EC309 Chapter 4: Monetary System

Economists use the term money to refer to: A) wealth. B) assets used for transactions. C) income D) wage.

B) assets used for transactions.

Payment is deferred by using _____, but immediate access to funds occurs when using _____. A) currency; demand deposits B) credit cards; debit cards C) demand deposits; savings deposits D) debit cards; credit cards

B) credit cards; debit cards

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.

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

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.

To increase the monetary base, the Fed can: A) Conduct open-market purchases. B) conduct open-market sales. C) raise the interest rate paid on reserves. D) lower the required reserve ratio.

A) Conduct open-market purchases.

The more funds that the Federal Reserve makes available for banks to borrow through the Term Auction Facility, the _____ the monetary base and the _____ the money supply. A) smaller; smaller B) smaller; greater C) greater; greater D) greater; smaller

C) greater; greater

In the United States, the money supply is determined: A) only by the Fed. B) only by the behavior of individuals who hold money and of banks in which money is held. C) jointly by the Fed and by the behavior of individuals who hold money and of banks in which money is held. D) according to a constant-growth-rate rule.

C) jointly by the Fed and by the behavior of individuals who hold money and of banks in which money is held.

Open-market operations change the ______; changes in interest rate paid on reserves change the ______; and changes in the discount rate change the ______. A) monetary base; monetary base; monetary base B) money multiplier; money multiplier; money multiplier C) monetary base; money multiplier; monetary base D) money multiplier; monetary base; money multiplier

C) monetary base; money multiplier; monetary base

When the Fed decreases the interest rate paid on reserves, it: A) decreases the monetary base (B). B) decreases the reserve-deposit ratio (rr). C) increases the reserve-deposit ratio (rr). D) increases the monetary base (B).

B) decreases the reserve-deposit ratio (rr).

Based on the below balance sheet, what is the reserve-deposit ratio at the bank? Reserves $10,000 Loans $100,000 Securities $40,000; Deposits $100,000 Debt $20,000 Equity $30,000 A) 3 percent B) 5 percent C) 10 percent D) 15 percent

C) 10 percent

The quantity of money in the United States is essentially controlled by the: A) President of the United States. B) Department of the Treasury. C) Federal Reserve. D) system of commercial banks.

C) Federal Reserve.

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.

Liabilities of banks include: A) reserves. B) currency in the hands of the public. C) loans to customers. D) demand deposits.

D) demand deposits.

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.

When the Fed increases the interest rate paid on reserves, it: A) increases the reserve-deposit ratio (rr). B) decreases the reserve-deposit ratio (rr). C) increases the monetary base (B). D) decreases the monetary base (B).

A) increases the reserve-deposit ratio (rr).

The banking system creates: A) liquidity. B) wealth. C) reserves. D) currency.

A) liquidity.

All of the following are considered major functions of money except as a: A) medium of exchange. B) way to display wealth. C) unit of account. D) store of value.

B) way to display wealth.

Assets of banks include: A) money market mutual funds. B) currency in the hands of the public. C) loans to customers. D) demand deposits

C) loans to customers.

The money supply will increase if the: A) currency-deposit ratio increases. B) reserve-deposit ratio increases. C) monetary base increases. D) Discount Rate Increases

C) monetary base increases.

High-powered money is another name for: A) currency. B) demand deposits. C) the monetary base. D) M2.

C) the monetary base.

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 ratio of reserves to deposits (rr) increases, while the ratio of currency to deposits (cr) 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 monetary base fell and the currency-deposit ratio rose but the reserve-deposit ratio remained the same, then: A) the money supply would fall, but not by as much as it would have fallen if the reserve-deposit ratio had risen. B) the money supply would fall, but not by as much as it would have fallen if the reserve-deposit ratio had fallen. C) the money supply would fall more than it would have fallen if the reserve-deposit ratio had risen. D) it is impossible to be certain whether the money supply would fall or rise in this case.

A) the money supply would fall, but not by as much as it would have fallen if the reserve-deposit ratio had risen.

When the Fed makes an open-market sale, it: A) increases the money multiplier (m). B) increases the currency-deposit ratio (cr). C) increases the monetary base(B). D) decreases the monetary base (B).

D) decreases the monetary base (B).

When the Fed increases the discount rate, it: A) increases the reserve to deposit ratio (rr). B) decreases the reserve to deposit ratio (rr). C) is likely to increase the monetary base (B) D) is likely to decrease the monetary base (B).

D) is likely to decrease the monetary base (B).

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.