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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 8.5 percent, how much is the bank holding in excess reserves?


A) $15 million
B) $19.5 million
C) $25.5 million
D) $0 million

E) All of the above
F) A) and C)

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


A) demand deposits
B) corporate bonds
C) large time deposits
D) money market mutual funds

E) None of the above
F) B) and C)

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Paper money


A) has a high intrinsic value.
B) is the primary medium of exchange in a barter economy.
C) is valuable because it is generally accepted in trade.
D) is valuable only because of the legal tender requirement.

E) B) and C)
F) B) and D)

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

A) True
B) False

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Reserve requirements are regulations concerning


A) the amount banks are allowed to borrow from the Fed.
B) the amount of reserves banks must hold against deposits.
C) reserves banks must hold based on the number and type of loans they make.
D) the interest rate at which banks can borrow from the Fed.

E) A) and D)
F) B) and C)

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The Fed can influence unemployment in


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.

E) A) and B)
F) None of the above

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If the reserve ratio is 4 percent, then $81,250 of new money can be generated by


A) $325 of new reserves.
B) $3,250 of new reserves.
C) $20,312.50 of new reserves.
D) $2,031,250 of new reserves.

E) All of the above
F) A) and B)

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The banking system currently has $10 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed raises the reserve requirement to 12.5 percent and at the same time buys $1 billion worth of bonds, then by how much does the money supply change?


A) It falls by $12 billion.
B) It falls by $19 billion.
C) It falls by $21 billion.
D) None of the above is correct.

E) C) and D)
F) All of the above

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Who can vote on Federal Open Market Committee decisions?


A) all of the members of the Board of Governors and all of the Federal Reserve Bank presidents
B) all of the members of the Board of Governors and some of the Federal Reserve Bank presidents
C) some of the members of the Board of Governors and all of the Federal Reserve Bank presidents
D) some of the members of the Board of Governors and some of the Federal Reserve Bank presidents

E) A) and B)
F) None of the above

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A bank has $8,000 in deposits and $6,000 in loans. It has loaned out all it can given the reserve requirement. It follows that the reserve requirement is


A) 2.5 percent.
B) 33.3 percent.
C) 25 percent.
D) 75 percent.

E) None of the above
F) All of the above

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Savings deposits are included in


A) M1 but not M2.
B) M2 but not M1.
C) M1 and M2.
D) neither M1 nor M2.

E) None of the above
F) A) and B)

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Which two of the Ten Principles of Economics imply that the Fed can profoundly affect the economy?

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1. Prices rise when the govern...

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First National Bank FNB) has a reserve ratio of 20 percent, a required reserve ratio of 10 percent, and deposits of $1,000. If FNB receives an additional deposit of $100,


A) then it has required reserves of $210 and holds excess reserves of $10.
B) then it has required reserves of $10 and holds excess reserves of $20.
C) then it has required reserves of $110 and holds excess reserves of $190.
D) then it has required reserves of $110 and holds excess reserves of $0.

E) B) and D)
F) None of the above

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Money


A) is a perfect store of value.
B) is the most liquid asset.
C) has intrinsic value, regardless of which form it takes.
D) All of the above are correct.

E) B) and D)
F) B) and C)

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What is the difference between money and wealth?

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Money is defined as the set of...

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Table 29-5. Table 29-5. -Refer to Table 29-5. Suppose the bank faces a reserve requirement of 10 percent. Starting from the situation as depicted by the T-account, a customer deposits an additional $60,000 into his account at the bank. If the bank takes no other action it will A) have $64,000 in excess reserves. B) have $4,000 in excess reserves. C) be in a position to make new loans equal to $6,000 D) None of the above is correct. -Refer to Table 29-5. Suppose the bank faces a reserve requirement of 10 percent. Starting from the situation as depicted by the T-account, a customer deposits an additional $60,000 into his account at the bank. If the bank takes no other action it will


A) have $64,000 in excess reserves.
B) have $4,000 in excess reserves.
C) be in a position to make new loans equal to $6,000
D) None of the above is correct.

E) B) and D)
F) C) and D)

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Monetary policy is made by the .

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Federal Op...

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The Fed sets the interest that borrowers pay on loans from


A) the discount window and the term auction facility
B) the discount window but not the term auction facility
C) the term auction facility but not the discount window
D) neither the discount window nor the term auction facility

E) B) and C)
F) A) and D)

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Which of the following is correct?


A) The Federal Reserve has 14 regional banks. The Board of Governors has 12 members who serve 7-year terms.
B) The Federal Reserve has 14 regional banks. The Board of Governors has 7 members who serve 14-year terms.
C) The Federal Reserve has 12 regional banks. The Board of Governors has 12 members who serve 7-year terms.
D) The Federal Reserve has 12 regional banks. The Board of Governors has 7 members who serve 14-year terms.

E) B) and D)
F) None of the above

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Which of the following is correct?


A) A bank's deposits at the Federal Reserve counts as part of the bank's reserves. The Federal Reserve pays interest on these deposits.
B) A bank's deposits at the Federal Reserve counts as part of the bank's reserves. The Federal Reserve does not pay interest on these deposits.
C) A bank's deposits at the Federal Reserve does not count as part of the bank's reserves. The Federal Reserve pays interest on these deposits.
D) A bank's deposits at the Federal Reserve does not count as part of the bank's reserves. The Federal Reserve does not pay interest on these deposits.

E) B) and D)
F) A) and B)

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