Question 1
Suppose that Ava withdraws $300 from her savings account at Second Bank. The reserve requirement facing Second Bank is 10%. Assume the bank does not wish to hold any excess reserves of new deposits.
Use this information to complete the balance sheet below to show how Second Bank's assets and liabilities change when Ava withdraws the $300 from the bank.
Instructions: Enter your answers as a whole number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.
A Simple Bank Balance Sheet
Assets Liabilities
Change in Reserves: $ -30 Numeric Response 1. Edit Unavailable. -30 correct. Change in Deposits: $ -300 Numeric Response 2. Edit Unavailable. -300 correct.
Change in Loans: $ -270 Numeric Response 3. Edit Unavailable. -270 correct.
Question 2
The Federal Reserve District Banks are divided:
multiple choice
evenly geographically to ensure the same amount of area coverage for the regions of the United States.
into geographical regions with the majority of the district banks located in the eastern half of the United States.
into geographical regions with the same number of states located in each of the districts.
geographically to encompass the 12 largest metropolitan and financial areas in the United States.
Question 3
Suppose the Federal Reserve increases the amount of reserves by $100 million and the total money supply increases by $500 million.
Instructions: Enter your answers as a whole number.
a. What is the money multiplier?
5 million
b. Using the money multiplier from part a, how much will the money supply change if the Federal Reserve increases reserves by $50 million?
$250 million
Question 4
Use the following table to determine the levels of M1 and M2 in the United States.
Money Categories in the United States
Asset Amount (billions of dollars)
Currency $82
Demand deposits 80
Money market funds 44
Other checkable deposits 37
Savings deposits 460
Small time deposits 22
Traveler's checks 4
Instructions: Enter your answers as a whole number.
a. Calculate the M1 money supply.
$ 203 billion
b. Calculate the M2 money supply.
$ 729 billion
Question 5
Money is:
multiple choice
the gold and silver behind the currency and the coins that are issued by the government.
anything that both buyers and sellers will accept in exchange for goods and services.
only the printed paper currency and the coins that are produced by the government.
any good that buyers and sellers have a desire to purchase, use, or hold.
Question 6
The part of the Federal Reserve that determines and implements the nation's monetary policy and controls the money supply to promote stable prices and economic growth is the:
multiple choice
president of the Board of Governors.
12 Federal Reserve District Banks.
Federal Open Market Committee.
Board of Governors.
Question 7
For each of the following scenarios, determine whether money is being used as a medium of account, store of value, or unit of account.
a. Sam gives the grocery store clerk a $5 bill to pay for his purchase.
multiple choice 1
Unit of account
Store of value
Medium of exchange
b. Bill looks at the $20 price tag on a clock to see how much money he would need to purchase it.
multiple choice 2
Unit of account
Medium of exchange
Store of value
c. Maria writes a check to pay her electric bill.
multiple choice 3
Store of value
Unit of account
Medium of exchange
d. Susan transfers some of her wealth from her checking account into a certificate of deposit that earns interest.
multiple choice 4
Store of value
Unit of account
Medium of exchange
Question 8
The Federal Reserve System consists of which of the following?
Multiple Choice
Federal Deposit Insurance Corporation and Controller of the Currency
Board of Governors and the 12 Federal Reserve Banks
U.S. Treasury Department and Bureau of Engraving and Printing
Federal Open Market Committee and Office of Thrift Supervision
Question 9
Money functions as a store of value if it allows you to
Multiple Choice
make exchanges in a more efficient manner.
delay purchases until you want the goods.
measure the value of goods in a reliable way.
increase your confidence in money.
Question 10
The Federal Reserve System was established by the Federal Reserve Act of
Multiple Choice
1913.
1933.
1955.
1945.
Question 11
The M1 measure of money consists of the sum of
Multiple Choice
currency and travelers' checks.
currency, checking deposits, and savings deposits.
currency, checking deposits, and travelers' checks.
checking deposits and travelers' checks.
Question 12
The M2 measure of money consists of the sum of
Multiple Choice
savings deposits, small time deposits, and money market mutual funds.
M1, savings deposits, small time deposits, and money market mutual funds.
M1, checking and savings deposits, and currency.
currency, checking and savings deposits, and small time deposits.
