OL_ECON_chapter_9&10

What primary function is money serving when you keep it in a bank account until you need it to purchase a product?

a store of value

Monetary policy in Japan during the late 1990s and early 2000s was:

Expansionary, but ineffective in bringing the economy out of recession

Paper money in the United States comes in the form of:

Federal Reserve Notes

Banks destroy money when they:

fail to reissue loans that are paid off.

Use the figure below to answer the following question(s): Picture Refer to the above graph. If the supply of money was $50 billion, the interest rate would be:

5 percent

As of 2008, about how many commercial banks are there in the United States?

7,300

The economy is experiencing a low rate of economic growth and the Fed decides to pursue an expansionary money policy. Which set of actions by the Fed would be most consistent with this policy?

Buying government securities and lowering the discount rate

Credit cards are considered to be part of the money supply.

False

The Federal Open Market Committee (FOMC) serves as the fiscal agent for the U.S. government.

False

What is the main body assisting the Board of Governors of the Federal Reserve System in determining monetary policy?

Federal Open Market Committee

An increase in nominal GDP will:

Increase the transactions demand and total demand for money

Henry Trudeau deposits $2,000 in currency in the First Street Bank. Later that same day Jane Harris negotiates a loan for $5,400 at the same bank. After these transactions, the supply of money has:

Increased by $5,400

Which varies directly with the interest rate?

The opportunity cost of holding money

What is one of the advantages of monetary policy over fiscal policy?

The quickness with which it can be used

Lower bond prices reduce interest rates.

false

Most modern banking systems are based on:

fractional reserves

The asset demand for money and the rate of interest are:

inversely related

Generally, the prime interest rate:

moves in the same direction as the Federal funds rate.

The Federal funds rate is the rate that banks charge other banks for overnight loans of excess reserves at Federal Reserve banks.

true

Answer the next question(s) based on the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All figures are in millions of dollars. Picture Refer to the above data. The commercial banking system can expand the supply of money by a maximum of:

$66.6 million

When a check is cleared against a bank, the bank will lose:

Checkable deposits and reserves

Currency and checkable deposits are:

Debts of the Federal Reserve Banks or of financial institutions

Money functions as a store of value if it allows you to:

Delay purchases until you want the goods

Commercial banks monetize claims when they sell securities to Federal Reserve Banks.

False

Loans made to customers are a liability on a bank's balance sheet.

False

The supply of money increases when the public buys government securities from commercial banks.

False

Which group is responsible for the policy of the Federal Reserve on purchasing and selling government securities?

Federal Open Market Committee

The Federal Open Market Committee (FOMC):

Sets policy on the sale and purchase of government bonds by the FED

The Federal Open Market Committee (FOMC) of the Federal Reserve System is primarily for:

Setting the Fed's monetary policy and directing the purchase and sale of government securities

Commercial banks increase the supply of money when they purchase either personal IOU's or government bonds from businesses and households.

True

If the reserve requirement is 10 percent, the money multiplier will be 10.

True

The Federal Reserve is responsible for issuing currency

True

Stock market price quotations best exemplify money serving as a:

unit of account

When money serves as a means for determining the relative worth of goods, services, and resources, it is functioning as a:

unit of account

Use the figure below to answer the following question(s): Picture Which line in the above graph would best reflect the slope of the transactions demand for money curve?

line 2

The Fed directly sets:

neither the Federal funds rate nor the prime interest rate.

Answer the next question(s) on the basis of the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 10 percent. All figures are in billions. Picture Refer to the above data. The commercial banking system has excess reserves of:

$0 billion

Use the figure below to answer the following question(s): Picture Refer to the above graph. If the interest rate is 1 percent, the supply of money would be:

$250 billion

If Federal Reserve officials attempt to pull the economy out of a recession when the price level is relatively stable, the policies they would most likely use would be to:

Buy government securities and decrease the discount rate

Raising the reserve ratio:

Changes excess reserves to required reserves

The Federal Reserve System performs many functions but its most important one is:

Controlling the money supply

Which is the most important function of the Federal Reserve System?

Controlling the money supply

Which one is considered a problem with monetary policy?

