CH. 13

Which of the following guarantees the deposits in almost all banks up to a $250,000 limit per account? a. the U.S. Treasury b. the Federal Reserve c. Bank of America Corporation d. the FDIC

d. the FDIC

Suppose the Fed bought $150 million of U.S. securities from the public. The reserve requirement is 20 percent, and there are no initial excess reserves. A few weeks later, if the public's holdings of currency are constant and the banks have loaned all excess reserves, the money supply will increase by a. $750 million. b. $300 million. c. $150 million. d. $600 million.

a. $750 million.

Compared to a barter economy, using money increases efficiency by reducing a. the need to exchange goods. b. the need to specialize. c. inflation. d. transaction costs.

d. transaction costs.

The sale of government securities by the Fed will cause a. a decrease in both the monetary base and the money supply. b. an increase in the monetary base but no change in the money supply. c. a decrease in the monetary base but no change in the money supply. d. an increase in both the monetary base and the money supply.

a. a decrease in both the monetary base and the money supply.

Which of the following is correct? a. Federal Reserve purchases of securities exert upward pressure on interest rates in the short run. b. Federal Reserve purchases of securities will increase the reserves available to commercial banks. c. Federal Reserve purchases of securities will decrease the reserves available to commercial banks. d. The Federal Reserve System determines the ratio of currency held by the public to the money supply (M1).

b. Federal Reserve purchases of securities will increase the reserves available to commercial banks.

Which of the following compose the M2 money supply? a. currency, demand deposits, other checkable deposits, and traveler's checks b. M1 plus savings deposits, small-denomination time deposits, and money market mutual funds (retail) c. M1 plus large denomination time deposits and Eurodollar deposits d. currency only

b. M1 plus savings deposits, small-denomination time deposits, and money market mutual funds (retail)

Modern bankers a. expand the money supply by printing currency when they need it. b. hold only a fraction of their assets in the form of reserves against their deposits. c. decrease the supply of money when they extend additional loans. d. can increase their profits by increasing their holdings of excess reserves.

b. hold only a fraction of their assets in the form of reserves against their deposits.

One advantage of a money system compared to a barter system is that a. barter never works. b. money is more efficient. c. everyone has money. d. money creates the need for banks.

b. money is more efficient.

The funds that banks are required by law to hold in the form of either vault cash or deposits with the Fed are called a. excess reserves. b. required reserves. c. certificates of deposit. d. fractional reserves.

b. required reserves.

The term "open market operations" refers to the a. operation of competitive markets in the banking industry as the result of deregulation. b. loan-making activities of commercial banks. c. effect of expansionary monetary policy on interest rates. d. buying and selling of government securities by the Federal Reserve.

d. buying and selling of government securities by the Federal Reserve.