Question 1

Total reserves in the banking system consist of:

Accepted Answer

A)  vault cash held at commercial banks and other depository institutions
B)  reserve deposits held at Federal Reserve banks
C)  currency in circulation
D)  both a and bE) A) and C)
F) A) and D)

Question 2

Assume that a banking system must keep reserves of 20% against deposits.The bank receives a primary deposit of $20,000.What would be the maximum amount of loan that could be made by the system?

Accepted Answer

A)  $16,000
B)  $40,000
C)  $80,000
D)  $100,000E) A) and B)
F) A) and C)

Question 3

Price inflation:

Accepted Answer

A)  is relatively unimportant to individuals
B)  is considered to be acceptable in the nation's quest for high levels of employment
C)  causes inequities and discourages investment by increasing the uncertainty about future returns
D)  is almost always due to financing warsE) A) and D)
F) A) and C)

Question 4

The U.S.Treasury has primary responsibility for management of the federal debt.

Accepted Answer

A) True 
 B)False

Question 5

The government body primarily responsible for monetary policy is Congress.

Accepted Answer

A) True 
 B)False

Question 6

Various programs of the federal government help stabilize disposable income,and in turn,economic activity in general.In so doing:

Accepted Answer

A)  income tax rates may be lowered during periods of prosperity and increased during slack economic periods
B)  these programs waste valuable resources
C)  the timing of sale of U.S.savings bonds is instrumental in accomplishing this objective
D)  these programs seldom attain their goals
E)  none of the aboveF) B) and E)
G) A) and B)

Question 7

Under required reserves of 20%,the maximum to which the money supply could be expanded by the banking system is:

Accepted Answer

A)  four times a new primary deposit
B)  five times a new primary deposit
C)  six times a new primary deposit
D)  until all of a new primary deposit has been converted to required reservesE) A) and C)
F) A) and B)

Question 8

If the Fed wishes to stimulate the economy,it may:

Accepted Answer

A)  raise the discount rate
B)  raise reserve requirements
C)  sell securities through open market operations
D)  raise both the discount rate and the reserve requirements
E)  none of the aboveF) C) and D)
G) B) and E)

Question 9

Currently,the backing for Federal Reserves notes is primarily in the form of:

Accepted Answer

A)  gold certificates
B)  gold bullion
C)  eligible paper (business notes and drafts) 
D)  all of the above
E)  none of the aboveF) B) and C)
G) A) and E)

Question 10

Assume that a bank must keep reserves of 20% against deposits.The bank receives a primary deposit of $50,000.What amount of excess reserves can the bank safely lend?

Accepted Answer

A)  $10,000
B)  $20,000
C)  $40,000
D)  $50,000
E)  none of the aboveF) A) and C)
G) C) and E)

Question 11

Assume that a bank receives a primary deposit of $1,000.If the reserve requirement is 25%,what will be the amount of excess reserves available for lending purposes?

Accepted Answer

A)  zero
B)  $250
C)  $750
D)  $1,000
E)  none of the aboveF) A) and E)
G) A) and D)

Question 12

Almost all Treasury disbursements are made by:

Accepted Answer

A)  checks drawn directly on the U.S.Treasury
B)  check drawn against deposits at commercial banks in large cities
C)  drafts drawn on member banks
D)  checks drawn against deposits at Federal Reserve BanksE) B) and C)
F) None of the above

Question 13

One of the reasons open market operations are conducted virtually every business day is to implement changes in the money supply called for by the Federal Open Market Committee.

Accepted Answer

A) True 
 B)False

Question 14

The U.S.Treasury is responsible for refinancing the outstanding debt of the government.