Cyclical asymmetry

The fractional reserve system of banking started when goldsmiths began:

Issuing paper receipts in excess of the amount of gold held

Assume the commercial banking system has checkable deposits of $20 billion and excess reserves of $2 billion at a time when the reserve ratio is 25 percent. If the reserve ratio is lowered to 20 percent, we can conclude that the:

Maximum money-creating potential of the banking system has been increased by $7 billion

One of the principal defects of commodity money is that its worth as a:

Commodity may exceed its worth as money, causing it to cease functioning as a medium of exchange

The transactions demand for money is least likely to be a function of the:

interest rate

The Federal Reserve System:

is basically an independent agency.

The claims of non-owners of a bank against the bank's assets are called:

liabilities

Use the following balance sheet for the ABC National Bank in answering the next question(s). Assume the required reserve ratio is 20 percent. Picture Refer to the above data. Assuming the bank loans out all of its remaining excess reserves as a checkable deposit, and has a check cleared against it for that amount, the bank will now have excess reserves of:

$0

Answer the next question(s) based on the following balance sheet for the First National Bank. Assume the reserve ratio is 15 percent. Picture Refer to the above data. If the original balance sheet was for the commercial banking system, rather than a single bank, loans and deposits could have been expanded by a maximum of approximately:

$213,333

The higher the reserve requirement, the lower is the money multiplier.

True

Answer the next question(s) on the basis of the following table for a commercial bank or thrift: Picture Refer to the above table. When the legal reserve ratio is 25 percent, the excess reserves of this single bank are:

$0

If the interest rate is above equilibrium, the:

Quantity of money demanded would be less than the quantity of money supplied

If the Fed sells government securities to commercial banks in the open market:

The Fed gives the securities to the commercial banks, and commercial banks pay for them by writing a check that decreases their reserves at the at the Fed

When the Fed auctions and loans reserves using the term auction facility, what determines the interest rate that will be charged for those reserves?

The interest rate of the lowest bidder whose bid is accepted.

Which of the following statements best describes the relationship between the term auction facility and changes in the discount rate?

The term auction facility guarantees that the amount of reserves the Fed wishes to loan will be borrowed, but changes in the discount rate do not

Which one of the following is true about the U.S. Federal Reserve System?

There are 12 regional Federal Reserve Banks. or The Federal Open Market Committee (FOMC) has more members than does the Federal Reserve Board of Governors.

A fractional reserve banking system:

is susceptible to bank panics.

Answer the next question(s) on the basis of the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All figures are in billions. Picture Refer to the above data. The maximum amount by which the commercial banking system can expand the supply of money by lending is:

$30 billion.

Use the following balance sheet for the ABC National Bank in answering the next question(s). Assume the required reserve ratio is 20 percent. Picture Refer to the above data. If the original balance sheet was for the commercial banking system, rather than a single bank, loans and checkable deposits could have been expanded by a maximum of:

$25,000

Use the table below to answer the following question(s): Picture Refer to the above table. Suppose the transactions demand for money is equal to 20 percent of the nominal GDP, the supply of money is $800 billion, and the asset demand for money is that shown in the table. If the nominal GDP is $2000 billion, the equilibrium interest rate is:

5 percent

The total quantity of money demanded is determined by:

Adding the transactions demand for money to the asset demand for money

Use the figure below to answer the following question(s): Picture Refer to the above graph which shows the supply and demand for money where Dm1, Dm2, and Dm3 represent different demands for money and Sm1, Sm2, and Sm3 represent different levels of the money supply. The initial equilibrium point is A. What will be the new equilibrium point following a decrease in the money supply?

B

The use of a credit card is most similar to:

Obtaining a short-term loan from a financial institution

If nominal GDP is $4,000 billion and the amount of money demanded for transactions purposes is $800 billion, it can generally be concluded that:

On average, each dollar will be spent five times a year

Which would provide the most accurate description of events when monetary authorities increase the size of commercial banks' excess reserves?

The money supply is increased, which decreases the interest rate, and causes investment spending, output, and employment to increase

The seven members of the Board of Governors of the Federal Reserve System are:

appointed by the President with the confirmation of the Senate.

