Question 1

Which of the following actions would the Fed undertake if it wants to follow a more restrictive monetary policy?

Accepted Answer

A)  sell some of its holdings of government bonds
B)  decrease government expenditures
C)  urge the Treasury to sell more U.S.securities
D)  reduce the reserve requirementsE) None of the above
F) B) and C)

Question 2

If the Fed wants to shift toward a more expansionary policy, it often announces that it is going to change the federal funds interest rate. The Fed controls the federal funds interest rate

Accepted Answer

A)  by imposing legal restrictions that prohibit exchanges at interest rates other than the ones designated by the Fed.
B)  by having the U.S.Treasury fix this interest rate
C)  through its policy of open market operations.
D)  by altering the size of the federal budget deficit or surplus.E) None of the above
F) C) and D)

Question 3

In recent years, the Fed has generally set the discount rate

Accepted Answer

A)  lower than the federal funds rate to help financially troubled banks get more solvent.
B)  higher than the interest rate on 30-year fixed-rate mortgage loans.
C)  higher than the federal funds rate for most banks.
D)  equal to the rate of inflation.E) B) and D)
F) B) and C)

Question 4

The immediate effect of a member bank's sale of U.S. government securities to the Fed is

Accepted Answer

A)  an increase in that bank's required reserves.
B)  a decrease in that bank's required reserves.
C)  an increase in that bank's excess reserves.
D)  a decrease in that bank's excess reserves.E) A) and B)
F) A) and C)

Question 5

Suppose the Fed purchases $100 million of U.S. securities from the public. If the reserve requirement is 20 percent, the currency holdings of the public are unchanged, and banks have zero excess reserves both before and after the transaction, the total impact on the money supply will be a

Accepted Answer

A)  $100 million decrease in the money supply.
B)  $100 million increase in the money supply.
C)  $200 million increase in the money supply.
D)  $500 million increase in the money supply.E) A) and B)
F) A) and C)

Question 6

Regional Bank is subject to a 10 percent required-reserve ratio. If this bank received a new checkable deposit of $1,000, it could make new loans of

Accepted Answer

A)  $100.
B)  $900.
C)  $1,000.
D)  $10,000.E) A) and B)
F) All of the above

Question 7

What advantages does a money economy have over a barter economy?

Accepted Answer

The existence of money substantially red...

Question 8

If the Fed buys a T-bill from a commercial bank, how will it pay for the T-bill?

Accepted Answer

A)  It will give the bank new reserves.
B)  It will write the bank a check.
C)  It will transfer cash to the bank's vault.
D)  It will take reserves from another bank.E) B) and C)
F) A) and B)

Question 9

If debit cards become more widely used by consumers and businesses, which of the following is most likely to happen?

Accepted Answer

A)  Currency holdings will remain the same, but the M1 money supply will fall.
B)  The amount of currency held by the public will increase.
C)  Less money will be held as currency and more money will be held in bank accounts, which will increase the reserves of banks unless the Fed takes offsetting actions.
D)  The money supply will be unaffected because debit card expenditures are considered the equivalent of cash.E) None of the above
F) A) and D)

Question 10

In order to increase the money supply, the banking system must have

Accepted Answer

A)  required reserves.
B)  the authority to buy corporate stocks.
C)  the authority to print U.S.currency.
D)  excess reserves.
E)  the authority to engage in interstate banking.F) D) and E)
G) None of the above

Question 11

The primary source of earnings of commercial banks is income derived from

Accepted Answer

A)  the checking account services provided to customers.
B)  the use of deposits to extend loans and undertake investments.
C)  vault cash and deposits held with the Fed.
D)  services provided to the U.S.Treasury.E) C) and D)
F) A) and B)

Question 12

Which of the following lists two things that both decrease the money supply?

Accepted Answer

A)  lower the discount rate and raise the reserve requirement ratio
B)  lower the discount rate and lower the reserve requirement ratio
C)  raise the discount rate and raise the reserve requirement ratio
D)  raise the discount rate and lower the reserve requirement ratioE) B) and C)
F) None of the above

Question 13

Which of the following would appear on the liability side of the balance sheet of a commercial bank?

