Question 1

When the economy experiences inflation, people demand a:

Accepted Answer

A)   lower quantity of money, shifting the money demand curve leftward.
B)   higher quantity of money, shifting the money demand curve leftward.
C)   lower quantity of money, shifting the money demand curve rightward.
D)   higher quantity of money, shifting the money demand curve rightward.E) B) and C)
F) A) and D) D

Question 2

The Federal Open Market Committee:

Accepted Answer

A)   includes all regional bank presidents and the Board of Governors.
B)   is the most important policy-making body of the Federal Reserve.
C)   is responsible for regulatory oversight and implementation of monetary policy of regional banks.
D)   is responsible for monitoring how goods and services are being sold on the open market.E) All of the above
F) C) and D)

Question 3

Open-market operations are:

Accepted Answer

A)   sales or purchases of government securities, by the Fed, to or from banks on the open market.
B)   regulations that set the minimum fraction of deposits banks must hold in reserve.
C)   operations that allow any bank to borrow reserves from the Fed at a special interest rate, called the discount rate.
D)   the purchase and sale of financial instruments on the open market.E) None of the above
F) A) and B)

Question 4

The ratio of the total amount of demand deposits at a bank to the amount kept as cash reserves is known as the:

Accepted Answer

A)   reserve ratio.
B)   demand deposit ratio.
C)   demand-reserve ratio.
D)   federal funds rate.E) B) and D)
F) B) and C)

Question 5

The definition of M1 includes:

Accepted Answer

A)   cash and checking account balances.
B)   hard money and savings account balances.
C)   cash and savings account balances.
D)   cash, checking accounts, savings accounts, and other financial instruments where money is locked away for a specified period of time.E) B) and D)
F) A) and D)

Question 6

If the reserve ratio is 5 percent, then the money multiplier is approximated to be:

Accepted Answer

A)   20.
B)   5.
C)   10.
D)   2.E) A) and B)
F) B) and C)

Question 7

Holding money is:

Accepted Answer

A)   nearly always the most convenient way to hold onto wealth over time.
B)   almost never the most convenient way to hold onto wealth over time.
C)   nearly always the least convenient way to hold onto wealth over time.
D)   rarely the most convenient way to hold onto wealth over time.E) A) and B)
F) A) and C) A

Question 8

In order to change the money supply, the Fed might use all of the following tools except:

Accepted Answer

A)   discount window.
B)   reserve requirement.
C)   open market operations.
D)   deficit spending.E) B) and C)
F) All of the above

Question 9

If the money supply in the economy were at MS3, to engage in expansionary policy the Federal Reserve Bank would use open market operation to move money supply to:

Accepted Answer

A)   MS1
B)   MS2
C)   MS4
D)   it would stay at MS3E) A) and D)
F) All of the above

Question 10

If the Federal Reserve Banks goal was to use open market operations to contract the economy it could move from:

Accepted Answer

A)   MS1 to MS3
B)   MS3 to MS4
C)   MS4 to MS3
D)   MS2 to MS3E) None of the above
F) C) and D)

Question 11

The Board of Governors is made up of experts in:

Accepted Answer

A)   fiscal policy.
B)   public policy.
C)   monetary policy.
D)   information systemsE) A) and D)
F) C) and D)

Question 12

The Board of Governors is made up of experts in:

Accepted Answer

A)   banking.
B)   international trade.
C)   fiscal policy.
D)   All of these are true.E) A) and D)
F) B) and C)

Question 13

A bank run is:

Accepted Answer

A)   the situation that arises from fear that the bank is in danger of running out of money.
B)   when all depositors from a single bank demand to withdraw all deposits at once.
C)   when a bank's reserves are not enough to satisfy all withdrawal demands.
D)   All of these are true.E) B) and C)
F) A) and D)

Question 14

The essential functions of any central bank are:

