CH25B

Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) Money 1)A) is anything that is regularly used and generally accepted in economic transactions or

exchanges.B) is anything the government declares to have value.C) facilitates specialization in production.D) is necessary to conduct economic transactions.

Answer: A

2) A barter transaction involves exchanging 2)A) one good for money.B) one good for another good.C) money for a service.D) a service for a promise of a future monetary payment.

Answer: B

3) Brad details cars and Angelina babysits. Angelina agrees to babysit for Brad's kids if he details herminivan. This is an example of

3)

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

Answer: C

4) In order for a barter transaction to be successful, there must be a 4)A) market for the goods. B) double coincidence of wants.C) federal tax law in effect. D) high demand for a certain item.

Answer: B

5) Kyle wants to trade scuba lessons for surfing lessons. Ike wants to trade surfing lessons for scubalessons. Kyle and Ike have

5)

A) a double coincidence of wants. B) a double incidence of demand.C) the basis for a liquidity exchange. D) the basis for a double fiat exchange.

Answer: A

6) Because money eliminates the "double coincidence of wants" problem, the development of moneyas a ________ has facilitated the expansion of trade.

6)

A) unit of account B) measure of valueC) medium of exchange D) store of value

Answer: C

7) The need for a barter system diminishes when money is used as a 7)A) measure of value. B) store of value.C) unit of account. D) medium of exchange.

Answer: D

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8) Aster won $5,000 on a slot machine. She deposits her $5,000 winnings into a money market fund sothat she can use the money next year to help her pay for a new boat. This is an example of moneyserving as a(n)

8)

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

Answer: A

9) When you pay $6 for breakfast burritos for your drive to work, you are using money as a(n) 9)A) medium of exchange. B) investment good.C) store of value. D) unit of account.

Answer: A

10) Tippi received a rebate of $2,000 for a hybrid car she purchased in May 2011. Tippi put this moneyin a saving account so that she could spend it when she went on safari in September 2011. This is anexample of money serving as a(n)

10)

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

Answer: D

11) When you keep your savings in a safety deposit box, you are using money as a(n) 11)A) store of value. B) medium of exchange.C) investment good. D) unit of account.

Answer: A

12) When the prices of goods and services rise 12)A) exports increase. B) the value of money rises.C) imports decrease. D) the value of money falls.

Answer: D

13) The property that makes money a good medium of exchange and a good store of value is the 13)A) asset demand for money. B) transactions demand for money.C) unlimited supply of money. D) liquidity property of money.

Answer: D

14) When a car dealer attaches price stickers to his products, he is using money as a 14)A) store of value. B) unit of transfer.C) medium of exchange. D) unit of account.

Answer: D

15) Abercrombie and Fitch, a clothing retailer, has 250 different products in inventory. Abercrombieand Fitch reports its inventory is worth $600,000. This is an example of using money as a

15)

A) store of value. B) medium of exchange.C) unit of account. D) standard of deferred payment.

Answer: C

16) Subway quotes the price of a foot long tuna sub at $5. This is an example of money serving as a(n) 16)A) medium of exchange. B) investment good.C) unit of account. D) store of value.

Answer: C

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17) When Argentina experiences a period of high inflation and Argentineans lose confidence in theirpeso as a store of value, which of the following would be least likely to occur?

17)

A) Argentineans would use a different currency as a medium of exchange.B) The buying power of the peso would decrease.C) The demand for pesos would decrease.D) The value of foreign currencies would depreciate relative to the peso.

Answer: D

18) What gives money value under a fiat system? 18)A) Fiat money is also a commodity.B) The supply of fiat money is controlled by the government.C) Fiat money is the same as Treasury bonds.D) Fiat money is backed by gold.

Answer: B

19) Cowrie shells have been used as money is West Africa. This is an example of 19)A) legal money. B) fiat money.C) commodity money. D) token money.

Answer: C

20) Money that has no intrinsic value and is created by a government decree is called 20)A) fiat money. B) barter money.C) commodity money. D) asset money.

Answer: A

21) Which of the following is NOT a form of commodity money? 21)A) precious stones B) cigarettes C) checks D) all of the above

Answer: C

22) Legal tender is 22)A) money that must be backed by gold.B) money that a government has required to be accepted in settlement of debts.C) money that cannot be counterfeited.D) money that has a value other than as a currency.

Answer: B

23) To ensure that ________ will be accepted, the U.S. government implicitly promises the public that itwill not print money so fast that it loses its value.