Accepted Answer

A)  demand and other transaction deposits
B)  loans outstanding
C)  U.S.government securities
D)  vault cashE) A) and C)
F) A) and D)

Question 14

If a bank has actual reserves of $40,000 and a 20 percent reserve requirement, then the maximum amount of checkable deposits the bank can have if excess reserves are zero is

Accepted Answer

A)  $100,000.
B)  $80,000.
C)  $300,000.
D)  $20,000.
E)  $200,000.F) A) and C)
G) A) and E)

Question 15

The type of banking system under which banks are required to hold only a portion of their assets in reserve against the checking deposits of their customers is called

Accepted Answer

A)  a gold-backed banking system.
B)  a full reserve banking system.
C)  a fiat banking system.
D)  a fractional reserve banking system.E) All of the above
F) B) and C)

Question 16

If the Fed wanted to shift to a restrictive monetary policy and reduce the money supply, it could

Accepted Answer

A)  increase the interest rate paid on excess reserves encouraging banks to extend more loans.
B)  decrease the interest rate paid on excess reserves encouraging banks to extend more loans.
C)  decrease the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans.
D)  increase the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans.E) B) and D)
F) A) and C)

Question 17

During the financial crisis of 2008-2010, the Fed increased its purchases of securities and extended more loans, which caused the monetary base to

Accepted Answer

A)  increase rapidly, but the M1 money supply declined because the banks loaned out most of the additional reserves to businesses.
B)  fall, but the M1 money supply still expanded rapidly because the banks increased their loans to businesses.
C)  increase rapidly, but the M1 money supply expanded at a much slower rate because the banks enlarged their excess reserves.
D)  fall, and this led to a sharp decline in the M1 money supply.E) B) and C)
F) None of the above

Question 18

Suppose the Fed bought $150 million of U.S. securities from the public. The reserve requirement is 20 percent, and there are no initial excess reserves. A few weeks later, if the public's holdings of currency are constant and the banks have loaned all excess reserves, the money supply will increase by

Accepted Answer

A)  $150 million.
B)  $300 million.
C)  $600 million.
D)  $750 million.E) B) and C)
F) C) and D)

Question 19

Other things constant, if the Fed decreased the discount rate,

Accepted Answer

A)  the earnings of the Fed would increase.
B)  the incentive of commercial banks to borrow from the Fed would be reduced.
C)  the prime interest rate would automatically decline.
D)  commercial banks probably would reduce their excess reserves and be more willing to extend additional loans.E) C) and D)
F) B) and D)

Question 20

What are the advantages of a fractional reserve banking system compared to a system that requires 100 percent of deposits to be kept on reserve?

Accepted Answer

If a bank must keep all of its deposits ...

Exam 13: Money and the Banking System

Other things constant, if the Fed decreased the discount rate,

Correct Answer
verified

If debit cards become more widely used by consumers and businesses, which of the following is most likely to happen?

Correct Answer
verified

What are the advantages of a fractional reserve banking system compared to a system that requires 100 percent of deposits to be kept on reserve?

Correct Answer
verified
If a bank must keep all of its deposits ...
View Answer

Which of the following would appear on the liability side of the balance sheet of a commercial bank?

Correct Answer
verified

Which of the following actions would the Fed undertake if it wants to follow a more restrictive monetary policy?

Correct Answer
verified

If the Fed buys a T-bill from a commercial bank, how will it pay for the T-bill?

Correct Answer
verified

The primary source of earnings of commercial banks is income derived from

Correct Answer
verified

If the Fed wants to shift toward a more expansionary policy, it often announces that it is going to change the federal funds interest rate. The Fed controls the federal funds interest rate

Correct Answer
verified

Which of the following lists two things that both decrease the money supply?

Correct Answer
verified

What advantages does a money economy have over a barter economy?