Question 13
Money is "created" when
Multiple Choice
people use money to pay for stuff they buy from one another.
someone lends money to a friend or a family member.
a depositor deposits money at the bank.
a bank grants a loan to a customer.
Question 14
When a consumer wants to compare the price of one product with another, money is primarily functioning as a
Multiple Choice
unit of account.
checkable deposit.
store of value.
medium of exchange.
Question 15
Which of the following are liabilities to a bank?
Multiple Choice
capital stock and reserves
demand and time deposits
vault cash and demand deposits
property and capital stock
Question 16
The Federal Open Market Committee (FOMC) of the Federal Reserve System is primarily for
Multiple Choice
supervising banks to make sure that markets are open to all and remain competitive.
setting the Fed's monetary policy and directing the purchase and sale of government securities.
issuing currency and acting as the fiscal agent for the federal government.
maintaining cash reserves that can be used to settle international transactions.
Question 17
If you put a $20 bill in the pocket of your winter coat at the beginning of spring so that you will be surprised when you find it again next winter, you are using money as
Multiple Choice
a unit of account.
bank reserves.
a medium of exchange.
a store of value.
Question 18
If the reserve requirement were 15% percent, the value of the monetary multiplier would be
Multiple Choice
7.32.
5.50.
6.67.
8.54.
Question 19
Which definition(s) of the money supply include(s) only items that are directly and immediately usable as a medium of exchange?
Multiple Choice
M2
M1 and M2
neither M1 nor M2
M1
Question 20
Members of the Federal Reserve Board of Governors are
Multiple Choice
appointed by the president to staggered 14-year terms.
appointed by Congress to staggered 14-year terms.
selected by each of the Federal Reserve banks for 4-year terms.
selected by the Federal Open Market Committee for 4-year terms.
Question 21
The Federal Open Market Committee (FOMC)
Multiple Choice
monitors regulatory banking laws for member banks.
sets policy on the sale and purchase of government bonds by the Fed.
follows the actions and operations of financial markets to keep them open and competitive.
provides advice on banking stability to the Fed.
Question 22
Use the following graph to answer the next question.
Which line in the graph would best illustrate the supply of money curve?
Multiple Choice
Line 1
Line 4
Line 3
Line 2
Question 23
Other things being equal, an expansion of commercial bank lending
Multiple Choice
increases the money supply.
changes the composition, but not the size, of the money supply.
is desirable during a period of demand-pull inflation.
reduces the money supply.
Question 24
The required-reserve ratio is equal to a commercial bank's
Multiple Choice
checkable-deposit liabilities multiplied by its excess reserves.
required reserves divided by its checkable-deposit liabilities.
excess reserves divided by its required reserves.
checkable-deposit liabilities divided by its required reserves.
Question 25
A checkable deposit at a commercial bank is a(n)
Multiple Choice
liability to both the depositor and the bank.
asset to both the depositor and the bank.
liability to the depositor and an asset to the bank.
asset to the depositor and a liability to the bank.
Question 26
The reason for the Fed being set up as an independent agency of government is to
Multiple Choice
make it be managed and controlled by member banks.
let it be able to compete with other financial institutions.
allow it to earn profits like private firms.
protect it from political pressure.
Question 27
The equilibrium rate of interest in the market for money is determined by the intersection of the
Multiple Choice
supply-of-money curve and the transactions-demand-for-money curve.
supply-of-money curve and the asset-demand-for-money curve.
investment-demand curve and the total-demand-for-money curve.
supply-of-money curve and the total-demand-for-money curve.
Question 28
If the reserve requirement is 20% and commercial bankers decide to hold additional excess reserves equal to 5% of any newly acquired checkable deposits, then the effective monetary multiplier for the banking system will be
Multiple Choice
6.
3.
5.
4.
Question 29
The coupon rate is the
Multiple Choice
amount originally lent.
regular payment of interest to a bondholder.
maximum interest rate that can be paid on a bond.
interest rate promised when a bond is issued.
Question 30
Money eliminates the need for a coincidence of wants in trading primarily through its role as a
Multiple Choice
medium of deferred payment.
store of value.
medium of exchange.
unit of account.
