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Economics Final — Chapter 11

Number of questions: 21

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1) Economists use the word "money" to refer to
  1. income generated by the production of goods and services.
  2. those assets regularly used to buy goods and services.
  3. financial assets such as stocks and bonds.
  4. any type of wealth.
Answers are locked. Please click here to buy them. 2) Money is the most liquid asset available because
  1. it is a store of value.
  2. it is a medium of exchange.
  3. it is a unit of account.
  4. it has intrinsic value.
Answers are locked. Please click here to buy them. 3) When conducting an open-market purchase, the Fed
  1. buys government bonds, and in so doing increases the money supply.
  2. buys government bonds, and in so doing decreases the money supply.
  3. sells government bonds, and in so doing increases the money supply.
  4. sells government bonds, and in so doing decreases the money supply.
Answers are locked. Please click here to buy them. 4) A bank's reserve ratio is 5% and the bank has $2,280 in reserve. Its deposits amount to
  1. $114.
  2. $2,166.
  3. $2,400.
  4. $45,600.
Answers are locked. Please click here to buy them. 5) If the reserve ratio is 12.5%, then $1,000 of additional reserves can create up to
  1. $7,000 of new money.
  2. $8,000 of new money.
  3. $11,500 of new money.
  4. $12,500 of new money.
Answers are locked. Please click here to buy them. 6) The Bank of Roswell:
Assets Liabilities
Reserves $30,000 Deposits $200,000
Loans 170,000
Suppose the Bank of Roswell faces a reserve requirement of 10%. Starting from the situation as depicted by the T-account, a customer deposits an additional $60,000 into his account at the bank. If the bank takes no other action it will
  1. have $64,000 in excess reserves.
  2. have $4,000 in excess reserves.
  3. be in a position to make new loans equal to $6,000
  4. None of the above is correct.
Answers are locked. Please click here to buy them. 7) The Bank of Roswell:
Assets Liabilities
Reserves $30,000 Deposits $200,000
Loans 170,000
If the Bank of Roswell is holding $4,000 in excess reserves, then the reserve requirement with which it must comply is
  1. 17%.
  2. 12%.
  3. 13%.
  4. 14%.
Answers are locked. Please click here to buy them. 8) The Fed can reduce the federal funds rate by
  1. decreasing the money supply. To decrease the money supply it could sell bonds.
  2. decreasing the money supply. To decrease the money supply it could buy bonds.
  3. increasing the money supply. To increase the money supply it could sell bonds.
  4. increasing the money supply. To increase the money supply it could buy bonds.
Answers are locked. Please click here to buy them. 9) The federal funds rate is the interest rate that
  1. banks charge one another for loans.
  2. banks charge the Fed for loans.
  3. the Fed charges banks for loans.
  4. the Fed charges Congress for loans.
Answers are locked. Please click here to buy them. 10) To increase the money supply, the Fed can
  1. buy government bonds or increase the discount rate.
  2. buy government bonds or decrease the discount rate.
  3. sell government bonds or increase the discount rate.
  4. sell government bonds or decrease the discount rate.
Answers are locked. Please click here to buy them. 11) When the Fed decreases the discount rate, banks will
  1. borrow more from the Fed and lend more to the public. The money supply increases.
  2. borrow more from the Fed and lend less to the public. The money supply decreases.
  3. borrow less from the Fed and lend more to the public. The money supply increases.
  4. borrow less from the Fed and lend less to the public. The money supply decreases.
Answers are locked. Please click here to buy them. 12) Which of the following is correct?
  1. A bank's deposits at the Federal Reserve counts as part of the bank's reserves. The Federal Reserve pays interest on these deposits.
  2. A bank's deposits at the Federal Reserve counts as part of the bank's reserves. The Federal Reserve does not pay interest on these deposits.
  3. A bank's deposits at the Federal Reserve does not count as part of the bank's reserves. The Federal Reserve pays interest on these deposits.
  4. A bank's deposits at the Federal Reserve does not count as part of the bank's reserves. The Federal Reserve does not pay interest on these deposits.
Answers are locked. Please click here to buy them. 13) Which of the following does the Federal Reserve not do?
  1. It controls the supply of money.
  2. It acts as a lender of last resort to banks.
  3. It makes loans to any qualified business that requests one.
  4. It tries to ensure the health of the banking system.
Answers are locked. Please click here to buy them. 14) When the Federal Reserve sells assets from its portfolio to the public with the intent of changing the money supply,
  1. those assets are government bonds and the Fed's reason for selling them is to increase the money supply.
  2. those assets are government bonds and the Fed's reason for selling them is to decrease the money supply.
  3. those assets are items that are included in M2 and the Fed's reason for selling them is to increase the money supply.
  4. those assets are items that are included in M2 and the Fed's reason for selling them is to decrease the money supply.
Answers are locked. Please click here to buy them. 15) A bank has a 20% reserve requirement, $8,000 in loans, and has loaned out all it can given the reserve requirement.
  1. It has $6,400 in deposits.
  2. It has $10,000 in deposits.
  3. It has $9,600 in deposits.
  4. It has $1,600 in deposits.
Answers are locked. Please click here to buy them. 16) The Bank of Springfield:
Assets Liabilities
Reserves $19,800 Deposits $180,000
Loans 160,200
If the Bank of Springfield has lent out all the money it can given its level of deposits, then what is the reserve requirement?
  1. 8.1%
  2. 11.0%
  3. 12.4%
  4. 89.0%
Answers are locked. Please click here to buy them. 17) The Bank of Springfield:
Assets Liabilities
Reserves $19,800 Deposits $180,000
Loans 160,200
Assuming the Bank of Springfield and all other banks have the same reserve ratio, then what is the value of the money multiplier?
  1. 1.1
  2. 12.3
  3. 8.1
  4. 9.1
Answers are locked. Please click here to buy them. 18) The Bank of Springfield:
Assets Liabilities
Reserves $19,800 Deposits $180,000
Loans 160,200
Assume the Fed's reserve requirement is 10% and that the Bank of Springfield makes new loans so as to make its new reserve ratio 10%. 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?
  1. $37,800
  2. $18,000
  3. $2,000
  4. $16,300
Answers are locked. Please click here to buy them. 19) If the money multiplier is 3 and the Fed buys $50,000 worth of bonds, what happens to the money supply?
  1. it increases by $100,000
  2. it increases by $150,000
  3. it decreases by $100,000
  4. it decreases by $200,000
Answers are locked. Please click here to buy them. 20) When the Fed decreases the discount rate, banks will
  1. borrow more from the Fed and lend more to the public. The money supply increases.
  2. borrow more from the Fed and lend less to the public. The money supply decreases.
  3. borrow less from the Fed and lend more to the public. The money supply increases.
  4. borrow less from the Fed and lend less to the public. The money supply decreases.
Answers are locked. Please click here to buy them. 21) Other things the same, if reserve requirements are increased, the reserve ratio
  1. increases, the money multiplier increases, and the money supply increases.
  2. increases, the money multiplier decreases, and the money supply decreases.
  3. decreases, the money multiplier increases, and the money supply increases.
  4. decreases, the money multiplier decreases, and the money supply increases.
Answers are locked. Please click here to buy them.

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