Question 1

When banks hold more reserves than are required, such reserves are called

Accepted Answer

A)   total reserves.
B)   required reserves.
C)   excess reserves.
D)   loan reserves.

Question 2

Assume that banks do not hold excess reserves, all deposits remain in the banking system and that the required reserve ratio is 20%. If one bank obtains excess reserves of $10,000, then the maximum increase in money supply is

Accepted Answer

A)   $10,000.
B)   $20,000.
C)   $40,000.
D)   $50,000.

Question 3

When the Fed buys government bonds in the open market the money supply will increase.

Accepted Answer

A) True 
 B)False

Question 4

Suppose the Fed sells $1,000 of government securities to Commercial Banks. Which pair of the T-accounts below shows this transaction?

Accepted Answer

A)   
B)   
C)   
D)

Question 5

The largest component of M1 is

Accepted Answer

A)   checkable deposits.
B)   credit card balances.
C)   currency.
D)   savings deposits.

Question 6

The unit-of-account function of money means that money is used

Accepted Answer

A)   as a consistent means of measuring the value of things.
B)   as the common denominator of future payments.
C)   to pay for goods and services.
D)   to accumulate purchasing power.

Question 7

Table 9-3
Balance Sheet of the Alpha-Beta Bank
(All figures in $ million) 
 
-Refer to Table 9-3. If the required reserve ratio is 10%, what is the value of the bank's required reserves?

Accepted Answer

A)   $25 million
B)   $40 million
C)   $60 million
D)   $75 million

Question 8

Rank the following items in terms of most liquid to least liquid.

Accepted Answer

A)   checkable deposits, cash, an office building your father owns
B)   cash, credit card, money market mutual funds, checkable deposits,
C)   cash, checkable deposits, savings deposits, an office building your father owns
D)   cash, Microsoft stock certificates you own, checkable deposits

Question 9

Which of the following are primary functions of a central bank? 
I. act as a regulator of banks
II. issue government bonds
III. set monetary policy
IV. regulate dividend payments by corporations

Accepted Answer

A)   I, II, III, and IV
B)   I, II, and III
C)   I and III
D)   I and II

Question 10

The discount rate

Accepted Answer

A)   is determined by markets forces of demand and supply in the market for bank reserves.
B)   is set by the Board of Governors.
C)   is determined by investment banks.
D)   is determined by market forces of demand and supply in the credit market.

Question 11

When the Federal Reserve conducts open market transactions, it

Accepted Answer

A)   buys or sells corporate bonds in the bond market.
B)   issues government bonds to raise funds for the government.
C)   makes credit available to financial institutions in crises.
D)   buys or sells previously issued government bonds.

Question 12

In 2008, commercial banks' share of the U.S. credit market changed as a result of

Accepted Answer

A)   commercial banks that experienced significant difficulties resulting from real estate investments applied for status as investment banks.
B)   investment banks that experienced significant difficulties resulting from real estate investments applied for status as commercial banks.
C)   increasing returns on real estate investments led commercial banks to expand.
D)   increasing returns on real estate investments led investment banks to expand.

Question 13

Linda sells her Economics textbook to Ejere for $40. Ejere pays Linda with a check, which she deposits in her checking account in West Bank. Which statement below describes the check-clearing process?

Accepted Answer

A)   Linda's bank gains $40 in checkable deposits and loses $40 in reserves. Ejere's bank gains $40 in reserves and loses $40 in deposits.
B)   Linda's bank loses $40 in checkable deposits and gains $40 in reserves. Ejere's bank gains $40 in checkable deposits and loses $10,000 in reserves.
C)   Ejere's bank loses $40 in both reserves and checkable deposits. Linda's bank gains $40 in both checkable deposits and reserves.
D)   Ejere's bank loses $40 in reserves and gains $10,000 in checkable deposits. Linda's bank loses $40 in both reserves and checkable deposits.

Question 14

Which of the following is a store of value and a common medium of exchange?

Accepted Answer

A)   corporate bonds
B)   stocks
C)   checking account balances
D)   debit cards

Question 15

Which of the following equations is correct?

Accepted Answer

A)   assets = liabilities − net worth
B)   assets = liabilities + net worth
C)   liabilities = assets + net worth
D)   net worth = liabilities + assets

Question 16

Explain the differences between the two money measures, M1 and M2. Why are checks, debit cards, and credit cards not considered to be money?

Accepted Answer

M1 and M2 are two different measures of ...

Question 17

Which of the following is an example of a bank's assets?

Accepted Answer

A)   reserves borrowed from the Fed
B)   loans made to customers
C)   checkable deposits
D)   savings deposits

Question 18

The ease with which an asset can be converted to money is its

Accepted Answer

A)   liquidity.
B)   adaptability.
C)   accessibility.
D)   rigidity.

Question 19

When a member bank borrows reserves from the Fed,

Accepted Answer

A)   it pays an interest rate called the discount rate.
B)   it pays no interest rate but is required to repay the loan within the stipulated period.
C)   it pays an interest rate equivalent to the coupon rate on long-term government bonds.
D)   it pays an interest rate equal to the federal funds in the reserves market.