Question 31
A bank's required reserves can be calculated by
Multiple Choice
multiplying its checkable-deposit liabilities by the reserve ratio.
multiplying its checkable-deposit liabilities by its excess reserves.
dividing its required reserves by its excess reserves.
dividing its excess reserves by its required reserves.
Question 32
One hundred percent reserve banking refers to a situation in which banks' reserves equal One hundred percent of their
Multiple Choice
income.
deposits.
loans.
profits.
Question 33
Credit card balances are not considered to be money primarily because they
Multiple Choice
are rarely used to make purchases.
do not represent an obligation to pay someone else.
are an asset used in making transactions.
are not part of people's wealth.
Question 34
Fractional reserve banking refers to a system where banks
Multiple Choice
grant loans to their borrowing customers.
accept a portion of their deposits in checkable accounts.
deposit a fraction of their reserves at the central bank.
hold only a fraction of their deposits in their reserves.
Question 35
A bank has $2 million in checkable deposits. In the bank's balance sheet, this would be part of
Multiple Choice
net worth.
liabilities.
assets.
capital stock.
Question 36
drawn against Bank B. What happens to the reserves at Bank A and Bank B?
Multiple Choice
Reserves stay the same in both banks.
increase by $10,000 at Bank A and decrease by $10,000 at Bank B
increase by $50,000 at Bank A and decrease by $50,000 at Bank B
increase by $10,000 at Bank A and decrease by $50,000 at Bank B
Question 37
Assume that the required reserve ratio is 20%. A business deposits a $50,000 check at Bank A; the check is
A wealthy executive is holding money, waiting for a good time to invest in the stock market. This action would be an example of the
Multiple Choice
asset demand for money.
transactions demand for money.
use of money as a medium of exchange.
creation of fiat money.
Question 38
The transactions demand for money is least likely to be a function of the
Multiple Choice
frequency of wage and salary payments.
interest rate.
price level.
level of national income.
Question 39
An increase in nominal GDP will
Multiple Choice
increase the transactions demand for money but decrease the total demand for money.
decrease the transactions demand and the total demand for money.
increase the transactions demand and the total demand for money.
decrease the transactions demand for money but increase the total demand for money.
Question 40
One year before maturity the price of a bond with a principal amount of $1,000 and a coupon rate of 5% paid annually fell to $981. The one year interest rate must be
Multiple Choice
7.0%.
8.5%.
5.0%.
1.9%.
Question 41
A consumer holds money to meet spending needs. This would be an example of the
Multiple Choice
use of money as legal tender.
asset demand for money.
transactions demand for money.
use of money as a measure of value.
Question 42
The main function of the Federal Reserve System is to
Multiple Choice
control the money supply.
set reserve requirements of banks.
serve as the fiscal agent for the federal government.
clear checks from member banks.
Question 43
Which of the following items are included in money supply M2 but not M1?
Multiple Choice
Federal Reserve notes
checkable deposits
coins
savings deposits
Question 44
The functions of money are to serve as a
Multiple Choice
factor of production, exchange, and aggregate supply.
unit of account, a store of value, and a medium of exchange.
resource allocator, a method for accounting, and a means of income distribution.
determinant of consumption, investment, and government spending.
Question 45
A bank's net worth is equal to its
Multiple Choice
profits plus its assets.
assets minus its liabilities.
liabilities minus its assets.
assets plus its liabilities.
Question 46
Traditionally, the Federal Reserve can give emergency loans only to
Multiple Choice
securities firms.
investment banks.
manufacturing firms.
commercial banks.
Question 47
Which group is responsible for the policy decision of changing the money supply?
Multiple Choice
Federal Open Market Committee
Federal Advisory Council
Office of Management and Budget
Thrift Advisory Council
Question 48
Use the following graph to answer the next question.
Which line in the graph above would best illustrate the asset demand for money curve?
Multiple Choice
Line 2
Line 1
Line 3
Line 4
Question 49
Cash held by a bank in its vault is a part of the bank's
Multiple Choice
reserves.
money supply.
net worth.
liabilities.
Question 50
If product prices were stated in terms of tobacco leaves, then tobacco leaves would be functioning primarily as
Multiple Choice
legal tender.
a unit of account.
fiat money.
