Question 1

What is the difference between the Treasury and the Federal Reserve? Is there any difference in the effect on the money supply between the sale of bonds by the Treasury and the sale of bonds by the Fed?

Accepted Answer

The Treasury and the Federal Reserve are...

Question 2

If debit cards become more widely used by consumers and businesses, which of the following is most likely to happen?

Accepted Answer

A)   Currency holdings will remain the same, but the M1 money supply will fall.
B)   The amount of currency held by the public will increase.
C)   Less money will be held as currency and more money will be held in bank accounts, which will increase the reserves of banks unless the Fed takes offsetting actions.
D)   The money supply will be unaffected because debit card expenditures are considered the equivalent of cash.E) None of the above
F) B) and D)

Question 3

Which of the following will be classified as a liability on the balance sheet of a commercial bank?

Accepted Answer

A)   vault cash
B)   loans extended to customers
C)   checking deposits of customers
D)   deposits held at a Federal Reserve bankE) A) and C)
F) None of the above

Question 4

Which of the following lists two things that both increase the money supply?

Accepted Answer

A)   The Fed buys bonds and lowers the discount rate.
B)   The Fed buys bonds and raises the discount rate.
C)   The Fed sells bonds and lowers the discount rate.
D)   The Fed sells bonds and raises the discount rate.E) A) and B)
F) None of the above

Question 5

Which of the following compose the reserves of a commercial bank?

Accepted Answer

A)   demand deposits and time deposits
B)   vault cash and deposits of the bank with the Federal Reserve
C)   U.S. securities and stock equity
D)   cash and U.S. securitiesE) B) and C)
F) A) and C)

Question 6

Other things constant, if the Fed decreased the discount rate,

Accepted Answer

A)   the earnings of the Fed would increase.
B)   the incentive of commercial banks to borrow from the Fed would be reduced.
C)   borrowing from the Fed will tend to increase and the money supply will tend to expand.
D)   borrowing from the Fed will tend to decrease and the money supply will tend to decline.E) All of the above
F) A) and B)

Question 7

How do changes in open market operations alter the monetary base, and how do changes in the monetary base translate to changes in the money supply?

Accepted Answer

The monetary base is the sum of commerci...

Question 8

In the United States, the purchasing power of money is determined by

Accepted Answer

A)   the underlying precious metals that back each unit of currency.
B)   the value of U.S. treasury bonds that back each unit of currency.
C)   Federal Reserve policy, which controls the money supply.
D)   Congress, which controls the money supply.E) A) and D)
F) A) and B)

Question 9

Which of the following will cause the U.S. money supply to expand?

Accepted Answer

A)   A commercial bank uses excess reserves to extend a loan to a customer.
B)   A commercial bank purchases U.S. securities from the Fed as an investment.
C)   An increase in reserve requirements.
D)   An increase in the discount rate.E) A) and C)
F) B) and C)

Question 10

Commercial banks can borrow reserves directly from the Fed at the

Accepted Answer

A)   prime interest rate.
B)   federal funds rate.
C)   discount rate.
D)   real interest rate.E) C) and D)
F) A) and C)

Question 11

During the economic crisis of 2008, the Fed acquired the authority to

Accepted Answer

A)   pay interest to commercial banks on their reserves.
B)   determine the size of the budget deficit or surplus of the Federal Government.
C)   require the Treasury to print and issue additional currency.
D)   purchase gold in sufficient amounts to back the U.S. dollar.E) A) and C)
F) None of the above

Question 12

Excess reserves are

Accepted Answer

A)   checking deposits that are included in the M1 money supply but not the M2.
B)   savings deposits that are included in the M2 money supply but not the M1.
C)   actual reserves held by banks that exceed the legal requirement.
D)   the portion of deposits that banks are required by the Fed to hold as reserves against their deposits.E) B) and D)
F) A) and B)

Question 13

During the financial crisis of 2008, Fed policy

Accepted Answer

A)   caused the monetary base to shrink significantly.
B)   approximately doubled the M1 money supply.
C)   approximately doubled the monetary base.
D)   maintained the monetary base at a constant level.E) A) and B)
F) A) and C)

Question 14

Which of the following is true?

