Question 1

When banks decide to increase their reserves, the money supply will (holding all else constant).

Accepted Answer

The answer of When banks decide to increase their reserves,...

Question 2

The existence of money

Accepted Answer

A)   reduces specialization.
B)   makes trade easier.
C)   allows for barter.
D)   hinders production.E) None of the above
F) A) and B)

Question 3

A problem that the Fed faces when it attempts to control the money supply is that

Accepted Answer

A)   the 100-percent-reserve banking system in the U.S. makes it difficult for the Fed to carry out its monetary policy.
B)   the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools.
C)   the Fed does not have a tool that it can use to change the money supply by either a small amount or a large amount.
D)   the Fed does not control the amount of money that households choose to hold as deposits in banks.E) A) and D)
F) A) and B)

Question 4

The Federal Reserve was created

Accepted Answer

A)   in 1913 by Congress
B)   as a result of the Great Depression
C)   according to the standards enforced by NATO
D)   by President KennedyE) C) and D)
F) A) and B)

Question 5

Table 29-4. 
-Refer to Table 29-4. Starting from the situation as depicted by the T-account, if someone deposits $500 into the First Bank of Fairfield, and if the bank makes new loans so as to keep its reserve ratio unchanged, then the amount of new loans that it makes will be

Accepted Answer

A)   $40.
B)   $437.50.
C)   $71.42.
D)   $428.57.E) A) and D)
F) None of the above

Question 6

Table 29-6. 
-Refer to Table 29-6. Assume the Fed's reserve requirement is 5 percent and all banks besides the Bank of Pleasantville are exactly in compliance with the 5 percent requirement. Further assume that people hold only deposits and no currency. Starting from the situation as depicted by the T-account, if the Bank of Pleasantville decides to make new loans so as to end up with no excess reserves, then by how much does the money supply eventually increase?

Accepted Answer

A)   $10,833.33.
B)   $13,000.
C)   $8,333.33.
D)   $10,000.E) A) and D)
F) None of the above

Question 7

If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

Accepted Answer

A)   buying bonds. This buying would reduce reserves.
B)   buying bonds. This buying would increase reserves.
C)   selling bonds. This selling would reduce reserves.
D)   selling bonds. This selling would increase reserves.E) C) and D)
F) All of the above

Question 8

John and Jane decide to go on a vacation. As a result, they withdraw $2,500 from their savings account to purchase $2,500 worth of traveler's checks. As a result of these changes,

Accepted Answer

A)   M1 increases by $2,500 and M2 decrease by $2,500.
B)   M1 increases by $2,500 and M2 stays the same.
C)   M1 and M2 stay the same.
D)   M1 decreases by $2,500 and M2 increases by $2,500.E) A) and B)
F) A) and C)

Question 9

If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 15 percent receives a deposit of $600, it has a

Accepted Answer

A)   $600 increase in excess reserves and no increase in required reserves.
B)   $600 increase in required reserves and no increase in excess reserves.
C)   $510 increase in excess reserves and a $90 increase in required reserves.
D)   $90 increase in excess reserves and a $510 increase in required reserves.E) A) and D)
F) C) and D)

Question 10

Discuss why the Fed rarely changes the reserve requirements.

Accepted Answer

There are two main reasons the Fed does ...

Question 11

If the money multiplier is 3 and the Fed wants to increase the money supply by $900,000, it could

Accepted Answer

A)   buy $300,000 worth of bonds.
B)   buy $225,000 worth of bonds.
C)   sell $300,000 worth of bonds.
D)   sell $225,000 worth of bonds.E) C) and D)
F) A) and D)

Question 12

If the reserve ratio is 6 percent, then $9,000 of additional reserves can create up to

Accepted Answer

A)   $159,000 of new money.
B)   $54,000 of new money.
C)   $150,000 of new money.
D)   $141,000 of new money.E) A) and D)
F) A) and C)

Question 13

Which of the following is included in M2 but not in M1?

Accepted Answer

A)   currency
B)   demand deposits
C)   savings deposits
D)   All of the above are included in both M1 and M2.E) None of the above
F) A) and B)

Question 14

M1 equals currency plus demand deposits plus

Accepted Answer

A)   nothing else.
B)   other checkable deposits.
C)   traveler's checks plus other checkable deposits.
D)   traveler's checks plus other checkable deposits plus savings deposits.E) All of the above
F) C) and D)

Question 15

Table 29-3. An economy starts with $50,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $45,750. The T-account of the bank is shown below. 
-Refer to Table 29-3. The bank's reserve ratio is

Accepted Answer

A)   17.5 percent.
B)   8.5 percent.
C)   91.5 percent.
D)   100 percent.E) A) and C)
F) B) and D)

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

If the reserve ratio is 20 percent, how much money can be created from $100 of reserves? Show your work.

Accepted Answer

(1/.20) <img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> $...

Question 18

Which of the following is a function of money?

Accepted Answer

A)   a unit of account
B)   a store of value
C)   medium of exchange
D)   All of the above are correct.E) None of the above
F) A) and D)

Question 19

During a bank run, depositors decide to hold more currency relative to deposits and banks decide to hold more excess reserves relative to deposits.

