Question 1

If the Federal Open Market Committee decides to increase the money supply, then the Federal Reserve

Accepted Answer

A)   creates dollars and uses them to purchase government bonds from the public.
B)   sells government bonds from its portfolio to the public.
C)   creates dollars and uses them to purchase various types of stocks and bonds from the public.
D)   sells various types of stocks and bonds from its portfolio to the public.E) A) and D)
F) C) and D)

Question 2

In order for currency to be widely used as a medium of exchange, it is sufficient for the government to designate it as legal tender.

Accepted Answer

A) True 
 B)False

Question 3

Demand deposits are included in

Accepted Answer

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

Question 4

Table 29-7.
 
-Refer to Table 29-7. If the Bank of Springfield has lent out all the money it can given its level of deposits, then what is the reserve requirement?

Accepted Answer

A)   8.1 percent
B)   11.0 percent
C)   12.4 percent
D)   89.0 percentE) B) and C)
F) All of the above

Question 5

The federal funds rate is the

Accepted Answer

A)   percentage of face value that the Federal Reserve is willing to pay for Treasury Securities.
B)   percentage of deposits that banks must hold as reserves.
C)   interest rate at which the Federal Reserve makes short-term loans to banks.
D)   interest rate at which banks lend reserves to each other overnight.E) A) and C)
F) B) and C)

Question 6

When the Fed buys government bonds,

Accepted Answer

A)   the money supply increases and the federal funds rate increases.
B)   the money supply increases and the federal funds rate decreases.
C)   the money supply decreases and the federal funds rate increases.
D)   the money supply decreases and the federal funds rate decreases.E) A) and C)
F) A) and B)

Question 7

When the Fed sells government bonds,

Accepted Answer

A)   the money supply increases and the federal funds rate increases.
B)   the money supply increases and the federal funds rate decreases.
C)   the money supply decreases and the federal funds rate increases.
D)   the money supply decreases and the federal funds rate decreases.E) B) and D)
F) A) and D)

Question 8

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. Assuming the only other item Namdian banks have on their balance sheets is loans, what is the value of existing loans made by Namdian banks?

Accepted Answer

A)   625 million dias
B)   875 million dias
C)   1,125 million dias
D)   None of the above is correct.E) C) and D)
F) A) and C)

Question 9

The chair of the Board of Governors regularly testifies to Congress about Fed policy.

Accepted Answer

A) True 
 B)False

Question 10

If the reserve ratio is 10 percent, the money multiplier is

Accepted Answer

A)   100.
B)   10.
C)   9/10.
D)   1/10.E) A) and C)
F) B) and D)

Question 11

Scenario 29-2.
The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi. The local unit of currency is the taz. Aggregate banking statistics show that collectively the banks of Tazi hold 300 million tazes of required reserves, 75 million tazes of excess reserves, have issued 7,500 million tazes of deposits, and hold 225 million tazes of Tazian Treasury bonds. Tazians prefer to use only demand deposits and so all money is on deposit at the bank.
-Refer to Scenario 29-2. Assuming the only other thing Tazian banks have on their balance sheets is loans, what is the value of existing loans made by Tazian banks?

Accepted Answer

A)   6,900 million tazes
B)   7,125 million tazes
C)   7,350 million tazes
D)   None of the above is correct.E) All of the above
F) A) and B)

Question 12

An increase in the reserve requirement increases reserves and decreases the money supply.

Accepted Answer

A) True 
 B)False

Question 13

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 14

A decrease in the money supply might indicate that the Fed had

Accepted Answer

A)   purchased bonds in an attempt to increase the federal funds rate.
B)   purchased bonds in an attempt to reduce the federal funds rate.
C)   sold bonds in an attempt to increase the federal funds rate.
D)   sold bonds in an attempt to reduce the federal funds rate.E) A) and B)
F) None of the above

Question 15

If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by

Accepted Answer

A)   $64 of new reserves.
B)   $448 of new reserves.
C)   $700 of new reserves.
D)   $800 of new reserves.E) A) and B)
F) None of the above

Question 16

If people decide to hold less currency relative to deposits, the money supply

Accepted Answer

A)   falls. The Fed could lessen the impact of this by buying Treasury bonds.
B)   falls. The Fed could lessen the impact of this by selling Treasury bonds.
C)   rises. The Fed could lessen the impact of this by buying Treasury bonds.
D)   rises. The Fed could lessen the impact of this by selling Treasury bonds.E) A) and B)
F) None of the above

Question 17

Which of the following is included in both M1 and M2?

