Question 1

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) A) and B)
F) None of the above

Question 2

Sandra routinely uses currency to purchase her groceries. She is using money as a medium of exchange.

Accepted Answer

A) True 
 B)False

Question 3

The Fed has the power to increase or decrease the number of dollars in the economy through the decisions of

Accepted Answer

A)  the Board of Governors.
B)  the FOMC.
C)  the regional Federal Reserve Bank presidents.
D)  the U.S. Treasury.E) B) and D)
F) B) and C)

Question 4

Which of the following is an example of commodity money?

Accepted Answer

A)  ​Rare baseball cards
B)  ​Euros
C)  ​Stocks
D)  ​The gold standardE) None of the above
F) A) and B)

Question 5

The series of bank failures in 1907 occurred despite the creation of the Federal Reserve many years earlier.

Accepted Answer

A) True 
 B)False

Question 6

In a system of 100-percent-reserve banking, the purpose of a bank is to

Accepted Answer

A)  make loans to households.
B)  influence the money supply.
C)  give depositors a safe place to keep their money.
D)  buy and sell gold.E) B) and C)
F) All of the above

Question 7

Demand deposits are balances in bank accounts that depositors can access by writing a check or using a debit card.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is not a reason the New York Federal Reserve Bank president always gets to vote at the Federal Open Market Committee meetings?

Accepted Answer

A)  New York is the traditional financial center of the U.S. economy.
B)  All Fed purchases and sales of bonds go through the New York Fed's trading desk.
C)  New York has higher population than other cities in the U.S.
D)  All of the above are reasons.E) A) and D)
F) A) and B)

Question 9

​FOMC voting rights

Accepted Answer

A)  are given to all twelve regional bank presidents.
B)  ​rotate among the twelve regional bank presidents.
C)  ​rotate among the twelve regional bank presidents, except the president of the New York Fed, who always gets a vote.
D)  ​are all given to the president of the New York Fed, since all of the Fed's bond sales and purchases are conducted at the New York Fed trading desk.E) None of the above
F) A) and C)

Question 10

​If $500 of new reserves generates $1000 of new money in the economy, then the money multiplier is

Accepted Answer

A)  2 and the reserve ratio is 50 percent.
B)  ​2 and the reserve ratio is 2 percent.
C)  ​0.5 and the reserve ratio is 50 percent.
D)  ​0.5 and the reserve ratio is 2 percent.E) B) and D)
F) A) and C)

Question 11

The money stock in the economy is​

Accepted Answer

A)  ​the amount of wealth accumulating in the economy, such as currency and demand deposits.
B)  ​the amount of wealth accumulating in the economy, such as money market mutual funds and stocks.
C)  ​the quantity of money circulating in the economy, such as currency and demand deposits.
D)  ​​the quantity of money circulating in the economy, such as money market mutual funds and stocks.E) A) and D)
F) A) and C)

Question 12

In a fractional-reserve banking system, a decrease in reserve requirements

Accepted Answer

A)  increases both the money multiplier and the money supply.
B)  decreases both the money multiplier and the money supply.
C)  increases the money multiplier, but decreases the money supply.
D)  decreases the money multiplier, but increases the money supply.E) None of the above
F) All of the above

Question 13

Credit cards are

Accepted Answer

A)  a medium of exchange.
B)  counted as part of M2 but not as part of M1.
C)  important for analyzing the monetary system.
D)  All of the above are correct.E) B) and C)
F) C) and D)

Question 14

One surprising thing about the U.S. money stock is that

Accepted Answer

A)  banks hold so much currency relative to the public.
B)  the public holds so much currency relative to banks.
C)  there is so little currency per person.
D)  there is so much currency per person.E) A) and B)
F) B) and C)

Question 15

Which of the following is not included in M1?

Accepted Answer

A)  currency
B)  demand deposits
C)  savings deposits
D)  traveler's checksE) None of the above
F) A) and B)

Question 16

The Board of Governors

Accepted Answer

A)  is chaired by the U.S. Secretary of the Treasury.
B)  members are elected by the U.S. public.
C)  has 7 members.
D)  All of the above are correct.E) A) and D)
F) B) and D)

Question 17

If you deposit $100 of currency into a demand deposit at a bank, this action by itself

Accepted Answer

A)  does not change the money supply.
B)  increases the money supply.
C)  decreases the money supply.
D)  has an indeterminate effect on the money supply.E) B) and C)
F) B) and D)

Question 18

To decrease the money supply, the Fed could

Accepted Answer

A)  sell government bonds.
B)  increase the discount rate.
C)  increase the reserve requirement.
D)  All of the above are correct.E) A) and B)
F) B) and C)

Question 19

The money supply decreases if

Accepted Answer

A)  households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively more excess reserves and make fewer loans.
B)  households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively fewer excess reserves and make more loans.
C)  households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively more excess reserves and make fewer loans.
D)  households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively less excess reserves and make more loans.E) None of the above
F) A) and D)

Question 20

The discount rate is

Accepted Answer

A)  the rate at which public banks lend to other public banks.
B)  the rate at which the Fed lends to banks.
C)  the percentage difference between the face value of a Treasury bond and what the Fed pays for it.
D)  the percentage of deposits banks hold as excess reserves.E) B) and C)
F) A) and C)

Exam 29: The Monetary System

Credit cards are

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The discount rate is

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To decrease the money supply, the Fed could

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

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The series of bank failures in 1907 occurred despite the creation of the Federal Reserve many years earlier.

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One surprising thing about the U.S. money stock is that

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​FOMC voting rights

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If you deposit $100 of currency into a demand deposit at a bank, this action by itself

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Demand deposits are balances in bank accounts that depositors can access by writing a check or using a debit card.

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Sandra routinely uses currency to purchase her groceries. She is using money as a medium of exchange.

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The money stock in the economy is​

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Which of the following is an example of commodity money?

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The Board of Governors

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In a system of 100-percent-reserve banking, the purpose of a bank is to

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​If $500 of new reserves generates $1000 of new money in the economy, then the money multiplier is

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Which of the following is not included in M1?

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Which of the following is not a reason the New York Federal Reserve Bank president always gets to vote at the Federal Open Market Committee meetings?

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The Fed has the power to increase or decrease the number of dollars in the economy through the decisions of

Correct AnswerverifiedShow Answer

In a fractional-reserve banking system, a decrease in reserve requirements

Correct AnswerverifiedShow Answer

The money supply decreases if

Correct AnswerverifiedShow Answer

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FOMC voting rights

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The money stock in the economy is

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If $500 of new reserves generates $1000 of new money in the economy, then the money multiplier is

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