23)

A) barter cash B) exchange ratesC) commodity money D) paper money

Answer: D

24) When the value of money falls as a result of a rapid increase in its supply, ________ occurs. 24)A) currency debasement B) negative exchangeC) deflation D) all of the above

Answer: A

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25) In the country of Kaboom, the government doubled the money supply overnight. As a result of thisaction, the price of a gallon of milk increased from 3 Kaboomian dollars to 200 Kaboomian dollars.This is an example of

25)

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

Answer: B

26) M1 26)A) is the narrowest definition of the money supply.B) includes credit cards.C) is the sum of currency plus travelers checks.D) includes small time deposits.

Answer: A

27) M1 is a 27)A) near money. B) stock variable.C) commodity money. D) flow variable.

Answer: B

28) Checking account balances are included in 28)A) M1 only. B) M2 only.C) both M1 and M2. D) neither M1 nor M2.

Answer: C

29) Which of the following is included in M1, but not included in M2? 29)A) travelers checks B) demand depositsC) currency held outside banks D) none of the above

Answer: D

30) Serena transfers $8,000 from her checking account to her savings account. This transaction will 30)A) decrease M1 and not change M2. B) increase both M1 and M2.C) not change M1 and decrease M2. D) decrease both M1 and M2.

Answer: A

31) Sarafina transfers $450 from her saving account to her checking account. This transaction will 31)A) decrease both M1 and M2. B) increase both M1 and M2.C) increase M1 and not change M2. D) not change M1 and decrease M2.

Answer: C

32) Otis transfers $200 from his money market fund to his checking account. This transaction will 32)A) decrease M2 and increase M1. B) increase M1, but leave M2 unchanged.C) decrease both M1 and M2. D) decrease M1 and increase M2.

Answer: B

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33) Which of the following would be counted as part of M1? 33)A) money market accounts B) large time depositsC) small time deposits D) demand deposits

Answer: D

34) Demand deposits are included in 34)A) M1. B) M2.C) neither M1 nor M2. D) both M1 and M2.

Answer: D

35) Which of the following would be included in M2, but not included in M1? 35)A) checking accounts B) demand depositsC) money market accounts D) none of the above

Answer: C

36) Which of the following is included in M2? 36)A) commercial paper B) savings accountsC) U.S. Treasury bonds D) stocks

Answer: B

37) Which of the following is not included in M1 or M2? 37)A) credit card balancesB) checking account balancesC) traveler's checksD) currency in circulation outside of commercial banks

Answer: A

38) Currency is included in 38)A) M2 only. B) M1 only.C) both M1 and M2. D) neither M1 nor M2.

Answer: C

39) Near monies are close substitutes for 39)A) commodity monies. B) transactions monies.C) fiat monies. D) token monies.

Answer: B

40) Which of the following is the best example of a broad money? 40)A) a valuable painting B) a Treasury bondC) a money market account D) all of the above

Answer: C

41) M1 is equal to 41)A) M2 - savings accounts - money market accounts - other near monies.B) M2 + near monies.C) money market accounts + automatic-transfer savings accounts.D) M2 + savings accounts - currency held outside banks + other near monies.

Answer: A

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42) Financial monetary assets which often cannot be readily used in commercial exchanges areincluded in

42)

A) M1. B) credit cards.C) prepaid accounts. D) M2.

Answer: D

43) Along with currency not in banks and deposits in checking accounts, what is another component ofthe M1 measure of money?

43)

A) credit cards B) traveler's checksC) debit cards D) prepaid accounts

Answer: B

44) Loans are a(n) ________ of a commercial bank. 44)A) asset B) retained earningC) liability D) all of the above

Answer: A

45) Demand deposits are a(n) ________ of a commercial bank. 45)A) asset B) retained earningC) liability D) all of the above

Answer: C

46) Assets minus liabilities is equal to 46)A) M2. B) net worth. C) M1. D) net capital.

Answer: B

47) Related to the Economics in Practice on p. 503: In the Solomon Islands, dolphin teeth are used ascurrency. The governor of the Central Bank of the Solomon Islands has purchased a "huge amount "of these teeth as an investment. In this instance, dolphin teeth are being held as a(n)

47)

A) medium of exchange. B) store of value.C) legal tender. D) unit of account.

Answer: B

48) Related to the Economics in Practice on p. 503: In the Solomon Islands, dolphin teeth are used ascurrency. The value of one pig is 50 dolphin teeth. In this instance, dolphin teeth would beconsidered a(n)

48)

A) legal tender. B) unit of account.C) store of value. D) medium of exchange.