Answer the next question(s) based on the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 12 percent. All figures are in billions of dollars. Picture Refer to the above data. The maximum amount by which the commercial banking system can expand the supply of money by lending is:

$350 billion

Use the table below to answer the following question(s): Picture Refer to the above table. If the transactions demand for money is $400 billion, an increase in the money supply from $800 billion to $900 billion would cause the equilibrium interest rate to:

fall to 4 percent

An expansionary monetary policy may be more effective than a restrictive monetary policy because commercial banks may decide to hold a large quantity of excess reserves.

false

Recognition and operation lags enhance the effectiveness of monetary policy.

false

The Federal Open Market Committee (FOMC) regulates markets and enforces antitrust laws to keep markets open and competitive.

false

The Federal funds rate is the interest rate banks charge their most credit-worthy customers.

false

The most frequently used instrument of the Federal Reserve System to control changes in the money supply is the required reserve ratio.

false

An increase in the money supply is likely to decrease:

interest rates

Use the figure below to answer the following question(s): Picture Which line in the above graph would best reflect the slope of the asset demand for money curve?

line 1

Use the figure below to answer the following question(s): Picture Which line in the above graph would best reflect the slope of the total demand for money curve?

line 1

Use the figure below to answer the following question(s): Picture Refer to the above graph. If the interest rate is 5 percent, the supply of money would be:

$50 billion

Answer the next question(s) on the basis of the following table for a commercial bank or thrift: Picture Refer to the above table. When the legal reserve ratio is 10 percent, the money creating potential of this single bank is:

$6,000

Assume that there is a 25 percent reserve ratio and that the Federal Reserve buys $200 million worth of government securities. If the securities are purchased from the public, then this action has the potential to increase bank lending by a maximum of:

$600 million, but by $800 million if the securities are purchased directly from commercial banks

If the monetary authorities want to reduce the monetary multiplier, they should:

raise the legal reserve ratio.

The members of the Federal Reserve Board:

serve 14-year terms.

Which of the following monetary policy tools was introduced in December 2007?

the term auction facility

A small time deposit is one that is less than $100,000.

true

If nominal GDP is $2,000 billion and the amount of money demanded for transactions purposes is $500 billion, then on average each dollar will be spent about four times.

true

If the Federal Reserve Bank sells $10 million in government securities to commercial banks, the effect will be to increase the excess reserves of commercial banks by $10 million.

true

In the United States, all money is essentially the debt of government, commercial banks, and thrift institutions.

true

Monetary policy is subject to less political pressure than fiscal policy.

true

Since the 1980s, banks and thrifts have lost their share of the financial services industry and control over financial assets.

true

The Fed's term auction facility tool was introduced in December of 2007 in response to the mortgage debt crisis.

true

The major advantages of monetary policy include its flexibility, speed, and political acceptability.

true

When a consumer wants to compare the price of one product with another, money is primarily functioning as a:

unit of account

If excess reserves in the banking system are $4,000, checkable deposits are $40,000, and the legal reserve ratio is 10 percent, then actual reserves are:

$8,000

If the value of the dollar is falling, then it follows that:

The price index is rising

If actual reserves in the banking system are $8,000, checkable deposits are $70,000, and the legal reserve ratio is 10 percent, then excess reserves are:

$1,000

A commercial bank has checkable-deposit liabilities of $50,000 and a reserve ratio of 20 percent. What is the amount of required reserves?

$10,000

Use the figure below to answer the following question(s): Picture Refer to the above graph, in which Dt is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money. If the money market is in equilibrium at the 6 percent rate of interest and the money supply decreases to Sm1, the transaction demand for money will be:

$125

If the price index rises from 100 to 130, the value of the dollar will fall by about:

23 percent

In the United States, credit cards account for about what percentage of the dollar volume of transactions for goods and services?

25 percent

Which of the following would be considered to be the most liquid?

Checkable deposits

If the Fed buys government securities from commercial banks in the open market:

Commercial banks give the securities to the Fed, and the Fed pays for them by increasing the reserves of commercial banks at the Fed

Use the figure below to answer the following question(s): Picture Refer to the above graph. If the interest rate rises from 2 percent to 3 percent, the supply of money would have:

Decreased by $50 billion

Use the figure below to answer the following question(s): Picture Refer to the above graph. If the interest rate falls from 4 percent to 3 percent, the supply of money would have:

Increased by $50 billion

A checkable deposit at a commercial bank is a(n):

Liability to the bank or Asset to the depositor and a liability to the bank

Which of the following was a cause of the substantial increase in mortgage default rates in 2007?

