Question 1

Scenario 11-1.
The monetary policy of Namdian is determined by the Namdian Central Bank. The local currency is the dia. Namdian banks collectively hold 100 million dias of required reserves, 25 million dias of excess reserves, 250 million dias of Namdian Treasury Bonds, and their customers hold 1,000 million dias of deposits. Namdians prefer to use only demand deposits and so the money supply consists of demand deposits.
-Refer to Scenario 11-1. Assume that banks desire to continue holding the same ratio of excess reserves to deposits. What is the reserve requirement and what is the reserve ratio?

Accepted Answer

A)   2 percent, 8 percent
B)   8 percent, 10 percent
C)   10 percent, 12.5 percent
D)   None of the above is correct.E) None of the above
F) B) and D)

Question 2

The discount rate is the rate the Federal Reserve charges banks for loans. By lowering this rate, the Fed provides banks with a greater incentive to borrow from it.

Accepted Answer

A) True 
 B)False

Question 3

When the Fed makes open-market purchases bank

Accepted Answer

A)   withdrawals and lending increase.
B)   withdrawals increase and lending decreases.
C)   deposits and lending increase.
D)   deposits increase and lending decreases.E) All of the above
F) A) and B)

Question 4

Explain why banks can influence the money supply if the required reserve ratio is less than 100 percent.

Accepted Answer

When the reserve requirement is less tha...

Question 5

If the reserve ratio is 9 percent, then a decrease in reserves of $6,000 can cause the money supply to fall by as much as

Accepted Answer

A)   $60,000.00.
B)   $66,666.67.
C)   $90,900.00.
D)   $100,555.56.E) A) and B)
F) C) and D) B

Question 6

A bank's reserve ratio is 10 percent and the bank has $2,000 in deposits. Its reserves amount to

Accepted Answer

A)   $20.
B)   $200.
C)   $400.
D)   $1,800.E) A) and B)
F) A) and C)

Question 7

Table 11-6.
 
-Refer to Table 11-6. Assume the Fed's reserve requirement is 6 percent and that the Bank of Springfield makes new loans so as to make its new reserve ratio 6 percent. From then on, no bank holds any excess reserves. Assume also that people hold only deposits and no currency. Then by what amount does the economy's money supply increase?

Accepted Answer

A)   $50,200
B)   $60,000
C)   $72,000
D)   $106,000E) C) and D)
F) A) and B)

Question 8

If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by

Accepted Answer

A)   $64 of new reserves.
B)   $448 of new reserves.
C)   $700 of new reserves.
D)   $800 of new reserves.E) All of the above
F) A) and C)

Question 9

A bank has a 10 percent reserve requirement, $5,000 in deposits, and has loaned out all it can given the reserve requirement.

Accepted Answer

A)   It has $50 in reserves and $4,950 in loans.
B)   It has $500 in reserves and $4,500 in loans.
C)   It has $555 in reserves and $4,445 in loans.
D)   None of the above is correct.E) A) and B)
F) All of the above B

Question 10

Scenario 11-1.
The monetary policy of Namdian is determined by the Namdian Central Bank. The local currency is the dia. Namdian banks collectively hold 100 million dias of required reserves, 25 million dias of excess reserves, 250 million dias of Namdian Treasury Bonds, and their customers hold 1,000 million dias of deposits. Namdians prefer to use only demand deposits and so the money supply consists of demand deposits.
-Refer to Scenario 11-1 . Suppose the Central Bank of Namdia purchases 25 million dias of Namdian Treasury Bonds from banks. Suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the same. By how much would the money supply of Namdia change?

Accepted Answer

A)   200 million dias
B)   150 million dias
C)   100 million dias
D)   None of the above is correct.E) None of the above
F) All of the above

Question 11

Which list ranks assets from most to least liquid?

Accepted Answer

A)   money, bonds, cars, houses
B)   money, cars, houses, bonds
C)   bonds, money, cars, houses
D)   bonds, cars, money, housesE) None of the above
F) A) and B) A

Question 12

The money supply increases when the Fed

Accepted Answer

A)   buys bonds. The increase will be larger, the smaller is the reserve ratio.
B)   buys bonds. The increase will be larger, the larger is the reserve ratio.
C)   sells bonds. The increase will be larger, the smaller is the reserve ratio.
D)   sells bonds. The increase will be larger, the larger is the reserve ratio.E) All of the above
F) A) and B)

Question 13

When prisoners use cigarettes or some other good as money, cigarettes become

Accepted Answer

A)   commodity money, but do not function as a unit of account.
B)   commodity money and function as a unit of account.
C)   fiat money, but do not function as a unit of account.
D)   fiat money and function as a unit of account.E) A) and B)
F) All of the above

Question 14

In the United States, currency holdings per person average about

Accepted Answer

A)   $125; one explanation for this relatively small average is that many people use credit and debit cards to make transactions.
B)   $125; one explanation for this relatively small average is that U.S. citizens hold a lot of foreign currency.
C)   $3,700; one explanation for this relatively large amount is that criminals probably prefer currency as a medium of exchange.
D)   $3,700; one explanation for this relatively large average is that U.S. citizens hold a lot of foreign currency.E) B) and D)
F) All of the above

Question 15

All of the presidents of the regional Federal Reserve banks

Accepted Answer

A)   attend each FOMC meeting.
B)   have voting rights at each FOMC meeting.
C)   are appointed by the president of the U.S. and confirmed by the U.S. Senate.
D)   All of the above are correct.E) A) and D)
F) All of the above

Question 16

What is meant by the term "lender of last resort?" In what circumstances might the Fed be a lender of last resort?