Answer: B

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

49) When you use money to fill your car with gas every week, you are using money as a store of value. 49)Answer: True False

50) Money is anything that generally is accepted as a store of value. 50)Answer: True False

51) In an economy that uses commodity money, there is no need for double coincidence of wants. 51)Answer: True False

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52) When you take $500 from your saving account and deposit it in your checking account, M2increases.

52)

Answer: True False

53) Fiat money refers to a monetary system in which gold backs up paper money. 53)Answer: True False

54) Commodity money is money the government says is money. 54)Answer: True False

55) The M2 definition of money includes money market accounts. 55)Answer: True False

56) The M2 definition of money includes traveler's checks. 56)Answer: True False


57) Futura Bank has liabilities of $8 million and net worth of $1,200,000. Futura Bank's assets are 57)A) $1.2 million. B) $6.8 million. C) $8 million. D) $9.2 million.

Answer: D

58) Cold Creek Credit Union has liabilities of $450,000 and net worth of $175,000. Cold Creek CreditUnion's assets are

58)

A) $175,000. B) $275,000. C) $450,000. D) $625,000.Answer: D

59) Asiago National Bank has assets of $900,000 and liabilities of $300,000. Asiago National Bank's networth is

59)

A) $300,000. B) $600,000. C) $900,000. D) $1,200,000.Answer: B

60) A commercial bank lists deposits as 60)A) assets. B) liabilities.C) excess reserves. D) retained earnings.

Answer: B

61) Things that a firm owns that have ________ are classified as assets. 61)A) worth B) negative valueC) no value D) any of the above

Answer: A

62) Time deposits are considered a(n) ________ of a bank. 62)A) loan B) assetC) required reserve D) liability

Answer: D

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63) The Federal Reserve System 63)A) is a branch of the Commerce Department. B) oversees the Congress and Senate.C) controls the Treasury Department. D) is the central bank of the United States.

Answer: D

64) A ________ is considered an asset of that bank. 64)A) bank liability B) bank depositC) demand deposit D) bank loan

Answer: D

65) ________ in a bank is considered a liability of that bank. 65)A) A checking deposit B) Required reservesC) A bank loan D) Excess reserves

Answer: A

Refer to the information provided in Table 10.1 below to answer the questions that follow.

Table 10.1First Charter Bank

Assets LiabilitiesReserves $1,200 DepositsLoans $500 Net WorthTotal $1,700 Total

66) Refer to Table 10.1. The required reserve ratio is 10%. If the First Charter Bank is meeting its reserverequirement and has no excess reserves, its reserves equal

66)

A) $50. B) $70. C) $120. D) $170.Answer: C

67) Refer to Table 10.1. The required reserve ratio is 10%. If the First Charter Bank is meeting its reserverequirement and has no excess reserves, its loans equal

67)

A) $1,080. B) $1,530. C) $1,580. D) $1,700.Answer: C

68) Refer to Table 10.1. First Charter Bank's total assets are 68)A) $500. B) $1,200. C) $1,700. D) $3,400.

Answer: C

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Table 10.2First Commercial Bank

Assets Liabilities + Net WorthReserves: $2 million $4 million Deposits

Required $800,000 $500,000 Net WorthExcess

LoansTotal $4.5 million $4.5 million Total

69) Refer to Table 10.2. First Commercial Bank's excess reserves equal $________. 69)A) 1,200,000 B) 2,000,000 C) 2,800,000 D) 4,500,000

Answer: A

70) Refer to Table 10.2. The required reserve ratio is 70)A) 10%. B) 12.5%. C) 15%. D) 20%.

Answer: D

71) Refer to Table 10.2. First Commercial Bank's total loans equal $________. 71)A) 1,200,000 B) 2,500,000 C) 2,800,000 D) 4,500,000

Answer: B


Table 10.3People's Bank

Assets Liabilities + Net WorthReserves: $200,000 $400,000 Deposits

Required $100,000 Net WorthExcess

LoansTotal $500,000 $500,000 Total

72) Refer to Table 10.3. The net worth of People's Bank is $________. 72)A) 100,000 B) 300,000 C) 500,000 D) 900,000

Answer: A

73) Refer to Table 10.3. The required reserve ratio is 73)A) 8%. B) 15%. C) 20%. D) 25%.

