Question 1

The discount rate is

Accepted Answer

A)  the interest rate commercial banks charge each other for borrowing funds.
B)  the interest rate commercial banks charge their new customers.
C)  the interest rate the Fed charges commercial banks for borrowing funds.
D)  the interest rate commercial banks charge their most creditworthy customers.

Question 2

Suppose the required reserve ratio is 20%.A $40 million cash deposit will,at most,allow an expansion of the money supply to

Accepted Answer

A)  $20 million.
B)  $80 million.
C)  $200 million.
D)  $800 million.

Question 3

Refer to the information provided in Table 10.4 below to answer the questions that follow.
Table 10.4 
-Refer to Table 10.4.First Charter Bank could make additional,first round loans of $400,000 if the required reserve ratio were

Accepted Answer

A)  12%.
B)  10%.
C)  8%.
D)  7.5%.

Question 4

Which of the following activities is one of the responsibilities of the Federal Reserve?

Accepted Answer

A)  issuing new bonds to finance the federal budget deficit
B)  loaning money to other countries that are friendly to the United States
C)  assisting banks that are in a difficult financial position
D)  auditing the various agencies and departments of the federal government

Question 5

Money that a government has required to be accepted in settlement of debts is

Accepted Answer

A)  fiat money.
B)  commodity money.
C)  barter money.
D)  legal tender.

Question 6

Things that a firm owns that are worth something are classified as

Accepted Answer

A)  liabilities.
B)  assets.
C)  deposits.
D)  net worth.

Question 7

After World War II,cigarettes were used as money in Germany.This is an example of

Accepted Answer

A)  fiat money.
B)  legal money.
C)  token money.
D)  commodity money.

Question 8

Assume there is no leakage from the banking system and that all commercial banks are loaned up.The required reserve ratio is 10%.If the Fed buys $10 million worth of government securities from the public,the change in the money supply will be

Accepted Answer

A)  $1 million.
B)  $10 million.
C)  $100 million.
D)  $110 million.

Question 9

Excess reserves in a bank are the difference between required reserves and the bank's total net worth.

Accepted Answer

A) True 
 B)False

Question 10

If the Fed sets the money supply independent of the interest rate,then the money supply curve is

Accepted Answer

A)  upward sloping.
B)  downward sloping.
C)  vertical.
D)  horizontal.

Question 11

Napoli National Bank has liabilities of $3 million and net worth of $200,000.Napoli National Bank's assets are

Accepted Answer

A)  $200,000.
B)  $2.8 million
C)  $3.0 million.
D)  $3.2 million.

Question 12

When you keep your savings in a saving account,you are using money as a(n)

Accepted Answer

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

Question 13

The U.S.dollar is an example of fiat money because

Accepted Answer

A)  it is the strongest currency in the world.
B)  it is the most widely used currency in international trade.
C)  it is backed by a large reserve of gold and silver.
D)  by law,it is decreed as money.

Question 14

Assume that banks become more conservative in their lending policies and start holding some excess reserves.Compared to a situation in which banks are not holding excess reserves,the size of the money supply will be

Accepted Answer

A)  zero.
B)  larger.
C)  the same.
D)  smaller.

Question 15

Assume that in the country of Salmon,the government tripled the money supply overnight.As a result of this action,the price of a loaf of bread increased from 1 bill to 100 bills.This is an example of

Accepted Answer

A)  a change in the legal tender.
B)  a change from commodity money to fiat money.
C)  currency debasement.
D)  deflation.

Question 16

Assume there is no leakage from the banking system and that all commercial banks are loaned up.The required reserve ratio is 16%.If the Fed sells $5 million worth of government securities to the public,the change in the money supply will be

Accepted Answer

A)  -$31.25 million.
B)  -$21 million.
C)  -$16 million.
D)  -$11.75 million.

Question 17

Commercial banks create money through

Accepted Answer

A)  printing treasury notes.
B)  making loans.
C)  facilitating borrowing from the Federal Reserve to the public.
D)  reducing risk in the economy.

Question 18

In January 2013,the assets with the largest value on the Fed's balance sheet was

Accepted Answer

A)  gold.
B)  U.S.Treasury securities.
C)  mortgage-backed securities.
D)  federal agency debt securities.

Question 19

Which of the following would NOT be counted as part of M1?

Accepted Answer

A)  demand deposits
B)  traveler's check
C)  money market accounts
D)  currency

Question 20

Which of the following is included in M2,but not included in M1?

Accepted Answer

A)  currency held outside banks
B)  travelers checks
C)  demand deposits
D)  savings accounts

Exam 10: The Money Supply and the Federal Reserve System

Assume that in the country of Salmon,the government tripled the money supply overnight.As a result of this action,the price of a loaf of bread increased from 1 bill to 100 bills.This is an example of

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If the Fed sets the money supply independent of the interest rate,then the money supply curve is

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In January 2013,the assets with the largest value on the Fed's balance sheet was

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Which of the following would NOT be counted as part of M1?

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Assume there is no leakage from the banking system and that all commercial banks are loaned up.The required reserve ratio is 16%.If the Fed sells $5 million worth of government securities to the public,the change in the money supply will be

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Which of the following is included in M2,but not included in M1?

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After World War II,cigarettes were used as money in Germany.This is an example of

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The discount rate is

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Excess reserves in a bank are the difference between required reserves and the bank's total net worth.

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Refer to the information provided in Table 10.4 below to answer the questions that follow. Table 10.4 -Refer to Table 10.4.First Charter Bank could make additional,first round loans of $400,000 if the required reserve ratio were

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The U.S.dollar is an example of fiat money because

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Money that a government has required to be accepted in settlement of debts is

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Commercial banks create money through

Correct AnswerverifiedShow Answer

Napoli National Bank has liabilities of $3 million and net worth of $200,000.Napoli National Bank's assets are

Correct AnswerverifiedShow Answer

Assume that banks become more conservative in their lending policies and start holding some excess reserves.Compared to a situation in which banks are not holding excess reserves,the size of the money supply will be

Correct AnswerverifiedShow Answer

Which of the following activities is one of the responsibilities of the Federal Reserve?

Correct AnswerverifiedShow Answer

Suppose the required reserve ratio is 20%.A $40 million cash deposit will,at most,allow an expansion of the money supply to

Correct AnswerverifiedShow Answer

Assume there is no leakage from the banking system and that all commercial banks are loaned up.The required reserve ratio is 10%.If the Fed buys $10 million worth of government securities from the public,the change in the money supply will be

Correct AnswerverifiedShow Answer

Things that a firm owns that are worth something are classified as

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When you keep your savings in a saving account,you are using money as a(n)

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