Question 20

Scenario 2: Fed sells bonds to Henry Hyde
Consider a banking system in which the reserve requirement is 10%, banks try not to hold excess reserves, consumers and firms hold money only in the form of checking account balances, and all loan proceeds are spent. Suppose initially all banks in the system are loaned up. Now, suppose that the Fed sells a $50,000 bond to Henry Hyde, who pays for the bond by writing a check drawn against Jekyll Bank.
-Refer to Scenario 2. Once the full impact of the Fed's open market sale works its way through the banking system, what is the maximum change on the money supply as a result of these two events?

Accepted Answer

A)   Money supply rises by $5,000.
B)   Money supply rises by $500,000.
C)   Money supply falls by $50,000.
D)   Money supply falls by $500,000.

Exam 9: The Nature and Creation of Money

Which of the following equations is correct?

Correct Answer
verified

Linda sells her Economics textbook to Ejere for $40. Ejere pays Linda with a check, which she deposits in her checking account in West Bank. Which statement below describes the check-clearing process?

Correct Answer
verified

When the Fed buys government bonds in the open market the money supply will increase.

Correct Answer
verified

Table 9-3 Balance Sheet of the Alpha-Beta Bank (All figures in $ million) -Refer to Table 9-3. If the required reserve ratio is 10%, what is the value of the bank's required reserves?

Correct Answer
verified

Assume that banks do not hold excess reserves, all deposits remain in the banking system and that the required reserve ratio is 20%. If one bank obtains excess reserves of $10,000, then the maximum increase in money supply is

Correct Answer
verified

When banks hold more reserves than are required, such reserves are called

Correct Answer
verified

Suppose the Fed sells $1,000 of government securities to Commercial Banks. Which pair of the T-accounts below shows this transaction?

Correct Answer
verified

Which of the following is a store of value and a common medium of exchange?

Correct Answer
verified

When a member bank borrows reserves from the Fed,

Correct Answer
verified

The largest component of M1 is

Correct Answer
verified

Which of the following is an example of a bank's assets?

Correct Answer
verified

The ease with which an asset can be converted to money is its

Correct Answer
verified

The discount rate

Correct Answer
verified

When the Federal Reserve conducts open market transactions, it

Correct Answer
verified

Correct Answer
verified

In 2008, commercial banks' share of the U.S. credit market changed as a result of

Correct Answer
verified

Which of the following are primary functions of a central bank? I. act as a regulator of banks II. issue government bonds III. set monetary policy IV. regulate dividend payments by corporations

Correct Answer
verified

Rank the following items in terms of most liquid to least liquid.

Correct Answer
verified

Explain the differences between the two money measures, M1 and M2. Why are checks, debit cards, and credit cards not considered to be money?

Correct Answer
Answered by ExamLex AI
M1 and M2 are two different measures of ...
View Answer

The unit-of-account function of money means that money is used

Correct Answer
verified

Exam 9: The Nature and Creation of Money

Which of the following equations is correct?

Correct AnswerverifiedShow Answer

Linda sells her Economics textbook to Ejere for $40. Ejere pays Linda with a check, which she deposits in her checking account in West Bank. Which statement below describes the check-clearing process?

Correct AnswerverifiedShow Answer

When the Fed buys government bonds in the open market the money supply will increase.

Correct AnswerverifiedShow Answer

Table 9-3 Balance Sheet of the Alpha-Beta Bank (All figures in $ million) -Refer to Table 9-3. If the required reserve ratio is 10%, what is the value of the bank's required reserves?

Correct AnswerverifiedShow Answer

Assume that banks do not hold excess reserves, all deposits remain in the banking system and that the required reserve ratio is 20%. If one bank obtains excess reserves of $10,000, then the maximum increase in money supply is

Correct AnswerverifiedShow Answer

When banks hold more reserves than are required, such reserves are called

Correct AnswerverifiedShow Answer

Suppose the Fed sells $1,000 of government securities to Commercial Banks. Which pair of the T-accounts below shows this transaction?

Correct AnswerverifiedShow Answer

Which of the following is a store of value and a common medium of exchange?

Correct AnswerverifiedShow Answer

When a member bank borrows reserves from the Fed,

Correct AnswerverifiedShow Answer

The largest component of M1 is

Correct AnswerverifiedShow Answer

Which of the following is an example of a bank's assets?

Correct AnswerverifiedShow Answer

The ease with which an asset can be converted to money is its

Correct AnswerverifiedShow Answer

The discount rate

Correct AnswerverifiedShow Answer

When the Federal Reserve conducts open market transactions, it

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In 2008, commercial banks' share of the U.S. credit market changed as a result of

Correct AnswerverifiedShow Answer

Which of the following are primary functions of a central bank? I. act as a regulator of banks II. issue government bonds III. set monetary policy IV. regulate dividend payments by corporations

Correct AnswerverifiedShow Answer

Rank the following items in terms of most liquid to least liquid.

Correct AnswerverifiedShow Answer

Explain the differences between the two money measures, M1 and M2. Why are checks, debit cards, and credit cards not considered to be money?

Correct AnswerAnswered by ExamLex AIM1 and M2 are two different measures of ...View AnswerShow Answer

The unit-of-account function of money means that money is used

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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Correct Answer
Answered by ExamLex AI
M1 and M2 are two different measures of ...
View Answer

Correct Answer
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