Question 1

Table 21-7
Metropolis National Bank is currently holding 2% of its deposits as excess reserves.
 
-Refer to Balance Sheet of Metropolis National Bank.Metropolis National Bank is currently holding 2% of deposits as excess reserves.Assume that no banks in the economy want to hold excess reserves and that people only hold deposits and no currency.How much does the money supply ultimately increase when Metropolis National Bank lends out its excess reserves?

Accepted Answer

A)   $100,000
B)   $110,000
C)   $120,000
D)   None of the above are correct.E) All of the above
F) B) and C)

Question 2

To decrease the money supply,the Fed can

Accepted Answer

A)   buy government bonds or increase the discount rate.
B)   buy government bonds or decrease the discount rate.
C)   sell government bonds or increase the discount rate.
D)   sell government bonds or decrease the discount rate.E) None of the above
F) A) and B)

Question 3

Which of the following defer payments?

Accepted Answer

A)   credit cards and debit cards
B)   neither credit cards nor debit cards
C)   credit cards but not debit cards
D)   debit cards but not credit cardsE) None of the above
F) A) and C)

Question 4

During recessions,banks typically choose to hold more excess reserves relative to their deposits.This action

Accepted Answer

A)   increases the money multiplier and increases the money supply.
B)   decreases the money multiplier and decreases the money supply.
C)   does not change the money multiplier,but increases the money supply.
D)   does not change the money multiplier,but decreases the money supply.E) None of the above
F) B) and D)

Question 5

What is meant by the term "lender of last resort?" In what circumstances might the Fed be a lender of last resort?

Accepted Answer

A "lender of last resort" is a lender to...

Question 6

Table 21-4.
 
-Refer to Table 21-4.If the bank faces a reserve requirement of 10 percent,then the bank

Accepted Answer

A)   is in a position to make a new loan of $10,000.
B)   has fewer reserves than are required.
C)   has excess reserves of $12,500.
D)   None of the above is correct.E) B) and D)
F) None of the above

Question 7

If a bank uses $100 of excess reserves to make a new loan when the reserve ratio is 10 percent,this action by itself initially makes the money supply

Accepted Answer

A)   and wealth increase by $100.
B)   and wealth decrease by $100.
C)   increase by $100 while wealth does not change.
D)   decrease by $100 while wealth decreases by $100.E) C) and D)
F) A) and D)

Question 8

Which list ranks assets from most to least liquid?

Accepted Answer

A)   currency,demand deposits,money market mutual funds
B)   currency,money market mutual funds,demand deposits
C)   money market mutual funds,demand deposits,currency
D)   demand deposits,money market mutual funds,currencyE) A) and C)
F) None of the above

Question 9

The money supply increases when the Fed

Accepted Answer

A)   buys bonds.The increase will be larger,the smaller is the reserve ratio.
B)   buys bonds.The increase will be larger,the larger is the reserve ratio.
C)   sells bonds.The increase will be larger,the smaller is the reserve ratio.
D)   sells bonds.The increase will be larger,the larger is the reserve ratio.E) None of the above
F) B) and C)

Question 10

Monetary policy is determined by a committee whose voting members include all the presidents of the regional Federal Reserve Banks.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following might explain why the United States has so much currency per person?

Accepted Answer

A)   U.S.citizens are holding a lot of foreign currency.
B)   Currency may be a preferable store of wealth for criminals.
C)   People use credit and debit cards more frequently.
D)   All of the above help explain the abundance of currency.E) B) and C)
F) None of the above

Question 12

If the Fed sells government bonds to the public,then reserves

Accepted Answer

A)   increase and the money supply increases.
B)   increase and the money supply decreases.
C)   decrease and the money supply increases.
D)   decrease and the money supply decreases.E) None of the above
F) A) and D)

Question 13

Which of the following is not included in either M1 or M2?

Accepted Answer

A)   U.S.Treasury bills
B)   small time deposits
C)   demand deposits
D)   money market mutual fundsE) A) and B)
F) A) and D)

Question 14

The Fed decreases reserves if it conducts open market

Accepted Answer

A)   purchases or auctions term credit.
B)   purchases but not if it auctions term credit
C)   sales or auctions term credit
D)   sales but not if it auctions term creditE) A) and B)
F) A) and C)

Question 15

Table 21-7
Metropolis National Bank is currently holding 2% of its deposits as excess reserves.
 
-Refer to Balance Sheet of Metropolis National Bank.Metropolis National Bank is holding 2% of its deposits as excess reserves.Assume that no banks in the economy want to maintain holdings of excess reserves and that people only hold deposits and no currency.The Fed makes open market purchases of $10,000.The person who sold bonds to the Fed deposits all the funds in Metropolis National Bank.If the bank now loans out all its excess reserves,by how much will the money supply increase?

