Question 1

Which of the following increases when the Fed makes open-market sales?

Accepted Answer

A)   currency and reserves
B)   currency but not reserves
C)   reserves but not currency
D)   neither currency nor reservesE) C) and D)
F) All of the above

Question 2

Which of the following is both a store of value and regularly used as a medium of exchange?

Accepted Answer

A)   cash and stocks
B)   cash but not stocks
C)   stocks but not cash
D)   neither cash nor stocksE) B) and D)
F) A) and D)

Question 3

If the reserve ratio is 12.5 percent, then $2,000 of additional reserves can create up to

Accepted Answer

A)   $8,000 of new money.
B)   $16,000 of new money.
C)   $32,000 of new money.
D)   None of the above is correct.E) A) and C)
F) A) and B)

Question 4

When the Soviet Union began breaking up in the late 1980s, cigarettes began replacing the ruble as the medium of exchange even though the ruble was legal tender. The cigarettes provide an example of commodity money.

Accepted Answer

A) True 
 B)False

Question 5

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) C) and D)
F) B) and C)

Question 6

The money supply decreases if the Fed

Accepted Answer

A)   sells Treasury bonds. The larger the reserve requirement, the larger the decrease will be.
B)   sells Treasury bonds. The smaller the reserve requirement, the larger the decrease will be.
C)   buys Treasury bonds. The larger the reserve requirement, the larger the decrease will be.
D)   buys Treasury bonds. The smaller the reserve requirement, the larger the decrease will be.E) A) and D)
F) C) and D)

Question 7

Which type of money has intrinsic value?

Accepted Answer

A)   commodity money
B)   fiat money
C)   both commodity money and fiat money
D)   neither commodity money nor fiat moneyE) B) and C)
F) A) and D)

Question 8

For purposes of analyzing the money stock and its relationship to relevant economic variables, money is best thought of as

Accepted Answer

A)   those items that can be readily accessed and used to buy goods and services.
B)   currency only.
C)   currency plus all bank accounts.
D)   currency plus all bank accounts plus bonds.E) A) and D)
F) B) and D)

Question 9

The reserve requirement is 10%. Lucy deposits $200 into a bank. By how much do excess reserves change?

Accepted Answer

A)   $200
B)   $180
C)   $20
D)   $10E) None of the above
F) B) and D)

Question 10

The federal funds rate is the

Accepted Answer

A)   percentage of face value that the Federal Reserve is willing to pay for Treasury Securities.
B)   percentage of deposits that banks must hold as reserves.
C)   interest rate at which the Federal Reserve makes short-term loans to banks.
D)   interest rate at which banks lend reserves to each other overnight.E) C) and D)
F) None of the above

Question 11

Because of the multiple tools at its disposal, the Fed can control the money supply very precisely.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following best illustrates the unit of account function of money?

Accepted Answer

A)   You list prices for candy sold on your Web site, www.sweettooth.com, in dollars.
B)   You pay for your theater tickets with dollars.
C)   You hold currency even though you don't intend to spend it right away.
D)   None of the above is correct.E) A) and D)
F) All of the above

Question 13

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 14

Which two of the Ten Principles of Economics imply that the Fed can profoundly affect the economy?

Accepted Answer

The answer of Which two of the Ten Principles of...

Question 15

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) A) and C)
F) All of the above

Question 16

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) B) and C)

Question 17

Which of the following does the Federal Reserve not do?

Accepted Answer

A)   conduct monetary policy
B)   act as a lender of last resort
C)   convert Federal Reserve Notes into gold
D)   serve as a bank regulatorE) A) and B)
F) A) and C)

Question 18

If the discount rate is raised then banks borrow

Accepted Answer

A)   more from the Fed so reserves increase.
B)   more from the Fed so reserves decrease.
C)   less from the Fed so reserves increase.
D)   less from the Fed so reserves decrease.E) None of the above
F) A) and B)

Question 19

Which of the following statements regarding the Federal Open Market Committee is correct?

Accepted Answer

A)   Only the five voting regional Fed presidents attend the meetings.
B)   All regional Fed presidents attend and vote at the meetings.
C)   All regional Fed presidents attend the meetings, but only five get to vote.
D)   Regional Fed presidents may neither attend nor vote the meetings.E) All of the above
F) A) and B)

Question 20

The Soviet government in the 1980's never abandoned the ruble as the official currency. However, the people of Moscow preferred to accept

Accepted Answer

A)   cigarettes in exchange for goods and services, because they were convinced that cigarettes were going to soon become hard to come by.
B)   American dollars in exchange for goods and services, because rubles were extremely hard to come by.
C)   goods such as cigarettes or American dollars in exchange for goods and services, reminding us of the fact that government decree by itself is not sufficient for the success of a commodity money.
D)   All of the above are correct.E) A) and D)
F) B) and D)

Exam 11: The Monetary System

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

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Which two of the Ten Principles of Economics imply that the Fed can profoundly affect the economy?

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Which type of money has intrinsic value?

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To decrease the money supply, the Fed could

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For purposes of analyzing the money stock and its relationship to relevant economic variables, money is best thought of as

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The reserve requirement is 10%. Lucy deposits $200 into a bank. By how much do excess reserves change?

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Which of the following best illustrates the unit of account function of money?

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If the reserve ratio is 12.5 percent, then $2,000 of additional reserves can create up to

Correct AnswerverifiedShow Answer

Which of the following increases when the Fed makes open-market sales?

Correct AnswerverifiedShow Answer

Which of the following statements regarding the Federal Open Market Committee is correct?

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The money supply decreases if the Fed

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Because of the multiple tools at its disposal, the Fed can control the money supply very precisely.

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Which of the following does the Federal Reserve not do?

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Which of the following is a function of money?

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The Soviet government in the 1980's never abandoned the ruble as the official currency. However, the people of Moscow preferred to accept

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The federal funds rate is the

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The money supply decreases if

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When the Soviet Union began breaking up in the late 1980s, cigarettes began replacing the ruble as the medium of exchange even though the ruble was legal tender. The cigarettes provide an example of commodity money.

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If the discount rate is raised then banks borrow

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Which of the following is both a store of value and regularly used as a medium of exchange?

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