Question 1

A person's wealth

Accepted Answer

A)   is a measure of how much money the person has.
B)   equals the value the person's assets minus his or her liabilities.
C)   is measured independent of his or her current and expected future income.
D)   All of the above are correct.

Question 2

The process of bundling financial assets together and buying and selling these bundles in a secondary financial market is called

Accepted Answer

A)   open market operations.
B)   securitization.
C)   fractional reserve lending.
D)   seigniorage.

Question 3

The Fed was founded in 1913 to serve as lender of last resort to bankers during bank runs and panics.

Accepted Answer

A) True 
 B)False

Question 4

Suppose that the required reserve ratio is 10 percent and you withdraw $25,000 from Comerica Bank.What is the deposit multiplier? What is the total decrease in deposits in the banking system? What is the change in the money supply?

Accepted Answer

The simple deposit multiplier is equal t...

Question 5

According to the quantity theory of money,if the money supply grows at 6%,real GDP grows at 2%,and the velocity of money is constant,then the inflation rate will be

Accepted Answer

A)   8%.
B)   6%.
C)   4%.
D)   2%.

Question 6

Describe the structure of the Fed's Open Market Committee (FOMC). What is this committee's primary responsibility?

Accepted Answer

The FOMC is comprised of the seven membe...

Question 7

If households in the economy decide to take money out of checking account deposits and hold it as currency,this will initially

Accepted Answer

A)   not change M1 and increase M2.
B)   decrease M1 and decrease M2.
C)   decrease M1 and not change M2.
D)   not change M1 and not change M2.

Question 8

Which of the following is the most liquid asset?

Accepted Answer

A)   a Renoir painting
B)   bonds
C)   a car
D)   money

Question 9

Gold is an example of

Accepted Answer

A)   commodity money.
B)   fiat money.
C)   barter money.
D)   M1.

Question 10

Suppose you transfer $2,000 from your mutual fund account to your checking account.What is the immediate impact of this transfer on M1 and M2?

Accepted Answer

Mutual fund balances are part of M2,but ...

Question 11

If the rate of growth in real GDP exceeds the rate of growth in the money supply,the quantity theory of money predicts inflation.

Accepted Answer

A) True 
 B)False

Question 12

Using the five criteria in the book,explain how U.S.currency is suitable to use as a medium of exchange.

Accepted Answer

1.Dollars are acceptable to most traders...

Question 13

An economy without money would have no exchanges of goods and services.

Accepted Answer

A) True 
 B)False

Question 14

Which policy tool allows the Federal Reserve the greatest control over monetary policy?

Accepted Answer

A)   the discount rate
B)   open market operations
C)   the reserve requirement
D)   lender of last resort

Question 15

Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 10 percent. If the Federal Reserve reduces the required reserve ratio to 4 percent,then the bank can make a maximum loan of

Accepted Answer

A)   $0.
B)   $4 million.
C)   $6 million.
D)   $10 million.

Question 16

If,during a deposit expansion,not all money gets redeposited into the banking system and some leaks out as currency,then the real world multiplier is

Accepted Answer

A)   smaller than 1/RR.
B)   larger than 1/RR.
C)   equal to 1/RR.
D)   not related to 1/RR.

Question 17

To increase the money supply,the Federal Reserve could

Accepted Answer

A)   lower the discount rate.
B)   decrease income taxes.
C)   raise the required reserve ratio.
D)   conduct an open market sale of Treasury securities.

Question 18

Lowering the discount rate will

Accepted Answer

A)   decrease reserves, encourage banks to make fewer loans, and decrease the money supply.
B)   decrease reserves, encourage banks to make fewer loans, and increase the money supply.
C)   increase reserves, encourage banks to make more loans, and increase the money supply.
D)   increase reserves, encourage banks to make more loans, and decrease the money supply.

Question 19

The quantity theory of money implies that the price level will be stable (no inflation or deflation) when the growth rate of the money supply equals

Accepted Answer

A)   0.
B)   the growth rate of the price level.
C)   the growth rate of the velocity of money.
D)   the growth rate of real GDP.

Question 20

Most U.S.currency held outside the U.S.banking system is held by foreigners.

Accepted Answer

A) True 
 B)False

Exam 14: Money, banks, and the Federal Reserve System

According to the quantity theory of money,if the money supply grows at 6%,real GDP grows at 2%,and the velocity of money is constant,then the inflation rate will be

Correct AnswerverifiedShow Answer

A person's wealth

Correct AnswerverifiedShow Answer

Suppose you transfer $2,000 from your mutual fund account to your checking account.What is the immediate impact of this transfer on M1 and M2?

Correct AnswerverifiedMutual fund balances are part of M2,but ...View AnswerShow Answer

The process of bundling financial assets together and buying and selling these bundles in a secondary financial market is called

Correct AnswerverifiedShow Answer

If the rate of growth in real GDP exceeds the rate of growth in the money supply,the quantity theory of money predicts inflation.

Correct AnswerverifiedShow Answer

Lowering the discount rate will

Correct AnswerverifiedShow Answer

Which policy tool allows the Federal Reserve the greatest control over monetary policy?

Correct AnswerverifiedShow Answer

Which of the following is the most liquid asset?

Correct AnswerverifiedShow Answer

To increase the money supply,the Federal Reserve could

Correct AnswerverifiedShow Answer

Gold is an example of

Correct AnswerverifiedShow Answer

Suppose that the required reserve ratio is 10 percent and you withdraw $25,000 from Comerica Bank.What is the deposit multiplier? What is the total decrease in deposits in the banking system? What is the change in the money supply?

Correct AnswerverifiedThe simple deposit multiplier is equal t...View AnswerShow Answer

Describe the structure of the Fed's Open Market Committee (FOMC). What is this committee's primary responsibility?

Correct AnswerverifiedThe FOMC is comprised of the seven membe...View AnswerShow Answer

The Fed was founded in 1913 to serve as lender of last resort to bankers during bank runs and panics.

Correct AnswerverifiedShow Answer

If,during a deposit expansion,not all money gets redeposited into the banking system and some leaks out as currency,then the real world multiplier is

Correct AnswerverifiedShow Answer

Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 10 percent. If the Federal Reserve reduces the required reserve ratio to 4 percent,then the bank can make a maximum loan of

Correct AnswerverifiedShow Answer

Most U.S.currency held outside the U.S.banking system is held by foreigners.

Correct AnswerverifiedShow Answer

The quantity theory of money implies that the price level will be stable (no inflation or deflation) when the growth rate of the money supply equals

Correct AnswerverifiedShow Answer

Using the five criteria in the book,explain how U.S.currency is suitable to use as a medium of exchange.

Correct Answerverified1.Dollars are acceptable to most traders...View AnswerShow Answer

If households in the economy decide to take money out of checking account deposits and hold it as currency,this will initially

Correct AnswerverifiedShow Answer

An economy without money would have no exchanges of goods and services.

Correct AnswerverifiedShow Answer

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Mutual fund balances are part of M2,but ...
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The simple deposit multiplier is equal t...
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The FOMC is comprised of the seven membe...
View Answer

Correct Answer
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Correct Answer
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1.Dollars are acceptable to most traders...
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Correct Answer
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Correct Answer
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