Correct Answer
verified
The existence of money substantially red...
View Answer

In order to increase the money supply, the banking system must have

Correct Answer
verified

Suppose the Fed purchases $100 million of U.S. securities from the public. If the reserve requirement is 20 percent, the currency holdings of the public are unchanged, and banks have zero excess reserves both before and after the transaction, the total impact on the money supply will be a

Correct Answer
verified

If a bank has actual reserves of $40,000 and a 20 percent reserve requirement, then the maximum amount of checkable deposits the bank can have if excess reserves are zero is

Correct Answer
verified

Correct Answer
verified

During the financial crisis of 2008-2010, the Fed increased its purchases of securities and extended more loans, which caused the monetary base to

Correct Answer
verified

The immediate effect of a member bank's sale of U.S. government securities to the Fed is

Correct Answer
verified

The type of banking system under which banks are required to hold only a portion of their assets in reserve against the checking deposits of their customers is called

Correct Answer
verified

If the Fed wanted to shift to a restrictive monetary policy and reduce the money supply, it could

Correct Answer
verified

In recent years, the Fed has generally set the discount rate

Correct Answer
verified

Regional Bank is subject to a 10 percent required-reserve ratio. If this bank received a new checkable deposit of $1,000, it could make new loans of

Correct Answer
verified

Exam 13: Money and the Banking System

Other things constant, if the Fed decreased the discount rate,

Correct AnswerverifiedShow Answer

If debit cards become more widely used by consumers and businesses, which of the following is most likely to happen?

Correct AnswerverifiedShow Answer

What are the advantages of a fractional reserve banking system compared to a system that requires 100 percent of deposits to be kept on reserve?

Correct AnswerverifiedIf a bank must keep all of its deposits ...View AnswerShow Answer

Which of the following would appear on the liability side of the balance sheet of a commercial bank?

Correct AnswerverifiedShow Answer

Which of the following actions would the Fed undertake if it wants to follow a more restrictive monetary policy?

Correct AnswerverifiedShow Answer

If the Fed buys a T-bill from a commercial bank, how will it pay for the T-bill?

Correct AnswerverifiedShow Answer

The primary source of earnings of commercial banks is income derived from

Correct AnswerverifiedShow Answer

If the Fed wants to shift toward a more expansionary policy, it often announces that it is going to change the federal funds interest rate. The Fed controls the federal funds interest rate

Correct AnswerverifiedShow Answer

Which of the following lists two things that both decrease the money supply?

Correct AnswerverifiedShow Answer

What advantages does a money economy have over a barter economy?

Correct AnswerverifiedThe existence of money substantially red...View AnswerShow Answer

In order to increase the money supply, the banking system must have

Correct AnswerverifiedShow Answer

Suppose the Fed purchases $100 million of U.S. securities from the public. If the reserve requirement is 20 percent, the currency holdings of the public are unchanged, and banks have zero excess reserves both before and after the transaction, the total impact on the money supply will be a

Correct AnswerverifiedShow Answer

If a bank has actual reserves of $40,000 and a 20 percent reserve requirement, then the maximum amount of checkable deposits the bank can have if excess reserves are zero is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

During the financial crisis of 2008-2010, the Fed increased its purchases of securities and extended more loans, which caused the monetary base to

Correct AnswerverifiedShow Answer

The immediate effect of a member bank's sale of U.S. government securities to the Fed is

Correct AnswerverifiedShow Answer

The type of banking system under which banks are required to hold only a portion of their assets in reserve against the checking deposits of their customers is called

Correct AnswerverifiedShow Answer

If the Fed wanted to shift to a restrictive monetary policy and reduce the money supply, it could

Correct AnswerverifiedShow Answer

In recent years, the Fed has generally set the discount rate

Correct AnswerverifiedShow Answer

Regional Bank is subject to a 10 percent required-reserve ratio. If this bank received a new checkable deposit of $1,000, it could make new loans of

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
If a bank must keep all of its deposits ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The existence of money substantially red...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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