Money
a) is more efficient than barter.
b) makes trades easier.
c) allows greater specialization.
d) All of the above are correct
d
Which of the following is a function of money?
a) a unit of account
b) a store of value
c) medium of exchange
d) All of the above are correct
d
You receive money as payment for babysitting
your neighbors' children. This best illustrates
which function of money?
medium of exchange
Dollar bills, rare paintings, and emerald
necklaces are all
stores of value.
Which list ranks assets from most to least
liquid?
a) money, bonds, cars, houses
b) money, cars, houses, bonds
c) bonds, money, cars, houses
d) bonds, cars, money, houses
a
Money is
the most liquid asset but an imperfect
store of value
When in France you notice that prices are
posted in euros, this best illustrates money's
function as
a unit of account
Paper dollars is and gold coins are
are fiat money and gold coins are
commodity money
Currency includes
a) paper bills and coins.
b) demand deposits.
c) credit cards.
d) Both (a) and (b) are correct.
a
Economists call an institution designed to
oversee the banking system and regulate the
quantity of money in the economy
a central bank
The agency responsible for regulating the
money supply in the United States is
the Federal Reserve
A central bank's setting (or altering) of the
money supply is known as
monetary policy
The Federal Reserve
a) was created in 1913.
b) is the U.S.'s central bank.
c) has other duties in addition to controlling
the money supply.
d) All of the above are correct.
d
The members of the Federal Reserve's
Board of Governors
are appointed by the president of the
U.S. and confirmed by the U.S.
Senate
Which of the following is correct?
a) The Federal Reserve has 14 regional
banks. The Board of Governors has 12
members who serve 7-year terms.
b) The Federal Reserve has 14 regional
banks. The Board of Governors has 7
members who serve 14-year terms.
c) T
d
The regional Federal Reserve Banks
a) are not allowed to make loans to banks
in their region.
b) regulate banks in their regions.
c) have more voting members on the
FOMC than does the Board of
Governors.
d) are each headed by a member of the
Board of Gove
b
Which group within the Federal Reserve
System meets to discuss changes in the economy
and determine monetary policy?
the fomc
At the Federal Reserve
the nation's monetary policy is made
by the Federal Open Market
Committee, which meets about every
six weeks.
At any given time, the voting members of the
Federal Open Market Committee include
a) five of the presidents of the regional
Federal Reserve banks.
b) the president of the Federal Reserve
Bank of New York.
c) the seven members of the Board of
Governors.
d
d
The New York Federal Reserve Bank
a) president always gets to vote at the
FOMC meetings.
b) conducts open market transactions.
c) is one of 12 regional Federal Reserve
Banks.
d) All of the above are correct.
d
In a system of 100-percent-reserve banking
banks do not make loans
A bank which must hold 100 percent
reserves opens in an economy that had no banks
and a currency of $150. If customers deposit $50
into the bank, what is the value of the money
supply?
150
If a bank has a reserve ratio of 8 percent,
then
the bank keeps 8 percent of its
deposits as reserves and loans out the
rest
A bank's reserve ratio is 8 percent and the
bank has $1,000 in deposits. Its reserves amount
to
a) $8.
b) $80.
c) $92.
d) $920.
b
If a bank that desires to hold no excess
reserves and has just enough reserves to meet
the required reserve ratio of 15 percent receives
a deposit of $600, it has a
a) $600 increase in excess reserves and no
increase in required reserves.
b) $600 increase
c
A bank's assets equal its liabilities under
both 100-percent-reserve banking and
fractional-reserve banking.
A bank loans Kellie's Print Shop $350,000 to
remodel a building near campus to use as a new
store. On their respective balance sheets, this
loan is
a) an asset for the bank and a liability
for Kellie's Print Shop. The loan
increases the money supply.
b) a
a
Reserves are
deposits that banks have received but
have not yet loaned out.
