Question 1

Consider the following T-account for a bank:
  If the required reserve ratio is 20 percent and the bank is holding no excess reserves,the bank at this point can make no more loans.

Accepted Answer

A) True 
 B)False

Question 2

Suppose that you deposit $2,000 in your bank and the required reserve ratio is 10 percent.The maximum loan your bank can made as a direct result of your deposit is

Accepted Answer

A)  $200.
B)  $1,800.
C)  $2,000.
D)  $20,000.

Question 3

Hyperinflation is caused by

Accepted Answer

A)  a constant increase in the money supply.
B)  a high rate of growth in the money supply.
C)  Real GDP growing more rapidly than the money supply.
D)  the money supply growing more slowly than GDP.

Question 4

Dollar bills in the modern economy serve as money because

Accepted Answer

A)  they are backed by the gold stored in Fort Knox.
B)  they can be redeemed for gold by the central bank.
C)  they have value as a commodity independent of their use as money.
D)  people have confidence that others will accept them as money.

Question 5

Scenario 14-2
Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%.
-Refer to Scenario 14-2.As a result of Kristy's deposit,Bank A can make a maximum loan of

Accepted Answer

A)  $2,000.
B)  $8,000.
C)  $10,000.
D)  $50,000.

Question 6

For the purchasing power of money to increase,the price level has to fall.

Accepted Answer

A) True 
 B)False

Question 7

If the required reserve ratio is RR,the simple deposit multiplier is defined as

Accepted Answer

A)    .
B)    .
C)    × change in bank reserves.
D)    × change in bank reserves.

Question 8

Scenario 14-1  Consider the information above for a simple economy.Assume there are no traveler's checks.
-Refer to Scenario 14-1.M2 in this simple economy equals

Accepted Answer

A)  $3,000.
B)  $8,000.
C)  $14,000.
D)  $21,000.

Question 9

Fiat money has

Accepted Answer

A)  little to no intrinsic value but is backed by the quantity of gold held by the central bank.
B)  little to no intrinsic value and is authorized by the central bank or governmental body.
C)  value,because it can be redeemed for gold by the central bank.
D)  a great intrinsic value that is independent of its use as money.

Question 10

Hyperinflation can be caused by

Accepted Answer

A)  the government selling bonds to the central bank.
B)  the central bank selling bonds to the public.
C)  the government selling bonds to the public.
D)  the central bank selling bonds to the government.

Question 11

To increase the money supply,the Federal Reserve could

Accepted Answer

A)  raise the discount rate.
B)  decrease income taxes.
C)  raise the required reserve ratio.
D)  conduct an open market purchase of Treasury securities.
E)  lower transfer payments.

Question 12

The narrowest official definition of the money supply is

Accepted Answer

A)  M1.
B)  M2.
C)  M3.
D)  L.

Question 13

Would the use of money,as opposed to barter,increase the growth rate of real GDP in a country over time? Why or why not?

Accepted Answer

Yes,because money makes exchan...

Question 14

One way investment banks differ from commercial banks is that investment banks

Accepted Answer

A)  lend exclusively to households.
B)  do not take in deposits.
C)  only buy and sell mortgages.
D)  trade only in foreign exchange markets.

Question 15

Your checking account balance is included in your bank's assets.

Accepted Answer

A) True 
 B)False

Question 16

Why do banks create money? Do they create money to help the Federal Reserve control the money supply or is there a more basic reason?

Accepted Answer

Banks create money to make a profit.Bank...

Question 17

Reserves of a bank equal its

Accepted Answer

A)  vault cash.
B)  deposits with the Federal Reserve.
C)  vault cash plus deposits with the Federal Reserve.
D)  vault cash plus deposits of its customers.

Question 18

To decrease the money supply,the Federal Reserve could

Accepted Answer

A)  lower the discount rate.
B)  raise income taxes.
C)  raise the required reserve ratio.
D)  conduct an open market purchase of Treasury securities.

Question 19

In an attempt to bring lenders and borrowers together following the financial crisis of 2008,the Federal Reserve made a large amount of new funds available to financial markets.Any of these new funds that are loaned out by banks would be classified as ________ of the banks.

Accepted Answer

A)  required reserves
B)  excess reserves
C)  deposits
D)  liabilities

Question 20

Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 10 percent.If the Federal Reserve raises the required reserve ratio to 15 percent,then the bank will now have excess reserves of

Accepted Answer

A)  $0.
B)  -$5 million.
C)  $5 million.
D)  $15 million.

Exam 14: Money,banks,and the Federal Reserve System

For the purchasing power of money to increase,the price level has to fall.

Correct AnswerverifiedShow Answer

Reserves of a bank equal its

Correct AnswerverifiedShow Answer

To increase the money supply,the Federal Reserve could

Correct AnswerverifiedShow Answer

Hyperinflation can be caused by

Correct AnswerverifiedShow Answer

Dollar bills in the modern economy serve as money because

Correct AnswerverifiedShow Answer

Would the use of money,as opposed to barter,increase the growth rate of real GDP in a country over time? Why or why not?

Correct AnswerverifiedYes,because money makes exchan...View AnswerShow Answer

One way investment banks differ from commercial banks is that investment banks

Correct AnswerverifiedShow Answer

Consider the following T-account for a bank: If the required reserve ratio is 20 percent and the bank is holding no excess reserves,the bank at this point can make no more loans.

Correct AnswerverifiedShow Answer

In an attempt to bring lenders and borrowers together following the financial crisis of 2008,the Federal Reserve made a large amount of new funds available to financial markets.Any of these new funds that are loaned out by banks would be classified as ________ of the banks.

Correct AnswerverifiedShow Answer

To decrease the money supply,the Federal Reserve could

Correct AnswerverifiedShow Answer

The narrowest official definition of the money supply is

Correct AnswerverifiedShow Answer

If the required reserve ratio is RR,the simple deposit multiplier is defined as

Correct AnswerverifiedShow Answer

Fiat money has

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Suppose that you deposit $2,000 in your bank and the required reserve ratio is 10 percent.The maximum loan your bank can made as a direct result of your deposit is

Correct AnswerverifiedShow Answer

Scenario 14-2 Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. -Refer to Scenario 14-2.As a result of Kristy's deposit,Bank A can make a maximum loan of

Correct AnswerverifiedShow Answer

Scenario 14-1 Consider the information above for a simple economy.Assume there are no traveler's checks. -Refer to Scenario 14-1.M2 in this simple economy equals

Correct AnswerverifiedShow Answer

Why do banks create money? Do they create money to help the Federal Reserve control the money supply or is there a more basic reason?

Correct AnswerverifiedBanks create money to make a profit.Bank...View AnswerShow Answer

Hyperinflation is caused by

Correct AnswerverifiedShow Answer

Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 10 percent.If the Federal Reserve raises the required reserve ratio to 15 percent,then the bank will now have excess reserves of

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Your checking account balance is included in your bank's assets.

Correct AnswerverifiedShow Answer

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Yes,because money makes exchan...
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Banks create money to make a profit.Bank...
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