Question 1

Use the following to answer questions 
Exhibit: Deposit Expansion Stages
 
-(Exhibit: Deposit Expansion Stages) 
What is the value of $H (the total loans) 
?

Accepted Answer

A)  $1,000
B)  $4,000
C)  $5,000
D)  $6,000

Question 2

Suppose a bank has $50,000 in deposits and $6,000 in reserves.The required reserve ratio is 10%.Which of the following occurs if the required reserve ratio is increased to 12%?

Accepted Answer

A)  The bank's total reserves will fall.
B)  The bank will now be fully loaned up.
C)  The bank will have insufficient required reserves.
D)  The bank's profit will fall.

Question 3

Use the following to answer questions 
Exhibit: Fed Sells Bonds
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.
-(Exhibit: Fed Sells Bonds) 
As a result of the open market sale, Jekyll Bank

Accepted Answer

A)  can create $50,000 of new loans.
B)  will have $45,000 of excess reserves.
C)  will have to borrow reserves to replenish its reserve deficiency.
D)  will have an increase in checkable deposits.

Question 4

Which of the following is not a function of the Federal Reserve System?

Accepted Answer

A)  It acts as a central bank.
B)  It acts as a banker to banks.
C)  It determines tax levels in conjunction with the U.S.Treasury.
D)  It sets monetary policy.

Question 5

The Federal Reserve buys $10,000 of government securities from commercial banks.If the required reserve ratio is 25%, what is the maximum amount of change in the nation's money supply? Assume that no banks keep excess reserves and no individuals or firms hold cash.

Accepted Answer

A)  expand by $10,000
B)  expand by $30,000
C)  expand by $40,000
D)  expand by $7,500

Question 6

If the Fed buys U.S.government bonds from the public, it

Accepted Answer

A)  increases the volume of reserves in the banking system and the money supply tends to grow.
B)  decreases the volume of reserves in the banking system and the money supply tends to grow.
C)  increases the volume of reserves in the banking system and the money supply tends to fall.
D)  decreases the volume of reserves in the banking system and the money supply tends to fall.

Question 7

Use the following to answer questions 
Exhibit: Reserves, Loans, and Money
 
-(Exhibit: Reserves, Loans, and Money) 
The required reserve ratio is 10%.What is the amount of Bolton Bank's excess reserves?

Accepted Answer

A)  $30 million
B)  $70 million
C)  $100 million
D)  zero

Question 8

You spend $20 to buy a used textbook at the college bookstore.What function does money perform here?

Accepted Answer

A)  medium of exchange
B)  store of value
C)  unit of account
D)  standard of deferred payment

Question 9

Money is any item that

Accepted Answer

A)  serves as a medium of exchange for goods and services.
B)  can be converted into silver with relatively little loss in value.
C)  can be converted into gold with relatively little loss in value.
D)  facilitates a connecting link between credit instruments and debt instruments.

Question 10

Use the following to answer questions 
Exhibit: Fed Buys Bonds
Scenario 1: Fed Buys Bonds from Sheila Jones
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 buys a $100,000 bond from Sheila Jones, who banks at the Perez Bank, and that she deposits her check in her checking account at Perez Bank.
-(Exhibit: Fed Buys Bonds) 
Which of the following happens when Sheila Jones deposits the proceeds from the sale of her bond to the Fed into her checking account at the Perez Bank?

Accepted Answer

A)  Perez Bank's checkable deposits increases by $100,000 and its reserves increases by $90,000.
B)  Perez Bank's checkable deposits and reserves increase by $100,000 each.
C)  Perez Bank's checkable deposits increases by $90,000 and its reserves increases by $100,000.
D)  Perez Bank's checkable deposits and reserves increase by $90,000 each.

Question 11

Which of the following is an example of a bank's liabilities?

Accepted Answer

A)  its reserves
B)  its loans
C)  checkable deposits
D)  its holdings of U.S.government bonds

Question 12

The functions of money are

Accepted Answer

A)  a conductor of economic activity, a medium of exchange, and a store of value.
B)  a medium of exchange, a store of value, and a factor of production.
C)  a store of value, a medium of exchange, and a determinant of investment.
D)  a store of value, a unit of account, and a medium of exchange.

Question 13

Money that some authority, generally a government, has ordered to be accepted as a medium of exchange is called _______ money.

Accepted Answer

A)  fiat
B)  intrinsic
C)  commodity
D)  debt

Question 14

Any item that serves as a medium of exchange is called

Accepted Answer

A)  gold.
B)  capital.
C)  silver.
D)  money.

Question 15

The quantity of reserves that banks must hold against deposits is called

Accepted Answer

A)  the reserve ratio.
B)  excess reserves.
C)  total reserves.
D)  required reserves.

Question 16

A system in which banks hold reserves whose value is less than the sum of claims on those reserves is called

Accepted Answer

A)  speculative banking.
B)  leveraged banking.
C)  fractional reserve banking.
D)  international banking.

