Question 1

People hold $400 million of bank deposits but no currency. Banks have made $380 million dollars of loans and only hold enough reserves to satisfy reserve requirements. Because of uncertainty, banks choose to hold $10 million more in reserves. The Fed takes no action. What happens to bank loans?

Accepted Answer

A)   they fall $220 million
B)   they fall $200 million
C)   they rise $200 million
D)   they rise $220 millionE) A) and C)
F) A) and D)

Question 2

The discount rate is the interest rate that

Accepted Answer

A)   banks charge one another for loans.
B)   banks charge the Fed for loans.
C)   the Fed charges banks for loans.
D)   the Fed charges Congress for loans.E) A) and D)
F) A) and B)

Question 3

Which of the following institutions is a central bank?

Accepted Answer

A)   the Bank of Japan
B)   the Bank of England
C)   the Federal Reserve System
D)   All of the above are correct.E) All of the above
F) B) and C)

Question 4

Which of the following does the Federal Reserve not do?

Accepted Answer

A)   It controls the supply of money.
B)   It acts as a lender of last resort to banks.
C)   It makes loans to any qualified business that requests one.
D)   It tries to ensure the health of the banking system.E) A) and B)
F) A) and C)

Question 5

The money supply increases when the Fed

Accepted Answer

A)   lowers the discount rate. The increase will be larger the smaller the reserve ratio is.
B)   lowers the discount rate. The increase will be larger the larger the reserve ratio is.
C)   raises the discount rate. The increase will be larger the smaller the reserve ratio is.
D)   raises the discount rate. The increase will be larger the larger the reserve ratio is.E) None of the above
F) A) and B)

Question 6

When colonists in Virginia used tobacco as money, their money

Accepted Answer

A)   was commodity money.
B)   had no intrinsic value.
C)   was fiat money.
D)   had no store of value.E) B) and D)
F) B) and C)

Question 7

Which of the following best illustrates the medium of exchange function of money?

Accepted Answer

A)   You keep some money hidden in your shoe.
B)   You keep track of the value of your assets in terms of currency.
C)   You pay for your oil change using currency.
D)   None of the above is correct.E) B) and C)
F) A) and C)

Question 8

The Fed bonds when it conducts an open-market purchase. This action the money supply.

Accepted Answer

The answer of The Fed bonds when it conducts an...

Question 9

Economists use the term "money" to refer to

Accepted Answer

A)   all wealth.
B)   all assets, including real assets and financial assets.
C)   all financial assets, but not real assets.
D)   those types of wealth that are regularly accepted by sellers in exchange for goods and services.E) C) and D)
F) B) and C)

Question 10

Consider five individuals with different occupations.

In a barter system which of the following pairs has a double coincidence of wants?

Accepted Answer

A)   Allen and Eric
B)   Diedre and Calvin
C)   Both A and B are correct.
D)   None of the above are correct.E) B) and C)
F) B) and D)

Question 11

One plausible explanation for the large amount of U.S. currency outstanding is that many dollars are held abroad.

Accepted Answer

A) True 
 B)False

Question 12

Treasury Bonds are

Accepted Answer

A)   liquid, but not a store of value.
B)   a store of value, but not liquid.
C)   both liquid and a store of value.
D)   neither liquid nor a store of value.E) All of the above
F) C) and D)

Question 13

If the reserve ratio is 12.5 percent, then $1,000 of additional reserves can create up to

Accepted Answer

A)   $7,000 of new money.
B)   $8,000 of new money.
C)   $11,500 of new money.
D)   $12,500 of new money.E) None of the above
F) All of the above

Question 14

The Soviet government in the 1980's never abandoned the ruble as the official currency. However, the people of Moscow preferred to accept

Accepted Answer

A)   cigarettes in exchange for goods and services, because they were convinced that cigarettes were going to soon become hard to come by.
B)   American dollars in exchange for goods and services, because rubles were extremely hard to come by.
C)   goods such as cigarettes or American dollars in exchange for goods and services, reminding us of the fact that government decree by itself is not sufficient for the success of a commodity money.
D)   All of the above are correct.E) All of the above
F) A) and C)

Question 15

If a bank uses $500 of excess reserves to make a new loan when the reserve ratio is 8 percent, this action by itself initially makes the money supply

