ECON 110 Quiz 7 Money and Banks Monetary Policy solutions complete answers

ECON 110 Quiz 7 Money and Banks Monetary Policy solutions complete answers 

 

In 2008, the Fed _____ the discount rate in order to _____ the economy.

 

Professor Williams tutors her next-door neighbor's son in economics. Instead of paying her for this service, the neighbor washes the professor's car. This is an example of

 

Required reserves are

 

Required reserves represent

 

The discount rate is the interest rate charged by

 

The shape of the _____ curve determines the impact of an aggregate demand shift on prices and output.

 

Even if an economy has a form of money, if the money loses its value then people may resort to barter.

 

Money is anything that

 

Which of the following is NOT an essential characteristic of money?

 

Suppose the Fed decreases interest rates by half of a percent. The Fed has most likely reduced the

 

Which of the following is NOT part of M1, but is included in "near money" according to the text?

 

The use of money and credit controls to change macroeconomic activity is known as

 

The creation of transaction deposits by bank lending is the definition of

 

If the Fed is concerned about inflation, it should

 

The reserve ratio is the

 

Required reserves 

 

Which of the following is responsible for providing currency and cash to banks?

 

Banks are most profitable when

 

Monetary policy involves the use of federal government spending to change the money supply.

 

In order to simplify market transactions, an economy must use

 

A decrease in the reserve requirement will cause a decrease in the money multiplier.

 

The purchase and sale of government bonds by the Fed for the purpose of altering bank reserves is referred to as

 

Only currency and coins serve as money in the United States economy.

 

Monetary policy involves the use of money and credit controls to

 

The Federal Reserve banks clear checks between private banks, hold bank reserves, provide currency for banks, and make loans to private banks.

 

The Federal Reserve System requires banks to maintain a minimum reserve ratio.

 

Proponents of monetary policy based on fixed rules base their position on the assumption of a vertical aggregate supply curve.

 

The 12 regional Fed banks do not

 

Barter consists of

 

Excess reserves are:

 

The basic money supply

 

The level of excess reserves is used to determine the lending capacity of the banking system.

 

To calculate the amount of required reserves, one must calculate the required reserve ratio _____ the amount of total deposits.

 

The makeup of almost all the basic U.S. money supply is currency and

 

Which of the following best describes the eclectic aggregate supply curve?

 

Which of the following is NOT true concerning the banking system?

 

Barter:



Which of the following is not true about barter?



Reggie fixes his friend's car and the friend cleans his house instead of paying him. In economics, this is referred to as:



Historically in the United States, money has included all of the following except: 



Which of the following has not served as a form of money for the United States? 



Which of the following is not true about money? 



When money is used to pay for goods and services it is functioning as a: 



Money is functioning as a medium of exchange when you:



Money is functioning as a medium of exchange if you:



If money is used to transform current income into future purchases, it is functioning as a: 

 

Money is functioning as a store of value when you:



Money is functioning as a store of value if you:



When the market value of goods and services is expressed in prices, money is functioning as a:



Money is functioning as a standard of value when you:



Money is functioning as a standard of value if you:



The basic money supply includes:



The overwhelming majority of the basic money supply in the U.S. is in the form of: 



The smallest component of the basic money supply is in the form of: 



Savings accounts and certificates of deposit are called 



Martin takes $150 out of his checking account and hides it in his house as cash. The immediate result of this transaction is that M1:



LaTressa takes $230 from under her mattress and deposits it in her checking account. The immediate result of this transaction is that M1:



If Justin takes $75 from his cookie jar and deposits it in his checking account, the immediate result is that:



If Edgar takes $100 out of his savings account and deposits it into his checking account, the immediate result of this transaction is that M1:



When an individual deposits cash or coins in a transactions account, there is: 



Most market transactions are made using:



As the size of purchases becomes larger, a greater percentage of the purchases are made using:



Which of the following functions like money but is not included in M1? 



Money-market mutual funds are:



The total quantity of output demanded at alternative price levels in a given time period, ceteris paribus, is the definition of:



Which of the following is affected by changes in aggregate demand? 



Which of the following is not a function performed by banks? 



Banks do all of the following except: 



Deposit creation occurs when:



Money creation occurs when:



When a bank makes a loan:



Which of the following does not occur when a bank makes a loan? 

 

Banks do all of the following except:



Ceteris paribus, the money supply becomes smaller when:



Ceteris paribus, if Tamika pays off a loan at the bank then over time: 

 

The assets held by a bank to fulfill its deposit obligations are known as: 



If there is only one bank in an economy: 



The term fractional reserves refers to:



If you deposit $1,000 in your checking account, your bank is only required to hold a portion of the deposit and is allowed to lend out the balance. This illustrates the concept known as:



Which of the following is true for U.S. banks?



The reserve ratio is equal to:



The reserve ratio is the ratio of:



Which of the following requires U.S. banks to maintain a minimum reserve ratio? 



The reserve requirement directly limits the ability of banks to: 



If there is no minimum reserve requirement in the banking system, the potential ability of banks to create money is:



Suppose a bank has $50,000 in transactions accounts and a minimum reserve requirement of 10 percent. Then required reserves are:



Suppose a bank has $200,000 in deposits and a minimum reserve requirement of 15 percent. Then required reserves are:



Suppose a bank has $1,000,000 in deposits and a minimum reserve requirement of 20 percent. Then required reserves are:



Suppose a bank has $100,000 in deposits and a minimum reserve requirement of 7 percent. Then required reserves are:



Excess reserves are calculated as:



For a single bank in a large banking system, excess reserves are equal to the: 

 

A bank may lend an amount equal to its: 

 

If excess reserves are $25,000, demand deposits are $100,000, and the minimum reserve requirement is 20 percent, then total reserves are:



If excess reserves are $50,000, demand deposits are $1,000,000, and the minimum reserve requirement is 5 percent, then total reserves are:



If excess reserves are $30,000, demand deposits are $500,000, and the minimum reserve requirement is 10 percent, then total reserves are:



Suppose a bank has $1,500,000 in deposits, a minimum reserve requirement of 20 percent, and total reserves of $350,000. Then the bank has excess reserves of:



Suppose a bank has $2,000,000 in deposits, a minimum reserve requirement of 10 percent, and bank reserves of $250,000. Then the bank has excess reserves of:



Suppose a bank has $1,000,000 in deposits, a minimum reserve requirement of 15 percent, and bank reserves of $170,000. Then the bank can make new loans in the amount of:



Suppose a bank has $100,000 in deposits, a minimum reserve requirement of 5 percent, and bank reserves of $12,000. Then it can make new loans in the amount of:



Suppose a bank has $400,000 in deposits, a minimum reserve requirement of 25 percent, and bank reserves of $100,000. Then the bank can make new loans in the amount of:



Initially a bank has a minimum reserve requirement of 10 percent and no excess reserves. If $10,000 is deposited in the bank, then ceteris paribus:



Initially a bank has a minimum reserve requirement of 15 percent and no excess reserves. If $200,000 is deposited in the bank, then ceteris paribus:



Initially a bank has a minimum reserve requirement of 20 percent and no excess reserves. If $20,000 is deposited in the bank, then the bank can, ceteris paribus:



Banks try to keep their holdings of excess reserves low in order to: 

 

The money multiplier is:



The money multiplier represents:



Which of the following is a direct result of a fractional reserve banking system? 



If the banking system has a required reserve ratio of 15 percent, then the money multiplier is:



If the banking system has a required reserve ratio of 20 percent, then the money multiplier is:



If the required reserve ratio is 5 percent, the money multiplier is: 

 

If the required reserve ratio is 10 percent, the money multiplier is: 

 

If the required reserve ratio is 25 percent, the money multiplier is: 

 

If total reserves for a bank are $10,000, excess reserves are zero, and demand deposits are $100,000, then the money multiplier must be:



If total reserves for a bank are $25,000, excess reserves are zero, and demand deposits are $100,000, then the money multiplier must be:



If total reserves for a bank are $200,000, excess reserves are zero, and demand deposits are $1,000,000, then the money multiplier must be:



If total reserves for a bank are $150,000, excess reserves are zero, and demand deposits are $1,000,000, then the money multiplier must be:



Suppose the entire banking system has $10 million in excess reserves and a required reserve ratio of 5 percent. The deposit-creation potential of the banking system is:



Suppose the entire banking system has $50 million in excess reserves and a required reserve ratio of 10 percent. The deposit-creation potential of the banking system is:



Suppose the entire banking system has $70,000 in excess reserves and a required reserve ratio of 25 percent. The deposit-creation potential of the banking system is:



Suppose the entire banking system has $10,000 in excess reserves and a required reserve ratio of 20 percent. The deposit-creation potential of the banking system is:



Suppose Caroline finds $10,000 under her bed and deposits it in her checking account. If the required reserve ratio is 25 percent, this deposit has the potential of increasing the money supply by:



Suppose the entire banking system has a required reserve ratio of 0.20. How much can the money supply increase in response to a $1 billion increase in excess reserves for the whole banking system?



Which of the following is an essential function performed by banks? 



An increase in the amount of bank loans should shift the aggregate: 

 

A reduction in the money supply should shift the aggregate: 



Which of the following does not constrain deposit creation?



Constraints on deposit creation include all of the following except:



Suppose Students Bank and Trust has zero excess reserves. If the required reserve ratio decreases:



Suppose First National Bank has zero excess reserves. If the required reserve ratio increases, which of the following will happen immediately?



Almost all Internet purchases are paid for by: 



Compared to traditional shopping, Internet sales are constrained because consumers are concerned about:



One News Wire article about Russia stated, "Workers are paid in glass, receive their social benefits in glass and must sell the glass to stay alive." Apparently:



One News Wire article in the text is titled "Goods Replace Rubles in Russia's Vast Web of Trade." According to this article, the Russian currency:



One News Wire article about Russia stated, "Workers are paid in glass, receive their social benefits in glass and must sell the glass to stay alive." According to this quotation:



One News Wire article in the text, titled "How Would You Like to Pay for That?" points out that a greater percentage of noncash payments were made with debit and credit cards than with checks. In this case debit and credit cards function as a:



Barter is the direct exchange of one good for another without the use of money.

 

Without money, the process of acquiring goods and services would be much more efficient.

 

The essential characteristics of money are that it serves as a medium of exchange, a store of value, and a standard of value.

 

Money functions well as a store of value when prices are rising.

 

When you purchase jeans at the mall, money is serving as a medium of exchange.

 

When you put $50 in your savings account, money is serving as a standard of value.

 

A transactions account is considered to be inconvenient for most people because a trip to the bank is required to access the funds in it.

 

The distinguishing feature of transactions accounts is that they allow for direct payment to a third party.

 

Transactions accounts make up almost one third of the basic money supply.

 

The amount of money in circulation can affect spending behavior, but it will not change aggregate demand.

 

When a bank makes a loan, transactions account balances are created but the money supply is not affected.

 

Because the United States has a fractional reserve banking structure, banks are allowed to make loans which increase the money supply.

 

When a bank makes a loan, dollars leave the banking system so the money supply decreases.

 

Since banks are required to keep only a fraction of total deposits as bank reserves, the reserve ratio is always greater than one.

 

Deposit creation possibilities are greater with a larger minimum reserve requirement.

 

The amount a single bank, in a multibank system, can lend is greater than its excess reserves.

 

The newer forms of payments, such as Apple Pay, are a form of money.

 

Excess reserves are the difference between total deposits and required reserves.

 

The money multiplier represents the relationship between excess reserves and the number of deposit dollars the banking system can generate.

 

The money multiplier is equal to 1 divided by the required reserve ratio

 

If the required reserve ratio decreases, the money multiplier decreases 

 

Potential deposit creation for the entire banking system is without limit because when lending takes place, the excess reserves of one bank become deposits for another bank

 

Ceteris paribus, an increase in the money supply will cause an increase in aggregate demand.

 

Deposit creation is constrained by the willingness of consumers and businesses to use and accept checks rather than cash for market transactions

 

If businesses and individuals decide to stop borrowing money, this can reduce money creation.

 

Markets do not require dollars but they cannot function without money

 

The newer forms of payments, such as Apple Pay, are a form of money.

 

Excess reserves are the difference between total deposits and required reserves

 

Which of the following explains why credit cards cannot be considered as a form of money?



Which of these is included in M1? 

 

Money facilitates efficient division of labor by:



In order to calculate potential deposit creation, one must measure: 



When a bank makes a loan:



The reserve requirement is set by the 



An individual bank can make additional loans up to: 



The money multiplier is:



When there is an increase in the money supply, generally there is a resulting: 



Bank A has assets of $100. If the reserve requirement increases from 10 percent to 20 percent, the money supply _________ and the money multiplier _______ from _____ to ______.



When you swipe your debit card to pay for a textbook, you are illustrating which function of money?



Which of the following is an example of near money? 



Which of the following is a constraint on a bank's lending activity? 



Which of the following is often described as the most powerful person in the U.S. economy? 

 

U.S. monetary policy relies on the:



Which of the following serves as the central banker for private banks in the United States? 



The twelve regional Federal Reserve banks are responsible for: 



Suppose Alan receives a check for $300 from a bank in Dallas. He deposits the check in his account at his Baltimore bank. Which of the following is Alan's Baltimore bank likely to collect the $300 from?



Which of the following is responsible for holding bank reserves? 



The key decision maker for general Federal Reserve policy is the: 



The key decision maker for U.S. monetary policy is: 



The Federal Reserve Board of Governors has:



The Board of Governors has ___ members, and they are appointed for ___ year terms. 



Which of the following is not true about the members of the Federal Reserve Board of Governors?



Checks are cleared between private banks by: 



The 12 regional Fed banks do all of the following except: 



Members of the Federal Reserve Board of Governors are appointed for one fourteen-year term so that they:



Members of the Federal Reserve Board of Governors are appointed for one fourteen-year term:



Which of the following is true about the chairman of the Federal Reserve Board of Governors?



The chairman of the Federal Reserve Board of Governors: 

 

All of the following are true about the basic money supply except: 



Which of the following is not a basic monetary policy tool used by the Fed? 



Which of the following is not a basic monetary policy tool used by the Fed? 



Which of the following is not a basic monetary policy tool used by the Fed? 



Required reserves:



The reserve requirement:



A change in the reserve requirement is the tool used least often by the Fed because it: 



Which of the following is not true about excess reserves?



A change in the reserve requirement affects:



Ceteris paribus, if the Fed raises the reserve requirement, then: 



Ceteris paribus, if the Fed reduces the reserve requirement, then: 



Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. Ceteris paribus, if the reserve requirement is decreased to 0.05, then excess reserves will increase by:



Suppose the banks in the Federal Reserve System have $1 billion in transactions accounts and the reserve requirement is 0.20. Ceteris paribus, if the reserve requirement is increased to 0.25, then excess reserves will:



Suppose the banks in the Federal Reserve System have $1 billion in transactions accounts and the reserve requirement is 0.10. Ceteris paribus, if the reserve requirement is increased to 0.20, then excess reserves will:



Suppose the banks in the Federal Reserve System have $100 million in transactions accounts and the reserve requirement is 0.10. Ceteris paribus, if the reserve requirement is decreased to 0.07, then excess reserves will increase by:



The rate of interest banks charge each other for lending reserves is the: 



Which of the following lends reserves to private banks? 



If a bank does not have enough reserves, it can: 



Which of the following is not a possible source of last-minute reserves for a private bank? 



By raising or lowering the _______, the Fed changes the cost of money for banks, which impacts the incentive to borrow reserves.



Ceteris paribus, if the Fed reduces the discount rate, then: 



If the Fed wishes to increase the money supply it can: 



Ceteris paribus, if the Fed raises the discount rate, then: 

 

If the Fed wishes to decrease the money supply it can: 



The policy lever most commonly used by the Fed is: 

 

The principal mechanism for directly changing the reserves of the banking system is: 



The buying and selling of government bonds to influence reserves in the banking system is the responsibility of the:



When the Fed makes bonds more or less attractive, it influences the: 



If the Fed wants to increase bank reserves, it can: 



If the Fed wants to increase bank reserves, it can: 



If the Fed wants to decrease the money supply, it can: 



If the Fed wants to reduce bank reserves, it can:



Aggregate demand is the:



Which of the following cannot be used to shift aggregate demand? 



Which of the following is not a monetary policy tool for shifting the aggregate demand curve?



Ceteris paribus, which of the following will occur if the Fed buys bonds through open-market operations?



Which of the following will cause an increase in aggregate demand? 



If the Fed buys more bonds from the public, then the money supply will: 



Expansionary monetary policy will:



To increase the money supply the Fed can:



Which of the following will occur if the Fed raises the reserve requirement, ceteris paribus? 



Which of the following will cause a decrease in aggregate demand? 



If the Fed sells more bonds to the public, then the money supply will: 

 

Restrictive monetary policy will:



To decrease the money supply the Fed can:



When the Fed announces that it is raising the federal funds rate, this signals its intention to _______ bonds in the open market and _______ the money supply.



As the money supply increases, interest rates _______ and aggregate demand shifts to the _______.



When the Fed sells bonds in the open market, interest rates _______ and aggregate demand shifts to the _______.



The different shapes of the aggregate supply curve:



Given Keynesian assumptions about the shape of the aggregate supply curve and an economy suffering a recession, which of the following is most likely to occur if the Fed pursues expansionary monetary policy?



Using aggregate supply and demand curves drawn according to the Keynesian view, which of the following will occur if the Fed buys bonds in the open market and the economy is below full employment?



