Question 1

A bank has a 10 percent reserve requirement, $36,000 in loans, and has loaned out all it can, given the reserve requirement.

Accepted Answer

A)  It has $3,600 in deposits.
B)  It has $32,400 in deposits.
C)  It has $39,600 in deposits.
D)  It has $40,000 in deposits.E) None of the above
F) B) and C)

Question 2

Commodity money cannot be used as a unit of account.

Accepted Answer

A) True 
 B)False

Question 3

When you purchase school supplies at the book store using cash, you are using money as a medium of exchange.

Accepted Answer

A) True 
 B)False

Question 4

In a fractional reserve economy where the required reserve ratio is 10%, must it be the case that an initial deposit of $100 increases the total money supply by $1,000? Explain.

Accepted Answer

No, this is not necessarily the case.
It...

Question 5

If the Fed raised the reserve requirement, the demand for reserves would

Accepted Answer

A)  increase, so the federal funds rate would fall.
B)  increase, so the federal funds rate would rise.
C)  decrease, so the federal funds rate would fall.
D)  decrease, so the federal funds rate would rise.E) B) and D)
F) None of the above

Question 6

Credit cards are a medium of exchange.

Accepted Answer

A) True 
 B)False

Question 7

Describe the role of bank leverage in bank insolvency during times of falling asset prices.

Accepted Answer

As bank asset values fall, the effect on...

Question 8

What is meant by the term "lender of last resort?" In what circumstances might the Fed be a lender of last resort?

Accepted Answer

A "lender of last resort" is a lender to...

Question 9

Which of the following does the Federal Reserve not do?

Accepted Answer

A)  Conduct monetary policy
B)  Act as a lender of last resort
C)  Conduct fiscal policy
D)  Serve as a bank regulatorE) A) and C)
F) B) and D)

Question 10

Roundabout trade decreases production.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is an example of barter?

Accepted Answer

A)  A parent gives a teenager a $10 bill in exchange for her babysitting services.
B)  A homeowner gives an exterminator a check for $50 in exchange for extermination services.
C)  A barber gives a plumber a haircut in exchange for the plumber fixing the barber's leaky faucet.
D)  A doctor performs surgery on a patient whose insurance pays 100% of the bill.E) C) and D)
F) None of the above

Question 12

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 13

In order for currency to be widely used as a medium of exchange, it is sufficient for the government to designate it as legal tender.

Accepted Answer

A) True 
 B)False

Question 14

The Federal Reserve primarily uses open-market operations to change the money supply.

Accepted Answer

A) True 
 B)False

Question 15

U.S. government bonds, fine art, and silver are all

Accepted Answer

A)  media of exchange.
B)  units of account.
C)  stores of value.
D)  extremely liquid assets.E) A) and B)
F) A) and D)

Question 16

A bank loans Benjamin's Print Shop $130,000 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 Benjamin's Print Shop.The loan increases the money supply.
B)  an asset for the bank and a liability for Benjamin's Print Shop.The loan does not increase the money supply.
C)  a liability for the bank and an asset for Benjamin's Print Shop.The loan increases the money supply.
D)  a liability for the bank and an asset for Benjamin's Print Shop.The loan does not increase the money supply.E) A) and D)
F) All of the above

Question 17

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

Question 18

A bank has $30,000 in deposits and has $5,400 in reserves. What is its reserve ratio?

Accepted Answer

The answer of A bank has $30,000 in deposits and...

Question 19

If the reserve ratio is 5 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed sells $30 million worth of government bonds, bank reserves

Accepted Answer

A)  decrease by $30 million and the money supply eventually decreases by $600 million.
B)  increase by $30 million and the money supply eventually increases by $600 million.
C)  decrease by $30 million and the money supply eventually decreases by $150 million.
D)  increase by $30 million and the money supply eventually increases by $150 million.E) C) and D)
F) All of the above

Question 20

​Which of the following policies can the Fed follow to increase the money supply?

Accepted Answer

A)  ​Reduce the interest rate on reserves
B)  ​Increase reserve requirements for banks
C)  ​Reduce the quantity of funds available through the Term Auction Facility
D)  ​Sell government bondsE) A) and D)
F) A) and C)

Exam 29: The Monetary System

Which of the following is an example of barter?

