Macro exam practice problems

Costumer deposits at the commercial banks are ensured by the

Federal Deposit Insurance Corporations

Assume a bank has no excess reserves and that the reserve requirement is 20 percent. If a customer deposits $20,000 in currency into his checking account, what is the maximum amount by which banks will increase the money supply through multiple deposit expansion in the banking system?

$80,000

If the reserve requirement is 25% what is the money multiplier?

4

What does DJIA stand for?

Dow Jones Industrial Average

What is the function of money? I. A medium of exchange II. A store of value III. A unit of account

I, II, and III

The components of the M1 money supply consist of I. checkable deposits II. travelers' checks III. currency IV. government bonds V. non-checkable savings accounts

I, II, and III only

Money is created or destroyed whenever I. checks are deposited into checkable accounts at commercial banks II. checks are drawn against checkable accounts at commercial banks III. loans are made by commercial banks that are then converted into checkable deposits IV. loans at commercial banks are repaid by borrowers

III and IV

The components of the M1 money supply are distinguished from the additional components of the M2 money supply because M1 money is a) perfectly liquid b) printed by the federal government c) capable of being saved over time d) distributed by banks e) backed by its intrinsic value

a) perfectly liquid

Each of the following statements about the Federal Reserve System is correct EXCEPT a) Governors are appointed by the President and confirmed by the state b) The president has power to remove Governors who fail to carry out the President's policy objectives c) each regional Federal Reserve Bank is owned by the private banks in its district d) the Board of Governors determines monetary policy for the regional Federal Reserve banks. e) regional Fed banks serve as "bankers' banks," holding deposits of banks and making loans to banks

b) The president has power to remove Governors who fail to carry out the President's policy objectives

when a consumer deposits $200 cash into his checking account at the bank, the money supply

does not change

commercial banks create money by

making loans

A fractional reserve system requires banks to keep a fraction of demand deposits in

vault cash or deposits at a Federal Reserve bank