Question 1

Which of the following is not an example of a financial intermediary?

Accepted Answer

A)   a pension fund
B)   an insurance company
C)   a commercial bank
D)   the New York Stock ExchangeE) A) and D)
F) C) and D)

Question 2

If banks were required to keep 100% of deposits in reserves, they could

Accepted Answer

A)   make more loans.
B)   make no loans.
C)   create more deposits.
D)   only use required reserves for loans.E) A) and D)
F) A) and C)

Question 3

Scenario 2: Fed sells bonds to Henry Hyde
Consider a banking system in which the reserve requirement is 10%, banks try not to hold excess reserves, consumers and firms hold money only in the form of checking account balances, and all loan proceeds are spent. Suppose initially all banks in the system are loaned up. Now, suppose that the Fed sells a $50,000 bond to Henry Hyde, who pays for the bond by writing a check drawn against Jekyll Bank.
-Refer to Scenario 2. Which of the following happens when Henry Hyde pays for the bond by writing a check from his checking account at the Jekyll Bank?

Accepted Answer

A)   Jekyll Bank's checkable deposits decreases by $50,000 and its reserves decreases by $45,000.
B)   Jekyll Bank's checkable deposits decreases by $45,000 and its reserves decreases by $50,000.
C)   Jekyll Bank's checkable deposits and reserves decrease by $50,000 each.
D)   Jekyll Bank's checkable deposits and reserves increase by $45,000 each.E) A) and B)
F) A) and C)

Question 4

Any reserves that banks hold in excess of required reserves are called

Accepted Answer

A)   excess reserves.
B)   margin reserves.
C)   federal reserves.
D)   surplus reserves.E) None of the above
F) B) and C)

Question 5

A bank has $100,000 in checkable deposits and $30,000 in reserves. If the required reserve ratio is 20%, what is the maximum amount of loans this bank can create?

Accepted Answer

A)   $0
B)   $10,000
C)   $20,000
D)   $30,000E) All of the above
F) A) and C)

Question 6

The function of money illustrated by the prevailing prices of goods and services is the

Accepted Answer

A)   medium of exchange function.
B)   unit of account function.
C)   standard of deferred payments function.
D)   store of value function.E) B) and C)
F) A) and D)

Question 7

When a bank receives new deposits, it can make new loans up to the amount of

Accepted Answer

A)   the deposits received.
B)   the excess reserves generated by the deposits
C)   the reserves generated by the deposits.
D)   the required reserves generated by the deposits.E) A) and B)
F) A) and C)

Question 8

The discount rate is the rate of interest charged when banks lend excess reserves to one another.

Accepted Answer

A) True 
 B)False

Question 9

The federal funds rate is the interest rate the Fed charges to banks when it lends reserves to them.

Accepted Answer

A) True 
 B)False

Question 10

The non-bank public chooses among various financial assets in deciding in what form it wants to hold liquidity. It thereby increases or decreases
I. the M1 measure of money supply.
II. the reserves of commercial banks.
III. the reserves that commercial banks are required to hold.

Accepted Answer

A)   none of the above since only the Fed can alter the money supply
B)   I, II, and III
C)   I and II only
D)   I onlyE) All of the above
F) B) and C)

Question 11

Which of the following statements is false about M1 and M2?

Accepted Answer

A)   M2 is a broader measure of the money supply than M1.
B)   M2 contains assets that are less liquid than those in M1.
C)   All the assets included in M1 are also included in M2.
D)   All the assets included in M2 are also included in M1.E) A) and C)
F) None of the above

Question 12

Which of the following is a consequence of deposit insurance?

Accepted Answer

A)   It may induce the officers of a bank to take more risks.
B)   It encourages banks to make loans only to the most credit-worthy customers.
C)   It minimizes the risk of defaulting on loans made to the bank's customers.
D)   It encourages depositors to closely scrutinize a bank's lending activities.E) A) and B)
F) All of the above

Question 13

Which of the following is a store of value and a common medium of exchange?

Accepted Answer

A)   corporate bonds
B)   stocks
C)   checking account balances
D)   debit cardsE) All of the above
F) B) and C)

Question 14

When a member bank borrows reserves from the Fed,

Accepted Answer

A)   it pays an interest rate called the discount rate.
B)   it pays no interest rate but is required to repay the loan within the stipulated period.
C)   it pays an interest rate equivalent to the coupon rate on long-term government bonds.
D)   it pays an interest rate equal to the federal funds in the reserves market.E) C) and D)
F) B) and D)

Question 15

If the reserve ratio is 10%, and banks do not hold excess reserves, when the Fed purchases $10 million of government bonds, bank reserves

Accepted Answer

A)   increase by $10 million and the money supply could eventually increase by $10 million.
B)   decrease by $10 million and the money supply could eventually decrease by $100 million.
C)   increase by $10 million and the money supply could eventually increase by $100 million.
D)   decrease by $10 million and the money supply could eventually decrease by $10 millionE) None of the above
F) C) and D)

Question 16

Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel in exchange for goods and services. What function do these packages of mackerel perform?

Accepted Answer

A)   They function as a store of value.
B)   They function as a medium of exchange.
C)   They function as a unit of account.
D)   They function as a factor of production.E) A) and B)
F) A) and C)

Question 17

Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel in exchange for goods and services. Why were they willing to accept mackerel in exchange for goods and services?