Accepted Answer

A)   The FDIC sets the reserve requirements for commercial banks.
B)   The Federal Reserve System guarantees the deposits in almost all banks up to a $250,000 limit per account.
C)   Since the Federal Reserve System was established in 1913, bank failures due to panic withdrawals have been virtually eliminated.
D)   If a bank should fail, the FDIC guarantees that depositors can get their funds up to a $250,000 limit per account.E) B) and D)
F) A) and C)

Question 15

When the Federal Reserve sells government bonds to the public, it directly

Accepted Answer

A)   increases the M1 money supply and increases the reserves of the commercial banking system.
B)   increases the M1 money supply, while reducing the reserves of the commercial banking system.
C)   reduces the M1 money supply, while increasing the reserves of the commercial banking system.
D)   reduces the M1 money supply and decreases the reserves of the commercial banking system.E) All of the above
F) B) and D)

Question 16

If many people were to suddenly deposit into their checking accounts large sums of cash previously held in their homes and/or wallets, and there were no offsetting actions by the Fed or change in institutional policies, this would

Accepted Answer

A)   decrease the M1 money supply but increase the M2 money supply.
B)   increase the excess reserves of banks and expand the money supply if these reserves are used to make additional loans.
C)   reduce the excess reserves of banks and indirectly decrease the M1 money supply.
D)   reduce the excess reserves of banks and indirectly increase the M1 money supply.E) C) and D)
F) B) and D)

Question 17

If the Fed wants to shift toward a more expansionary policy, it often announces that it is going to change the federal funds interest rate. The Fed controls the federal funds interest rate

Accepted Answer

A)   by imposing legal restrictions that prohibit exchanges at interest rates other than the ones designated by the Fed.
B)   by having the U.S. Treasury fix this interest rate
C)   through its policy of open market operations.
D)   by altering the size of the federal budget deficit or surplus.E) A) and C)
F) A) and D)

Question 18

When a commercial bank borrows from a Federal Reserve bank,

Accepted Answer

A)   the commercial bank's reserves are reduced.
B)   the commercial bank's lending ability is increased.
C)   the money supply automatically declines.
D)   the net worth of the bank will decline, indicating that the bank is having financial difficulties.E) A) and C)
F) None of the above

Question 19

Under current policy, the Fed ties the discount rate to the

Accepted Answer

A)   prime rate.
B)   AAA corporate bond rate.
C)   federal funds rate.
D)   long-term government bond rate.E) C) and D)
F) None of the above

Question 20

In response to the recession of 2008-2009, the Fed doubled its asset holdings from $925 billion at mid-year 2008 to more than $2 trillion by mid-year 2009. This policy

Accepted Answer

A)   reduced the reserves available to banks, leading to a larger money supply.
B)   reduced the reserves available to banks, causing the money supply to decline.
C)   increased the reserves available to banks, leading to a larger money supply.
D)   increased the reserves available to banks, causing the money supply to decline.E) C) and D)
F) A) and B)

Exam 13: Money and the Banking System

Which of the following will cause the U.S. money supply to expand?

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Excess reserves are

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When a commercial bank borrows from a Federal Reserve bank,

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When the Federal Reserve sells government bonds to the public, it directly

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If debit cards become more widely used by consumers and businesses, which of the following is most likely to happen?

Correct AnswerverifiedShow Answer

Other things constant, if the Fed decreased the discount rate,

Correct AnswerverifiedShow Answer

In the United States, the purchasing power of money is determined by

Correct AnswerverifiedShow Answer

Which of the following is true?

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Which of the following will be classified as a liability on the balance sheet of a commercial bank?

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Which of the following compose the reserves of a commercial bank?

Correct AnswerverifiedShow Answer

Under current policy, the Fed ties the discount rate to the

Correct AnswerverifiedShow Answer

If many people were to suddenly deposit into their checking accounts large sums of cash previously held in their homes and/or wallets, and there were no offsetting actions by the Fed or change in institutional policies, this would

Correct AnswerverifiedShow Answer

If the Fed wants to shift toward a more expansionary policy, it often announces that it is going to change the federal funds interest rate. The Fed controls the federal funds interest rate

Correct AnswerverifiedShow Answer

Which of the following lists two things that both increase the money supply?

Correct AnswerverifiedShow Answer

What is the difference between the Treasury and the Federal Reserve? Is there any difference in the effect on the money supply between the sale of bonds by the Treasury and the sale of bonds by the Fed?

Correct AnswerverifiedThe Treasury and the Federal Reserve are...View AnswerShow Answer

How do changes in open market operations alter the monetary base, and how do changes in the monetary base translate to changes in the money supply?

Correct AnswerverifiedThe monetary base is the sum of commerci...View AnswerShow Answer

During the financial crisis of 2008, Fed policy

Correct AnswerverifiedShow Answer

During the economic crisis of 2008, the Fed acquired the authority to

Correct AnswerverifiedShow Answer

Commercial banks can borrow reserves directly from the Fed at the

Correct AnswerverifiedShow Answer

In response to the recession of 2008-2009, the Fed doubled its asset holdings from $925 billion at mid-year 2008 to more than $2 trillion by mid-year 2009. This policy

Correct AnswerverifiedShow Answer

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The Treasury and the Federal Reserve are...
View Answer

Correct Answer
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The monetary base is the sum of commerci...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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