Correct Answer
verified

In order for currency to be widely used as a medium of exchange, it is sufficient for the government to designate it as legal tender.

Correct Answer
verified

U.S. government bonds, fine art, and silver are all

Correct Answer
verified

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

What is meant by the term "lender of last resort?" In what circumstances might the Fed be a lender of last resort?

Correct Answer
verified
A "lender of last resort" is a lender to...
View Answer

A bank loans Benjamin's Print Shop $130,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

Correct Answer
verified

In a fractional reserve economy where the required reserve ratio is 10%, must it be the case that an initial deposit of $100 increases the total money supply by $1,000? Explain.

Correct Answer
verified
No, this is not necessarily the case.
It...
View Answer

Which of the following policies can the Fed follow to increase the money supply?

Correct Answer
verified

Which of the following does the Federal Reserve not do?

Correct Answer
verified

Commodity money cannot be used as a unit of account.

Correct Answer
verified

Credit cards are a medium of exchange.

Correct Answer
verified

A bank has $30,000 in deposits and has $5,400 in reserves. What is its reserve ratio?

Correct Answer
verified

The Federal Reserve primarily uses open-market operations to change the money supply.

Correct Answer
verified

If the Fed raised the reserve requirement, the demand for reserves would

Correct Answer
verified

Describe the role of bank leverage in bank insolvency during times of falling asset prices.

Correct Answer
verified
As bank asset values fall, the effect on...
View Answer

A bank has a 10 percent reserve requirement, $36,000 in loans, and has loaned out all it can, given the reserve requirement.

Correct Answer
verified

Roundabout trade decreases production.

Correct Answer
verified

When you purchase school supplies at the book store using cash, you are using money as a medium of exchange.

Correct Answer
verified

If the reserve ratio is 5 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed sells $30 million worth of government bonds, bank reserves

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

Exam 29: The Monetary System

Which of the following is an example of barter?

Correct AnswerverifiedShow Answer

In order for currency to be widely used as a medium of exchange, it is sufficient for the government to designate it as legal tender.

Correct AnswerverifiedShow Answer

U.S. government bonds, fine art, and silver are all

Correct AnswerverifiedShow Answer

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

What is meant by the term "lender of last resort?" In what circumstances might the Fed be a lender of last resort?

Correct AnswerverifiedA "lender of last resort" is a lender to...View AnswerShow Answer

A bank loans Benjamin's Print Shop $130,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

Correct AnswerverifiedShow Answer

In a fractional reserve economy where the required reserve ratio is 10%, must it be the case that an initial deposit of $100 increases the total money supply by $1,000? Explain.

Correct AnswerverifiedNo, this is not necessarily the case.It...View AnswerShow Answer

​Which of the following policies can the Fed follow to increase the money supply?

Correct AnswerverifiedShow Answer

Which of the following does the Federal Reserve not do?

Correct AnswerverifiedShow Answer

Commodity money cannot be used as a unit of account.

Correct AnswerverifiedShow Answer

Credit cards are a medium of exchange.

Correct AnswerverifiedShow Answer

A bank has $30,000 in deposits and has $5,400 in reserves. What is its reserve ratio?

Correct AnswerverifiedShow Answer

The Federal Reserve primarily uses open-market operations to change the money supply.

Correct AnswerverifiedShow Answer

If the Fed raised the reserve requirement, the demand for reserves would

Correct AnswerverifiedShow Answer

Describe the role of bank leverage in bank insolvency during times of falling asset prices.

Correct AnswerverifiedAs bank asset values fall, the effect on...View AnswerShow Answer

A bank has a 10 percent reserve requirement, $36,000 in loans, and has loaned out all it can, given the reserve requirement.

Correct AnswerverifiedShow Answer

Roundabout trade decreases production.

Correct AnswerverifiedShow Answer

When you purchase school supplies at the book store using cash, you are using money as a medium of exchange.

Correct AnswerverifiedShow Answer

If the reserve ratio is 5 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed sells $30 million worth of government bonds, bank reserves

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified
A "lender of last resort" is a lender to...
View Answer

Correct Answer
verified

Correct Answer
verified
No, this is not necessarily the case.
It...
View Answer

Which of the following policies can the Fed follow to increase the money supply?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
As bank asset values fall, the effect on...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified