Econ. 202: chapter 13 questions

The U.S. government is continually adding security features to its paper currency to help make counterfeit money easier to detect. If counterfeit currency remained undetected, a vast increase in the supply of counterfeit U.S. currency would: A) decrease aggregate demand in the short run. B) lead to inflation. C) reduce the amount of M1. D) lower the nominal income of the average U.S. worker.

lead to inflation

If the banking system has a required reserve ratio of 40 percent, then the money multiplier is: A) 2. B) 2.5. C) 4. D) 8.

100/40 = 2.5

Given the following info. about AAA bank: Bank Deposits: $50,000 Loans: $25,000 Required Reserves: $15,000 Excess Reserves: $10,000 What is the reserve ratio? A) 50 percent B) 30 percent C) 20 percent D) 15 percent

15,000/50,000 = 30%

Given the following info. about Gotham Bank: Bank Deposits: $50,000 Loans: $34,000 Reserves: $12,000 Reserve Requirement: 20% Gotham Bank is holding ________ in excess reserves. A) $22,000 B) $12,000 C) $2,000 D) -$2,000

20% of 50,000 = 10,000 12,000 - 10,000 = $2,000

Suppose a bank has $1 million in deposits, a reserve ratio of 25 percent, and reserves of $250,000. This bank has excess reserves of: A) $250,000. B) $125,000. C) $62,500. D) $0.

25% of 1 million = 250,000 250,000 - 250,000 = $0

Suppose Kaylee withdraws $4,000 from her bank. If the reserve ratio is 25 percent, then this will lead to a decrease in M1 of: A) $1,000. B) $4,000. C) $8,000. D) $12,000.

4,000/.25 = 16,000 16,000 - 4,000 = $12,000

Suppose a bank has $300,000 in deposits, a reserve ratio of 5 percent, and bank reserves of $45,000. This bank can make new loans in the amount of: A) $345,000. B) $45,000. C) $30,000. D) $15,000.

5% of 300,000 = 15,000 45,000 - 15,000 = $30,000

Deposits in savings accounts are included in: A) M1. B) M2. C) both M1 and M2. D) neither M1 nor M2.

M2

A bank's reserves: A) are the sum of its excess and required reserves. B) can be held as cash in its vault. C) can be held as deposits with the Federal Reserve. D) all of the above

all of the above

Currency held by the public: $450 billion Demand deposits: $220 billion Other checkable deposits: $170 billion Traveler's checks: $2 billion Savings deposits: $800 billion Small time deposits: $50 billion Money market mutual funds: $170 billion According to the information M2 is equal to: A) $840 billion. B) $1,062 billion. C) $1,692 billion. D) $1,862 billion.

$1,862 billion

Currency held by the public: $450 billion Demand deposits: $220 billion Other checkable deposits: $170 billion Traveler's checks: $2 billion Savings deposits: $800 billion Small time deposits: $50 billion Money market mutual funds: $170 billion According to the information M1 is equal to: A) $620 billion. B) $672 billion. C) $842 billion. D) $1,012 billion.

$842 billion

Suppose Ariana deposits $75,000 in her bank. If the reserve ratio is 20 percent, this will lead to a maximum increase of ________ in checking account balances throughout all banks. A) $15,000 B) $375,000 C) $750,000 D) $1,500,000

75,000/0.2 = $375,000

Checking account balances are included in: A) M1 only. B) M2 only. C) both M1 and M2. D) neither M1 nor M2.

both M1 and M2

Loans are examples of a bank's: A) assets. B) liabilities. C) net worth. D) balance sheet.

assets

The money multiplier will be smaller when: A) bank customers prefer to hold a bigger amount of their money as cash (instead of in their checking account). B) banks prefer to lend out 9 percent of their excess reserves instead of 90 percent. C) when the marginal propensity to save declines. D) when the reserve ratio decreases.

bank customers prefer to hold a bigger amount of their money as cash instead of in their checking account

Money that has no intrinsic value and is created by a government decree is called: A) barter money. B) commodity money. C) fiat money. D) asset money.

fiat money

Isabel receives a check for $7,000 from Kermit and deposits it in her bank. Suppose that the reserve ratio is 10 percent. As a result of this transaction the money supply will: A) increase by $70,000. B) decrease by $63,000 and then increase by $70,000. C) decrease by $70,000 and then increase by $63,000. D) not change.

not change

Which of the following is NOT included in M1? A) savings accounts B) deposits in checking accounts C) deposits in checking accounts that pay interest D) traveler's checks

savings accounts

The chairman of the Federal Reserve Board of Governors: A) sits on the Federal Open Market Committee B) is appointed by the President and confirmed by the Treasury C) serves a fourteen year term as chairman D) is always the president of the Federal Reserve Bank of New York

sits on the federal open market committee

As inflation rates increase, money becomes less useful as a: A) unit of account. B) store of value. C) medium of exchange. D) double coincidence of wants.

store of value

The supply of money in the U.S. economy is determined primarily by: A) decisions made by the Federal Reserve and the U.S. Treasury. B) the actions of the Federal Reserve and the banking system. C) consumers and the banking system. D) the demand for money in the economy.

the auctions of the federal reserve and the banking system

Which of the following is NOT a subgroup of the Federal Reserve System? A) the Federal Reserve Banks B) the Federal Funds Market C) the Board of Governors D) the Federal Open Market Committee

the federal funds market

When money is used to express the value of goods and services, it is functioning as a: A) medium of exchange. B) store of value. C) unit of account. D) store of purchasing power.

unit of account