Accepted Answer

A)   Both the decision to hold relatively more currency and the decision to hold relatively more excess reserves would make the money supply increase.
B)   Both the decision to hold relatively more currency and the decision to hold relatively more excess reserves would make the money supply decrease.
C)   The decision to hold relatively more currency would make the money supply increase. The decision to hold relatively more excess reserves would make the money supply decrease.
D)   The decision to hold relatively more currency would make the money supply increase. The decision to hold relatively more excess reserves would make the money supply decrease.E) None of the above
F) A) and C)

Question 20

Table 29-7. 
-Refer to Table 29-7. Assume the Fed's reserve requirement is 10 percent and that the Bank of Springfield makes new loans so as to make its new reserve ratio 10 percent. From then on, no bank holds any excess reserves. Assume also that people hold only deposits and no currency. Then by what amount does the economy's money supply increase?

Accepted Answer

A)   $37,800
B)   $18,000
C)   $2,000
D)   $16,300E) All of the above
F) A) and B)

Exam 29: The Monetary System

During a bank run, depositors decide to hold more currency relative to deposits and banks decide to hold more excess reserves relative to deposits.

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

Correct Answer
verified

Table 29-4. -Refer to Table 29-4. Starting from the situation as depicted by the T-account, if someone deposits $500 into the First Bank of Fairfield, and if the bank makes new loans so as to keep its reserve ratio unchanged, then the amount of new loans that it makes will be

Correct Answer
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Correct Answer
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Correct Answer
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If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

Correct Answer
verified

M1 equals currency plus demand deposits plus

Correct Answer
verified

Discuss why the Fed rarely changes the reserve requirements.

Correct Answer
verified
There are two main reasons the Fed does ...
View Answer

The existence of money

Correct Answer
verified

If the money multiplier is 3 and the Fed wants to increase the money supply by $900,000, it could

Correct Answer
verified

Which of the following is a function of money?

Correct Answer
verified

John and Jane decide to go on a vacation. As a result, they withdraw $2,500 from their savings account to purchase $2,500 worth of traveler's checks. As a result of these changes,

Correct Answer
verified

A problem that the Fed faces when it attempts to control the money supply is that

Correct Answer
verified

When banks decide to increase their reserves, the money supply will (holding all else constant).

Correct Answer
verified

If the reserve ratio is 20 percent, how much money can be created from $100 of reserves? Show your work.

Correct Answer
verified
(1/.20) $...
View Answer

The Federal Reserve was created

Correct Answer
verified

If the reserve ratio is 6 percent, then $9,000 of additional reserves can create up to

Correct Answer
verified

If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 15 percent receives a deposit of $600, it has a

Correct Answer
verified

Table 29-3. An economy starts with $50,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $45,750. The T-account of the bank is shown below. -Refer to Table 29-3. The bank's reserve ratio is

Correct Answer
verified

Which of the following is included in M2 but not in M1?

Correct Answer
verified

Exam 29: The Monetary System

During a bank run, depositors decide to hold more currency relative to deposits and banks decide to hold more excess reserves relative to deposits.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Table 29-4. -Refer to Table 29-4. Starting from the situation as depicted by the T-account, if someone deposits $500 into the First Bank of Fairfield, and if the bank makes new loans so as to keep its reserve ratio unchanged, then the amount of new loans that it makes will be

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

Correct AnswerverifiedShow Answer

M1 equals currency plus demand deposits plus

Correct AnswerverifiedShow Answer

Discuss why the Fed rarely changes the reserve requirements.

Correct AnswerverifiedThere are two main reasons the Fed does ...View AnswerShow Answer

The existence of money

Correct AnswerverifiedShow Answer

If the money multiplier is 3 and the Fed wants to increase the money supply by $900,000, it could

Correct AnswerverifiedShow Answer

Which of the following is a function of money?

Correct AnswerverifiedShow Answer

John and Jane decide to go on a vacation. As a result, they withdraw $2,500 from their savings account to purchase $2,500 worth of traveler's checks. As a result of these changes,

Correct AnswerverifiedShow Answer

A problem that the Fed faces when it attempts to control the money supply is that

Correct AnswerverifiedShow Answer

When banks decide to increase their reserves, the money supply will (holding all else constant).

Correct AnswerverifiedShow Answer

If the reserve ratio is 20 percent, how much money can be created from $100 of reserves? Show your work.

Correct Answerverified(1/.20) $...View AnswerShow Answer

The Federal Reserve was created

Correct AnswerverifiedShow Answer

If the reserve ratio is 6 percent, then $9,000 of additional reserves can create up to

Correct AnswerverifiedShow Answer

If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 15 percent receives a deposit of $600, it has a

Correct AnswerverifiedShow Answer

Table 29-3. An economy starts with $50,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $45,750. The T-account of the bank is shown below. -Refer to Table 29-3. The bank's reserve ratio is

Correct AnswerverifiedShow Answer

Which of the following is included in M2 but not in M1?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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There are two main reasons the Fed does ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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(1/.20) $...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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