Question 1

Which of the following is most frequently used when the Fed is attempting to adjust the money supply?

Accepted Answer

A)  ​Changing reserve requirements
B)  ​Open market operations
C)  ​Changing the discount rate
D)  ​Moral suasionE) B) and D)
F) C) and D)

Question 2

Which of the following backs our money supply?

Accepted Answer

A)  ​The words "This note is legal tender."
B)  ​The faith in the government
C)  ​The faith that people will take it in exchange for goods and services
D)  ​Precious metalsE) All of the above
F) None of the above

Question 3

The problem of double coincidence of wants is associated with:

Accepted Answer

A)  ​paper money.
B)  ​insurance.
C)  ​credit cards.
D)  ​barter system.E) B) and C)
F) C) and D)

Question 4

Money functioning as a medium of exchange results in an increase in transactions costs.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is false?

Accepted Answer

A)  ​The money supply will tend to rise when the Fed pays a lower interest rate on bank reserves.
B)  ​If banks never wanted to hold excess reserves, decreasing the interest rate the Fed pays on reserves would increase the money supply.
C)  ​If banks hold excess reserves, the actual money multiplier would be less than potential money expansion.
D)  ​All of the above are trueE) All of the above
F) B) and C)

Question 6

If you deposit $500 cash into your account at a commercial bank. If it faces a 10 percent required reserve ratio, as a result of your deposit, the bank will:

Accepted Answer

A)  ​have $450 of additional excess reserves.
B)  ​be capable of lending an additional $5,000.
C)  ​be capable of lending an additional $500
D)  ​have $50 of additional excess reserves.E) A) and D)
F) B) and C)

Question 7

Which of the following assets is most liquid?

Accepted Answer

A)  ​funds in a checking account
B)  ​a car
C)  ​ten acres of land
D)  ​a televisionE) B) and C)
F) B) and D)

Question 8

Rapid inflation makes holding a large amount of money:

Accepted Answer

A)  ​wiser, because you will generally need more and more to buy the goods and services you want.
B)  ​less wise, because the opportunity cost of holding money is high.
C)  ​less wise, because someone might steal it, or it might be destroyed.
D)  ​wiser, because the opportunity cost of holding money is high.E) A) and B)
F) A) and C)

Question 9

The chief function of the Federal Reserve is to be the federal government's tax collection institution.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is true?

Accepted Answer

A)  ​The FDIC sets the reserve requirements for commercial banks.
B)  ​The Federal Reserve System guarantees the deposits in almost all banks up to a limit of $1,000,000 per account.
C)  ​If a bank should fail, the FDIC guarantees that depositors can get their funds up to a limit of $250,000 per account.
D)  ​all of the aboveE) C) and D)
F) B) and D)

Question 11

U.S. government bonds held by commercial banks are:

Accepted Answer

A)  ​government assets and commercial bank assets.
B)  ​government assets and commercial bank liabilities.
C)  ​government liabilities and commercial bank assets.
D)  ​government liabilities and commercial bank liabilities.E) B) and C)
F) A) and D)

Question 12

When the U.S. banking system collapsed during 1929-1933, the money supply declined dramatically.

Accepted Answer

A) True 
 B)False

Question 13

There are 12 Federal Reserve Banks in the Federal Reserve System.

Accepted Answer

A) True 
 B)False

Question 14

The interest rate that the Fed charges banks for borrowing funds is called the federal funds rate.

Accepted Answer

A) True 
 B)False

Question 15

There is a positive correlation between a nation's average annual inflation and the degree of independence of its central bank.

Accepted Answer

A) True 
 B)False

Question 16

Most of the key decisions of the Federal Reserve are actually made by its Federal Open Market Committee.

Accepted Answer

A) True 
 B)False

Question 17

An increase in the excess reserves banks want to hold, together with people taking currency out of their demand deposit accounts, would:

Accepted Answer

A)  ​increase the money supply.
B)  ​decrease the money supply.
C)  ​leave the money supply unchanged.
D)  ​have an indeterminate effect on the money supply.E) B) and C)
F) A) and D)

Question 18

Suppose the banking system as a whole has $600 billion in deposits and $66 billion in reserves, with a reserve ratio of 11 percent. What happens to the stock of money if the Fed lowers reserve requirements by changing the reserve ratio to 10 percent?

Accepted Answer

Under the revised reserve requirements, ...

Question 19

Which of the following is true?

Accepted Answer

A)  ​Demand deposits and other checkable deposits have replaced paper and metallic currency as the major source of money used for transactions in the United States.
B)  ​Credit cards are not money; they are substitutes for the use of money in exchange.
C)  ​Most of the money that we use for day-to-day transactions is not official legal tender.
D)  ​all of the aboveE) A) and C)
F) A) and B)

Question 20

Which of the following would most likely reduce the number of bank failures?

Accepted Answer

A)  ​an increase in the number of small banks
B)  ​tighter restrictions on interstate banking
C)  ​creating a system of deposit insurance
D)  ​encouraging banks to make more risky loansE) B) and C)
F) A) and D)

Exam 17: Income, Poverty and Health Care

The interest rate that the Fed charges banks for borrowing funds is called the federal funds rate.

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U.S. government bonds held by commercial banks are:

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There are 12 Federal Reserve Banks in the Federal Reserve System.

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The chief function of the Federal Reserve is to be the federal government's tax collection institution.

Correct AnswerverifiedShow Answer

The problem of double coincidence of wants is associated with:

Correct AnswerverifiedShow Answer

When the U.S. banking system collapsed during 1929-1933, the money supply declined dramatically.

Correct AnswerverifiedShow Answer

Suppose the banking system as a whole has $600 billion in deposits and $66 billion in reserves, with a reserve ratio of 11 percent. What happens to the stock of money if the Fed lowers reserve requirements by changing the reserve ratio to 10 percent?

Correct AnswerverifiedUnder the revised reserve requirements, ...View AnswerShow Answer

Most of the key decisions of the Federal Reserve are actually made by its Federal Open Market Committee.

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Which of the following backs our money supply?

Correct AnswerverifiedShow Answer

Which of the following would most likely reduce the number of bank failures?

Correct AnswerverifiedShow Answer

An increase in the excess reserves banks want to hold, together with people taking currency out of their demand deposit accounts, would:

Correct AnswerverifiedShow Answer

Rapid inflation makes holding a large amount of money:

Correct AnswerverifiedShow Answer

Which of the following is most frequently used when the Fed is attempting to adjust the money supply?

Correct AnswerverifiedShow Answer

There is a positive correlation between a nation's average annual inflation and the degree of independence of its central bank.

Correct AnswerverifiedShow Answer

Money functioning as a medium of exchange results in an increase in transactions costs.

Correct AnswerverifiedShow Answer

Which of the following assets is most liquid?

Correct AnswerverifiedShow Answer

Which of the following is false?

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If you deposit $500 cash into your account at a commercial bank. If it faces a 10 percent required reserve ratio, as a result of your deposit, the bank will:

Correct AnswerverifiedShow Answer

Which of the following is true?

Correct AnswerverifiedShow Answer

Which of the following is true?

Correct AnswerverifiedShow Answer

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Under the revised reserve requirements, ...
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