Answer: D

74) Refer to Table 10.3. People's Bank excess reserves are $________. 74)A) 100,000 B) 200,000 C) 300,000 D) 700,000

Answer: A

75) Refer to Table 10.3. Total loans of People's Bank equal $________. 75)A) 100,000 B) 300,000 C) 500,000 D) 800,000

Answer: B

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76) Bank of Mt. Etna has $500 million in deposits. Bank of Mt. Etna is meeting its reserve requirementand has no excess reserves. It has $75 million in reserves. Bank of Mt. Etna faces a required reserveratio of

76)

A) 15%. B) 25.5%. C) 45%. D) 47.2%.Answer: A

77) Acropolis Bank has $600 million in deposits. The required reserve ratio is 25%. Acropolis Bankmust keep ________ in reserves.

77)

A) $125 million B) $150 million C) $240 million D) $250 millionAnswer: B

78) Bank of Roseland has $700 million in deposits. The required reserve ratio is 15%. Bank of Roselandmust keep ________ in reserves.

78)

A) $55 million B) $85 million C) $105 million D) $140 millionAnswer: C

79) The Argon Bank has $8 million in deposits and $1,600,000 in reserves. If the required reserve ratiois 20%, excess reserves are equal to

79)

A) zero. B) $80,000. C) $320,000. D) $640,000.Answer: A

80) The Bank of Biscayne has $12 million in deposits and $800,000 in reserves. If the required reserveratio is 5%, excess reserves are equal to

80)

A) $720,000. B) $600,000. C) $200,000. D) $40,000.Answer: C

81) The Bank of Mesquite has $2 million in deposits and $550,000 in reserves. If excess reserves areequal to $150,000, the required reserve ratio is

81)

A) 15%. B) 20%. C) 35%. D) 65%.Answer: B


Table 10.4First Charter Bank

Assets LiabilitiesReserves $1.2 million $6 million DepositsLoans $4.8 millionTotal $6 million $6 million Total

82) Refer to Table 10.4. If the required reserve ratio is 20%, First Charter Bank 82)A) is loaned up.B) has unloaned excess reserves of $100,000.C) is meeting its required reserve ratio and has no excess reserves.D) has too few reserves on hand.

Answer: A

83) Refer to Table 10.4. First Charter Bank could make additional loans of $750,000, if the requiredreserve ratio were

83)

A) 12.5%. B) 10%. C) 7.5%. D) 2.5%.Answer: C

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84) Refer to Table 10.4. If the required reserve ratio were changed to 10% and First Charter Bankcontinues to hold $1,200,000 in reserves, its excess reserves will be

84)

A) $150,000. B) $300,000. C) $600,000. D) $900,000.Answer: C

85) Dollar Bank is currently loaned up. If the required reserve ratio is raised 85)A) Dollar Bank will still be loaned up because it did not receive any additional deposits.B) Dollar Bank's net worth will increase.C) Dollar Bank will have excess reserves that it can lend out.D) Dollar Bank's actual reserves will increase, but it will still be loaned up.

Answer: B

86) If a bank is "loaned up," it has no ________ and thus can make no ________. 86)A) assets; liabilities B) demand deposits; withdrawalsC) required reserves; deposits D) excess reserves; more loans

Answer: D

87) Commercial banks ________ through making loans. 87)A) decrease M1 B) change the reserve requirementC) conduct open market operations D) create money

Answer: D

88) The multiple by which total deposits can increase for every dollar increase in ________ is themoney multiplier.

88)

A) reserves B) M1 C) liabilities D) loans

Answer: A

89) Suppose the required reserve ratio is 10%. A $75 million cash deposit will allow commercial banksto create at most

89)

A) $750,000. B) $7.5 million. C) $75 million. D) $750 million.Answer: D

90) Suppose the required reserve ratio is 25%. A $10 million deposit allows commercial banks to createat most

90)

A) $2.5 million. B) $4 million. C) $40 million. D) $250 million.Answer: C

91) The required reserve ratio is 12.5%. The money multiplier is 91)A) 2.5. B) 6. C) 7.5. D) 8.

Answer: D

92) The required reserve ratio is 20%. The money multiplier is 92)A) 2. B) 4. C) 5. D) 10.

Answer: C

93) If the money multiplier is 4, the required reserve ratio is 93)A) 4%. B) 20%. C) 25%. D) 50%.