Mortgage lenders increased the number of loans made to risky borrowers

Assume that the stock of money is determined by the Federal Reserve and does not change when the interest rate changes. This situation means that the:

Supply of money curve is vertical

If the Fed sells government securities to the public in the open market:

The Fed gives the securities to the public; the public pays for the securities by writing checks that when cleared will decrease commercial bank reserves at the Fed

When the interest rate falls, the:

Total amount of money demanded increases

When a bank loan is repaid, the supply of money:

is decreased

The value of the monetary multiplier is:

1/Required Reserve Ratio.

The twelve Federal Reserve Banks can best be characterized as:

Central banks, banker's banks, and quasi-public banks

Assume that Johnson deposits $350 of currency in his account in the XYZ bank. Later the same day Swanson negotiates a loan for $2,000 at the same bank. In what direction and by what amounts has the supply of money changed?

Increased by $2,000

A commercial bank has actual reserves of $1 million and checkable-deposit liabilities of $9 million, while the required reserve ratio is 10 percent. The excess reserves of the bank are:

$100,000

The economy is experiencing high unemployment and a low rate of economic growth and the Fed decides to pursue an expansionary money policy. Which action by the Fed would be most consistent with this policy?

Buying government securities

Which are liabilities to a bank?

Capital stock and demand deposits

Use the figure below to answer the following question(s): Picture Refer to the above graphs, in which the numbers in parentheses near the AD1, AD2, and AD3 labels indicate the level of investment spending associated with each curve, respectively. All numbers are in billions of dollars. The interest rate and the level of investment spending in the economy are at point D on the investment demand curve. To achieve the long-run goal of a noninflationary full-employment output Qf in the economy, the Fed should:

Decrease aggregate demand by increasing the interest rate from 4 to 6 percent

Assume the required reserve ratio is 25 percent. If the Federal Reserve sells $120 million in government securities to the public, the money supply will immediately:

Decrease by $120 million and the maximum money-lending potential of the commercial banking system will decrease by $480 million

If the Board of Governors of the Federal Reserve System increases the legal reserve ratio, this change will:

Decrease the excess reserves of member banks and thus decrease the money supply

Changes in interest rates cause a shift in:

The aggregate demand curve, but not the investment demand curve

If the Fed buys government securities from the public in the open market:

The public gives the securities to the Fed; the Fed pays for the securities by check, which when deposited at commercial banks will increase their reserves at the Fed

One reason that "near-monies" are important is because:

They can be easily converted into money or vice versa, and thereby can influence the stability of the economy

The principal advantage money has over barter is its function as:

a medium of exchange

What function is money serving when you buy a ticket to a movie?

a medium of exchange

In a fractional reserve banking system:

banks can create money through the lending process.

The Federal funds rate is the interest rate that _______ charge(s) _______.

banks; other banks.

Checkable deposits are included in:

both M1 and M2

The main function of the Federal Reserve System is to:

control the money supply

Bank net worth is the:

Claims of the owners of the bank against bank assets

To keep high inflation from eroding the value of money, monetary authorities in the United States:

Control the supply of money in the economy

Suppose a commercial banking system has $240,000 of outstanding checkable deposits and actual reserves of $85,000. If the reserve ratio is 25 percent, the banking system can expand the supply of money by a maximum of:

$100,000

One major advantage of credit cards used for transactions is that they:

Allow consumers coordinate timing and payment for purchases

A decrease in the interest rate will cause a(n):

Increase in the amount of money held as an asset

Use the figure below to answer the following question(s): Picture Refer to the above graph, in which Dt is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money. If the interest rate was 4 percent, the asset demand for money would be:

$200

When nominal GDP is $800 billion and, on average, each dollar is spent four times in the economy over a year, the quantity of money demanded for transactions purposes will be:

$200 billion

Answer the next question(s) based on the following balance sheet for the First National Bank. Assume the reserve ratio is 15 percent. Picture Refer to the above data. This commercial bank has excess reserves of:

$32,000

Answer the next question(s) on the basis of the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 10 percent. All figures are in billions. Picture Refer to the above data. After a deposit of $10 billion of new currency into a checking account in the banking system, excess reserves will increase by:

$9 billion.

If the Fed wants commercial banks to borrow and expand their reserves by a specific amount, what monetary policy tool best guarantees that it will happen?

