Question 1

The part of the Federal Reserve System (the Fed)  that holds the reserve balances of depository institutions is

Accepted Answer

A)   the Federal Open Market Committee.
B)   the Federal Advisory Committee.
C)   the Federal Reserve district banks.
D)   the Board of Governors.

Question 2

The function that banks perform by obtaining funds from households, businesses, and governments and lending these funds to other households, businesses, and governments is known as

Accepted Answer

A)   financial intermediation.
B)   lending intermediation.
C)   fiscal intermediation.
D)   liquidity intermediation.

Question 3

Regarding the nation's money supply, the Federal Reserve

Accepted Answer

A)   has no ability to influence its magnitude or its rate of growth.
B)   precisely sets the amount of money in circulation in consultation with the Congress.
C)   has a major impact on its rate of growth.
D)   gives the U.S. Treasury the authority to print as much as it wishes.

Question 4

A decrease in the reserve ratio will

Accepted Answer

A)   cause the money supply to decrease.
B)   cause the money supply to increase.
C)   not affect the money supply.
D)   decrease the money multiplier.

Question 5

Initially, the reserve ratio is 10 percent. Now banks decide they want an additional 10 percent of deposits as reserves. There are no currency drains. If the Fed buys $1 million of U.S. government securities, the money supply will

Accepted Answer

A)   not change because of the excess reserves banks keep on hand.
B)   increase by $1 million.
C)   increase by $5 million.
D)   increase by $10 million.

Question 6

The property of money that allows for the settling of debts that mature in the future is

Accepted Answer

A)   liquidity.
B)   acceptability.
C)   store of value.
D)   standard of deferred payment.

Question 7

A system in which money is issued by the government and its value is based uniquely on the public's faith that the currency represents command over goods and services is the

Accepted Answer

A)   transactions approach.
B)   gold standard.
C)   fiduciary monetary system.
D)   barter system.

Question 8

As a unit of account, money is used

Accepted Answer

A)   to define prices of all other goods.
B)   to pay off future debts.
C)   to hold purchasing power over time.
D)   to exchange for goods and services.

Question 9

When a bank sells a bond to the Fed

Accepted Answer

A)   its liabilities decrease.
B)   its liabilities increase.
C)   its reserves initially decrease.
D)   its reserves initially increase.

Question 10

The initial impact of the Fed's open market sale of government securities by the Federal Reserve is

Accepted Answer

A)   an increase in the money supply by some multiple of the dollar volume of the sale.
B)   an increase in commercial bank deposits at the Fed.
C)   a fall in the money supply by some multiple of the dollar volume of the sale.
D)   a reduction of the commercial banking system's reserve deposits at the Fed.

Question 11

To expand the money supply, the Fed should

Accepted Answer

A)   buy U.S. government securities.
B)   sell U.S. government securities.
C)   raise the required reserve ration.
D)   cut taxes.

Question 12

The reserve ratio is 10 percent. If the Fed buys $1 million of U.S. government securities from a bond dealer by transmitting the funds to the dealer's deposit account at Bank ABC, then

Accepted Answer

A)   Bank ABC can make no additional loans.
B)   Bank ABC can make additional loans up to $900,000.
C)   Bank ABC can make additional loans up to $1 million.
D)   Bank ABC cannot make any additional loans, but the system as a whole can make additional loans up to $1 million.

Question 13

Cigarettes served as money in some prisoner of war (POW)  camps during World War II. Given this, we would expect to observe

Accepted Answer

A)   no one ever smoking a cigarette.
B)   people usually resorting to barter rather than using cigarettes as money.
C)   prices of other goods expressed in terms of cigarettes.
D)   only government-issued cigarettes being accepted as money.

Question 14

All of the following are functions of the Federal Reserve System EXCEPT

Accepted Answer

A)   supplying the economy with fiduciary currency.
B)   providing a system of check collection and clearing.
C)   acting as the government's fiscal agent.
D)   lending funds to risky customers denied credit by commercial banks.

Question 15

A central bank is

Accepted Answer

A)   the largest bank in the country.
B)   the same as the government.
C)   a banker's bank.
D)   an international bank.

Question 16

An individual who desires the most liquid asset possible will hold

Accepted Answer

A)   currency.
B)   a savings account.
C)   checkable deposits at a bank.
D)   U.S. government bonds.

Question 17

A checkable and debitable banking account is

Accepted Answer

A)   a liability to a commercial bank.
B)   an asset to a commercial bank.
C)   a liability to the household or firm that has the account.
D)   an asset for the Federal Reserve System.

Question 18

If banks engage in fractional reserve banking, it means that

Accepted Answer

A)   they never run short of currency.
B)   they hold less than 100 percent of their deposits as reserves.
C)   a fraction of their legal reserves are held as top-grade government securities.
D)   they do not hold any excess reserves.

Question 19

When money is accepted as payment in a market transaction, it is functioning as a

Accepted Answer

A)   store of value.
B)   unit of accounting.
C)   medium of exchange.
D)   unit of investment.

Question 20

Which of the following would most likely NOT be included in the liquidity approach to defining the money supply?

Accepted Answer

A)   savings deposits
B)   money market mutual fund accounts
C)   government bonds
D)   traveler's checks

Exam 15: Money, Banking, and Central Banking

The initial impact of the Fed's open market sale of government securities by the Federal Reserve is

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Regarding the nation's money supply, the Federal Reserve

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The function that banks perform by obtaining funds from households, businesses, and governments and lending these funds to other households, businesses, and governments is known as

Correct AnswerverifiedShow Answer

A system in which money is issued by the government and its value is based uniquely on the public's faith that the currency represents command over goods and services is the

Correct AnswerverifiedShow Answer

The part of the Federal Reserve System (the Fed) that holds the reserve balances of depository institutions is

Correct AnswerverifiedShow Answer

The reserve ratio is 10 percent. If the Fed buys $1 million of U.S. government securities from a bond dealer by transmitting the funds to the dealer's deposit account at Bank ABC, then

Correct AnswerverifiedShow Answer

Cigarettes served as money in some prisoner of war (POW) camps during World War II. Given this, we would expect to observe

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If banks engage in fractional reserve banking, it means that

Correct AnswerverifiedShow Answer

When money is accepted as payment in a market transaction, it is functioning as a

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As a unit of account, money is used

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Which of the following would most likely NOT be included in the liquidity approach to defining the money supply?

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All of the following are functions of the Federal Reserve System EXCEPT

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A checkable and debitable banking account is

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A decrease in the reserve ratio will

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A central bank is

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Initially, the reserve ratio is 10 percent. Now banks decide they want an additional 10 percent of deposits as reserves. There are no currency drains. If the Fed buys $1 million of U.S. government securities, the money supply will

Correct AnswerverifiedShow Answer

When a bank sells a bond to the Fed

Correct AnswerverifiedShow Answer

The property of money that allows for the settling of debts that mature in the future is

Correct AnswerverifiedShow Answer

An individual who desires the most liquid asset possible will hold

Correct AnswerverifiedShow Answer

To expand the money supply, the Fed should

Correct AnswerverifiedShow Answer

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