
D)  a valuable commodity, such as gold.
E)  used in barter transactions.F) A) and B)
G) None of the above C

Question 11

Physical currency is--------------------popular than e-cash,--------------------

Accepted Answer

A)  more; and both are portable and recognizable
B)  more; and both are portable, untraceable and anonymous
C)  more; but only physical currency is portable and recognizable
D)  less; but both are portable, untraceable and anonymous
E)  less; and both are portable and recognizableF) B) and D)
G) A) and B)

Question 12

The required reserve ratio is 20 percent and banks have no excess reserves. Katie deposits $300 in her bank. What are the bank's excess reserves immediately after Katie makes her deposit?

Accepted Answer

A)  $30
B)  $240
C)  $90
D)  $300
E)  $60F) A) and E)
G) A) and D)

Question 13

Which statement most accurately captures the state of money today?

Accepted Answer

A)  Money today includes bank deposits and currency but not checks.
B)  Money today includes currency and checks but not bank deposits.
C)  Money today includes currency, bank deposits and checks.
D)  Money today includes checks and credit cards.
E)  Money today includes bank deposits and checks but not currency.F) A) and C)
G) All of the above

Question 14

Suppose the currency drain ratio is 33.33 percent and the desired reserve ratio is 10 percent. The money multiplier equals

Accepted Answer

A)  3.08.
B)  6.67.
C)  3.00.
D)  4.27.
E)  2.50.F) D) and E)
G) B) and E)

Question 15

When people make deposits of currency into a bank, the quantity of M1

Accepted Answer

A)  does not immediately change.
B)  changes only if the deposit is an open market operation.
C)  immediately changes but whether it increases or decreases depends on whether the bank had excess reserves or did not have excess reserves.
D)  immediately decreases by the amount of the deposit.
E)  immediately increases by the amount of the deposit.F) All of the above
G) B) and C) A

Question 16

The Banks of the Mississippi has excess reserves of $20,000, desired reserves of $80,000 and the desired reserve ratio is 5 percent. What are the total amount of deposits in this bank?

Accepted Answer

A)  $100,000
B)  $1,600,000
C)  $1,000,000
D)  $180,000
E)  $5,000F) A) and D)
G) C) and D) B

Question 17

A commercial bank's reserves are equal to the amount of

Accepted Answer

A)  currency in the bank's vault plus the balance on its reserve account at a Federal Reserve Bank.
B)  the bank's loans.
C)  only the currency in its vault.
D)  the bank's deposits.
E)  the bank's government securities.F) C) and D)
G) All of the above

Question 18

The amount of loans that a bank can create is limited by

Accepted Answer

A)  the bank's excess reserves.
B)  the bank's government securities.
C)  a directive from the Federal Reserve System, which takes into account the bank's financial stability.
D)  a law enacted by Congress.
E)  the real interest rate.F) A) and D)
G) C) and D)

Question 19

Which of the following are policy tools used by the Federal Reserve?
I. the federal personal income tax
Ii. open market operations
Iii. changing the required reserve ratio

Accepted Answer

A)  ii only
B)  ii and iii
C)  i, ii, and iii
D)  iii only
E)  i onlyF) C) and D)
G) A) and D)

Question 20

If Joe withdraws a $100 bill from his checking account and Jack deposits another $100 bill in his savings account, by how will M1 and M2 change?

Accepted Answer

A)  M1 will increase, and M2 will increase.
B)  Both M1 and M2 will remain the same.
C)  M1 will decrease, but M2 will remain the same.
D)  M1 will remain the same, and M2 will increase.
E)  M2 will decrease by $100.F) A) and E)
G) A) and C)

Exam 11: The Monetary System

If the Fed increases the discount rate,

Correct AnswerverifiedShow Answer

When money is used to compare the relative price of a burrito and a taco, money is being used as a

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The monetary base is equal to

Correct AnswerverifiedShow Answer

If someone buries money in a tin can beneath a tree, the money is functioning as a

Correct AnswerverifiedShow Answer

If the desired reserve ratio is 7 percent and a bank has $10,000 of deposits, then its desired reserves are

Correct AnswerverifiedShow Answer

Required reserve ratios are the minimum amount of

Correct AnswerverifiedShow Answer

The goal of a commercial bank is to

Correct AnswerverifiedShow Answer

The process of money creation by the banking system is limited, in part, by the

Correct AnswerverifiedShow Answer

During the 2008 financial crisis, banks restricted--------------------and the M2 money multiplier--------------------

Correct AnswerverifiedShow Answer

For anything to be considered money it must be

Correct AnswerverifiedC

Physical currency is--------------------popular than e-cash,--------------------

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The required reserve ratio is 20 percent and banks have no excess reserves. Katie deposits $300 in her bank. What are the bank's excess reserves immediately after Katie makes her deposit?

Correct AnswerverifiedShow Answer

Which statement most accurately captures the state of money today?

Correct AnswerverifiedShow Answer

Suppose the currency drain ratio is 33.33 percent and the desired reserve ratio is 10 percent. The money multiplier equals

Correct AnswerverifiedShow Answer

When people make deposits of currency into a bank, the quantity of M1

Correct AnswerverifiedA

The Banks of the Mississippi has excess reserves of $20,000, desired reserves of $80,000 and the desired reserve ratio is 5 percent. What are the total amount of deposits in this bank?

Correct AnswerverifiedB

A commercial bank's reserves are equal to the amount of

Correct AnswerverifiedShow Answer

The amount of loans that a bank can create is limited by

Correct AnswerverifiedShow Answer

Which of the following are policy tools used by the Federal Reserve? I. the federal personal income tax Ii. open market operations Iii. changing the required reserve ratio

Correct AnswerverifiedShow Answer

If Joe withdraws a $100 bill from his checking account and Jack deposits another $100 bill in his savings account, by how will M1 and M2 change?

Correct AnswerverifiedShow Answer

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During the 2008 financial crisis, banks restricted_{--------------------}and the M2 money multiplier_{--------------------}

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C

Physical currency is_{--------------------}popular than e-cash,_{--------------------}

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A

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B

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