Answer: C

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94) Assume that banks become less conservative in their lending policies and start holding no excessreserves. Compared to a situation in which banks are holding excess reserves, the size of the moneysupply will be

94)

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

95) As commercial banks keep fewer excess reserves, money creation 95)A) decreases.B) increases.C) remains the same, as long as banks hold no excess reserves.D) could either increase or decrease.

Answer: B

Refer to the information provided in Scenario 10.1 below to answer the questions that follow.

SCENARIO 10.1: The following table shows the changes in deposits, reserves, and loans of 4 banks as a result of a $100,000initial deposit in Bank No. 1. Assume all banks are loaned up.

96) Refer to Scenario 10.1. What is the required reserve ratio? 96)A) 4% B) 5% C) 8% D) 10%

Answer: D

97) Refer to Scenario 10.1. What is the money multiplier in this economy? 97)A) 10 B) 16.67 C) 20 D) 50

Answer: A

98) Refer to Scenario 10.1. How much money will be created based on the initial $100,000 deposit? 98)A) $1 million B) $2 million C) $16.67 million D) $50 million

Answer: A

99) Refer to Scenario 10.1. If the required reserve ratio were changed to 20%, total loans of Bank No. 2will change to

99)

A) $64,000. B) $72,000. C) $74,250. D) $80,000.Answer: A


100) Only the money multiplier determines how much money the Federal Reserve can create. 100)Answer: True False

101) Required reserves in a bank are the difference between excess reserves and the bank's total networth.

101)

Answer: True False

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102) Among the liabilities of commercial banks are demand deposits. 102)Answer: True False

103) The amount of money banks can loan out is determined by the federal funds rate. 103)Answer: True False

104) Among the assets of commercial banks are excess reserves. 104)Answer: True False

105) Since they must lend money to make money, all banks are necessarily solvent. 105)Answer: True False


106) The Federal Reserve was created in 106)A) 1893. B) 1913. C) 1921. D) 1933.

Answer: B

107) Which of the following serves as the central bank of the United States? 107)A) the Treasury DepartmentB) the CongressC) the Federal Deposit Insurance CorporationD) the Federal Reserve System

Answer: D

108) The voting members of the Federal Open Market Committee are 108)A) all of the members of the Board of Governors and all of the presidents of the 12 Federal

Reserve banks.B) the presidents of the 12 Federal Reserve banks and three members of the Board of Governors.C) all of the members of the Board of Governors and five of the presidents of the 12 Federal

Reserve banks.D) only the members of the Board of Governors.

Answer: C

109) Members of the Federal Reserve Board of Governors 109)A) are members of the Federal Open Market Committee.B) are confirmed by the House of Representatives.C) frequently need to deal with political pressure.D) are appointed to 4 year terms.

Answer: A

110) When checks are exchanged between banks, the Fed oversees the banks to ensure the appropriatefunds have been transferred. This is known as

110)

A) check floating. B) check balancing.C) check kiting. D) check clearing.

Answer: D

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111) Of the over $2.3 billion in assets on the Fed's balance sheet in June 2010, almost half of this valuewas in

111)

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

Answer: D


112) The Federal Reserve System is the central bank of the United States. 112)Answer: True False

113) The Chairman of the Fed also serves on the Board of Governors. 113)Answer: True False

114) The Fed is also known as a "banker's bank." 114)Answer: True False

115) The members of the Board of Governors of the Fed make up the entire Federal Open MarketCommittee.

115)

Answer: True False

116) The Federal Reserve is a branch of the Treasury Department, and is therefore subject to significantgovernment control.

116)

Answer: True False

117) By value, a majority of the assets held by the Fed is in gold. 117)Answer: True False


118) Which of the following instruments is most frequently used by the Federal Reserve to change themoney supply?

118)

A) the discount rate B) the required reserve ratioC) changing tax rates D) open market operations

Answer: D

119) From time to time, the Federal Reserve buys back government bonds from the private sectorthrough a process called

119)

A) open market purchases. B) voluntary redemption procedures.C) backflip bond investments. D) bond recall procedures.

Answer: A

120) Which set of actions could the Fed use to increase the money supply? 120)A) discount rate cut and an open market saleB) a reduction in the required reserve ratio and an open market purchaseC) an open market sale and a reduction in the required reserve ratioD) an open market purchase and a tax cut

Answer: B

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121) The interest rate the Fed charges commercial banks for borrowing funds is the 121)A) discount rate. B) federal funds rate.C) open market rate. D) prime rate.

Answer: A

122) An increase in the required reserve ratio 122)A) will increase the money supply. B) will decrease the discount rate.C) will decrease the money supply. D) will not change the money supply.

