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Chap 29

These questions test understanding of monetary policy tools used by the Federal Reserve like open market operations, the discount rate, and reserve requirements. They also cover concepts like how banks create money through the money multiplier effect when making loans and how different types of money like currency, demand deposits, and savings deposits factor into measuring the money supply.

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22 views

Chap 29

These questions test understanding of monetary policy tools used by the Federal Reserve like open market operations, the discount rate, and reserve requirements. They also cover concepts like how banks create money through the money multiplier effect when making loans and how different types of money like currency, demand deposits, and savings deposits factor into measuring the money supply.

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Trân Bảo
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© © All Rights Reserved
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2. Mia puts money into a piggy bank so she can spend it later.

What function of money does


this illustrate?
A. unit of account
B. store of value
C. None of the other answers are correct.
D. medium of exchange

19. Which of the following lists ranks the Fed’ s monetary policy tools from most to least
frequently used?
A. discount rate changes, reserve
requirement changes, open market transactions
B. open market transactions, discount rate changes, interest on reserve changes, reserve
requirement changes
C. None of the other answers ranks the tools correctly.
D. reserve requirement changes, open market transactions, discount rate changes

17. Which list contains only actions that decrease the money supply?
A. raise the discount rate, lower the
reserve requirement ratio
B. lower the discount rate, lower the reserve requirement ratio
C. raise the discount rate, raise the reserve requirement ratio
D. lower the discount rate, raise the reserve requirement ratio

11. The Fed can increase the money supply by conducting open market
A. purchases and lowering the discount rate.
B. sales and lowering the discount rate.
C. sales and raising the discount rate.
D. purchases and raising the discount rate.

8. The Fed does all except which of the following?


A. act as a lender of last resort
B. conduct monetary policy
C. convert Federal Reserve Notes into gold.
D. control the value of money.

13. If you deposit $100 into a demand deposit at a bank, this action by itself
A. does not change the money supply.
B. has an indeterminate effect on the money supply.
C. decreases the money supply.
D. increases the money supply.

5. Which of the following is included in M2 but not in M1?


A. demand deposits
B. large time deposits
C. corporate bonds
D. money market mutual funds
16. If the reserve ratio is 15 percent, an additional $1,000 of reserves will increase the
money supply, to the nearest dollar, by
A. $5667.
B. $1275.
C. $1176.
D. $6667.

1. Economists use the word "money" to refer to


A. the value of a personas assets.
B. those assets regularly used to buy goods and services.
C. the value of stocks and bonds.
D. income generated by the production of goods and services.

15. If the reserve ratio is 5 percent and a bank receives a new deposit of $500, this bank
A. will initially see its total reserves increase by $500.
B. will be able to make a new loan of $475.
C. must increase its required reserves by $25.
D. All of the other answers are true.

6. Use the hypothetical information in the following table to find the M2 money supply.
Type of Money Amount
Large time deposits $80 billion
Small time deposits $75 billion
Demand deposits $75 billion
Other checkable deposits $40 billion
Savings deposits $10 billion
Travelers' checks $1 billion
Money market mutual funds $15 billion
Currency $100 billion
SDRs $10 billion
Miscellaneous categories of M2 $25 billion

A. $125 billion
B. $421 billion
C. $341 billion
D. $431 billion

4. Which type of currency has intrinsic value?


A. commodity money
B. both commodity money and fiat money
C. neither commodity money nor fiat money
D. fiat money

10. When the Federal Reserve conducts open market transactions, it


A. increases its lending to member banks.
B. buys or sells government bonds from the public.
C. lowers the discount rate.
D. issues Federal Reserve notes.

3. Which list ranks assets from most to least liquid?


A. paintings, currency, stocks
B. currency, paintings, stocks
C. currency, stocks, paintings
D. paintings, stocks, currency

18. In the nineteenth century when there were often bank runs caused by crop failures,
banks would make relatively fewer loans and hold relatively more excess reserves. By itself,
these actions by the banks should have
A. increased the money multiplier and the money supply.
B. decreased the money multiplier and increased the money supply.
C. decreased both the money multiplier and the money supply.
D. increased the money multiplier and decreased the money supply.

7. Which of the following might explain why the United States has so much currency per
person?
A. People use credit and debit cards more frequently.
B. Currency may be a preferable store of wealth for criminals.
C. U.S. citizens are holding a lot of foreign currency.
D. All of the other answers help explain the abundance of currency.

9. What part of the Fed meets every six weeks to discuss changes in the economy and
determine monetary policy?
A. the Board of Governors
B. the regional Federal Reserve Bank presidents
C. the FOMC
D. the Central Bank Policy Commission.

14. If a bank uses $100 of reserves to make a new loan when the reserve ratio is 20 percent,
this action by itself initially makes the money supply
A. increase by $100 while wealth does not change.
B. and wealth increase by $100.
C. and wealth decrease by $100.
D. decrease by $100 while wealth decreases by $100

12. Suppose a bank has a 10 percent reserve ratio, $5,000 in deposits, and it loans out all it
can given the reserve ratio.
A. None of the other answers are correct.
B. It has $50 in reserves and $4,950 in loans.
C. It has $555 in reserves and $4,445 in loans.
D. It has $500 in reserves and $4,500 in loans.
20. The banking system has $10 million in reserves, the reserve requirement is 20 percent,
and there are no excess reserves. The public holds $10 million in cash. Then bankers decide
that it is prudent to hold some excess reserves and begin to hold 25 percent of deposits in
the form of reserves. At the same time, the public decides to withdraw $5 million in
currency from the banking system. Other things the same, these actions will cause the
money supply to
A. fall by $35 million.
B. fall by $10 million.
C. fall by $25 million.
D. change forms, but not size.

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