Question 1
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
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 2
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.
$203billion
b. Calculate the M2 money supply.
$729billion
Question 3
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
12 Federal Reserve District Banks.
president of the Board of Governors.
Board of Governors.
Federal Open Market Committee.
Question 4
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
Medium of exchange
Store of value
Unit of account
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
Medium of exchange
Store of value
Unit of account
c. Maria writes a check to pay her electric bill.
multiple choice 3
Store of value
Medium of exchange
Unit of account
d. Susan transfers some of her wealth from her checking account into a certificate of deposit that earns interest.
multiple choice 4
Unit of account
Store of value
Medium of exchange
Question 5
The Federal Reserve District Banks are divided:
multiple choice
into geographical regions with the majority of the district banks located in the eastern half of the United States.
evenly geographically to ensure the same amount of area coverage for the regions of the United States.
geographically to encompass the 12 largest metropolitan and financial areas in the United States.
into geographical regions with the same number of states located in each of the districts.
Question 6
Which of the following are liabilities to a bank?
Multiple Choice
vault cash and demand deposits
property and capital stock
demand and time deposits
capital stock and reserves
Question 7
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
4.
5.
6.
3.
Question 8
Members of the Federal Reserve Board of Governors are
Multiple Choice
selected by the Federal Open Market Committee for 4-year terms.
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.
Question 9
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 bank grants a loan to a customer.
a depositor deposits money at the bank.
Question 10
A checkable deposit at a commercial bank is a(n)
Multiple Choice
asset to the depositor and a liability to the bank.
liability to both the depositor and the bank.
liability to the depositor and an asset to the bank.
asset to both the depositor and the bank.
Question 11
Money eliminates the need for a coincidence of wants in trading primarily through its role as a
Multiple Choice
medium of deferred payment.
medium of exchange.
unit of account.
store of value.
Question 12
The coupon rate is the
Multiple Choice
interest rate promised when a bond is issued.
amount originally lent.
regular payment of interest to a bondholder.
maximum interest rate that can be paid on a bond.
Question 13
The reason for the Fed being set up as an independent agency of government is to
Multiple Choice
allow it to earn profits like private firms.
protect it from political pressure.
let it be able to compete with other financial institutions.
make it be managed and controlled by member banks.
Question 14
A bank's required reserves can be calculated by
Multiple Choice
multiplying its checkable-deposit liabilities by its excess reserves.
dividing its excess reserves by its required reserves.
dividing its required reserves by its excess reserves.
multiplying its checkable-deposit liabilities by the reserve ratio.
Question 15
The Federal Open Market Committee (FOMC)
Multiple Choice
monitors regulatory banking laws for member banks.
provides advice on banking stability to the Fed.
follows the actions and operations of financial markets to keep them open and competitive.
sets policy on the sale and purchase of government bonds by the Fed.
Question 16
When a consumer wants to compare the price of one product with another, money is primarily functioning as a
Multiple Choice
checkable deposit.
medium of exchange.
unit of account.
store of value.
Question 17
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
M1 and M2
neither M1 nor M2
Question 18
The Federal Reserve System consists of which of the following?
Multiple Choice
Federal Open Market Committee and Office of Thrift Supervision
U.S. Treasury Department and Bureau of Engraving and Printing
Board of Governors and the 12 Federal Reserve Banks
Federal Deposit Insurance Corporation and Controller of the Currency
Question 19
Assets of the commercial banking system include
Multiple Choice
reserves and deposits.
reserves and loans.
loans and deposits.
deposits.
Question 20
If the reserve requirement were 15% percent, the value of the monetary multiplier would be
Multiple Choice
7.32.
6.67.
5.50.
8.54.
Question 21
Assume that the required reserve ratio is 20%. A business deposits a $50,000 check at Bank A; the check is drawn against Bank B. What happens to the reserves at Bank A and Bank B?
Multiple Choice
increase by $10,000 at Bank A and decrease by $50,000 at Bank B
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
Question 22
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 for money but increase the total demand for money.
increase the transactions demand and the total demand for money.
decrease the transactions demand and the total demand for money.
Question 23
Traditionally, the Federal Reserve can give emergency loans only to
Multiple Choice
manufacturing firms.
securities firms.
investment banks.
commercial banks.
Question 24
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 3
Line 2
Line 4
Line 1
Question 25
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 26
What function is money serving when you deposit it in a savings account?
Multiple Choice
a checkable deposit
a medium of exchange
a store of value
a unit of account
Question 27
Which of the following items are included in money supply M2 but not M1?