Suppose that Ava withdraws $300 from her savings account at Second Bank. The reserve requirement facing Second Bank is 10%. Assume the bank does not wish to hold any excess reserves of new deposits.
Use this information to complete the balance sheet below to show how Second Bank's assets and liabilities change when Ava withdraws the $300 from the bank.
Instructions: Enter your answers as a whole number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.
A Simple Bank Balance Sheet
Assets Liabilities
Change in Reserves: $ -30 Numeric Response 1. Edit Unavailable. -30 correct. Change in Deposits: $ -300 Numeric Response 2. Edit Unavailable. -300 correct.
Change in Loans: $ -270 Numeric Response 3. Edit Unavailable. -270 correct.
Question 2
The Federal Reserve District Banks are divided:
multiple choice
evenly geographically to ensure the same amount of area coverage for the regions of the United States.
into geographical regions with the majority of the district banks located in the eastern half of the United States.
into geographical regions with the same number of states located in each of the districts.
geographically to encompass the 12 largest metropolitan and financial areas in the United States.
Question 3
Suppose the Federal Reserve increases the amount of reserves by $100 million and the total money supply increases by $500 million.
Instructions: Enter your answers as a whole number.
a. What is the money multiplier?
5 million
b. Using the money multiplier from part a, how much will the money supply change if the Federal Reserve increases reserves by $50 million?
$250 million
Question 4
Use the following table to determine the levels of M1 and M2 in the United States.
Money Categories in the United States
Asset Amount (billions of dollars)
Currency $82
Demand deposits 80
Money market funds 44
Other checkable deposits 37
Savings deposits 460
Small time deposits 22
Traveler's checks 4
Instructions: Enter your answers as a whole number.
a. Calculate the M1 money supply.
$ 203 billion
b. Calculate the M2 money supply.
$ 729 billion
Question 5
Money is:
multiple choice
the gold and silver behind the currency and the coins that are issued by the government.
anything that both buyers and sellers will accept in exchange for goods and services.
only the printed paper currency and the coins that are produced by the government.
any good that buyers and sellers have a desire to purchase, use, or hold.
Question 6
The part of the Federal Reserve that determines and implements the nation's monetary policy and controls the money supply to promote stable prices and economic growth is the:
multiple choice
president of the Board of Governors.
12 Federal Reserve District Banks.
Federal Open Market Committee.
Board of Governors.
Question 7
For each of the following scenarios, determine whether money is being used as a medium of account, store of value, or unit of account.
a. Sam gives the grocery store clerk a $5 bill to pay for his purchase.
multiple choice 1
Unit of account
Store of value
Medium of exchange
b. Bill looks at the $20 price tag on a clock to see how much money he would need to purchase it.
multiple choice 2
Unit of account
Medium of exchange
Store of value
c. Maria writes a check to pay her electric bill.
multiple choice 3
Store of value
Unit of account
Medium of exchange
d. Susan transfers some of her wealth from her checking account into a certificate of deposit that earns interest.
multiple choice 4
Store of value
Unit of account
Medium of exchange
Question 8
The Federal Reserve System consists of which of the following?
Multiple Choice
Federal Deposit Insurance Corporation and Controller of the Currency
Board of Governors and the 12 Federal Reserve Banks
U.S. Treasury Department and Bureau of Engraving and Printing
Federal Open Market Committee and Office of Thrift Supervision
Question 9
Money functions as a store of value if it allows you to
Multiple Choice
make exchanges in a more efficient manner.
delay purchases until you want the goods.
measure the value of goods in a reliable way.
increase your confidence in money.
Question 10
The Federal Reserve System was established by the Federal Reserve Act of
Multiple Choice
1913.
1933.
1955.
1945.
Question 11
The M1 measure of money consists of the sum of
Multiple Choice
currency and travelers' checks.
currency, checking deposits, and savings deposits.
currency, checking deposits, and travelers' checks.
checking deposits and travelers' checks.
Question 12
The M2 measure of money consists of the sum of
Multiple Choice
savings deposits, small time deposits, and money market mutual funds.
M1, savings deposits, small time deposits, and money market mutual funds.
M1, checking and savings deposits, and currency.
currency, checking and savings deposits, and small time deposits.