Accepted Answer

A)   because mackerel is a good source of protein
B)   because prison authorities deemed mackerel legal tender
C)   because the inmates know that they could use the packages of mackerel to buy other goods and services
D)   because the inmates do not wish to consume mackerelE) A) and B)
F) B) and C)

Question 18

Table 9-6: Deposit Expansion Stages
  In Table 9-6, assume that banks loan out 100% of their excess banking reserves, there are no cash withdrawals, and all loan proceeds are spent. Figures have been rounded up to the nearest whole number.
-Refer to Table 9-6. What is the value of $G (the total new required reserves) ?

Accepted Answer

A)   $1,000
B)   $4,000
C)   $5,000
D)   $6,000E) A) and C)
F) None of the above

Question 19

Money that some authority has declared legal tender is called

Accepted Answer

A)   fiat money.
B)   currency.
C)   convertible paper money.
D)   commodity money.E) A) and D)
F) All of the above

Question 20

Table 9-2
 
-Refer to Table 9-2. In Year 2, the supply of money measured by M1 was

Accepted Answer

A)   $300 billion.
B)   $550 billion.
C)   $750 billion.
D)   $900 billion.E) C) and D)
F) B) and C)

Exam 24: The Aggregate Demandaggregate Supply Model

When a member bank borrows reserves from the Fed,

Correct Answer
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The non-bank public chooses among various financial assets in deciding in what form it wants to hold liquidity. It thereby increases or decreases I. the M1 measure of money supply. II. the reserves of commercial banks. III. the reserves that commercial banks are required to hold.

Correct Answer
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When a bank receives new deposits, it can make new loans up to the amount of

Correct Answer
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Correct Answer
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A bank has $100,000 in checkable deposits and $30,000 in reserves. If the required reserve ratio is 20%, what is the maximum amount of loans this bank can create?

Correct Answer
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Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel in exchange for goods and services. Why were they willing to accept mackerel in exchange for goods and services?

Correct Answer
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Any reserves that banks hold in excess of required reserves are called

Correct Answer
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Which of the following statements is false about M1 and M2?

Correct Answer
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The federal funds rate is the interest rate the Fed charges to banks when it lends reserves to them.

Correct Answer
verified

Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel in exchange for goods and services. What function do these packages of mackerel perform?

Correct Answer
verified

Money that some authority has declared legal tender is called

Correct Answer
verified

If the reserve ratio is 10%, and banks do not hold excess reserves, when the Fed purchases $10 million of government bonds, bank reserves

Correct Answer
verified

The discount rate is the rate of interest charged when banks lend excess reserves to one another.

Correct Answer
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If banks were required to keep 100% of deposits in reserves, they could

Correct Answer
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Table 9-2 -Refer to Table 9-2. In Year 2, the supply of money measured by M1 was

Correct Answer
verified

The function of money illustrated by the prevailing prices of goods and services is the

Correct Answer
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Which of the following is a consequence of deposit insurance?

Correct Answer
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Which of the following is not an example of a financial intermediary?

Correct Answer
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Which of the following is a store of value and a common medium of exchange?

Correct Answer
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Correct Answer
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Exam 24: The Aggregate Demandaggregate Supply Model

When a member bank borrows reserves from the Fed,

Correct AnswerverifiedShow Answer

The non-bank public chooses among various financial assets in deciding in what form it wants to hold liquidity. It thereby increases or decreases I. the M1 measure of money supply. II. the reserves of commercial banks. III. the reserves that commercial banks are required to hold.

Correct AnswerverifiedShow Answer

When a bank receives new deposits, it can make new loans up to the amount of

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A bank has $100,000 in checkable deposits and $30,000 in reserves. If the required reserve ratio is 20%, what is the maximum amount of loans this bank can create?

Correct AnswerverifiedShow Answer

Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel in exchange for goods and services. Why were they willing to accept mackerel in exchange for goods and services?

Correct AnswerverifiedShow Answer

Any reserves that banks hold in excess of required reserves are called

Correct AnswerverifiedShow Answer

Which of the following statements is false about M1 and M2?

Correct AnswerverifiedShow Answer

The federal funds rate is the interest rate the Fed charges to banks when it lends reserves to them.

Correct AnswerverifiedShow Answer

Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel in exchange for goods and services. What function do these packages of mackerel perform?

Correct AnswerverifiedShow Answer

Money that some authority has declared legal tender is called

Correct AnswerverifiedShow Answer

If the reserve ratio is 10%, and banks do not hold excess reserves, when the Fed purchases $10 million of government bonds, bank reserves

Correct AnswerverifiedShow Answer

The discount rate is the rate of interest charged when banks lend excess reserves to one another.

Correct AnswerverifiedShow Answer

If banks were required to keep 100% of deposits in reserves, they could

Correct AnswerverifiedShow Answer

Table 9-2 -Refer to Table 9-2. In Year 2, the supply of money measured by M1 was

Correct AnswerverifiedShow Answer

The function of money illustrated by the prevailing prices of goods and services is the

Correct AnswerverifiedShow Answer

Which of the following is a consequence of deposit insurance?

Correct AnswerverifiedShow Answer

Which of the following is not an example of a financial intermediary?

Correct AnswerverifiedShow Answer

Which of the following is a store of value and a common medium of exchange?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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