Answer: C

123) Assume that all commercial banks are loaned up. Total deposits in the banking system are $800million. The required reserve ratio is decreased. The money supply will

123)

A) decrease.B) increase.C) not change because there was no change in deposits.D) not change because the required reserve ratio has no impact on money supply.

Answer: B

124) A change in the reserve requirement is used infrequently by the Fed because it 124)A) is a crude monetary policy tool. B) does not affect bank reserves.C) does not influence the money supply. D) does not affect the money multiplier.

Answer: A

125) The rate of interest charged to commercial banks by the Fed for loans is called the ________ rate. 125)A) commercial paper B) discountC) federal funds D) prime lending

Answer: B

126) Which of the following represents an action by the Federal Reserve that is designed to decrease themoney supply?

126)

A) buying government securities in the open marketB) an increase in the discount rateC) a decrease in the required reserve ratioD) an increase in federal tax rates

Answer: B


127)

A) an increase in federal spendingB) buying government securities in the open marketC) a decrease in the discount rateD) an increase in the required reserve ratio

Answer: D

128) The most commonly used tool in monetary policy is 128)A) changes in the required reserve ratio. B) open market operations.C) express lending transactions. D) changes in the discount rate.

Answer: B

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129) If the Fed buys government securities, then there is 129)A) an increase in the supply of money. B) a decrease in the discount rate.C) a decrease in the supply of money. D) an increase in the required reserve ratio.

Answer: A


130)

A) an increase in the discount rateB) a decrease in the required reserve ratioC) buying government securities in the open marketD) a decrease in federal spending

Answer: A

131) When the Fed lowers the required reserve ratio, the banks' excess reserves ________ and the moneysupply ________.

131)

A) increase; increases B) decrease; decreasesC) remain constant; decreases D) increase; remains constant

Answer: A

132) A decrease in the discount rate will most likely 132)A) not effect the money supply.B) decrease the money supply.C) have an unclear affect on the money supply.D) increase the money supply.

Answer: D

133) Which of the following statements is TRUE? 133)A) The Federal Reserve undertakes open-market operations on an infrequent basis.B) Open-market operations are extremely rigid.C) Open-market operations have a fairly unpredictable effect on the supply of money.D) Open-market operations can be used by the Federal Reserve with some precision.

Answer: D

134) An open-market sale of securities by the Fed results in ________ in reserves and ________ in thesupply of money.

134)

A) an increase; an increase B) an increase; a decreaseC) a decrease; an increase D) a decrease; a decrease

Answer: D

135) An open-market purchase of securities by the Fed results in ________ in reserves and ________ inthe supply of money.

135)

A) an increase; a decrease B) an increase; an increaseC) a decrease; a decrease D) a decrease; an increase

Answer: B

136) Assume there is no leakage from the banking system and that all commercial banks are loaned up.The required reserve ratio is 25%. If the Fed sells $5 million worth of government securities to thepublic, the change in the money supply will be

136)

A) $100 million. B) $25 million. C) -$5 million. D) -$20 million.Answer: D

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137) Assume there is no leakage from the banking system and that all commercial banks are loaned up.The required reserve ratio is 12.5%. If the Fed buys $20 million worth of government securitiesfrom the public, the change in the money supply will be

137)

A) $20 million. B) $125 million. C) $160 million. D) $250 million.Answer: C

138) The money supply has decreased from $2.75 trillion to $2.25 trillion. Which of the following couldhave caused this increase?

138)

A) Commercial banks decide to hold fewer excess reserves.B) The Fed decreased the discount rate.C) The Fed purchased government securities from the public.D) Consumers who were holding money within the banking system withdrew this money.

Answer: D

139) If the Fed sets the money supply ________ the interest rate, then the money supply curve is vertical. 139)A) as independent of B) as inversely related toC) identical to D) as directly related to

Answer: A


140) A decrease in the required reserve ratio decreases the money supply. 140)Answer: True False

141) A purchase of government securities from the public by the Federal Reserve will decrease the rateof growth of the money supply.

141)

Answer: True False

142) The discount rate can be used to control the money supply with great precision because its effectson banks' demand for reserves are quite certain.

142)

Answer: True False

143) The Fed most frequently changes the discount rate to change the money supply. 143)Answer: True False

144) If the Fed sells securities on the open market, it will decrease the money supply. 144)Answer: True False

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Date post:	17-Nov-2015
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