Question 1

The group within the Federal Reserve System that determines the general course for the nation's money supply is the

Accepted Answer

A)   Federal Monetary Oversight Committee
B)   Federal Advisory Council
C)   Board of Governors
D)   Department of Commerce
E)   Federal Open Market CommitteeF) All of the above
G) C) and E)

Question 2

Federal Reserve regulations apply

Accepted Answer

A)   to all banks in the United States
B)   only to member banks
C)   only to private commercial banks
D)   only to national banks
E)   only to state banksF) C) and D)
G) B) and D)

Question 3

Which of the following is the most liquid form of asset?

Accepted Answer

A)   Small time deposits
B)   Large time deposits
C)   Savings accounts
D)   Money market mutual fund (MMMF) balances
E)   Travelers' checksF) B) and C)
G) A) and C)

Question 4

If the Federal Reserve sells bonds,the required reserve ratio is 0.25 and the money supply decreases by $10,000,how did the Fed accomplish this change?

Accepted Answer

A)   The Fed sold $10,000 in bonds.
B)   The Fed sold $7,500 in bonds.
C)   The Fed sold $2,500 in bonds.
D)   The Fed sold $7,518 in bonds.
E)   The Fed sold $40,000 in bonds.F) A) and E)
G) C) and E)

Question 5

If you use a check to purchase a textbook,the check is

Accepted Answer

A)   the unit of value
B)   the means of payment
C)   the means of payment and the unit of value
D)   outside the monetary system
E)   worth less than an equivalent amount of currencyF) A) and E)
G) D) and E)

Question 6

In what year was the Federal Reserve System created?

Accepted Answer

A)   1790
B)   1861
C)   1879
D)   1913
E)   1935F) A) and B)
G) C) and E)

Question 7

If the required reserve ratio is 0.2,and a bank has $100 million in demand deposits and $40 million in property and buildings,it must hold reserves of at least

Accepted Answer

A)   $28 million
B)   $20 million
C)   $26 million
D)   $12 million
E)   $8 millionF) A) and E)
G) D) and E)

Question 8

Which of the following is not a function of the Fed?

Accepted Answer

A)   To supervise and regulate banks.
B)   Dealing with financial crises.
C)   To print currency.
D)   Check clearing.
E)   Acting as a "bank for banks".F) A) and E)
G) B) and D)

Question 9

Demand deposits are liabilities to a bank because

Accepted Answer

A)   the bank must pay interest on these accounts
B)   we need some method of creating a balance
C)   the bank must be willing to account for loans and bonds
D)   the bank could potentially lose this money if loans are not repaid
E)   the customers have the right to withdraw the funds from their checking accountsF) C) and D)
G) A) and D)

Question 10

The Federal Open Market Committee (FOMC)controls the U.S.money supply by buying and selling loans in the public loan market.

Accepted Answer

A) True 
 B)False

Question 11

All of the following except one are reasons the demand deposit multiplier may be smaller in practice than in theory.Which one is not a valid reason?

Accepted Answer

A)   Banks do not want to hold excess reserves.
B)   Some of the currency generated when bonds are purchased ends up outside of the banking system.
C)   Banks sometimes hold more than their required reserves.
D)   An open market operation may change the public's holding of cash.
E)   All of the above are not valid reasons.F) C) and E)
G) A) and B)

Question 12

The first paper currency issued by the U.S.government was known as the

Accepted Answer

A)   Federal Reserve note
B)   treasury bill
C)   greenback
D)   pound
E)   gold certificateF) B) and E)
G) A) and E)

Question 13

Countries like _________ have no reserve requirements at all.