G

If the reserve ratio is 100 percent, the value of the monetary multiplier is:

1

Use the following table to answer the next question(s) about the money supply. Items 1. Money market mutual funds held by individuals 2. Savings deposits, including money market deposit accounts 3. Money market mutual funds held by businesses 4. Currency held by the public 5. Small time deposits 6. Checkable deposits Refer to the above table. The M2 money supply is composed of items:

1, 2, 4, 5, and 6

Use the figure below to answer the following question(s): Picture Refer to the above graph. If the interest rate is 4 percent, the supply of money would be:

100 billion

Use the figure below to answer the following question(s): Picture Refer to the above graph. If the interest rate was 5 percent and the money supply increased by $100 billion, the new interest rate would be:

3 percent

Use the figure below to answer the following question(s): Picture Refer to the above graph. If the supply of money was $150 billion, the interest rate would be:

3 percent

Use the following table to answer the next question(s) about the money supply. Items 1. Money market mutual funds held by individuals 2. Savings deposits, including money market deposit accounts 3. Money market mutual funds held by businesses 4. Currency held by the public 5. Small time deposits 6. Checkable deposits Refer to the above table. The M1 money supply is composed of items:

4 and 6

Use the figure below to answer the following question(s): Picture Refer to the above graph. If the supply of money was $100 billion, the interest rate would be:

4 percent

If the reserve ratio is 15 percent and commercial bankers decide to hold additional excess reserves equal to 5 percent of any newly acquired checkable deposits, then the relevant monetary multiplier for the banking system will be:

5

Answer the next question(s) based on the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 12 percent. All figures are in billions of dollars. Picture Refer to the above data. If commercial bankers decide to hold additional excess reserves equal to 7 percent of any newly acquired checkable deposits, then the relevant monetary multiplier for this banking system will be:

5.26

The Board of Governors of the Federal Reserve has ____ members.

7

The major purpose of the Federal Reserve buying government securities in open market operations is to:

Allow banks to increase their lending

The Federal Reserve System consists of which of the following?

Board of Governors and the 12 Federal Reserve Banks

The major problem facing the economy is high unemployment and weak economic growth. The inflation rate is low and stable. Therefore, the Federal Reserve decides to pursue a policy to increase the rate of economic growth. Which policy changes by the Fed would tend to offset each other in trying to achieve that objective?

Buying government securities and raising the discount rate

The Board of Governors of the Federal Reserve System can increase commercial bank reserves by:

Buying government securities in the open market

The Federal Reserve can increase aggregate demand by:

Buying government securities in the open market

The M1 money supply is composed of:

Checkable deposits and currency

Holding the money deposits of businesses and households and making loans to the public are the basic functions of:

Commercial banks and thrift institutions

If D equals the maximum amount of new demand-deposit money that can be created by the banking system on the basis of any given amount of excess reserves; E equals the amount of excess reserves; and m is the monetary multiplier, then:

D = E × m.

Use the figure below to answer the following question(s): Picture Refer to the above graph which shows the supply and demand for money where Dm1, Dm2, and Dm3 represent different demands for money and Sm1, Sm2, and Sm3 represent different levels of the money supply. The initial equilibrium point is A. What will be the new equilibrium point following an increase in the money supply?

Decrease the interest rate from 8 to 6 percent

Use the figures below to answer the following question(s): Picture Refer to the above diagrams, in which the numbers in parentheses near the AD1, AD2, and AD3 labels indicate the level of investment spending associated with each curve. All figures are in billions. The interest rate in the economy is 4 percent. What should the Fed do to achieve a noninflationary full-employment level of real GDP?

Decrease the money supply from $225 to $150 billion

A decrease in the rate of interest would:

Decrease the opportunity cost of holding money

An increase in the money supply usually:

Decreases the interest rate and increases aggregate demand

The tools of monetary policy for altering the reserves of commercial banks are the:

Discount rate, reserve ratio, and open-market operations

Use the figure below to answer the following question(s): Picture Refer to the above graph which shows the supply and demand for money where Dm1, Dm2, and Dm3 represent different demands for money and Sm1, Sm2, and Sm3 represent different levels of the money supply. The initial equilibrium point is A. What will be the new equilibrium point following a decrease in the asset demand for money?

