Question 1

Money market mutual funds are included in

Accepted Answer

A)   M1 but not M2.
B)   M1 and M2.
C)   M2 but not M1.
D)   neither M1 nor M2.E) B) and C)
F) All of the above

Question 2

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

Accepted Answer

A)   fewer reserves, so the money multiplier will fall.
B)   fewer reserves, so the money multiplier will rise.
C)   more reserves, so the money multiplier will fall.
D)   more reserves, so the money multiplier will rise.E) B) and C)
F) C) and D)

Question 3

If $300 of new reserves generates $800 of new money in the economy, then the reserve ratio is

Accepted Answer

A)   2.7 percent.
B)   12.5 percent.
C)   37.5 percent.
D)   40 percent.E) All of the above
F) A) and C)

Question 4

Suppose a bank is operating with a leverage ratio of 20. What is the maximum decrease in the market value of assets before the bank becomes insolvent?

Accepted Answer

A leverage ratio of 20 implies each perc...

Question 5

If R represents the reserve ratio for all banks in the economy, then the money multiplier is

Accepted Answer

A)   1/1-R) .
B)   1/R.
C)   1/1+R) .
D)   1+R) /R.E) A) and B)
F) A) and C)

Question 6

Suppose that in a country the total holdings of banks were as follows: required reserves = $45 million excess reserves = $15 million deposits = $750 million loans = $600 million
Treasury bonds = $90 million. Show that the balance sheet balances if these are the only assets and liabilities. Assuming that people hold no currency, what happens to each of these values if the central bank changes the reserve requirement ratio to 2%, banks still want to hold the same percentage of excess reserves, and banks don't change their holdings of Treasury bonds? How much does the money supply change by?

Accepted Answer

The only liability is deposits which equ...

Question 7

If the reserve ratio is 12 percent, then the money multiplier is

Accepted Answer

A)   9.3.
B)   8.3.
C)   7.3.
D)   12.E) A) and B)
F) A) and C)

Question 8

A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

Accepted Answer

A)   an asset for the bank and a liability for Kellie's Print Shop. The loan increases the money supply.
B)   an asset for the bank and a liability for Kellie's Print Shop. The loan does not increase the money supply.
C)   a liability for the bank and an asset for Kellie's Print Shop. The loan increases the money supply.
D)   a liability for the bank and an asset for Kellie's Print Shop. The loan does not increase the money supply.E) None of the above
F) A) and B)

Question 9

Fiat money

Accepted Answer

A)   has no intrinsic value.
B)   is backed by gold.
C)   is a medium of exchange but not a unit of account.
D)   is any close substitute for currency such as checkable deposits.E) A) and D)
F) A) and C)

Question 10

If the reserve ratio is 12.5 percent, then $2,000 of additional reserves can create up to

Accepted Answer

A)   $8,000 of new money.
B)   $16,000 of new money.
C)   $32,000 of new money.
D)   None of the above is correct.E) All of the above
F) A) and B)

Question 11

Bottles of very fine wine are less liquid than demand deposits.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following best illustrates the unit of account function of money?

Accepted Answer

A)   You list prices for candy sold on your Web site, HYPERLINK "http://www.sweettooth.com/" www.sweettooth.com, in dollars.
B)   You pay for your theater tickets with dollars.
C)   You hold currency even though you don't intend to spend it right away.
D)   None of the above is correct.E) None of the above
F) All of the above

Question 13

Table 29-9
Metropolis National Bank is currently holding 2% of its deposits as excess reserves.
 
-Refer to Table 29-9. Metropolis National Bank is currently holding 2% of deposits as excess reserves. What is the reserve requirement?

Accepted Answer

A)   12 percent
B)   10 percent
C)   8 percent
D)   6 percentE) B) and D)
F) C) and D) B

Question 14

If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 15 percent receives a deposit of $600, it has a

Accepted Answer

A)   $600 increase in excess reserves and no increase in required reserves.
B)   $600 increase in required reserves and no increase in excess reserves.
C)   $510 increase in excess reserves and a $90 increase in required reserves.
D)   $90 increase in excess reserves and a $510 increase in required reserves.E) None of the above
F) All of the above

Question 15

To increase the money supply, the Fed can

Accepted Answer

A)   buy government bonds or increase the discount rate.
B)   buy government bonds or decrease the discount rate.
C)   sell government bonds or increase the discount rate.
D)   sell government bonds or decrease the discount rate.E) B) and D)
F) C) and D)

Question 16

Demand deposits are a type of

Accepted Answer

A)   checking account.
B)   time deposit.
C)   money market mutual fund.
D)   savings deposit.E) A) and B)
F) None of the above A

Question 17

When the Soviet Union began breaking up in the late 1980s, cigarettes began replacing the ruble as the medium of exchange even though the ruble was legal tender. The cigarettes provide an example of commodity money.