Accepted Answer

A)   England
B)   Canada
C)   Australia
D)   all of the above
E)   none of the above.F) A) and E)
G) B) and E)

Question 14

Reserves are defined as

Accepted Answer

A)   the total cash in bank vaults
B)   money deposited in Federal Reserve accounts
C)   the sum of vault cash and deposits at Federal Reserve banks
D)   the total amount of money a bank must hold
E)   ten percent of demand deposit liabilitiesF) A) and B)
G) C) and E)

Question 15

The standard measure of the money stock,M1,refers to

Accepted Answer

A)   checking account balances,travelers' checks,and cash in the hands of the public
B)   cash in the hands of the public,demand deposits,and small time deposits
C)   cash in the hands of the public,savings-type account balances,and travelers' checks
D)   savings-type account balances,small time deposits,and checking account deposits
E)   the sum of the cash in the hands of the publicF) A) and D)
G) B) and E)

Question 16

If a commercial bank has liabilities valued at $150 million,a net worth of $50 million and assets (not including loans) of $180 million,what is the value of the bank's loans?

Accepted Answer

A)   $180 million
B)   $200 million
C)   $20 million
D)   $280 million
E)   $80 millionF) D) and E)
G) A) and D)

Question 17

The 2008 financial crisis peaked in September 2008,when Lehman Brothers declared bankruptcy.

Accepted Answer

A) True 
 B)False

Question 18

One of the most serious effects of a banking panic is that

Accepted Answer

A)   banks will not earn as much profit
B)   banks will no longer be trusted by the public
C)   people will not place their excess money in banking accounts
D)   people may lose any accrued interest on their accounts
E)   large withdrawals of cash lead to a severe decrease in reserves and ultimately in the money supplyF) A) and B)
G) A) and C)

Question 19

Which of the following best describes the history of bank failures in the U.S.from 1863 to the present?

Accepted Answer

A)   Bank failures were eliminated after 1913.
B)   Bank failures were common until 1940 but were almost nonexistent until the late 1980s and early 2000s.
C)   Bank failures have always been rare events.
D)   Bank failures were common until 1940 and were eliminated thereafter.
E)   Bank failures have always been common.F) B) and C)
G) B) and E)

Question 20

If the Federal Reserve sets a required reserve ratio of 0.2 and a bank has $100 million in loans and $80 million in deposits,what is the level of required reserves for the bank?

Accepted Answer

A)   $100 million
B)   $16 million
C)   $80 million
D)   $20 million
E)   $36 millionF) A) and D)
G) A) and E)

Exam 25: Money,banks,and the Federal Reserve

All of the following except one are reasons the demand deposit multiplier may be smaller in practice than in theory.Which one is not a valid reason?

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If you use a check to purchase a textbook,the check is

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One of the most serious effects of a banking panic is that

Correct AnswerverifiedShow Answer

The 2008 financial crisis peaked in September 2008,when Lehman Brothers declared bankruptcy.

Correct AnswerverifiedShow Answer

If a commercial bank has liabilities valued at $150 million,a net worth of $50 million and assets (not including loans) of $180 million,what is the value of the bank's loans?

Correct AnswerverifiedShow Answer

Demand deposits are liabilities to a bank because

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Which of the following is the most liquid form of asset?

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The standard measure of the money stock,M1,refers to

Correct AnswerverifiedShow Answer

If the Federal Reserve sets a required reserve ratio of 0.2 and a bank has $100 million in loans and $80 million in deposits,what is the level of required reserves for the bank?

Correct AnswerverifiedShow Answer

Which of the following best describes the history of bank failures in the U.S.from 1863 to the present?

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Countries like _________ have no reserve requirements at all.

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In what year was the Federal Reserve System created?

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Federal Reserve regulations apply

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The first paper currency issued by the U.S.government was known as the

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Which of the following is not a function of the Fed?

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If the required reserve ratio is 0.2,and a bank has $100 million in demand deposits and $40 million in property and buildings,it must hold reserves of at least

Correct AnswerverifiedShow Answer

If the Federal Reserve sells bonds,the required reserve ratio is 0.25 and the money supply decreases by $10,000,how did the Fed accomplish this change?

Correct AnswerverifiedShow Answer

Reserves are defined as

Correct AnswerverifiedShow Answer

The Federal Open Market Committee (FOMC)controls the U.S.money supply by buying and selling loans in the public loan market.

Correct AnswerverifiedShow Answer

The group within the Federal Reserve System that determines the general course for the nation's money supply is the

Correct AnswerverifiedShow Answer

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