Question 1

In a fractional reserve banking system,banks

Accepted Answer

A)   are able to create money when excess reserves are lent to individuals who need to borrow money.
B)   can lend all of the deposits that are received.
C)   must purchase gold that equals the value of the deposits received.
D)   must deposit all cash from depositors with the Federal Reserve.
E)   have to deposit all cash from depositors in their own bank vault.

Question 2

Refer to the following table to answer the following questions: 
-What is the value of M2?

Accepted Answer

A)   $13,500,000
B)   $46,500,000
C)   $47,500,000
D)   $57,500,000
E)   $65,000,000

Question 3

If a bank has a required reserve ratio of 10 percent and has required reserves of $100,000,000,how much does the bank hold in deposits?

Accepted Answer

A)   $10,000,000
B)   $110,000,000
C)   $1,000,000,000
D)   $1,500,000,000
E)   There is not enough information to solve this problem.

Question 4

What is the most appropriate measure of the money supply-M1 or M2?

Accepted Answer

M2 offers a broader measure of the money...

Question 5

Refer to the following table to answer the following questions: 
-Which of the following is NOT a component of M1?

Accepted Answer

A)   coins
B)   traveler's checks
C)   checking accounts
D)   savings accounts
E)   paper currency

Question 6

Refer to the following table to answer the following questions: 
-The largest component of M2 is

Accepted Answer

A)   savings deposits.
B)   checking deposits.
C)   currency.
D)   small time deposits.
E)   money market mutual funds.

Question 7

Which of the following would NOT be an asset for a commercial bank?

Accepted Answer

A)   loans
B)   cash in the vault
C)   borrowings
D)   deposits at the Federal Reserve
E)   U.S.Treasury securities

Question 8

One of the roles of the Federal Reserve is to regulate banks.What specifically does the Federal Reserve monitor within individual banks? Provide two reasons why it is important to regulate banks even though they are private businesses.

Accepted Answer

As a regulator,the Federal Reserve sets ...

Question 9

Which of the following would NOT increase the supply of money in a fiat money economy?

Accepted Answer

A)   The Federal Reserve decides to purchase existing Treasury securities.
B)   The Federal Reserve decreases the required reserve ratio.
C)   The Federal Reserve decreases the discount rate.
D)   There is a discovery of gold.
E)   The Federal Reserve decides to link the value of money to water (a commodity) .

Question 10

What limits the moral hazard problem in the fractional reserve banking system in England as compared to the moral hazard problem that exists in the United States?

Accepted Answer

The moral hazard problem emerges with de...

Question 11

Refer to the following table to answer the following questions: 
-What is the value of M2?

Accepted Answer

A)   $404,000,000
B)   $1,650,000,000
C)   $740,000,000
D)   $906,000,000
E)   $744,000,000

Question 12

If the Federal Reserve determined that banks needed to increase the amount of owner's equity,how could this be achieved?

Accepted Answer

A)   Banks would decrease reserves,but borrowings would not change.
B)   Banks would increase reserves,but borrowings would increase.
C)   Banks would increase reserves,but borrowings would decrease.
D)   Banks would decrease reserves,but borrowings would increase.
E)   Banks' reserves would not change,but borrowings would increase.

Question 13

The sale of existing U.S.Treasury securities by the Federal Reserve will

Accepted Answer

A)   have no effect on the money supply.
B)   increase the money supply.
C)   increase the reserves at banks.
D)   decrease the amount of U.S.Treasury securities held at banks.
E)   decrease the money supply.

Question 14

The local bank has decided to double the number of its local branch offices.How will this affect the bank's balance sheet?

Accepted Answer

A)   Total assets will increase.
B)   Total liabilities will increase.
C)   Total liabilities will decrease.
D)   Total assets will decrease.
E)   Total assets and total liabilities will both remain unchanged. E

Question 15

Which of the following would be a consequence in an economy where there is no money?

Accepted Answer

A)   There would be no way to save for the future.
B)   There would be no way to borrow.
C)   Exchanges would occur more quickly.
D)   Exchanges would take longer.
E)   There would be no more exchange. D

Question 16

Use the following example to answer the following questions:
Imagine that Stella deposits $25,000 in currency (which she had been storing in her closet) into her checking account at the bank.Assume that this institution has a required reserve ratio of 25 percent.
-As a result of this deposit,by how much will the bank's excess reserves increase?

Accepted Answer

A)   $0
B)   $18,750
C)   $25,000
D)   $31,250
E)   $100,000

Question 17

A "double coincidence of wants" occurs when

Accepted Answer

A)   both parties in an exchange transaction have a sufficient quantity of the medium of exchange.
B)   each party in an exchange transaction happens to have what the other party desires.
C)   the negotiation between parties arrives at a mutually accepted medium of exchange.
D)   each party in an exchange transaction fails to have what the other party desires.
E)   a third party to an exchange transaction has what both other parties desire.

Question 18

If a bank has a required reserve ratio of 25 percent and there is $10,000 in deposits,what is the amount of required reserves?

Accepted Answer

A)   $40,000
B)   $10,000
C)   $0
D)   $2,500
E)   $5,000

Question 19

What are the techniques available to the Federal Reserve to alter the money supply? Briefly explain how each method works.