F

Assume the required reserve ratio is 20 percent. If the Federal Reserve buys $80 million in government securities from the public, then the money supply will immediately:

Increase by $80 million, and the maximum money-lending potential of the commercial banking system will increase by $400 million

Assuming that the Federal Reserve Banks buy $50 million in government securities from commercial banks and the reserve ratio is 25%, then the effect will be to:

Increase the actual supply of money by $50 million

Use the figures below to answer the following question(s): Picture Refer to the above diagrams, in which the numbers in parentheses near the AD1, AD2, and AD3 labels indicate the level of investment spending associated with each curve. All figures are in billions. The economy is at point Y on the investment demand curve. Given these conditions, what policy should the Fed pursue to achieve a noninflationary full-employment level of real GDP?

Make no change in monetary policy

Use the figure below to answer the following question(s): Picture Refer to the above graphs, in which the numbers in parentheses near the AD1, AD2, and AD3 labels indicate the level of investment spending associated with each curve, respectively. All numbers are in billions of dollars. The interest rate and the level of investment spending in the economy are at point C on the investment demand curve. To achieve the long-run goal of a noninflationary full-employment output Qf in the economy, the Fed should:

Make no change in the interest rate

Lowering the discount rate has the effect of:

Making it less expensive for commercial banks to borrow from the central banks

Use the table below to answer the following question(s): Picture Refer to the above table. Suppose the transactions demand for money is $300 billion and the money supply is $700 billion. A decrease in the money supply to $600 billion would cause the interest rate to:

Rise to 6 percent

Use the figures below to answer the following question(s): Picture Refer to the above diagrams, in which the numbers in parentheses near the AD1, AD2, and AD3 labels indicate the level of investment spending associated with each curve. All figures are in billions. The economy is at point Z on the investment demand curve. Given these conditions, what policy should the monetary authorities pursue to achieve a noninflationary full-employment level of real GDP?

Sell government securities in the open market

Inflationary pressure is a growing problem for the economy. Therefore, the Federal Reserve decides to pursue a policy to reduce the inflationary pressure. Which policy changes by the Fed would tend to offset each other in trying to achieve that objective?

Selling government securities and lowering the discount rate

The level of GDP will tend to increase when:

The Federal Reserve buys government securities in the open market

Which of the following statements is true?

The Federal Reserve does not set the Federal funds rate, but it influences it through the use of open market operations.

A bank owns a 10-story office building. In the bank's balance sheet, this would be an example of:

an asset

A Federal funds rate reduction that is caused by monetary policy will:

decrease the prime interest rate.

Which one of the following is a tool of monetary policy for altering the reserves of commercial banks?

discount rate or reserve ratio

The value of money in the United States is based on the stocks of precious metals held by the United States government.

false

Commercial bank reserves are an asset to commercial banks but a liability to the Federal Reserve Bank holding them.

true

The transactions demand for money will decrease when aggregate income decreases.

true

If a coin is token money, its face value is greater than its intrinsic value.

true

What function is money serving when you deposit money in a savings account?

a store of value

Use the information below to answer the following question(s): Picture Refer to the above table. The size of the M1 money supply is:

$1,236 billion

Answer the next question(s) on the basis of the following table for a commercial bank or thrift: Picture Refer to the above table. When the legal reserve ratio is 20 percent, the money creating potential of the entire banking system is:

$10,000

An individual deposits $12,000 in a commercial bank. The bank is required to hold 10 percent of all deposits on reserve at the regional Federal Reserve Bank. The deposit increases the loan capacity of the bank by:

$10,800

Answer the next question(s) on the basis of the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All figures are in billions. Picture Refer to the above data. The commercial banking system has excess reserves of:

$9 billion

Answer the next question(s) on the basis of the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 10 percent. All figures are in billions. Picture Refer to the above data. After the deposit of $10 billion of new currency, the maximum amount by which this commercial banking system can expand the supply of money by lending is:

$90 billion.

The Federal Reserve System is divided into:

12 districts

How many members can serve on the Board of Governors of the Federal Reserve System?

7

The consumer price index was 100 in one year and 330 ten years later. The value of the purchasing power of the dollar over the ten years fell by:

70 percent

The Federal backing for the money in the United States comes from:

Control over the money supply designed to keep the value of money relatively stable over time

Generally speaking, the greater the amount of financial wealth people hold in the form of near-monies, the:

Greater is their willingness to spend out of their money incomes

In which of the following U.S. cities is one of the twelve Federal Reserve Banks located?

New York City or San Fransicso

What "backs" the money supply?

The U.S. government's ability to keep the value of money relatively stable

Which of the following is correct?

