Question 1

The federal funds rate is a long-term interest rate banks charge one another for loans.

Accepted Answer

A) True 
 B)False

Question 2

If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

Accepted Answer

A)  buying bonds. This buying would reduce reserves.
B)  buying bonds. This buying would increase reserves.
C)  selling bonds. This selling would reduce reserves.
D)  selling bonds. This selling would increase reserves.

Question 3

The Federal Reserve can alter the size of the money supply by changing reserves or changing reserve requirements.

Accepted Answer

A) True 
 B)False

Question 4

If the reserve ratio is 5 percent, then $2,500 of additional reserves can create up to

Accepted Answer

A)  $62,500 of new money.
B)  $50,000 of new money.
C)  $45,600 of new money.
D)  $37,500 of new money.

Question 5

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.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

If the Fed buys bonds in the open market, the money supply decreases.

Accepted Answer

A) True 
 B)False

Question 8

The manager of the bank where you work tells you that the bank has $300 million in deposits and $255 million dollars in loans. If the reserve requirement is 10 percent, how much is the bank holding in excess reserves?

Accepted Answer

A)  $15 million
B)  $19.5 million
C)  $25.5 million
D)  $30 million

Question 9

When the Fed makes open-market sales bank

Accepted Answer

A)  withdrawals and lending increase.
B)  withdrawals increase and lending decreases.
C)  deposits and lending increase.
D)  deposits increase and lending decreases.

Question 10

Which of the following best illustrates the concept of a store of value?

Accepted Answer

A)  You are a precious-metals dealer, and you are always aware of how many ounces of platinum trade for an ounce of gold.
B)  You sell items on eBay, and your prices are stated in terms of dollars.
C)  You keep 6 ounces of gold in your safe-deposit box at the bank for emergencies.
D)  None of the above is correct.

Question 11

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.

Question 12

Which of the following is included in both M1 and M2?

Accepted Answer

A)  savings deposits
B)  demand deposits
C)  small time deposits
D)  money market mutual funds

Question 13

When the Fed conducts open-market purchases,

Accepted Answer

A)  it buys Treasury securities, which increases the money supply.
B)  it buys Treasury securities, which decreases the money supply.
C)  it borrows money from member banks, which increases the money supply.
D)  it lends money to member banks, which decreases the money supply.

Question 14

Which of the following individuals serve a four-year term?

Accepted Answer

A)  the members of the Board of Governors
B)  the Chair of the Board of Governors
C)  the members of the FOMC
D)  All of the above are correct.

Question 15

The Fed can decrease the money supply by conducting open-market

Accepted Answer

A)  sales or by raising the discount rate.
B)  sales or by lowering the discount rate.
C)  purchases or by raising the discount rate.
D)  purchases or by lowering the discount rate.

Question 16

According to economists, "money" means the same thing as "wealth".

Accepted Answer

A) True 
 B)False

Question 17

Money is the most liquid asset available because

Accepted Answer

A)  it is a store of value.
B)  it is a medium of exchange.
C)  it is a unit of account.
D)  it has intrinsic value.

Question 18

The Federal Reserve

Accepted Answer

A)  was created in 1836.
B)  serves as a lender of last resort.
C)  was created to facilitate the federal government's collection of taxes as well as its expenditures.
D)  All of the above are correct.

Question 19

Explain how each of the following changes the money supply.
a.the Fed buys bonds
b.the Fed auctions credit
c.the Fed raises the discount rate
d.the Fed raises the reserve requirement

Accepted Answer

a.If the Fed buys bonds, it pays for the...

Question 20

The Fed can influence unemployment in

Accepted Answer

A)  the short run and in the long run.
B)  the short run, but not in the long run.
C)  the long run, but not in the short run.
D)  neither the short nor the long run.

Exam 16: The Monetary System

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

Correct AnswerverifiedShow Answer

Money is the most liquid asset available because

Correct AnswerverifiedShow Answer

Which of the following best illustrates the concept of a store of value?

Correct AnswerverifiedShow Answer

The Federal Reserve

Correct AnswerverifiedShow Answer

If the reserve ratio is 5 percent, then $2,500 of additional reserves can create up to

Correct AnswerverifiedShow Answer

Explain how each of the following changes the money supply. a.the Fed buys bonds b.the Fed auctions credit c.the Fed raises the discount rate d.the Fed raises the reserve requirement

Correct Answerverifieda.If the Fed buys bonds, it pays for the...View AnswerShow Answer

Which of the following is included in both M1 and M2?

Correct AnswerverifiedShow Answer

When the Fed conducts open-market purchases,

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The Federal Reserve can alter the size of the money supply by changing reserves or changing reserve requirements.

Correct AnswerverifiedShow Answer

The money supply decreases if the Fed

Correct AnswerverifiedShow Answer

If the discount rate is raised then banks borrow

Correct AnswerverifiedShow Answer

When the Fed makes open-market sales bank

Correct AnswerverifiedShow Answer

Which of the following individuals serve a four-year term?

Correct AnswerverifiedShow Answer

The Fed can decrease the money supply by conducting open-market

Correct AnswerverifiedShow Answer

According to economists, "money" means the same thing as "wealth".

Correct AnswerverifiedShow Answer

If the Fed buys bonds in the open market, the money supply decreases.

Correct AnswerverifiedShow Answer

If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

Correct AnswerverifiedShow Answer

The federal funds rate is a long-term interest rate banks charge one another for loans.

Correct AnswerverifiedShow Answer

The manager of the bank where you work tells you that the bank has $300 million in deposits and $255 million dollars in loans. If the reserve requirement is 10 percent, how much is the bank holding in excess reserves?

Correct AnswerverifiedShow Answer

The Fed can influence unemployment in

Correct AnswerverifiedShow Answer

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a.If the Fed buys bonds, it pays for the...
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