Accepted Answer

The Federal Reserve has three means of altering the money supply.The first is open market operations,wherein the Fed buys or sells bonds on the open market.Buying bonds puts money into circulation,while selling bonds removes it.Quantitative easing involves open market operations that target certain markets,such as the housing market.The advantage is that this can help boost the money supply more directly in specifically ailing markets.The second option is to change the required reserve ratio.Lowering the amount of money banks are required to hold in reserve allows more money to circulate and,through the money multiplier effect,can dramatically increase the money supply.The third option is to change the discount rate,the interest rate at which the Fed lends money to private banks.Decreasing the discount rate encourages borrowing by banks and thereby increases the money supply.

Question 20

Money serves as a store of value when it

Accepted Answer

A)   rapidly gains and loses value over time.
B)   loses a constant amount of value over time.
C)   can be used to purchase approximately the same amount of goods over time.
D)   encourages a double coincidence of wants.
E)   is accepted by all merchants.

Exam 30: Money and the Federal Reserve

In a fractional reserve banking system,banks

Correct Answer
verified

Refer to the following table to answer the following questions: -What is the value of M2?

Correct Answer
verified

If a bank has a required reserve ratio of 10 percent and has required reserves of $100,000,000,how much does the bank hold in deposits?

Correct Answer
verified

What is the most appropriate measure of the money supply-M1 or M2?

Correct Answer
verified
M2 offers a broader measure of the money...
View Answer

Refer to the following table to answer the following questions: -Which of the following is NOT a component of M1?

Correct Answer
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Refer to the following table to answer the following questions: -The largest component of M2 is

Correct Answer
verified

Which of the following would NOT be an asset for a commercial bank?

Correct Answer
verified

One of the roles of the Federal Reserve is to regulate banks.What specifically does the Federal Reserve monitor within individual banks? Provide two reasons why it is important to regulate banks even though they are private businesses.

Correct Answer
verified
As a regulator,the Federal Reserve sets ...
View Answer

Which of the following would NOT increase the supply of money in a fiat money economy?

Correct Answer
verified

What limits the moral hazard problem in the fractional reserve banking system in England as compared to the moral hazard problem that exists in the United States?

Correct Answer
verified
The moral hazard problem emerges with de...
View Answer

Refer to the following table to answer the following questions: -What is the value of M2?

Correct Answer
verified

If the Federal Reserve determined that banks needed to increase the amount of owner's equity,how could this be achieved?

Correct Answer
verified

The sale of existing U.S.Treasury securities by the Federal Reserve will

Correct Answer
verified

The local bank has decided to double the number of its local branch offices.How will this affect the bank's balance sheet?

Correct Answer
verified
E

Which of the following would be a consequence in an economy where there is no money?

Correct Answer
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D

Correct Answer
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A "double coincidence of wants" occurs when

Correct Answer
verified

If a bank has a required reserve ratio of 25 percent and there is $10,000 in deposits,what is the amount of required reserves?

Correct Answer
verified

What are the techniques available to the Federal Reserve to alter the money supply? Briefly explain how each method works.

Money serves as a store of value when it

Correct Answer
verified

Exam 30: Money and the Federal Reserve

In a fractional reserve banking system,banks

Correct AnswerverifiedShow Answer

Refer to the following table to answer the following questions: -What is the value of M2?

Correct AnswerverifiedShow Answer

If a bank has a required reserve ratio of 10 percent and has required reserves of $100,000,000,how much does the bank hold in deposits?

Correct AnswerverifiedShow Answer

What is the most appropriate measure of the money supply-M1 or M2?

Correct AnswerverifiedM2 offers a broader measure of the money...View AnswerShow Answer

Refer to the following table to answer the following questions: -Which of the following is NOT a component of M1?

Correct AnswerverifiedShow Answer

Refer to the following table to answer the following questions: -The largest component of M2 is

Correct AnswerverifiedShow Answer

Which of the following would NOT be an asset for a commercial bank?

Correct AnswerverifiedShow Answer

One of the roles of the Federal Reserve is to regulate banks.What specifically does the Federal Reserve monitor within individual banks? Provide two reasons why it is important to regulate banks even though they are private businesses.

Correct AnswerverifiedAs a regulator,the Federal Reserve sets ...View AnswerShow Answer

Which of the following would NOT increase the supply of money in a fiat money economy?

Correct AnswerverifiedShow Answer

What limits the moral hazard problem in the fractional reserve banking system in England as compared to the moral hazard problem that exists in the United States?

Correct AnswerverifiedThe moral hazard problem emerges with de...View AnswerShow Answer

Refer to the following table to answer the following questions: -What is the value of M2?

Correct AnswerverifiedShow Answer

If the Federal Reserve determined that banks needed to increase the amount of owner's equity,how could this be achieved?

Correct AnswerverifiedShow Answer

The sale of existing U.S.Treasury securities by the Federal Reserve will

Correct AnswerverifiedShow Answer

The local bank has decided to double the number of its local branch offices.How will this affect the bank's balance sheet?

Correct AnswerverifiedE

Which of the following would be a consequence in an economy where there is no money?

Correct AnswerverifiedD

Correct AnswerverifiedShow Answer

A "double coincidence of wants" occurs when

Correct AnswerverifiedShow Answer

If a bank has a required reserve ratio of 25 percent and there is $10,000 in deposits,what is the amount of required reserves?

Correct AnswerverifiedShow Answer

What are the techniques available to the Federal Reserve to alter the money supply? Briefly explain how each method works.

Money serves as a store of value when it

Correct AnswerverifiedShow Answer

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Correct Answer
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Correct Answer
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Correct Answer
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M2 offers a broader measure of the money...
View Answer

Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
verified
As a regulator,the Federal Reserve sets ...
View Answer

Correct Answer
verified

Correct Answer
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The moral hazard problem emerges with de...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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E

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D

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