Question 1

A bank has $1000 in deposits and maintains a 12 percent reserve ratio. Its reserves are $_____.

Accepted Answer

The answer of A bank has $1000 in deposits and...

Question 2

If the reserve ratio is 5 percent, then $500 of additional reserves can create up to

Accepted Answer

A)  $10,500 of new money.
B)  $10,000 of new money.
C)  $9,500 of new money.
D)  $2,500 of new money.

Question 3

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 4

Which of the following increases when the Fed makes open-market sales?

Accepted Answer

A)  currency and reserves
B)  currency but not reserves
C)  reserves but not currency
D)  neither currency nor reserves

Question 5

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.

Question 6

In a 100-percent-reserve banking system, if people decided to decrease the amount of currency they held by increasing the amount they held in checkable deposits, then

Accepted Answer

A)  M1 would increase.
B)  M1 would decrease.
C)  M1 would not change.
D)  M1 might rise or fall.

Question 7

First National Bank (FNB)  has a reserve ratio of 20 percent, a required reserve ratio of 10 percent, and deposits of $1,000. If FNB receives an additional deposit of $100,

Accepted Answer

A)  then it has required reserves of $210 and holds excess reserves of $10.
B)  then it has required reserves of $10 and holds excess reserves of $20.
C)  then it has required reserves of $110 and holds excess reserves of $190.
D)  then it has required reserves of $110 and holds excess reserves of $0.

Question 8

As the reserve ratio decreases, the money multiplier

Accepted Answer

A)  increases.
B)  does not change.
C)  decreases.
D)  could do any of the above.

Question 9

Credit cards

Accepted Answer

A)  represent the largest component of M1.
B)  are not included in M1 but are included in M2.
C)  are a form of money unique to the U.S.
D)  are not considered money.

Question 10

Money is the only asset that functions as a store of value.

Accepted Answer

A) True 
 B)False

Question 11

Reserves are

Accepted Answer

A)  the central bank of the U.S.
B)  deposits that banks hold in excess of the required amount.
C)  the purchase of bonds by the Federal Open Market Committee.
D)  deposits that banks have received but have not yet loaned out.

Question 12

If the reserve ratio is 20 percent, then $100 of new reserves can generate

Accepted Answer

A)  $60 of new money in the economy.
B)  $250 of new money in the economy.
C)  $500 of new money in the economy.
D)  $2,000 of new money in the economy.

Question 13

When in France you notice that prices are posted in euros, this best illustrates money's function as

Accepted Answer

A)  a store of value.
B)  a medium of exchange.
C)  a unit of account.
D)  a method of barter.

Question 14

Discuss why the Fed rarely changes the reserve requirements.

Accepted Answer

There are two main reasons the Fed does ...

Question 15

Many societies used gold as money, because

Accepted Answer

A)  it is relatively rare.
B)  it is durable.
C)  it has a relatively low melting point.
D)  All of the above are correct.

Question 16

Which of the following best illustrates the concept of a store of value?

Accepted Answer

A)  You are a precious-metals dealer, and you are always aware of how many ounces of platinum trade for an ounce of gold.
B)  You sell items on eBay, and your prices are stated in terms of dollars.
C)  You keep 6 ounces of gold in your safe-deposit box at the bank for emergencies.
D)  None of the above is correct.

Question 17

Table 29-2. The information in the table pertains to an imaginary economy. 
-Refer to Table 29-2. What is the M1 money supply?

Accepted Answer

A)  $705 billion
B)  $570 billion
C)  $505 billion
D)  $585 billion

Question 18

If the public decides to hold less currency and more deposits in banks, bank reserves

Accepted Answer

A)  decrease and the money supply eventually decreases.
B)  decrease but the money supply does not change.
C)  increase and the money supply eventually increases.
D)  increase but the money supply does not change.

Question 19

When the Fed purchases $1000 worth of government bonds from the public, the U.S. money supply eventually increases by

Accepted Answer

A)  more than $1000.
B)  exactly $1000.
C)  less than $1000.
D)  None of the above are correct.

Question 20

An increase in the money supply might indicate that the Fed had

Accepted Answer

A)  purchased bonds to increase banks reserves.
B)  purchased bonds to decrease banks reserves.
C)  sold bonds to increase banks reserves.
D)  sold bonds to decrease banks reserves.

Exam 29: The Monetary System

If the reserve ratio is 20 percent, then $100 of new reserves can generate

Correct AnswerverifiedShow Answer

If the reserve ratio is 5 percent, then $500 of additional reserves can create up to

Correct AnswerverifiedShow Answer

When in France you notice that prices are posted in euros, this best illustrates money's function as

Correct AnswerverifiedShow Answer

As the reserve ratio decreases, the money multiplier

Correct AnswerverifiedShow Answer

When the Fed purchases $1000 worth of government bonds from the public, the U.S. money supply eventually increases by

Correct AnswerverifiedShow Answer

Which of the following increases when the Fed makes open-market sales?

Correct AnswerverifiedShow Answer

Credit cards

Correct AnswerverifiedShow Answer

If the public decides to hold less currency and more deposits in banks, bank reserves

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Money is the only asset that functions as a store of value.

Correct AnswerverifiedShow Answer

Which of the following best illustrates the concept of a store of value?

Correct AnswerverifiedShow Answer

An increase in the money supply might indicate that the Fed had

Correct AnswerverifiedShow Answer

Discuss why the Fed rarely changes the reserve requirements.

Correct AnswerverifiedThere are two main reasons the Fed does ...View AnswerShow Answer

Many societies used gold as money, because

Correct AnswerverifiedShow Answer

Reserves are

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Money market mutual funds are included in

Correct AnswerverifiedShow Answer

A bank has $1000 in deposits and maintains a 12 percent reserve ratio. Its reserves are $_____.

Correct AnswerverifiedShow Answer

In a 100-percent-reserve banking system, if people decided to decrease the amount of currency they held by increasing the amount they held in checkable deposits, then

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

First National Bank (FNB) has a reserve ratio of 20 percent, a required reserve ratio of 10 percent, and deposits of $1,000. If FNB receives an additional deposit of $100,

Correct AnswerverifiedShow Answer

Table 29-2. The information in the table pertains to an imaginary economy. -Refer to Table 29-2. What is the M1 money supply?

Correct AnswerverifiedShow Answer

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There are two main reasons the Fed does ...
View Answer

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

Correct Answer
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