Question 17

Which of the following items serve as a medium of exchange in the United States?
I.$100 cash
II.50 euros
III.the balance in your checking account
IV.a $1,000 corporate stock that you own

Accepted Answer

A)  I only
B)  I and II
C)  I, II, and III
D)  I and III
E)  I, II, III, and IV

Question 18

The Federal Reserve does all of the following except

Accepted Answer

A)  make loans to individuals
B)  influence the supply of money
C)  influence the value of money
D)  regulate the banking system

Question 19

The money supply is the total amount of checkable deposits in the economy.

Accepted Answer

A) True 
 B)False

Question 20

A primary function of a central bank is to

Accepted Answer

A)  regulate dividend payments by corporations.
B)  control the bond market.
C)  set monetary policy.
D)  publish statistics on banking and related financial matters.

Exam 9: The Nature and Creation of Money

Suppose a bank has $50,000 in deposits and $6,000 in reserves.The required reserve ratio is 10%.Which of the following occurs if the required reserve ratio is increased to 12%?

Correct Answer
verified

Which of the following items serve as a medium of exchange in the United States? I.$100 cash II.50 euros III.the balance in your checking account IV.a $1,000 corporate stock that you own

Correct Answer
verified

The quantity of reserves that banks must hold against deposits is called

Correct Answer
verified

If the Fed buys U.S.government bonds from the public, it

Correct Answer
verified

You spend $20 to buy a used textbook at the college bookstore.What function does money perform here?

Correct Answer
verified

Which of the following is not a function of the Federal Reserve System?

Correct Answer
verified

Which of the following is an example of a bank's liabilities?

Correct Answer
verified

Money that some authority, generally a government, has ordered to be accepted as a medium of exchange is called _______ money.

Correct Answer
verified

Use the following to answer questions Exhibit: Deposit Expansion Stages -(Exhibit: Deposit Expansion Stages) What is the value of $H (the total loans) ?

Correct Answer
verified

Correct Answer
verified

The money supply is the total amount of checkable deposits in the economy.

Correct Answer
verified

Correct Answer
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The Federal Reserve does all of the following except

Correct Answer
verified

Use the following to answer questions Exhibit: Reserves, Loans, and Money -(Exhibit: Reserves, Loans, and Money) The required reserve ratio is 10%.What is the amount of Bolton Bank's excess reserves?

Correct Answer
verified

The Federal Reserve buys $10,000 of government securities from commercial banks.If the required reserve ratio is 25%, what is the maximum amount of change in the nation's money supply? Assume that no banks keep excess reserves and no individuals or firms hold cash.

Correct Answer
verified

A primary function of a central bank is to

Correct Answer
verified

Any item that serves as a medium of exchange is called

Correct Answer
verified

Money is any item that

Correct Answer
verified

The functions of money are

Correct Answer
verified

A system in which banks hold reserves whose value is less than the sum of claims on those reserves is called

Correct Answer
verified

Exam 9: The Nature and Creation of Money

Suppose a bank has $50,000 in deposits and $6,000 in reserves.The required reserve ratio is 10%.Which of the following occurs if the required reserve ratio is increased to 12%?

Correct AnswerverifiedShow Answer

Which of the following items serve as a medium of exchange in the United States? I.$100 cash II.50 euros III.the balance in your checking account IV.a $1,000 corporate stock that you own

Correct AnswerverifiedShow Answer

The quantity of reserves that banks must hold against deposits is called

Correct AnswerverifiedShow Answer

If the Fed buys U.S.government bonds from the public, it

Correct AnswerverifiedShow Answer

You spend $20 to buy a used textbook at the college bookstore.What function does money perform here?

Correct AnswerverifiedShow Answer

Which of the following is not a function of the Federal Reserve System?

Correct AnswerverifiedShow Answer

Which of the following is an example of a bank's liabilities?

Correct AnswerverifiedShow Answer

Money that some authority, generally a government, has ordered to be accepted as a medium of exchange is called _______ money.

Correct AnswerverifiedShow Answer

Use the following to answer questions Exhibit: Deposit Expansion Stages -(Exhibit: Deposit Expansion Stages) What is the value of $H (the total loans) ?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The money supply is the total amount of checkable deposits in the economy.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Federal Reserve does all of the following except

Correct AnswerverifiedShow Answer

Use the following to answer questions Exhibit: Reserves, Loans, and Money -(Exhibit: Reserves, Loans, and Money) The required reserve ratio is 10%.What is the amount of Bolton Bank's excess reserves?

Correct AnswerverifiedShow Answer

The Federal Reserve buys $10,000 of government securities from commercial banks.If the required reserve ratio is 25%, what is the maximum amount of change in the nation's money supply? Assume that no banks keep excess reserves and no individuals or firms hold cash.

Correct AnswerverifiedShow Answer

A primary function of a central bank is to

Correct AnswerverifiedShow Answer

Any item that serves as a medium of exchange is called

Correct AnswerverifiedShow Answer

Money is any item that

Correct AnswerverifiedShow Answer

The functions of money are

Correct AnswerverifiedShow Answer

A system in which banks hold reserves whose value is less than the sum of claims on those reserves is called

Correct AnswerverifiedShow Answer

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