A bank has a 5 percent reserve requirement,
$5,000 in deposits, and has loaned out all it can
given the reserve requirement.
a) It has $25 in reserves and $4,975 in
loans.
b) It has $250 in reserves and $4,750 in
loans.
c) It has $1,000 in reserves and $4
b
A bank has $8,000 in deposits and $6,000 in
loans. It has loaned out all it can given the
reserve requirement. It follows that the reserve
requirement is
25 percent
A bank has a 10 percent reserve requirement,
$36,000 in loans, and has loaned out all it can
given the reserve requirement.
It has $40,000 in deposits
The reserve requirement is 12 percent. Lucy
deposits $600 into a bank. By how much do
excess reserves change?
528
Suppose banks desire to hold no excess
reserves and that the Fed has set a reserve
requirement of 6 percent. If you deposit $8,000
into First Raven Bank,
a) First Raven's required reserves increase
by $480.
b) First Raven will be able to lend out
$7,520.
d
When a bank loans out $1,000, the money
supply
increases
The money multiplier equals
1/R, where R represents the reserve
ratio for all banks in the economy
As the reserve ratio decreases, the money
multiplier
increases
If the reserve ratio is 4 percent, then the
money multiplier is
25
If the reserve ratio is 5 percent, then $500 of
additional reserves can create up to
$10,000 of new money
Suppose the Federal Reserve increases bank
reserves and banks lend out some of these
reserves, but at some point banks still have $5
million more they wish to lend out. If the reserve
requirement is 10 percent, how much more
money can banks create if they
50 million
look at tables 40-42
...
Suppose a bank is operating with a leverage
rate of 10. A 6 percent increase in the value of
assets
will result in a 60 percent increase in
owner's equity
Bank regulators impose capital requirements
in order to
ensure banks can pay off depositors
Which of the following can the Fed do to
change the money supply?
a) change reserves or change the reserve
ratio
b) change reserves but not change the
reserve ratio
c) change the reserve ratio but not change
the reserve ratio
d) neither change reserves no
a
When conducting an open-market sale, the
Fed
sells government bonds, and in so
doing decreases the money supply
When conducting an open-market purchase,
the Fed
buys government bonds, and in so
doing increases the money supply
Which tool of monetary policy does the
Federal Reserve use most often?
open-market operations
When the Fed purchases $1000 worth of
government bonds from the public, the U.S.
money supply eventually increases by
more than $1000
If the money multiplier is 3 and the Fed buys
$50,000 worth of bonds, what happens to the
money supply?
it increases by $150,000
If the money multiplier is 3 and the Fed wants
to increase the money supply by $900,000, it
could
buy $300,000 worth of bonds
When the Fed decreases the discount rate,
banks will
borrow more from the Fed and lend
more to the public. The money supply
increases
The Fed can increase the money supply by
conducting open-market
purchases or by lowering the discount
rate
If the Federal Reserve increases the interest
rate on bank deposits at the Fed, banks will want
to hold
more reserves, so the reserve ratio
will rise
In a fractional-reserve banking system, an
increase in reserve requirements
decreases both the money multiplier
and the money supply
The money supply increases when the Fed
buys bonds. The increase will be
larger, the smaller is the reserve ratio
The Fed increases the reserve requirement,
but it wants to offset the effects on the money
supply. Which of the following should it do?
buy bonds to increase reserves
The reserve requirement is 4 percent, banks
hold no excess reserves and people hold no
currency. If the Fed sells $10,000 worth of
bonds, what happens to the money supply?
it decreases by $250,000
If the public decides to hold more currency
and fewer deposits in banks, bank reserves
decrease and the money supply
eventually decreases
To increase the money supply, the Fed could
decrease the discount rate
Today, bank runs are
uncommon because of FDIC deposit
insurance.
The federal funds rate is the
interest rate at which banks lend
reserves to each other overnight
An increase in the money supply might
indicate that the Fed had
a) purchased bonds in an attempt to
increase the federal funds rate.
b) purchased bonds in an attempt to
reduce the federal funds rate.
c) sold bonds in an attempt to increase the
federal fun
b
Fed policy decisions influence
inflation and employment