According to the Keynesian view of aggregate supply, an increase in the money supply will: 



According to the monetarist view, the aggregate supply curve is: 



According to the monetarist view, the aggregate supply curve is:



According to the aggregate supply drawn under the monetarist view, which of the following would lead to a higher price level?



Using the aggregate supply drawn under the monetarist view, what should happen to the equilibrium price level and quantity of output if the Fed buys bonds?



An eclectic aggregate supply curve:



Given an upward-sloping aggregate supply curve, which of the following is most likely to occur if the Fed sells bonds in the open market, ceteris paribus?



Given an upward-sloping aggregate supply curve, attempts to reduce unemployment through monetary policy will aggravate current inflation as illustrated by a:



Given an upward-sloping aggregate supply curve, which of the following is most likely to occur if the Fed pursues restrictive monetary policy, ceteris paribus?



With an upward-sloping aggregate supply curve, tight monetary policy: 



Which of the following policies supports the concept of continual adjustment of the money supply to achieve macroeconomic goals?



A vertical aggregate supply curve favors which of the following policies? 

 

Which of the following policies is supported by the idea that producers and workers will demand higher prices and wages when they see the money supply expanding?



Which of the following approaches should the Fed use if it experiences large lags and mistakes in monetary policy?



The Fed's eclecticism reflects:



Under Alan Greenspan, the Fed:



One News Wire article in the text is titled "Fed Cuts Key Interest Rate Half-Point to 1 Percent." Which of the following is the Fed trying to accomplish as a result of this action? 



One News Wire article in the text has the title "Fed Cuts Key Interest Rate Half-Point to 1 Percent." Assuming the economy is in the upward sloping portion of the eclectic aggregate supply curve, what should happen to the price level and output as a result of the Fed's action, ceteris paribus?



If a private bank lends money to another bank, the interest rate that is charged for the loan is the:



How many members are there of the U.S. Senate Committee on Banking, Housing and Urban Affairs?



By increasing the required reserves, the banking industry will have more excess reserves available for lending.

 

Monetary policy directed at expanding GDP growth would include the following? 

 

Monetary policy:



The Board of Governors of the Fed:



The discount rate:



If the Federal Reserve wanted to stimulate the economy, it would most likely: 

 

Fed purchases of bonds from the public, called open market operations:



Which of the following functions does the Fed perform? 



Which of the following is a tool of monetary policy? 



If unemployment is a problem, the Fed could ______ bonds and ______ the reserve requirement.



If the Fed wants to stimulate aggregate demand it should _____ bonds to _____ the money supply.



A bank's required reserves may be held in which two forms? 



The impact of monetary policy on prices and output depends on the 



When the Fed _____ bonds, the money supply _____. 



Monetary policy directed at expanding GDP growth would include the following? 

 

Discretionary policy calls for continual adjustments to the money supply and is associated with the monetarist perspective.

 

Keynesians believe a change in the money supply cannot lower the unemployment rate.

 

Both monetary policy and fiscal policy shift the aggregate demand curve.

 

When the Fed sells bonds, bank reserves increase.

 

When the Fed sells bonds, the quantity of reserves in the banking system declines and the money supply decreases.

 

By buying bonds, the Fed decreases the quantity of reserves in the banking system and decreases the money supply.

 

Open-market operations are the tool used least frequently by the Fed to alter the reserves of the banking system.

 

One of the portfolio choices people must make is whether to deposit idle funds in a bank or purchase government bonds.

 

If the Fed wants to increase the money supply, it should increase the discount rate.

 

The interest rate private banks charge each other for lending reserves is called the federal funds rate.

 

Profit-maximizing banks try to keep their excess reserves as high as possible.

 

For a given amount of total reserves, a decrease in required reserves causes an increase in excess reserves.

 

Ceteris paribus, the amount of required reserves decreases when the dollar volume of transactions accounts increases.

 

By changing the reserve requirement the Fed can change the level of bank reserves and the lending capacity of the banking system.

 

The reserve requirement is the tool used least frequently by the Fed because it can cause abrupt changes in the money supply.

 

Congress and the president are the key decision makers for U.S. monetary policy.

 

The Board of Governors of the Federal Reserve System is the key decision maker for monetary policy.

 

Members of the Federal Reserve Board of Governors are appointed to 14-year terms to provide a level of isolation from political influence.

 

The Board of Governors consists of seven members elected by the public every four years.

 

The Federal Reserve banks accept deposits from individuals and banks.

 

Monetary policy involves the use of money and credit controls to impact the macroeconomy.