Accepted Answer

A)   $190,000
B)   $200,000
C)   $240,000
D)   None of the above are correct.E) B) and C)
F) C) and D)

Question 16

If the federal funds rate were below 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 increase the money supply.
B)   buying bonds.This buying would reduce the money supply.
C)   selling bonds.This selling would increase the money supply.
D)   selling bonds.This selling would reduce the money supply.E) A) and B)
F) A) and D)

Question 17

If the reserve ratio is 8 percent,then $4,500 of additional reserves can create up to

Accepted Answer

A)   $4,500 of new money.
B)   $48,913 of new money.
C)   $56,250 of new money.
D)   $75,000 of new money.E) B) and C)
F) A) and B)

Question 18

Which of the following is a liability of a bank and an asset of its customers?

Accepted Answer

A)   deposits of its customers and loans to it customers
B)   deposits of its customers but not loans to its customers
C)   loans of its customers but not the deposits of its customers
D)   neither the deposits of its customers nor the loans to its customersE) C) and D)
F) All of the above

Question 19

When we say that trade is roundabout we mean that

Accepted Answer

A)   people sometimes trade goods for goods.
B)   trades require a double coincidence of wants.
C)   currency is accepted primarily to make further trades.
D)   people must spend time searching for the products they wish to purchase.E) None of the above
F) C) and D)

Question 20

When a bank loans out $1,000,the money supply

Accepted Answer

A)   does not change.
B)   decreases.
C)   increases.
D)   may do any of the above.E) None of the above
F) B) and C)

Exam 21: The Monetary System

The Fed decreases reserves if it conducts open market

Correct Answer
verified

Correct Answer
verified

If the reserve ratio is 8 percent,then $4,500 of additional reserves can create up to

Correct Answer
verified

What is meant by the term "lender of last resort?" In what circumstances might the Fed be a lender of last resort?

Correct Answer
verified
A "lender of last resort" is a lender to...
View Answer

Which of the following defer payments?

Correct Answer
verified

If the Fed sells government bonds to the public,then reserves

Correct Answer
verified

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

Correct Answer
verified

To decrease the money supply,the Fed can

Correct Answer
verified

The money supply increases when the Fed

Correct Answer
verified

Which of the following might explain why the United States has so much currency per person?

Correct Answer
verified

If a bank uses $100 of excess reserves to make a new loan when the reserve ratio is 10 percent,this action by itself initially makes the money supply

Correct Answer
verified

Which of the following is not included in either M1 or M2?

Correct Answer
verified

During recessions,banks typically choose to hold more excess reserves relative to their deposits.This action

Correct Answer
verified

Which of the following is a liability of a bank and an asset of its customers?

Correct Answer
verified

Monetary policy is determined by a committee whose voting members include all the presidents of the regional Federal Reserve Banks.

Correct Answer
verified

Table 21-4. -Refer to Table 21-4.If the bank faces a reserve requirement of 10 percent,then the bank

Correct Answer
verified

Which list ranks assets from most to least liquid?

Correct Answer
verified

When we say that trade is roundabout we mean that

Correct Answer
verified

When a bank loans out $1,000,the money supply

Correct Answer
verified

Correct Answer
verified

Exam 21: The Monetary System

The Fed decreases reserves if it conducts open market

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the reserve ratio is 8 percent,then $4,500 of additional reserves can create up to

Correct AnswerverifiedShow Answer

What is meant by the term "lender of last resort?" In what circumstances might the Fed be a lender of last resort?

Correct AnswerverifiedA "lender of last resort" is a lender to...View AnswerShow Answer

Which of the following defer payments?

Correct AnswerverifiedShow Answer

If the Fed sells government bonds to the public,then reserves

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

To decrease the money supply,the Fed can

Correct AnswerverifiedShow Answer

The money supply increases when the Fed

Correct AnswerverifiedShow Answer

Which of the following might explain why the United States has so much currency per person?

Correct AnswerverifiedShow Answer

If a bank uses $100 of excess reserves to make a new loan when the reserve ratio is 10 percent,this action by itself initially makes the money supply

Correct AnswerverifiedShow Answer

Which of the following is not included in either M1 or M2?

Correct AnswerverifiedShow Answer

During recessions,banks typically choose to hold more excess reserves relative to their deposits.This action

Correct AnswerverifiedShow Answer

Which of the following is a liability of a bank and an asset of its customers?

Correct AnswerverifiedShow Answer

Monetary policy is determined by a committee whose voting members include all the presidents of the regional Federal Reserve Banks.

Correct AnswerverifiedShow Answer

Table 21-4. -Refer to Table 21-4.If the bank faces a reserve requirement of 10 percent,then the bank

Correct AnswerverifiedShow Answer

Which list ranks assets from most to least liquid?

Correct AnswerverifiedShow Answer

When we say that trade is roundabout we mean that

Correct AnswerverifiedShow Answer

When a bank loans out $1,000,the money supply

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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A "lender of last resort" is a lender to...
View Answer

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