Accepted Answer

A) True 
 B)False

Question 18

Bank regulators impose capital requirements in order to

Accepted Answer

A)   increase the amount of leverage in the economy.
B)   provide an incentive for banks to hold risky assets.
C)   ensure banks can pay off depositors.
D)   increase the probability of a credit crunch.E) B) and C)
F) None of the above C

Question 19

In a fractional-reserve banking system, a decrease in reserve requirements

Accepted Answer

A)   increases both the money multiplier and the money supply.
B)   decreases both the money multiplier and the money supply.
C)   increases the money multiplier, but decreases the money supply.
D)   decreases the money multiplier, but increases the money supply.E) None of the above
F) C) and D)

Question 20

What is the change in the money supply when the Fed purchases $100 worth of bonds in a 100-percent-reserve banking system?

Accepted Answer

The answer of What is the change in the money...

Exam 11: The Monetary System

Money market mutual funds are included in

Correct Answer
verified

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

Correct Answer
verified

If $300 of new reserves generates $800 of new money in the economy, then the reserve ratio is

Correct Answer
verified

Suppose a bank is operating with a leverage ratio of 20. What is the maximum decrease in the market value of assets before the bank becomes insolvent?

Correct Answer
verified
A leverage ratio of 20 implies each perc...
View Answer

If R represents the reserve ratio for all banks in the economy, then the money multiplier is

Correct Answer
verified

Correct Answer
verified
The only liability is deposits which equ...
View Answer

If the reserve ratio is 12 percent, then the money multiplier is

Correct Answer
verified

A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

Correct Answer
verified

Fiat money

Correct Answer
verified

If the reserve ratio is 12.5 percent, then $2,000 of additional reserves can create up to

Correct Answer
verified

Bottles of very fine wine are less liquid than demand deposits.

Correct Answer
verified

Which of the following best illustrates the unit of account function of money?

Correct Answer
verified

Table 29-9 Metropolis National Bank is currently holding 2% of its deposits as excess reserves. -Refer to Table 29-9. Metropolis National Bank is currently holding 2% of deposits as excess reserves. What is the reserve requirement?

Correct Answer
verified
B

If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 15 percent receives a deposit of $600, it has a

Correct Answer
verified

To increase the money supply, the Fed can

Correct Answer
verified

Demand deposits are a type of

Correct Answer
verified
A

When the Soviet Union began breaking up in the late 1980s, cigarettes began replacing the ruble as the medium of exchange even though the ruble was legal tender. The cigarettes provide an example of commodity money.

Correct Answer
verified

Bank regulators impose capital requirements in order to

Correct Answer
verified
C

In a fractional-reserve banking system, a decrease in reserve requirements

Correct Answer
verified

What is the change in the money supply when the Fed purchases $100 worth of bonds in a 100-percent-reserve banking system?

Correct Answer
verified

Exam 11: The Monetary System

Money market mutual funds are included in

Correct AnswerverifiedShow Answer

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

Correct AnswerverifiedShow Answer

If $300 of new reserves generates $800 of new money in the economy, then the reserve ratio is

Correct AnswerverifiedShow Answer

Suppose a bank is operating with a leverage ratio of 20. What is the maximum decrease in the market value of assets before the bank becomes insolvent?

Correct AnswerverifiedA leverage ratio of 20 implies each perc...View AnswerShow Answer

If R represents the reserve ratio for all banks in the economy, then the money multiplier is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe only liability is deposits which equ...View AnswerShow Answer

If the reserve ratio is 12 percent, then the money multiplier is

Correct AnswerverifiedShow Answer

A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

Correct AnswerverifiedShow Answer

Fiat money

Correct AnswerverifiedShow Answer

If the reserve ratio is 12.5 percent, then $2,000 of additional reserves can create up to

Correct AnswerverifiedShow Answer

Bottles of very fine wine are less liquid than demand deposits.

Correct AnswerverifiedShow Answer

Which of the following best illustrates the unit of account function of money?

Correct AnswerverifiedShow Answer

Table 29-9 Metropolis National Bank is currently holding 2% of its deposits as excess reserves. -Refer to Table 29-9. Metropolis National Bank is currently holding 2% of deposits as excess reserves. What is the reserve requirement?

Correct AnswerverifiedB

If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 15 percent receives a deposit of $600, it has a

Correct AnswerverifiedShow Answer

To increase the money supply, the Fed can

Correct AnswerverifiedShow Answer

Demand deposits are a type of

Correct AnswerverifiedA

When the Soviet Union began breaking up in the late 1980s, cigarettes began replacing the ruble as the medium of exchange even though the ruble was legal tender. The cigarettes provide an example of commodity money.

Correct AnswerverifiedShow Answer

Bank regulators impose capital requirements in order to

Correct AnswerverifiedC

In a fractional-reserve banking system, a decrease in reserve requirements

Correct AnswerverifiedShow Answer

What is the change in the money supply when the Fed purchases $100 worth of bonds in a 100-percent-reserve banking system?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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A leverage ratio of 20 implies each perc...
View Answer

Correct Answer
verified

Correct Answer
verified
The only liability is deposits which equ...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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B

Correct Answer
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Correct Answer
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Correct Answer
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A

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Correct Answer
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C

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Correct Answer
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