Question 1

The Federal Reserve was established in 1913 to

Accepted Answer

A)  prevent inflation by decreasing the money supply.
B)  stimulate the economy by increasing bank reserves.
C)  stop bank panics by acting as a lender of last resort.
D)  prevent bad loans by requiring banks to hold reserves.E) All of the above
F) B) and C)

Question 2

Typically,a bank's largest asset is its

Accepted Answer

A)  reserves.
B)  holdings of securities.
C)  deposits of its customers.
D)  loans.E) B) and C)
F) All of the above

Question 3

If a bank receives a $20 million discount loan from the Federal Reserve,then the bank's reserves will

Accepted Answer

A)  not change.
B)  increase by $20 million.
C)  increase by less than $20 million.
D)  increase by more than $20 million.E) A) and D)
F) A) and C)

Question 4

Banks hold 100% of their checking deposits as vault cash to ensure that bank runs do not occur.

Accepted Answer

A) True 
 B)False

Question 5

If credit card balances rise in the economy,then M1 will ________ and M2 will ________.

Accepted Answer

A)  increase; increase
B)  not change; increase
C)  decrease; increase
D)  not change; not change
E)  increase; decreaseF) A) and B)
G) D) and E)

Question 6

If,during a deposit expansion,not all money gets redeposited into the banking system and some leaks out as currency,then the real world multiplier is

Accepted Answer

A)  smaller than 1/RR.
B)  larger than 1/RR.
C)  equal to 1/RR.
D)  not related to 1/RR.E) A) and C)
F) A) and D)

Question 7

How do open market operations work?

Accepted Answer

If the FOMC decides to increase the mone...

Question 8

Money market mutual funds sell shares to investors and use the money to buy

Accepted Answer

A)  mortgage-backed securities.
B)  foreign currency.
C)  short-term securities.
D)  overseas assets through foreign direct investment.E) B) and C)
F) A) and D)

Question 9

Hyperinflation can be caused by

Accepted Answer

A)  the government selling bonds to the central bank.
B)  the central bank selling bonds to the public.
C)  the government selling bonds to the public.
D)  the central bank selling bonds to the government.E) All of the above
F) None of the above

Question 10

In 1980,one Zimbabwean dollar was worth 1.47 U.S.dollars.By the end of 2008,the exchange rate was one U.S.dollar to 2 billion Zimbabwean dollars.When an economy experiences rapid increases in the price level such as what occurred in Zimbabwe,the economy is said to experience

Accepted Answer

A)  stagflation.
B)  deflation.
C)  inflation.
D)  hyperinflation.E) B) and C)
F) None of the above

Question 11

If a person withdraws $500 from his/her checking account and holds it as currency,then M1 will ________ and M2 will ________.

Accepted Answer

A)  increase; decrease
B)  not change; not change
C)  not change; increase
D)  decrease; increase
E)  decrease; decreaseF) A) and C)
G) D) and E)

Question 12

Net worth is

Accepted Answer

A)  a measure of a firm's profits.
B)  unrelated to stockholders' equity.
C)  the difference between a firm's assets and liabilities.
D)  listed on the asset side of a firm's balance sheet.E) A) and B)
F) All of the above

Question 13

Which of the following is a true statement?

Accepted Answer

A)  excess reserves = actual reserves - required reserves
B)  excess reserves = deposits - required reserves
C)  excess reserves = deposits - loans
D)  excess reserves = loans - required reservesE) A) and B)
F) B) and C)

Question 14

Which of the following is counted as a liability for a bank?

Accepted Answer

A)  customer deposits
B)  bank reserves
C)  securities
D)  bank loansE) None of the above
F) B) and D)

Question 15

Suppose you withdraw $1,000 from your savings account and put it under your mattress.Briefly explain how this will affect M1 and M2.

Accepted Answer

M2 will not change and M1 will rise by $...

Question 16

A bank will consider a car loan to a customer ________ and a customer's checking account to be ________.

Accepted Answer

A)  a liability; an asset
B)  an asset; a liability
C)  a liability; a liability
D)  an asset; an asset
E)  an asset; net worthF) A) and C)
G) B) and D)

Question 17

If you transfer all of your currency to your checking account,then initially,M1 will ________ and M2 will ________.

Accepted Answer

A)  increase; not change
B)  not change; increase
C)  not change; not change
D)  decrease; increaseE) A) and B)
F) None of the above

Question 18

There is a strong link between changes in the money supply and inflation

Accepted Answer

A)  in both the short run and the long run.
B)  in neither the short run nor the long run.
C)  in the short run,but not in the long run.
D)  in the long run,but not in the short run.E) B) and C)
F) B) and D)

Question 19

In an attempt to bring lenders and borrowers together following the financial crisis of 2008,the Federal Reserve made a large amount of new funds available to financial markets.The Fed expected this to increase the money supply and the total amount of lending because of the multiplier effect,in which a given amount of new reserves results in a multiple increase in

Accepted Answer

A)  stockholders' equity.
B)  bank deposits.
C)  long-term debt.
D)  required reserves.E) A) and D)
F) C) and D)

Question 20

Fiat money has

Accepted Answer

A)  little to no intrinsic value but is backed by the quantity of gold held by the central bank.
B)  little to no intrinsic value and is authorized by the central bank or governmental body.
C)  value,because it can be redeemed for gold by the central bank.
D)  a great intrinsic value that is independent of its use as money.E) B) and C)
F) All of the above

Exam 14: Money,Banks,and the Federal Reserve System

Which of the following is counted as a liability for a bank?

