Question 1

What does the Fed auction at the Term-Auction Facility?

Accepted Answer

A)   government bonds of a quantity it sets
B)   government bonds with the quantity determined at the auction
C)   loans of a quantity it sets
D)   loans with the quantity determined at the auctionE) A) and D)
F) None of the above

Question 2

The Federal Reserve

Accepted Answer

A)   is responsible for conducting the nation's monetary policy, and it plays a role in regulating banks.
B)   is responsible for conducing the nation's monetary policy, but it plays no role in regulating banks.
C)   is not responsible for conducting the nation's monetary policy, and it plays a role in regulating banks.
D)   is not responsible for conducing the nation's monetary policy, and it plays no role in regulating banks.E) B) and C)
F) C) and D)

Question 3

Gary's wealth is $1 million. Economists would say that Gary has $1 million worth of money.

Accepted Answer

A) True 
 B)False

Question 4

A problem that the Fed faces when it attempts to control the money supply is that

Accepted Answer

A)   the 100-percent-reserve banking system in the U.S. makes it difficult for the Fed to carry out its monetary policy.
B)   the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools.
C)   the Fed does not have a tool that it can use to change the money supply by either a small amount or a large amount.
D)   the Fed does not control the amount of money that households choose to hold as deposits in banks.E) B) and C)
F) All of the above

Question 5

Which of the following is not included in either M1 or M2?

Accepted Answer

A)   money market deposit accounts
B)   large time deposit
C)   demand deposits
D)   money market mutual fundsE) A) and B)
F) B) and C)

Question 6

M1 equals currency plus demand deposits plus

Accepted Answer

A)   nothing else.
B)   other checkable deposits.
C)   traveler's checks plus other checkable deposits.
D)   traveler's checks plus other checkable deposits plus savings deposits.E) None of the above
F) All of the above

Question 7

Which of the following can banks use to borrow from the Federal Reserve?

Accepted Answer

A)   the discount window or the term auction facility
B)   the discount window but not the term auction facility
C)   the term auction facility but not the discount window
D)   Banks can not borrow from the Federal Reserve, only the government can.E) A) and B)
F) A) and C)

Question 8

There is a

Accepted Answer

A)   short-run tradeoff between inflation and unemployment.
B)   short-run tradeoff between an increase in the money supply and inflation.
C)   long-run tradeoff between inflation and unemployment.
D)   long-run tradeoff between an increase in the money supply and inflation.E) B) and C)
F) A) and C)

Question 9

The Board of Governors

Accepted Answer

A)   is chaired by the U.S. Secretary of the Treasury.
B)   members are elected by the U.S. public.
C)   has 7 members.
D)   All of the above are correct.E) A) and D)
F) C) and D)

Question 10

Which of the following functions of money is also a common function of most other financial assets?

Accepted Answer

A)   a unit of account
B)   a store of value
C)   medium of exchange
D)   None of the above is correct.E) All of the above
F) A) and D)

Question 11

If a bank uses $100 of excess reserves to make a new loan when the reserve ratio is 10 percent, this action by itself initially makes the money supply

Accepted Answer

A)   and wealth increase by $100.
B)   and wealth decrease by $100.
C)   increase by $100 while wealth does not change.
D)   decrease by $100 while wealth decreases by $100.E) A) and D)
F) None of the above

Question 12

When conducting an open-market purchase, the Fed

Accepted Answer

A)   buys government bonds, and in so doing increases the money supply.
B)   buys government bonds, and in so doing decreases the money supply.
C)   sells government bonds, and in so doing increases the money supply.
D)   sells government bonds, and in so doing decreases the money supply.E) A) and C)
F) A) and B)

Question 13

Suppose the banking system currently has $400 billion in reserves, the reserve requirement is 10 percent, and excess reserves are $3 billion. What is the level of loans?

Accepted Answer

A)   $3,603 billion
B)   $3,600 billion
C)   $3,573 billion
D)   $3,570 billionE) B) and C)
F) All of the above

Question 14

Table 11-1. The information in the table pertains to an imaginary economy.
 
-Refer to Table 11-1. What is the M2 money supply?

Accepted Answer

A)   $125 billion
B)   $296 billion
C)   $351 billion
D)   $431 billionE) B) and C)
F) All of the above

Question 15

Credit cards are a medium of exchange.

Accepted Answer

A) True 
 B)False

Question 16

Economists use the term "money" to refer to

Accepted Answer

A)   all wealth.
B)   all assets, including real assets and financial assets.
C)   all financial assets, but not real assets.
D)   those types of wealth that are regularly accepted by sellers in exchange for goods and services.E) C) and D)
F) None of the above

Question 17

Other things the same if reserve requirements are decreased, the reserve ratio

Accepted Answer

A)   decreases, the money multiplier increases, and the money supply decreases.
B)   increases, the money multiplier increases, and the money supply increases.
C)   decreases, the money multiplier increases, and the money supply increases.
D)   increases, the money multiplier increases, and the money supply decreases.E) A) and B)
F) B) and C)

Question 18

Derek decides to forego a major appliance purchase and save the money. He transfers $2,100 from his checking account to his savings account. As a result of this transfer by itself

Accepted Answer

A)   M1 increases by $2,100 and M2 stays the same.
B)   M1 increases by $2,100 and M2 increases by $2,100.
C)   M1 decreases by $2,100 and M2 increases by $2,100.
D)   M1 decreases by $2,100 and M2 stays the same.E) A) and D)
F) B) and C)

Question 19

Reserves decrease if the Federal Reserve

Accepted Answer

A)   raises the discount rate or auctions more credit.
B)   raises the discount rate but not if it auctions more credit.
C)   lowers the discount rate or auctions more credit.
D)   lowers the discount rate but not if it auctions more credit.E) A) and C)
F) None of the above

Question 20

Paper dollars

Accepted Answer

A)   are commodity money and gold coins are fiat money.
B)   are fiat money and gold coins are commodity money.
C)   and gold coins are both commodity monies.
D)   and gold coins are both fiat monies.E) All of the above
F) A) and D)

Exam 11: The Monetary System

Which of the following is not included in either M1 or M2?

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Which of the following can banks use to borrow from the Federal Reserve?

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Derek decides to forego a major appliance purchase and save the money. He transfers $2,100 from his checking account to his savings account. As a result of this transfer by itself

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The Federal Reserve

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If a bank uses $100 of excess reserves to make a new loan when the reserve ratio is 10 percent, this action by itself initially makes the money supply

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Paper dollars

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Credit cards are a medium of exchange.

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Other things the same if reserve requirements are decreased, the reserve ratio

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The Board of Governors

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Reserves decrease if the Federal Reserve

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Table 11-1. The information in the table pertains to an imaginary economy. -Refer to Table 11-1. What is the M2 money supply?

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There is a

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M1 equals currency plus demand deposits plus

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A problem that the Fed faces when it attempts to control the money supply is that

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Gary's wealth is $1 million. Economists would say that Gary has $1 million worth of money.

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Which of the following functions of money is also a common function of most other financial assets?

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Suppose the banking system currently has $400 billion in reserves, the reserve requirement is 10 percent, and excess reserves are $3 billion. What is the level of loans?

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Economists use the term "money" to refer to

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When conducting an open-market purchase, the Fed

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What does the Fed auction at the Term-Auction Facility?

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