Accepted Answer

A) True 
 B)False

Question 15

Federal Reserve open market operations,setting reserve requirement,and lending to depositories are:

Accepted Answer

A)  usually conducted simultaneously
B)  designed to improve the federal deficit
C)  of equal importance in their effort
D)  functions shared with the U.S.Treasury
E)  none of the aboveF) B) and E)
G) A) and B)

Question 16

If a check is written for the full amount of a derivative deposit created by a bank loan and then is sent to a bank in another city for deposit:

Accepted Answer

A)  the lending bank would lose all of its excess reserves
B)  the lending bank would still have reserves to lend
C)  the full amount would be added to the receiving bank's excess reserves
D)  both a and cE) A) and B)
F) A) and D)

Question 17

In the fractional reserve system,banks must hold,with the Fed,reserves equal to a certain percentage of their deposits.

Accepted Answer

A) True 
 B)False

Question 18

Primary groups of policy makers that are actively involved in achieving a nation's economic policy objectives include all of the following EXCEPT:

Accepted Answer

A)  the Supreme Court
B)  Senate staffers
C)  lobbyists
D)  the joint chiefs
E)  none of the above are involvedF) B) and D)
G) A) and D)

Question 19

One factor that decreases the volume of bank reserves is a decrease in:

Accepted Answer

A)  bank holdings of loans and securities
B)  time and savings deposits
C)  life insurance company reserves
D)  the level of cash holdings
E)  none of the aboveF) B) and C)
G) B) and D)

Question 20

If the Fed wishes to stimulate the economy,it may:

Accepted Answer

A)  lower the discount rate
B)  raise reserve requirements
C)  sell securities through open market operations
D)  raise both the discount rate and the reserve requirementsE) A) and B)
F) A) and C)

Exam 5: Policy Makers and the Money Supply

One of the reasons open market operations are conducted virtually every business day is to implement changes in the money supply called for by the Federal Open Market Committee.

Correct AnswerverifiedShow Answer

If the Fed wishes to stimulate the economy,it may:

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In the fractional reserve system,banks must hold,with the Fed,reserves equal to a certain percentage of their deposits.

Correct AnswerverifiedShow Answer

The government body primarily responsible for monetary policy is Congress.

Correct AnswerverifiedShow Answer

If the Fed wishes to stimulate the economy,it may:

Correct AnswerverifiedShow Answer

Total reserves in the banking system consist of:

Correct AnswerverifiedShow Answer

Under required reserves of 20%,the maximum to which the money supply could be expanded by the banking system is:

Correct AnswerverifiedShow Answer

Assume that a banking system must keep reserves of 20% against deposits.The bank receives a primary deposit of $20,000.What would be the maximum amount of loan that could be made by the system?

Correct AnswerverifiedShow Answer

The U.S.Treasury is responsible for refinancing the outstanding debt of the government.

Correct AnswerverifiedShow Answer

Currently,the backing for Federal Reserves notes is primarily in the form of:

Correct AnswerverifiedShow Answer

Assume that a bank must keep reserves of 20% against deposits.The bank receives a primary deposit of $50,000.What amount of excess reserves can the bank safely lend?

Correct AnswerverifiedShow Answer

Various programs of the federal government help stabilize disposable income,and in turn,economic activity in general.In so doing:

Correct AnswerverifiedShow Answer

Assume that a bank receives a primary deposit of $1,000.If the reserve requirement is 25%,what will be the amount of excess reserves available for lending purposes?

Correct AnswerverifiedShow Answer

One factor that decreases the volume of bank reserves is a decrease in:

Correct AnswerverifiedShow Answer

Federal Reserve open market operations,setting reserve requirement,and lending to depositories are:

Correct AnswerverifiedShow Answer

Almost all Treasury disbursements are made by:

Correct AnswerverifiedShow Answer

Primary groups of policy makers that are actively involved in achieving a nation's economic policy objectives include all of the following EXCEPT:

Correct AnswerverifiedShow Answer

Price inflation:

Correct AnswerverifiedShow Answer

If a check is written for the full amount of a derivative deposit created by a bank loan and then is sent to a bank in another city for deposit:

Correct AnswerverifiedShow Answer

The U.S.Treasury has primary responsibility for management of the federal debt.

Correct AnswerverifiedShow Answer

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