Accepted Answer

A)   managing the money supply, and acting as a lender of last resort.
B)   overseeing major business transactions, and managing the money supply.
C)   preventing the formulation of monopolies or other market failure, and acting as a lender of last resort.
D)   collecting taxes, and managing the supply of money.E) A) and D)
F) B) and C)

Question 15

The Federal Reserve:

Accepted Answer

A)   is fairly independent of the rest of government.
B)   works closely with the Treasury department.
C)   is easily swayed by political pressure.
D)   has become an ineffective policy-making body in the last decade.E) A) and B)
F) A) and C)

Question 16

Over time, the money multiplier:

Accepted Answer

A)   was relatively stable until 2008, when it dropped dramatically.
B)   was relatively stable until 2008, when it rose dramatically.
C)   has historically followed the business cycle.
D)   runs counter cyclic to the business cycle.E) None of the above
F) A) and C)

Question 17

If the economy is in a recession, the Fed is likely to:

Accepted Answer

A)   buy bonds through open market operations.
B)   increase the discount rate.
C)   increase the reserve requirement.
D)   print more currency.E) A) and B)
F) All of the above

Question 18

Expansionary monetary policy involves actions that:

Accepted Answer

A)   reduce the money supply in order to decrease aggregate demand.
B)   increase the money supply in order to decrease aggregate demand.
C)   reduce the money supply in order to increase aggregate demand.
D)   increase the money supply in order to increase aggregate demand.E) All of the above
F) B) and D) D

Question 19

In the simple liquidity preference model, if the money demand curve is elastic, then:

Accepted Answer

A)   small changes to the money supply will cause large changes to the interest rate.
B)   only large changes to the money supply will cause large changes to the interest rate.
C)   small changes to the money supply will cause insignificant changes to the interest rate.
D)   even large changes to the money supply will cause small changes to the interest rate.E) C) and D)
F) A) and C)

Question 20

The most used tool of the Fed is:

Accepted Answer

A)   open market operations.
B)   the reserve requirement.
C)   the discount window.
D)   These are all used with equal frequency.E) A) and C)
F) A) and B)

Exam 15: Money and the Monetary System

When the economy experiences inflation, people demand a:

Correct AnswerverifiedD

The Federal Open Market Committee:

Correct AnswerverifiedShow Answer

Open-market operations are:

Correct AnswerverifiedShow Answer

The ratio of the total amount of demand deposits at a bank to the amount kept as cash reserves is known as the:

Correct AnswerverifiedShow Answer

The definition of M1 includes:

Correct AnswerverifiedShow Answer

If the reserve ratio is 5 percent, then the money multiplier is approximated to be:

Correct AnswerverifiedShow Answer

Holding money is:

Correct AnswerverifiedA

In order to change the money supply, the Fed might use all of the following tools except:

Correct AnswerverifiedShow Answer

If the money supply in the economy were at MS3, to engage in expansionary policy the Federal Reserve Bank would use open market operation to move money supply to:

Correct AnswerverifiedShow Answer

If the Federal Reserve Banks goal was to use open market operations to contract the economy it could move from:

Correct AnswerverifiedShow Answer

The Board of Governors is made up of experts in:

Correct AnswerverifiedShow Answer

The Board of Governors is made up of experts in:

Correct AnswerverifiedShow Answer

A bank run is:

Correct AnswerverifiedShow Answer

The essential functions of any central bank are:

Correct AnswerverifiedShow Answer

The Federal Reserve:

Correct AnswerverifiedShow Answer

Over time, the money multiplier:

Correct AnswerverifiedShow Answer

If the economy is in a recession, the Fed is likely to:

Correct AnswerverifiedShow Answer

Expansionary monetary policy involves actions that:

Correct AnswerverifiedD

In the simple liquidity preference model, if the money demand curve is elastic, then:

Correct AnswerverifiedShow Answer

The most used tool of the Fed is:

Correct AnswerverifiedShow Answer

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D

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A

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D

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