Question 1

The Fed began paying interest on reserves in October 2008. Holding all else constant, what effect would this have on the money supply?

Accepted Answer

This would...

Question 2

The set of items that serve as media of exchange clearly includes

Accepted Answer

A)   balances that lie behind debit cards.
B)   demand deposits.
C)   other checkable deposits.
D)   All of the above are correct.E) All of the above
F) A) and B)

Question 3

If a bank uses $200 of excess reserves to make a new loan when the reserve ratio is 15 percent, this action by itself initially makes the money supply

Accepted Answer

A)   and wealth increase by $200.
B)   and wealth decrease by $200.
C)   increase by $200 while wealth does not change.
D)   decrease by $200 while wealth decreases by $200.E) A) and D)
F) A) and C)

Question 4

Which of the following is correct?

Accepted Answer

A)   The Federal Reserve has 14 regional banks. The Board of Governors has 12 members who serve 7-year terms.
B)   The Federal Reserve has 14 regional banks. The Board of Governors has 7 members who serve 14-year terms.
C)   The Federal Reserve has 12 regional banks. The Board of Governors has 12 members who serve 7-year terms.
D)   The Federal Reserve has 12 regional banks. The Board of Governors has 7 members who serve 14-year terms.E) A) and B)
F) C) and D)

Question 5

Banks are able to create money only when

Accepted Answer

A)   interest rates are above 2%.
B)   the Fed sells U.S. government bonds.
C)   the reserve ratio is 100%.
D)   only a fraction of deposits are held in reserve.E) A) and B)
F) B) and D)

Question 6

In order for currency to be widely used as a medium of exchange, it is sufficient for the government to designate it as legal tender.

Accepted Answer

A) True 
 B)False

Question 7

When the Federal Reserve conducts open-market operations to increase the money supply, it

Accepted Answer

A)   redeems Federal Reserve notes.
B)   buys government bonds from the public.
C)   raises the discount rate.
D)   decreases its lending to member banks.E) A) and D)
F) None of the above

Question 8

If the Fed raised the reserve requirement, the demand for reserves would

Accepted Answer

A)   increase, so the federal funds rate would fall.
B)   increase, so the federal funds rate would rise.
C)   decrease, so the federal funds rate would fall.
D)   decrease, so the federal funds rate would rise.E) A) and D)
F) None of the above

Question 9

When in France you notice that prices are posted in euros, this best illustrates money's function as

Accepted Answer

A)   a store of value.
B)   a medium of exchange.
C)   a unit of account.
D)   a method of barter.E) C) and D)
F) A) and D)

Question 10

If the reserve ratio is 15 percent, the money multiplier is

Accepted Answer

A)   7.7.
B)   6.7.
C)   5.7.
D)   15.E) A) and D)
F) All of the above

Question 11

The Federal Open Market Committee meets approximately

Accepted Answer

A)   every three weeks
B)   every six weeks
C)   every 3 months
D)   every 6 months.E) None of the above
F) All of the above

Question 12

Which tool of monetary policy does the Federal Reserve use most often?

Accepted Answer

A)   term auctions
B)   open-market operations
C)   changes in reserve requirements
D)   changes in the discount rateE) A) and D)
F) None of the above

Question 13

Economists use the term "money" to refer to

Accepted Answer

A)   all wealth.
B)   all assets, including real assets and financial assets.
C)   all financial assets, but not real assets.
D)   those types of wealth that are regularly accepted by sellers in exchange for goods and services.E) A) and C)
F) B) and C)

Question 14

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) All of the above
F) None of the above

Question 15

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 16

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"> $1...

Question 17

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

Accepted Answer

A)   fewer reserves, so the money multiplier will fall.
B)   fewer reserves, so the money multiplier will rise.
C)   more reserves, so the money multiplier will fall.
D)   more reserves, so the money multiplier will rise.E) B) and D)
F) All of the above

Question 18

The Fed purchases $200 worth of government bonds from the public. The reserve requirement is 12.5 percent, people hold no currency, and the banking system keeps no excess reserves. The U.S. money supply eventually increases by

Accepted Answer

A)   $25.
B)   between $200 and $300.
C)   $1,600.
D)   $2,500.E) C) and D)
F) None of the above

Question 19

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) A) and B)
F) A) and C)

Question 20

All of the presidents of the regional Federal Reserve banks

Accepted Answer

A)   attend each FOMC meeting.
B)   have voting rights at each FOMC meeting.
C)   are appointed by the president of the U.S. and confirmed by the U.S. Senate.
D)   All of the above are correct.E) All of the above
F) A) and B)

Exam 16: The Monetary System

In order for currency to be widely used as a medium of exchange, it is sufficient for the government to designate it as legal tender.

Correct AnswerverifiedShow Answer

Which of the following is correct?

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All of the presidents of the regional Federal Reserve banks

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

Correct AnswerverifiedShow Answer

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

Correct Answerverified1/.20) $1...View AnswerShow Answer

Economists use the term "money" to refer to

Correct AnswerverifiedShow Answer

The Fed purchases $200 worth of government bonds from the public. The reserve requirement is 12.5 percent, people hold no currency, and the banking system keeps no excess reserves. The U.S. money supply eventually increases by

Correct AnswerverifiedShow Answer

The Federal Open Market Committee meets approximately

Correct AnswerverifiedShow Answer

If the reserve ratio is 15 percent, the money multiplier is

Correct AnswerverifiedShow Answer

If the Fed raised the reserve requirement, the demand for reserves would

Correct AnswerverifiedShow Answer

If a bank uses $200 of excess reserves to make a new loan when the reserve ratio is 15 percent, this action by itself initially makes the money supply

Correct AnswerverifiedShow Answer

The Fed began paying interest on reserves in October 2008. Holding all else constant, what effect would this have on the money supply?

Correct AnswerverifiedThis would...View AnswerShow Answer

The set of items that serve as media of exchange clearly includes

Correct AnswerverifiedShow Answer

When the Federal Reserve conducts open-market operations to increase the money supply, it

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When in France you notice that prices are posted in euros, this best illustrates money's function as

Correct AnswerverifiedShow Answer

Which tool of monetary policy does the Federal Reserve use most often?

Correct AnswerverifiedShow Answer

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

Correct AnswerverifiedShow Answer

Banks are able to create money only when

Correct AnswerverifiedShow Answer

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1/.20) $1...
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This would...
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