Macro Final Exam

13) Suppose you withdraw $500 from your checking account deposit and bury it in a jar in your back yard. reserve ratio is 10 percent, checking account deposits in the banking system as a whole could drop up to a maximum of

A) $0. B) $50. C) $500. D) $5,000.

3) Suppose a transaction changes a bank's balance sheet as indicated in the following T-account, and the required reserve ratio is 10 percent. Assets Liabilities Reserves + $2,000 Deposits + $2,000 As a result of the transaction, the bank can make a maximum loan of

A) $0. B) $200. C) $1,800. D) $2,000.

25) Suppose a bank has $100,000 in checking account deposits with no excess reserves and the required reserve ratio is 10 percent. If the Federal Reserve raises the required reserve ratio to 12 percent, then the bank will now have excess reserves of

A) $12,000. B) $0. C) -$2,000. D) -$12,000.

16) Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. As a result of Kristy's deposit, Bank A's excess reserves increase by

A) $2,000. B) $8,000. C) $10,000. D) $50,000.

30) Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. As a result of Kristy's deposit, Bank A's reserves immediately increase by

A) $2,000. B) $8,000. C) $10,000. D) $50,000.

4) Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. As a result of Kristy's deposit, checking account deposits in the banking system as a whole (including the original deposit) could eventually increase up to a maximum of

A) $8,000. B) $10,000. C) $50,000. D) $100,000.

29) Which of the following best describe snowbanks create money?

A) Banks charge higher interest rates on loans than they pay on deposits. B) Banks charge fees for providing financial advice. C) Banks create checking account deposits when making loans from excess reserves. D) Banks make loans from reserves.

19) Your checking account balance is included in your bank's assets.

A) False. B) True.

20) If bankers become more uncertain regarding future deposits and withdrawals and choose to hold more excess reserves against deposits, the money multiplier will increase.

A) False. B) True.

21) The Fed has more control over open market operations as compared to discount policy.

A) False. B) True.

24) The Federal Open Market Committee consists of the seven members of the ________, the president of the Federal Reserve Bank of New York, and ________.

A) Federal Reserve's Board of Governors; four presidents from the other 11 Federal Reserve banks B) Council of Economic Advisors; four members of the U.S. Banking Committee C) Council of Economic Advisors; four presidents from the 11 Federal Reserve banks D) Federal Reserve's Board of Governors; four members of the Council of Economic Advisors

28) Silver is an example of a

A) commodity money. B) fiat money. C) barter money. D) representative money.

18) Which of the following is not counted in M1?

A) credit card balances B) checking account balances C) coins in circulation D) currency in circulation E) traveler's check balances

26) To increase the money supply, the Federal Reserve could

A) decrease income taxes. B) raise the required reserve ratio. C) conduct an open market purchase of Treasury securities. D) lower transfer payments. E) raise the discount rate.

22) The purchase of Treasury securities by the Federal Reserve will, in general

A) decrease the quantity of reserves held by banks. B) not change the money supply. C) not change the quantity of reserves held by banks. D) increase the quantity of reserves held by banks.

9) The sale of Treasury securities by the Federal Reserve will, in general,

A) decrease the quantity of reserves held by banks. B) not change the quantity of reserves held by banks. C) not change the money supply. D) increase the quantity of reserves held by banks.

6) An increase in the discount rate ________ bank reserves and ________ the money supply if banks respond appropriately to the change in the rate.

A) decreases; increases B) increases; increases C) decreases; decreases D) increases; decreases

23) The portion of ________ that a bank does not loan out or spend on securities is known as ________.

A) deposits; reserves B) loans; securities C) deposits; securities D) loans; reserves

7) Silver is an example of a

A) fiat money. B) commodity money. C) barter money. D) representative money.

14) If you transfer all of your currency to your checking account, then initially, M1 will ________ and M2 will ________.

A) increase; not change B) not change; not change C) decrease; increase D) not change; increase

17) In response to the destructive bank panics of the Great Depression, future bank panics are designed to be prevented by

A) increasing the required reserve ratio to 100%. B) the Federal Reserve System conducting open market operations. C) the Federal Reserve System acting as a lender of last resort. D) the establishment of the Federal Deposit Insurance Corporation. E) establishing a fractional reserve system of banking.

27) Which of the following information about fiat money is false?

A) is authorized by a central bank or governmental body. B) has little to no value except as money. C) serves as a medium of exchange. D) is backed by gold

2) People hold money as opposed to financial assets because money

A) is perfectly liquid. B) earns a higher return than other financial assets. C) earns interest. D) earns no interest.

12) A good can serve as money only if

A) it has intrinsic value or if it is backed by precious metals. B) citizens accept the good as a means of payment for transactions and debts. C) government mandates that the good must be accepted in payment of debts. D) it is declared by authorities to be legal tender.

15) A bank is legally required to hold a fraction of its ________ as ________.

A) loans; excess reserves B) loans; required reserves C) deposits; required reserves D) deposits; excess reserves

5) The statement "This Dell laptop costs $1,200" illustrates which function of money?

A) medium of exchange B) standard of deferred payment C) store of value D) unit of account

31) The Federal Reserve was established in 1913 to

A) prevent inflation by decreasing the money supply. B) stop bank panics by acting as a lender of last resort. C) prevent bad loans by requiring banks to hold reserves. D) stimulate the economy by increasing bank reserves.

8) M2 includes M1 plus

A) savings account balances, money market deposit accounts in banks, small-denomination time deposits, and noninstitutional money market fund shares. B) checking account deposits, large-denomination time deposits, and noninstitutional money market fund shares. C) currency in circulation, savings account balances, and small-denomination time deposits. D) currency in circulation, checking account deposits in banks, and holdings of traveler's checks.

1) The discount rate is

A) the interest rate banks charge their best customers. B) the interest rate the U.S. Treasury pays on Treasury Bills. C) the interest rate the Fed charges to banks for loans from the Fed. D) the interest rate banks charge each other for overnight loans.

11) Dollar bills in the modern economy serve as money because

A) they have value as a commodity independent of their use as money. B) people have confidence that others will accept them as money. C) they can be redeemed for gold by the central bank. D) they are backed by the gold stored in Fort Knox.

10) The largest proportion of M1 is made up of

A) traveler's checks. B) time deposits. C) currency. D) savings account deposits. E) checking account deposits.