Question 1

The Bank of Red Oak has $2 million in deposits and $400,000 in reserves.If excess reserves are equal to $100,000,the required reserve ratio is

Accepted Answer

A)  5%.
B)  10%.
C)  15%.
D)  20%.E) B) and D)
F) A) and B)

Question 2

The multiple by which total deposits can increase for every dollar increase in reserves is the

Accepted Answer

A)  required reserve ratio.
B)  bank's line of credit.
C)  deposit insurance limit.
D)  money multiplier.E) None of the above
F) A) and C) D

Question 3

Electro City,a retailer of electronics,has 2,000 different products in inventory.Electro City reports its inventory is worth $12 million.This is an example of using money as a

Accepted Answer

A)  medium of exchange.
B)  unit of account.
C)  standard of deferred payment.
D)  store of value.E) All of the above
F) A) and D)

Question 4

The main disadvantage of using money as a store of value is that

Accepted Answer

A)  money is not portable.
B)  it requires a double coincidence of wants.
C)  currency is intrinsically worthless.
D)  the value of money actually falls when the prices of goods and services rise.E) C) and D)
F) All of the above

Question 5

Of the tools available to the Fed to regulate the money supply,which is the least used?

Accepted Answer

A)  the federal funds rate
B)  the reserve ratio
C)  tax cutting
D)  the open-market operationsE) None of the above
F) A) and D)

Question 6

Since they must lend money to make money,all banks are necessarily insolvent.

Accepted Answer

A) True 
 B)False  False

Question 7

Fiat money is money the government says is money.

Accepted Answer

A) True 
 B)False

Question 8

Money is anything that generally is accepted as a medium of exchange.

Accepted Answer

A) True 
 B)False

Question 9

Among the assets of commercial banks are demand deposits.

Accepted Answer

A) True 
 B)False

Question 10

Currency debasement occurs when

Accepted Answer

A)  the value of money falls as a result of a rapid increase in its supply.
B)  the government requires that a certain form of money must be accepted in settlement of debts.
C)  items are designated as money that are intrinsically worthless.
D)  items are used as money that also have intrinsic value in some other use.E) None of the above
F) A) and B)

Question 11

Refer to the information provided in Table 10.1 below to answer the questions that follow.
Table 10.1 
-Refer to Table 10.1.The required reserve ratio is 25%.If the First Charter Bank is meeting its reserve requirement and has no excess reserves,its reserves equal

Accepted Answer

A)  $100.
B)  $200.
C)  $300.
D)  $600.E) C) and D)
F) B) and D)

Question 12

Only the required reserve ratio determines how much money the Federal Reserve can create.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following instruments is NOT used by the Federal Reserve to change the money supply?

Accepted Answer

A)  the discount rate
B)  the required reserve ratio
C)  the federal tax code
D)  open market operationsE) A) and D)
F) C) and D)

Question 14

Which of the following statements is FALSE?

Accepted Answer

A)  Open-market operations can be used by the Federal Reserve with some precision.
B)  Open-market operations are extremely flexible.
C)  The Federal Reserve undertakes open-market operations on an infrequent basis.
D)  Open-market operations have a fairly predictable effect on the supply of money.E) C) and D)
F) B) and C)

Question 15

Which of the following is an example of fiat money?

Accepted Answer

A)  cigarettes
B)  an ounce of gold
C)  a U.S.one-hundred dollar bill
D)  a government bondE) C) and D)
F) All of the above C

Question 16

Refer to the information provided in Table 10.2 below to answer the questions that follow.
Table 10.2 
-Refer to Table 10.2.First Commercial Bank's total loans equal

Accepted Answer

A)  $1,000,000.
B)  $1,700,000.
C)  $2,500,000.
D)  $5,000,000.E) All of the above
F) C) and D)

Question 17

When a bank has no excess reserves,and thus can make no more loans,it is said to be

Accepted Answer

A)  bankrupt.
B)  ripe for a takeover.
C)  in receivership.
D)  loaned up.E) B) and D)
F) C) and D)

Question 18

Which of the following represents an action by the Federal Reserve that is designed to increase the money supply?

Accepted Answer

A)  a decrease in the required reserve ratio
B)  an increase in the discount rate
C)  a decrease in federal tax rates
D)  selling government securities in the open marketE) C) and D)
F) A) and D)

Question 19

The Chair of the Fed also serves as one of the Reserve Bank Presidents.

Accepted Answer

A) True 
 B)False

Question 20

The M2 definition of money includes demand deposits.

Accepted Answer

A) True 
 B)False

Exam 10: The Money Supply and the Federal Reserve System

The Bank of Red Oak has $2 million in deposits and $400,000 in reserves.If excess reserves are equal to $100,000,the required reserve ratio is

Correct AnswerverifiedShow Answer

The multiple by which total deposits can increase for every dollar increase in reserves is the

Correct AnswerverifiedD

Electro City,a retailer of electronics,has 2,000 different products in inventory.Electro City reports its inventory is worth $12 million.This is an example of using money as a

Correct AnswerverifiedShow Answer

The main disadvantage of using money as a store of value is that

Correct AnswerverifiedShow Answer

Of the tools available to the Fed to regulate the money supply,which is the least used?

Correct AnswerverifiedShow Answer

Since they must lend money to make money,all banks are necessarily insolvent.

Correct AnswerverifiedFalse

Fiat money is money the government says is money.

Correct AnswerverifiedShow Answer

Money is anything that generally is accepted as a medium of exchange.

Correct AnswerverifiedShow Answer

Among the assets of commercial banks are demand deposits.

Correct AnswerverifiedShow Answer

Currency debasement occurs when

Correct AnswerverifiedShow Answer

Refer to the information provided in Table 10.1 below to answer the questions that follow. Table 10.1 -Refer to Table 10.1.The required reserve ratio is 25%.If the First Charter Bank is meeting its reserve requirement and has no excess reserves,its reserves equal

Correct AnswerverifiedShow Answer

Only the required reserve ratio determines how much money the Federal Reserve can create.

Correct AnswerverifiedShow Answer

Which of the following instruments is NOT used by the Federal Reserve to change the money supply?

Correct AnswerverifiedShow Answer

Which of the following statements is FALSE?

Correct AnswerverifiedShow Answer

Which of the following is an example of fiat money?

Correct AnswerverifiedC

Refer to the information provided in Table 10.2 below to answer the questions that follow. Table 10.2 -Refer to Table 10.2.First Commercial Bank's total loans equal

Correct AnswerverifiedShow Answer

When a bank has no excess reserves,and thus can make no more loans,it is said to be

Correct AnswerverifiedShow Answer

Which of the following represents an action by the Federal Reserve that is designed to increase the money supply?

Correct AnswerverifiedShow Answer

The Chair of the Fed also serves as one of the Reserve Bank Presidents.

Correct AnswerverifiedShow Answer

The M2 definition of money includes demand deposits.

Correct AnswerverifiedShow Answer

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D

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False

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C

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