Accepted Answer

A "lender of last resort" is a lender to...

Question 17

If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

Accepted Answer

A)   buying bonds. This buying would increase the money supply.
B)   buying bonds. This buying would reduce the money supply.
C)   selling bonds. This selling would increase the money supply.
D)   selling bonds. This selling would reduce the money supply.E) None of the above
F) A) and D)

Question 18

In 1991, the Federal Reserve lowered the reserve requirement from 12 percent to 10 percent. Other things the same this should have

Accepted Answer

A)   increased both the money multiplier and the money supply.
B)   decreased both the money multiplier and the money supply.
C)   increased the money multiplier and decreased the money supply.
D)   decreased the money multiplier and increased the money supply.E) A) and B)
F) B) and C)

Question 19

The Fed purchases $200 worth of government bonds from the public. The reserve requirement is 8 percent, people hold no currency, and the banking system keeps no excess reserves. The U.S. money supply eventually increases by

Accepted Answer

A)   $16.
B)   $200.
C)   $1,600.
D)   $2,500.E) A) and B)
F) None of the above

Question 20

The Fed can directly protect a bank during a bank run by

Accepted Answer

A)   increasing reserve requirements.
B)   selling government bonds to the bank.
C)   lending reserves to the bank.
D)   doing any of the above.E) A) and B)
F) None of the above

Exam 11: The Monetary System

Correct Answer
verified

The discount rate is the rate the Federal Reserve charges banks for loans. By lowering this rate, the Fed provides banks with a greater incentive to borrow from it.

Correct Answer
verified

When the Fed makes open-market purchases bank

Correct Answer
verified

Explain why banks can influence the money supply if the required reserve ratio is less than 100 percent.

Correct Answer
verified
When the reserve requirement is less tha...
View Answer

If the reserve ratio is 9 percent, then a decrease in reserves of $6,000 can cause the money supply to fall by as much as

Correct Answer
verified
B

A bank's reserve ratio is 10 percent and the bank has $2,000 in deposits. Its reserves amount to

Correct Answer
verified

Correct Answer
verified

If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by

Correct Answer
verified

A bank has a 10 percent reserve requirement, $5,000 in deposits, and has loaned out all it can given the reserve requirement.

Correct Answer
verified
B

Correct Answer
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Which list ranks assets from most to least liquid?

Correct Answer
verified
A

The money supply increases when the Fed

Correct Answer
verified

When prisoners use cigarettes or some other good as money, cigarettes become

Correct Answer
verified

In the United States, currency holdings per person average about

Correct Answer
verified

All of the presidents of the regional Federal Reserve banks

Correct Answer
verified

What is meant by the term "lender of last resort?" In what circumstances might the Fed be a lender of last resort?

Correct Answer
verified
A "lender of last resort" is a lender to...
View Answer

If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

Correct Answer
verified

In 1991, the Federal Reserve lowered the reserve requirement from 12 percent to 10 percent. Other things the same this should have

Correct Answer
verified

The Fed purchases $200 worth of government bonds from the public. The reserve requirement is 8 percent, people hold no currency, and the banking system keeps no excess reserves. The U.S. money supply eventually increases by

Correct Answer
verified

The Fed can directly protect a bank during a bank run by

Correct Answer
verified

Exam 11: The Monetary System

Correct AnswerverifiedShow Answer

The discount rate is the rate the Federal Reserve charges banks for loans. By lowering this rate, the Fed provides banks with a greater incentive to borrow from it.

Correct AnswerverifiedShow Answer

When the Fed makes open-market purchases bank

Correct AnswerverifiedShow Answer

Explain why banks can influence the money supply if the required reserve ratio is less than 100 percent.

Correct AnswerverifiedWhen the reserve requirement is less tha...View AnswerShow Answer

If the reserve ratio is 9 percent, then a decrease in reserves of $6,000 can cause the money supply to fall by as much as

Correct AnswerverifiedB

A bank's reserve ratio is 10 percent and the bank has $2,000 in deposits. Its reserves amount to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by

Correct AnswerverifiedShow Answer

A bank has a 10 percent reserve requirement, $5,000 in deposits, and has loaned out all it can given the reserve requirement.

Correct AnswerverifiedB

Correct AnswerverifiedShow Answer

Which list ranks assets from most to least liquid?

Correct AnswerverifiedA

The money supply increases when the Fed

Correct AnswerverifiedShow Answer

When prisoners use cigarettes or some other good as money, cigarettes become

Correct AnswerverifiedShow Answer

In the United States, currency holdings per person average about

Correct AnswerverifiedShow Answer

All of the presidents of the regional Federal Reserve banks

Correct AnswerverifiedShow Answer

What is meant by the term "lender of last resort?" In what circumstances might the Fed be a lender of last resort?

Correct AnswerverifiedA "lender of last resort" is a lender to...View AnswerShow Answer

If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

Correct AnswerverifiedShow Answer

In 1991, the Federal Reserve lowered the reserve requirement from 12 percent to 10 percent. Other things the same this should have

Correct AnswerverifiedShow Answer

The Fed purchases $200 worth of government bonds from the public. The reserve requirement is 8 percent, people hold no currency, and the banking system keeps no excess reserves. The U.S. money supply eventually increases by

Correct AnswerverifiedShow Answer

The Fed can directly protect a bank during a bank run by

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
When the reserve requirement is less tha...
View Answer

Correct Answer
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B

Correct Answer
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Correct Answer
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Correct Answer
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B

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Correct Answer
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A

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
A "lender of last resort" is a lender to...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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