The actual reserves of a commercial bank equal its excess reserves plus its required reserves

The goldsmith's ability to create money was based on the fact that:

paper money in the form of gold receipts was rarely redeemed for gold.

Answer the next question(s) based on the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 12 percent. All figures are in billions of dollars. Picture Refer to the above data. The claims of owners in the commercial banking system are equal to:

$13.5 billion or $135 billion

Answer the next question(s) based on the following balance sheet for the First National Bank. Assume the reserve ratio is 15 percent. Picture Refer to the above data. If a check for $20,000 is drawn and cleared against this bank, it will have excess reserves of:

$15,000

Use the following table to answer the next question(s) about the money supply given the following hypothetical data for an economy. Picture Refer to the above table. The size of the M1 money supply is:

$2,080

A bank has excess reserves of $5,000 and deposit liabilities of $50,000 when the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, this bank can lend a maximum of:

$2,500

Answer the next question(s) based on the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All figures are in millions of dollars. Picture Refer to the above data. The excess reserves in this commercial banking system are:

$20 million

Answer the next question(s) based on the following balance sheet for the First National Bank. Assume the reserve ratio is 15 percent. Picture Refer to the above data. This bank can make new loans of up to:

$32,000

Answer the next question(s) based on the following balance sheet for the First National Bank. Assume the reserve ratio is 15 percent. Picture Refer to the above data. If a check for $14,000 is drawn and cleared against this bank, its reserves and checkable deposits will be, respectively:

$36,000 and $106,000

Use the information below to answer the following question(s): Picture Refer to the above table. The value of the money included in M2 but not counted in M1 is:

$4,663 billion

Answer the next question(s) based on the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 12 percent. All figures are in billions of dollars. Picture Refer to the above data. The commercial banking system has excess reserves of:

$42 billion

Assume that the required reserve ratio is 25 percent. If a commercial bank has $2 million cash in its vault, $1 million in short-term government securities, $3 million on deposit at a Federal Reserve Bank, and $6 million in checkable deposits, its total reserves equal:

$5 million

Use the following balance sheet for the ABC National Bank in answering the next question(s). Assume the required reserve ratio is 20 percent. Picture Refer to the above data. This bank can safely expand its loans by a maximum of:

$5,000

Use the following balance sheet for the ABC National Bank in answering the next question(s). Assume the required reserve ratio is 20 percent. Picture Refer to the above data. This commercial bank has excess reserves of:

$5,000

If actual reserves in the banking system are $40,000, excess reserves are $10,000, and checkable deposits are $240,000, then the legal reserve requirement is:

12.5 percent

Answer the next question(s) on the basis of the following table for a commercial bank or thrift: Picture Refer to the above table. When the legal reserve ratio is 30 percent, the monetary multiplier is:

3.33

If actual reserves in the banking system are $50,000, excess reserves are $5,000, and checkable deposits are $225,000, then the monetary multiplier is:

5

Which factors contributed to a further reduction in the money supply in addition to the withdrawal of currency from banks during the 1930-1933 bank panic?

Bank sales of government bonds to meet liquidity demands

Which definition(s) of the money supply include(s) only items which are directly and immediately usable as a medium of exchange?

M1

Which of the following statements best describes the twelve Federal Reserve Banks?

They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare.

What function is money serving when you take it on a trip and keep it in your wallet or purse in case you need it?

a store of value

The Federal Open Market Committee (FOMC) is made up of the presidents of the Federal Reserve Banks, the Secretary of the Treasury, and the chair of the President's Council of Economic Advisers.

false

Money is destroyed when:

loans are repaid

If m equals the maximum number of new dollars that can be created for a single dollar of excess reserves and R equals the required reserve ratio, then for the banking system:

m = 1/R.

Money eliminates the need for a coincidence of wants primarily through its use as a:

medium of exchange

Which one of the following do economists consider to be a stock?

money

If the Fed wants commercial banks to borrow and expand their reserves by a specific amount, what monetary policy tool best guarantees that it will happen?

term auction facility

To say that the Federal Reserve Banks are quasi-public banks means that:

they are privately owned, but managed in the public interest.

All coins in circulation within the United States are:

token money

A $70 price tag on a sweater in a department store window is an example of money functioning as a:

unit of account

Cash held by a bank is sometimes called:

vault cash