Accepted Answer

A)   and wealth increase by $500.
B)   and wealth decrease by $500.
C)   increase by $500 while wealth does not change.
D)   decrease by $500 while wealth decreases by $500.E) All of the above
F) C) and D)

Question 16

The rate at which the Fed lends money to banks is

Accepted Answer

A)   the prime rate.
B)   fixed at 4%.
C)   the federal funds rate.
D)   the discount rate.E) A) and B)
F) A) and D)

Question 17

When the Fed buys government bonds,

Accepted Answer

A)   the money supply increases and the federal funds rate increases.
B)   the money supply increases and the federal funds rate decreases.
C)   the money supply decreases and the federal funds rate increases.
D)   the money supply decreases and the federal funds rate decreases.E) A) and B)
F) B) and D)

Exam 11: The Monetary System

Consider five individuals with different occupations. In a barter system which of the following pairs has a double coincidence of wants?

Correct Answer
verified

People hold $400 million of bank deposits but no currency. Banks have made $380 million dollars of loans and only hold enough reserves to satisfy reserve requirements. Because of uncertainty, banks choose to hold $10 million more in reserves. The Fed takes no action. What happens to bank loans?

Correct Answer
verified

The Fed bonds when it conducts an open-market purchase. This action the money supply.

Correct Answer
verified

Economists use the term "money" to refer to

Correct Answer
verified

If a bank uses $500 of excess reserves to make a new loan when the reserve ratio is 8 percent, this action by itself initially makes the money supply

Correct Answer
verified

Which of the following best illustrates the medium of exchange function of money?

Correct Answer
verified

When the Fed buys government bonds,

Correct Answer
verified

When colonists in Virginia used tobacco as money, their money

Correct Answer
verified

The rate at which the Fed lends money to banks is

Correct Answer
verified

If the reserve ratio is 12.5 percent, then $1,000 of additional reserves can create up to

Correct Answer
verified

Which of the following institutions is a central bank?

Correct Answer
verified

Treasury Bonds are

Correct Answer
verified

The discount rate is the interest rate that

Correct Answer
verified

One plausible explanation for the large amount of U.S. currency outstanding is that many dollars are held abroad.

Correct Answer
verified

Which of the following does the Federal Reserve not do?

Correct Answer
verified

The Soviet government in the 1980's never abandoned the ruble as the official currency. However, the people of Moscow preferred to accept

Correct Answer
verified

The money supply increases when the Fed

Correct Answer
verified

Exam 11: The Monetary System

Consider five individuals with different occupations. In a barter system which of the following pairs has a double coincidence of wants?

Correct AnswerverifiedShow Answer

People hold $400 million of bank deposits but no currency. Banks have made $380 million dollars of loans and only hold enough reserves to satisfy reserve requirements. Because of uncertainty, banks choose to hold $10 million more in reserves. The Fed takes no action. What happens to bank loans?

Correct AnswerverifiedShow Answer

The Fed bonds when it conducts an open-market purchase. This action the money supply.

Correct AnswerverifiedShow Answer

Economists use the term "money" to refer to

Correct AnswerverifiedShow Answer

If a bank uses $500 of excess reserves to make a new loan when the reserve ratio is 8 percent, this action by itself initially makes the money supply

Correct AnswerverifiedShow Answer

Which of the following best illustrates the medium of exchange function of money?

Correct AnswerverifiedShow Answer

When the Fed buys government bonds,

Correct AnswerverifiedShow Answer

When colonists in Virginia used tobacco as money, their money

Correct AnswerverifiedShow Answer

The rate at which the Fed lends money to banks is

Correct AnswerverifiedShow Answer

If the reserve ratio is 12.5 percent, then $1,000 of additional reserves can create up to

Correct AnswerverifiedShow Answer

Which of the following institutions is a central bank?

Correct AnswerverifiedShow Answer

Treasury Bonds are

Correct AnswerverifiedShow Answer

The discount rate is the interest rate that

Correct AnswerverifiedShow Answer

One plausible explanation for the large amount of U.S. currency outstanding is that many dollars are held abroad.

Correct AnswerverifiedShow Answer

Which of the following does the Federal Reserve not do?

Correct AnswerverifiedShow Answer

The Soviet government in the 1980's never abandoned the ruble as the official currency. However, the people of Moscow preferred to accept

Correct AnswerverifiedShow Answer

The money supply increases when the Fed

Correct AnswerverifiedShow Answer

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