Correct Answer
verified

Money market mutual funds sell shares to investors and use the money to buy

Correct Answer
verified

There is a strong link between changes in the money supply and inflation

Correct Answer
verified

Correct Answer
verified

If a person withdraws $500 from his/her checking account and holds it as currency,then M1 will and M2 will .

Correct Answer
verified

Banks hold 100% of their checking deposits as vault cash to ensure that bank runs do not occur.

Correct Answer
verified

If you transfer all of your currency to your checking account,then initially,M1 will and M2 will .

Correct Answer
verified

If,during a deposit expansion,not all money gets redeposited into the banking system and some leaks out as currency,then the real world multiplier is

Correct Answer
verified

In 1980,one Zimbabwean dollar was worth 1.47 U.S.dollars.By the end of 2008,the exchange rate was one U.S.dollar to 2 billion Zimbabwean dollars.When an economy experiences rapid increases in the price level such as what occurred in Zimbabwe,the economy is said to experience

Correct Answer
verified

If credit card balances rise in the economy,then M1 will and M2 will .

Correct Answer
verified

Hyperinflation can be caused by

Correct Answer
verified

Fiat money has

Correct Answer
verified

How do open market operations work?

Correct Answer
verified
If the FOMC decides to increase the mone...
View Answer

Typically,a bank's largest asset is its

Correct Answer
verified

If a bank receives a $20 million discount loan from the Federal Reserve,then the bank's reserves will

Correct Answer
verified

Suppose you withdraw $1,000 from your savings account and put it under your mattress.Briefly explain how this will affect M1 and M2.

Correct Answer
verified
M2 will not change and M1 will rise by $...
View Answer

The Federal Reserve was established in 1913 to

Correct Answer
verified

A bank will consider a car loan to a customer and a customer's checking account to be .

Correct Answer
verified

Which of the following is a true statement?

Correct Answer
verified

Net worth is

Correct Answer
verified

Exam 14: Money,Banks,and the Federal Reserve System

Which of the following is counted as a liability for a bank?

Correct AnswerverifiedShow Answer

Money market mutual funds sell shares to investors and use the money to buy

Correct AnswerverifiedShow Answer

There is a strong link between changes in the money supply and inflation

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If a person withdraws $500 from his/her checking account and holds it as currency,then M1 will ________ and M2 will ________.

Correct AnswerverifiedShow Answer

Banks hold 100% of their checking deposits as vault cash to ensure that bank runs do not occur.

Correct AnswerverifiedShow Answer

If you transfer all of your currency to your checking account,then initially,M1 will ________ and M2 will ________.

Correct AnswerverifiedShow Answer

If,during a deposit expansion,not all money gets redeposited into the banking system and some leaks out as currency,then the real world multiplier is

Correct AnswerverifiedShow Answer

In 1980,one Zimbabwean dollar was worth 1.47 U.S.dollars.By the end of 2008,the exchange rate was one U.S.dollar to 2 billion Zimbabwean dollars.When an economy experiences rapid increases in the price level such as what occurred in Zimbabwe,the economy is said to experience

Correct AnswerverifiedShow Answer

If credit card balances rise in the economy,then M1 will ________ and M2 will ________.

Correct AnswerverifiedShow Answer

Hyperinflation can be caused by

Correct AnswerverifiedShow Answer

Fiat money has

Correct AnswerverifiedShow Answer

How do open market operations work?

Correct AnswerverifiedIf the FOMC decides to increase the mone...View AnswerShow Answer

Typically,a bank's largest asset is its

Correct AnswerverifiedShow Answer

If a bank receives a $20 million discount loan from the Federal Reserve,then the bank's reserves will

Correct AnswerverifiedShow Answer

Suppose you withdraw $1,000 from your savings account and put it under your mattress.Briefly explain how this will affect M1 and M2.

Correct AnswerverifiedM2 will not change and M1 will rise by $...View AnswerShow Answer

The Federal Reserve was established in 1913 to

Correct AnswerverifiedShow Answer

A bank will consider a car loan to a customer ________ and a customer's checking account to be ________.

Correct AnswerverifiedShow Answer

Which of the following is a true statement?

Correct AnswerverifiedShow Answer

Net worth is

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified

If a person withdraws $500 from his/her checking account and holds it as currency,then M1 will and M2 will .

Correct Answer
verified

Correct Answer
verified

If you transfer all of your currency to your checking account,then initially,M1 will and M2 will .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

If credit card balances rise in the economy,then M1 will and M2 will .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
If the FOMC decides to increase the mone...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
M2 will not change and M1 will rise by $...
View Answer

Correct Answer
verified

A bank will consider a car loan to a customer and a customer's checking account to be .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified