Question 1

The lending facility that allows any bank to borrow reserves from the Fed is called the:

Accepted Answer

A)   discount window.
B)   reserve window.
C)   reserve rate.
D)   borrower of last resort.E) A) and D)
F) A) and C)

Question 2

Banks historically have used the discount window:

Accepted Answer

A)   sparingly, because it is often seen as a sign of financial trouble for a bank.
B)   often, because it provides instant access to needed funds for banks.
C)   often, because its low interest rate can serve as a source of profit for banks.
D)   only during times of economic boom, when there is a high demand for loans.E) B) and D)
F) B) and C)

Question 3

The discount window provides:

Accepted Answer

A)   guaranteed emergency funds for banks in trouble at a higher interest rate than federal funds rate.
B)   loans to banks at low interest rates, so they can lend more money out to the public.
C)   guaranteed emergency funds for banks in trouble at a lower interest rate than others.
D)   loans to banks at low interest rates, only when the economy is doing well.E) C) and D)
F) B) and C)

Question 4

The narrowest definition of money is:

Accepted Answer

A)   hard money.
B)   M1.
C)   M2.
D)   L.E) All of the above
F) A) and C)

Question 5

Because a bank earns money when it makes a loan to a borrower it:

Accepted Answer

A)   has an incentive to loan out as much of each deposit as it can.
B)   has an incentive to borrow from the government as much as it can to loan out.
C)   needs to loan out more than it takes in through deposits to make money.
D)   has more of an incentive to loan out money than take money in through deposits.E) B) and D)
F) A) and B)

Question 6

If the money supply in the economy were at MS2, to engage in contractionary policy the Federal Reserve Bank would use open market operation to move money supply to:

Accepted Answer

A)   MS1
B)   MS3
C)   MS4
D)   it would stay at MS2E) None of the above
F) A) and C)

Question 7

If the Fed wishes to slow economic activity, it might actively pursue:

Accepted Answer

A)   expansionary fiscal policy.
B)   expansionary monetary policy.
C)   contractionary fiscal policy.
D)   contractionary monetary policy.E) B) and D)
F) All of the above

Question 8

In the simple liquidity preference model, changes to the money supply will have a smaller effect on interest rates the:

Accepted Answer

A)   flatter, more elastic is the money demand curve.
B)   flatter, less elastic is the money demand curve.
C)   steeper, more elastic is the money demand curve.
D)   steeper, less elastic is the money demand curve.E) A) and C)
F) B) and C)

Question 9

The cost of owning a government bond is ____________, and the benefit of owning one is ______________.

Accepted Answer

A)   that it is as liquid as cash; interest earned
B)   interest earned; that it is not very liquid
C)   that it is highly liquid;interest charged
D)   interest charged; that it is not very liquidE) All of the above
F) B) and D)

Question 10

If the money supply in the economy were at MS2, and the Federal Reserve Bank used open market operations to move money supply to MS1 the overall result in the economy would be:

Accepted Answer

A)   Aggregate demand shifted in, causing GDP to fall.
B)   Aggregate supply shifted in, causing GDP to fall.
C)   Aggregate demand shifted out, causing GDP to rise
D)   LRAS move to the FE level of output.E) A) and B)
F) B) and C)

Question 11

The larger is the reserve ratio, the:

Accepted Answer

A)   smaller is the money multiplier, and the less money will be created in the economy.
B)   smaller is the money multiplier, and the more money will be created in the economy.
C)   larger is the money multiplier, and the less money will be created in the economy.
D)   larger is the money multiplier, and the more money will be created in the economy.E) All of the above
F) C) and D)

Question 12

An example of a good that can be used for money that has intrinsic value is:

Accepted Answer

A)   cigarettes.
B)   fish.
C)   gold.
D)   All of these have intrinsic value.E) None of the above
F) A) and D)

Question 13

Which of the following would cause the money demand curve to shift to the left?

Accepted Answer

A)   An increase in interest rates
B)   Inflation
C)   A technological advance, like online shopping
D)   An increase in GDPE) All of the above
F) B) and C)

Question 14

The chairman of the Federal Reserve System:

Accepted Answer

A)   is approved by the House of Representatives and the Senate.
B)   serves a four-year term.
C)   is independent of the Board of Governors, to maintain objectivity.
D)   All of these are true.E) A) and D)
F) B) and D)

Question 15

Wide acceptance of money without intrinsic value comes largely from the fact that it:

Accepted Answer

A)   has a stable value.
B)   is convenient to use.
C)   is hard to counterfeit.
D)   can be used domestically and internationally.E) B) and D)
F) C) and D)

Question 16

The institution ultimately responsible for managing the nation's money supply and coordinating the banking system to ensure a sound economy is called a:

Accepted Answer

A)   central bank.
B)   national bank.
C)   public banking system.
D)   peoples' bank.E) A) and D)
F) C) and D)

Question 17

Compared to the other tools the Fed uses to change the money supply, the discount window is used:

Accepted Answer

A)   less often than open market operations, but more often than the reserve requirement.
B)   more often than open market operations and the reserve requirement.
C)   about the same as open market operations, but more often than the reserve requirement.
D)   more often than open market operations, and about the same as the reserve requirement.E) A) and B)
F) All of the above

Question 18

When banks hold excess reserves the:

Accepted Answer

A)   money multiplier overestimates how much money will be created in the economy.
B)   money multiplier underestimates how much money will be created in the economy.
C)   reserve ratio is not fully functioning, and should be raised.
D)   reserve ratio is not fully functioning, and should be lowered.E) A) and D)
F) None of the above

Question 19

If the Fed wishes to increase the money supply, it could:

Accepted Answer

A)   buy bonds.
B)   increase the reserve requirement.
C)   increase the discount rate.
D)   print more currency.E) None of the above
F) All of the above

Question 20

When the Fed buys bonds through open market operations, it gives banks money in return, which:

Accepted Answer

A)   increases their ability to lend, and increases aggregate demand.
B)   decreases their ability to lend, and increases aggregate demand.
C)   increases their ability to lend, and decreases aggregate demand.
D)   decreases their ability to lend, and decreases aggregate demand.E) All of the above
F) B) and D)

Exam 15: Money and the Monetary System

The chairman of the Federal Reserve System:

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The institution ultimately responsible for managing the nation's money supply and coordinating the banking system to ensure a sound economy is called a:

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Compared to the other tools the Fed uses to change the money supply, the discount window is used:

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Wide acceptance of money without intrinsic value comes largely from the fact that it:

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When banks hold excess reserves the:

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The discount window provides:

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If the money supply in the economy were at MS2, to engage in contractionary policy the Federal Reserve Bank would use open market operation to move money supply to:

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The larger is the reserve ratio, the:

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If the money supply in the economy were at MS2, and the Federal Reserve Bank used open market operations to move money supply to MS1 the overall result in the economy would be:

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When the Fed buys bonds through open market operations, it gives banks money in return, which:

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Banks historically have used the discount window:

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Which of the following would cause the money demand curve to shift to the left?

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If the Fed wishes to slow economic activity, it might actively pursue:

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Because a bank earns money when it makes a loan to a borrower it:

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The lending facility that allows any bank to borrow reserves from the Fed is called the:

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If the Fed wishes to increase the money supply, it could:

Correct AnswerverifiedShow Answer

An example of a good that can be used for money that has intrinsic value is:

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The cost of owning a government bond is ____________, and the benefit of owning one is ______________.

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In the simple liquidity preference model, changes to the money supply will have a smaller effect on interest rates the:

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The narrowest definition of money is:

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The cost of owning a government bond is , and the benefit of owning one is __.

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