Question 13
Money is "created" when
Multiple Choice
people use money to pay for stuff they buy from one another.
someone lends money to a friend or a family member.
a depositor deposits money at the bank.
a bank grants a loan to a customer.
Question 14
When a consumer wants to compare the price of one product with another, money is primarily functioning as a
Multiple Choice
unit of account.
checkable deposit.
store of value.
medium of exchange.
Question 15
Which of the following are liabilities to a bank?
Multiple Choice
capital stock and reserves
demand and time deposits
vault cash and demand deposits
property and capital stock
Question 16
The Federal Open Market Committee (FOMC) of the Federal Reserve System is primarily for
Multiple Choice
supervising banks to make sure that markets are open to all and remain competitive.
setting the Fed's monetary policy and directing the purchase and sale of government securities.
issuing currency and acting as the fiscal agent for the federal government.
maintaining cash reserves that can be used to settle international transactions.
Question 17
If you put a $20 bill in the pocket of your winter coat at the beginning of spring so that you will be surprised when you find it again next winter, you are using money as
Multiple Choice
a unit of account.
bank reserves.
a medium of exchange.
a store of value.
Question 18
If the reserve requirement were 15% percent, the value of the monetary multiplier would be
Multiple Choice
7.32.
5.50.
6.67.
8.54.
Question 19
Which definition(s) of the money supply include(s) only items that are directly and immediately usable as a medium of exchange?
Multiple Choice
M2
M1 and M2
neither M1 nor M2
M1
Question 20
Members of the Federal Reserve Board of Governors are
Multiple Choice
appointed by the president to staggered 14-year terms.
appointed by Congress to staggered 14-year terms.
selected by each of the Federal Reserve banks for 4-year terms.
selected by the Federal Open Market Committee for 4-year terms.
Question 21
The Federal Open Market Committee (FOMC)
Multiple Choice
monitors regulatory banking laws for member banks.
sets policy on the sale and purchase of government bonds by the Fed.
follows the actions and operations of financial markets to keep them open and competitive.
provides advice on banking stability to the Fed.
Question 22
Use the following graph to answer the next question.
Which line in the graph would best illustrate the supply of money curve?
Multiple Choice
Line 1
Line 4
Line 3
Line 2
Question 23
Other things being equal, an expansion of commercial bank lending
Multiple Choice
increases the money supply.
changes the composition, but not the size, of the money supply.
is desirable during a period of demand-pull inflation.
reduces the money supply.
Question 24
The required-reserve ratio is equal to a commercial bank's
Multiple Choice
checkable-deposit liabilities multiplied by its excess reserves.
required reserves divided by its checkable-deposit liabilities.
excess reserves divided by its required reserves.
checkable-deposit liabilities divided by its required reserves.
Question 25
A checkable deposit at a commercial bank is a(n)
Multiple Choice
liability to both the depositor and the bank.
asset to both the depositor and the bank.
liability to the depositor and an asset to the bank.
asset to the depositor and a liability to the bank.
Question 26
The reason for the Fed being set up as an independent agency of government is to
Multiple Choice
make it be managed and controlled by member banks.
let it be able to compete with other financial institutions.
allow it to earn profits like private firms.
protect it from political pressure.
Question 27
The equilibrium rate of interest in the market for money is determined by the intersection of the
Multiple Choice
supply-of-money curve and the transactions-demand-for-money curve.
supply-of-money curve and the asset-demand-for-money curve.
investment-demand curve and the total-demand-for-money curve.
supply-of-money curve and the total-demand-for-money curve.
Question 28
If the reserve requirement is 20% and commercial bankers decide to hold additional excess reserves equal to 5% of any newly acquired checkable deposits, then the effective monetary multiplier for the banking system will be
Multiple Choice
6.
3.
5.
4.
Question 29
The coupon rate is the
Multiple Choice
amount originally lent.
regular payment of interest to a bondholder.
maximum interest rate that can be paid on a bond.
interest rate promised when a bond is issued.
Question 30
Money eliminates the need for a coincidence of wants in trading primarily through its role as a
Multiple Choice
medium of deferred payment.
store of value.
medium of exchange.
unit of account.