Accepted Answer

A)   savings deposits
B)   demand deposits
C)   small time deposits
D)   money market mutual fundsE) A) and B)
F) B) and C)

Question 18

Describe the role of the Federal Deposit Insurance Corporation FDIC).

Accepted Answer

The FDIC is the primary mechanism by whi...

Question 19

An important function of the U.S. Federal Reserve is to

Accepted Answer

A)   set the debt ceiling.
B)   fund Congressional spending.
C)   control the supply of money.
D)   mint coins.E) A) and D)
F) B) and D)

Question 20

Reserves increase if the Federal Reserve

Accepted Answer

A)   raises the discount rate or auctions more credit.
B)   raises the discount rate but not if it auctions more credit.
C)   lowers the discount rate or auctions more credit.
D)   lowers the discount rate but not if it auctions more credit.E) All of the above
F) A) and B)

Exam 11: The Monetary System

If people decide to hold less currency relative to deposits, the money supply

Correct Answer
verified

If the Federal Open Market Committee decides to increase the money supply, then the Federal Reserve

Correct Answer
verified

A decrease in the money supply might indicate that the Fed had

Correct Answer
verified

Table 29-7. -Refer to Table 29-7. If the Bank of Springfield has lent out all the money it can given its level of deposits, then what is the reserve requirement?

Correct Answer
verified

When the Fed buys government bonds,

Correct Answer
verified

When the Fed sells government bonds,

Correct Answer
verified

If the reserve ratio is 10 percent, the money multiplier is

Correct Answer
verified

Demand deposits are included in

Correct Answer
verified

An increase in the reserve requirement increases reserves and decreases the money supply.

Correct Answer
verified

The chair of the Board of Governors regularly testifies to Congress about Fed policy.

Correct Answer
verified

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

Correct Answer
verified

The federal funds rate is the

Correct Answer
verified

If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by

Correct Answer
verified

Reserves increase if the Federal Reserve

Correct Answer
verified

Correct Answer
verified

Describe the role of the Federal Deposit Insurance Corporation FDIC).

Correct Answer
verified
The FDIC is the primary mechanism by whi...
View Answer

An important function of the U.S. Federal Reserve is to

Correct Answer
verified

Which of the following is included in both M1 and M2?

Correct Answer
verified

Correct Answer
verified

In order for currency to be widely used as a medium of exchange, it is sufficient for the government to designate it as legal tender.

Correct Answer
verified

Exam 11: The Monetary System

If people decide to hold less currency relative to deposits, the money supply

Correct AnswerverifiedShow Answer

If the Federal Open Market Committee decides to increase the money supply, then the Federal Reserve

Correct AnswerverifiedShow Answer

A decrease in the money supply might indicate that the Fed had

Correct AnswerverifiedShow Answer

Table 29-7. -Refer to Table 29-7. If the Bank of Springfield has lent out all the money it can given its level of deposits, then what is the reserve requirement?

Correct AnswerverifiedShow Answer

When the Fed buys government bonds,

Correct AnswerverifiedShow Answer

When the Fed sells government bonds,

Correct AnswerverifiedShow Answer

If the reserve ratio is 10 percent, the money multiplier is

Correct AnswerverifiedShow Answer

Demand deposits are included in

Correct AnswerverifiedShow Answer

An increase in the reserve requirement increases reserves and decreases the money supply.

Correct AnswerverifiedShow Answer

The chair of the Board of Governors regularly testifies to Congress about Fed policy.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The federal funds rate is the

Correct AnswerverifiedShow Answer

If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by

Correct AnswerverifiedShow Answer

Reserves increase if the Federal Reserve

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Describe the role of the Federal Deposit Insurance Corporation FDIC).

Correct AnswerverifiedThe FDIC is the primary mechanism by whi...View AnswerShow Answer

An important function of the U.S. Federal Reserve is to

Correct AnswerverifiedShow Answer

Which of the following is included in both M1 and M2?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In order for currency to be widely used as a medium of exchange, it is sufficient for the government to designate it as legal tender.

Correct AnswerverifiedShow Answer

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The FDIC is the primary mechanism by whi...
View Answer

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Correct Answer
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