Chapter 6 Homework

The monetary base consists of: a. currency held by the public, plus reserves held by banks. b. all outstanding currency, plus reserves held by banks. c. all outstanding currency, plus demand deposits. d. all bank reserves.

a. currency held by the public, plus reserves held by banks.

If the Federal Reserve wishes to increase the money supply, it should: a. decrease the discount rate. b. increase interest paid on reserves. c. sell government bonds. d. decrease the monetary base.

a. decrease the discount rate.

The money supply consists of: a. currency plus reserves. b. currency plus the monetary base. c. currency plus demand deposits. d. the monetary base plus demand deposits.

c. currency plus demand deposits.

If you hear in the news that the Federal Reserve conducted open-market purchases, then you should expect ______ to increase. a. reserve requirements b. the discount rate c. the money supply d. the reserve-deposit ratio

c. the money supply

If the ratio of currency to deposits (cr) increases, while the ratio of reserves to deposits (rr) is constant and the monetary base (B) is constant, then: a. it cannot be determined whether the money supply increases or decreases. b. the money supply increases. c. the money supply decreases. d. the money supply does not change.

c. the money supply decreases.

If the currency-deposit ratio equals 0.5 and the reserve-deposit ratio equals 0.1, then the money multiplier equals: a. 0.6. b. 1.67. c. 2.0. d. 2.5.

d. 2.5.

The central bank in the United States is the: a. Bank of America. b. U.S. Treasury. c. U.S. National Bank. d. Federal Reserve.

d. Federal Reserve.

Excess reserves are reserves that banks keep: a. in their vaults. b. at the central bank. c. to meet legal reserve requirements. d. above the legally required amount.

d. above the legally required amount.

Credit card balances are included in: a. M1 only. b. M2 only. c. both M1 and M2. d. neither M1 nor M2.

d. neither M1 nor M2.

Banks create money in: a. a 100-percent-reserve banking system but not in a fractional-reserve banking system. b. a fractional-reserve banking system but not in a 100-percent-reserve banking system. c. both a 100-percent-reserve banking system and a fractional-reserve banking system. d. neither a 100-percent-reserve banking system nor a fractional-reserve banking system.

b. a fractional-reserve banking system but not in a 100-percent-reserve banking system.

The money supply will decrease if the: a. monetary base increases. b. currency-deposit ratio increases. c. discount rate decreases. d. reserve-deposit ratio decreases.

b. currency-deposit ratio increases.

In 1932, the U.S. government imposed a two-cent tax on checks written on deposits in bank accounts. This action would be expected to ______ the currency-deposit ratio and ______ the money supply. a. increase; increase b. increase; decrease c. decrease; increase d. decrease; decrease

b. increase; decrease

In a fractional-reserve banking system, banks create money when they: a. accept deposits. b. make loans. c. hold reserves. d. exchange currency for deposits.

b. make loans.

If the Federal Reserve increases the interest rate paid on reserves, banks will tend to hold _____ excess reserves, which will _____ the money multiplier. a. more; increase b. more; decrease c. fewer; increase d. fewer; decrease

b. more; decrease

In a system with 100-percent-reserve banking: a. all banks must hold reserves equal to 100 percent of their loans. b. no banks can make loans. c. the banking system completely controls the size of the money supply. d. no banks can accept deposits.

b. no banks can make loans.

To reduce the money supply, the Federal Reserve: a. buys government bonds. b. sells government bonds. c. creates demand deposits. d. destroys demand deposits.

b. sells government bonds.

If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $500 billion, then the monetary base equals: a. $50 billion. b. $100 billion. c. $150 billion. d. $600 billion.

c. $150 billion.

If the monetary base equals $400 billion and the money multiplier equals 2, then the money supply equals: a. $200 billion. b. $400 billion. c. $800 billion. d. $1,000 billion.

c. $800 billion.

Economists use the term money to refer to: a. income. b. profits. c. assets used for transactions. d. earnings from labor.

c. assets used for transactions.

Demand deposits are funds held in: a. currency. b. certificates of deposit. c. checking accounts. d. money markets.

c. checking accounts.