Question 31
A bank's required reserves can be calculated by
Multiple Choice
multiplying its checkable-deposit liabilities by the reserve ratio.
multiplying its checkable-deposit liabilities by its excess reserves.
dividing its required reserves by its excess reserves.
dividing its excess reserves by its required reserves.
Question 32
One hundred percent reserve banking refers to a situation in which banks' reserves equal One hundred percent of their
Multiple Choice
income.
deposits.
loans.
profits.
Question 33
Credit card balances are not considered to be money primarily because they
Multiple Choice
are rarely used to make purchases.
do not represent an obligation to pay someone else.
are an asset used in making transactions.
are not part of people's wealth.
Question 34
Fractional reserve banking refers to a system where banks
Multiple Choice
grant loans to their borrowing customers.
accept a portion of their deposits in checkable accounts.
deposit a fraction of their reserves at the central bank.
hold only a fraction of their deposits in their reserves.
Question 35
A bank has $2 million in checkable deposits. In the bank's balance sheet, this would be part of
Multiple Choice
net worth.
liabilities.
assets.
capital stock.
Question 36
drawn against Bank B. What happens to the reserves at Bank A and Bank B?
Multiple Choice
Reserves stay the same in both banks.
increase by $10,000 at Bank A and decrease by $10,000 at Bank B
increase by $50,000 at Bank A and decrease by $50,000 at Bank B
increase by $10,000 at Bank A and decrease by $50,000 at Bank B
Question 37
Assume that the required reserve ratio is 20%. A business deposits a $50,000 check at Bank A; the check is
A wealthy executive is holding money, waiting for a good time to invest in the stock market. This action would be an example of the
Multiple Choice
asset demand for money.
transactions demand for money.
use of money as a medium of exchange.
creation of fiat money.
Question 38
The transactions demand for money is least likely to be a function of the
Multiple Choice
frequency of wage and salary payments.
interest rate.
price level.
level of national income.
Question 39
An increase in nominal GDP will
Multiple Choice
increase the transactions demand for money but decrease the total demand for money.
decrease the transactions demand and the total demand for money.
increase the transactions demand and the total demand for money.
decrease the transactions demand for money but increase the total demand for money.
Question 40
One year before maturity the price of a bond with a principal amount of $1,000 and a coupon rate of 5% paid annually fell to $981. The one year interest rate must be
Multiple Choice
7.0%.
8.5%.
5.0%.
1.9%.
Question 41
A consumer holds money to meet spending needs. This would be an example of the
Multiple Choice
use of money as legal tender.
asset demand for money.
transactions demand for money.
use of money as a measure of value.
Question 42
The main function of the Federal Reserve System is to
Multiple Choice
control the money supply.
set reserve requirements of banks.
serve as the fiscal agent for the federal government.
clear checks from member banks.
Question 43
Which of the following items are included in money supply M2 but not M1?
Multiple Choice
Federal Reserve notes
checkable deposits
coins
savings deposits
Question 44
The functions of money are to serve as a
Multiple Choice
factor of production, exchange, and aggregate supply.
unit of account, a store of value, and a medium of exchange.
resource allocator, a method for accounting, and a means of income distribution.
determinant of consumption, investment, and government spending.
Question 45
A bank's net worth is equal to its
Multiple Choice
profits plus its assets.
assets minus its liabilities.
liabilities minus its assets.
assets plus its liabilities.
Question 46
Traditionally, the Federal Reserve can give emergency loans only to
Multiple Choice
securities firms.
investment banks.
manufacturing firms.
commercial banks.
Question 47
Which group is responsible for the policy decision of changing the money supply?
Multiple Choice
Federal Open Market Committee
Federal Advisory Council
Office of Management and Budget
Thrift Advisory Council
Question 48
Use the following graph to answer the next question.
Which line in the graph above would best illustrate the asset demand for money curve?
Multiple Choice
Line 2
Line 1
Line 3
Line 4
Question 49
Cash held by a bank in its vault is a part of the bank's
Multiple Choice
reserves.
money supply.
net worth.
liabilities.
Question 50
If product prices were stated in terms of tobacco leaves, then tobacco leaves would be functioning primarily as
Multiple Choice
legal tender.
a unit of account.
fiat money.
a store of value.
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