Multiple Choice
savings deposits
Federal Reserve notes
checkable deposits
coins
Question 28
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.
creation of fiat money.
use of money as a medium of exchange.
Question 29
The main function of the Federal Reserve System is to
Multiple Choice
clear checks from member banks.
set reserve requirements of banks.
control the money supply.
serve as the fiscal agent for the federal government.
Question 30
Cash held by a bank in its vault is a part of the bank's
Multiple Choice
liabilities.
money supply.
net worth.
reserves.
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
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 2
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.
$203billion
b. Calculate the M2 money supply.
$729billion
Question 3
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
12 Federal Reserve District Banks.
president of the Board of Governors.
Board of Governors.
Federal Open Market Committee.
Question 4
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
Medium of exchange
Store of value
Unit of account
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
Medium of exchange
Store of value
Unit of account
c. Maria writes a check to pay her electric bill.
multiple choice 3
Store of value
Medium of exchange
Unit of account
d. Susan transfers some of her wealth from her checking account into a certificate of deposit that earns interest.
multiple choice 4
Unit of account
Store of value
Medium of exchange
Question 5
The Federal Reserve District Banks are divided:
multiple choice
into geographical regions with the majority of the district banks located in the eastern half of the United States.
evenly geographically to ensure the same amount of area coverage for the regions of the United States.
geographically to encompass the 12 largest metropolitan and financial areas in the United States.
into geographical regions with the same number of states located in each of the districts.
Question 6
Which of the following are liabilities to a bank?
Multiple Choice
vault cash and demand deposits
property and capital stock
demand and time deposits
capital stock and reserves
Question 7
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
4.
5.
6.
3.
Question 8
Members of the Federal Reserve Board of Governors are
Multiple Choice
selected by the Federal Open Market Committee for 4-year terms.
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.
Question 9
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 bank grants a loan to a customer.
a depositor deposits money at the bank.
Question 10
A checkable deposit at a commercial bank is a(n)
Multiple Choice
asset to the depositor and a liability to the bank.
liability to both the depositor and the bank.
liability to the depositor and an asset to the bank.
asset to both the depositor and the bank.
Question 11
Money eliminates the need for a coincidence of wants in trading primarily through its role as a
Multiple Choice
medium of deferred payment.
medium of exchange.
unit of account.
store of value.
Question 12
The coupon rate is the
Multiple Choice
interest rate promised when a bond is issued.
amount originally lent.
regular payment of interest to a bondholder.
maximum interest rate that can be paid on a bond.
Question 13
The reason for the Fed being set up as an independent agency of government is to
Multiple Choice
allow it to earn profits like private firms.
protect it from political pressure.
let it be able to compete with other financial institutions.
make it be managed and controlled by member banks.
Question 14
A bank's required reserves can be calculated by
Multiple Choice
multiplying its checkable-deposit liabilities by its excess reserves.
dividing its excess reserves by its required reserves.
dividing its required reserves by its excess reserves.
multiplying its checkable-deposit liabilities by the reserve ratio.
Question 15
The Federal Open Market Committee (FOMC)
Multiple Choice
monitors regulatory banking laws for member banks.
provides advice on banking stability to the Fed.
follows the actions and operations of financial markets to keep them open and competitive.
sets policy on the sale and purchase of government bonds by the Fed.
Question 16
When a consumer wants to compare the price of one product with another, money is primarily functioning as a
Multiple Choice
checkable deposit.
medium of exchange.
unit of account.
store of value.
Question 17
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
M1 and M2
neither M1 nor M2
Question 18
The Federal Reserve System consists of which of the following?
Multiple Choice
Federal Open Market Committee and Office of Thrift Supervision
U.S. Treasury Department and Bureau of Engraving and Printing
Board of Governors and the 12 Federal Reserve Banks
Federal Deposit Insurance Corporation and Controller of the Currency
Question 19
Assets of the commercial banking system include
Multiple Choice
reserves and deposits.
reserves and loans.
loans and deposits.
deposits.
Question 20
If the reserve requirement were 15% percent, the value of the monetary multiplier would be
Multiple Choice
7.32.
6.67.
5.50.
8.54.
Question 21
Assume that the required reserve ratio is 20%. A business deposits a $50,000 check at Bank A; the check is drawn against Bank B. What happens to the reserves at Bank A and Bank B?
Multiple Choice
increase by $10,000 at Bank A and decrease by $50,000 at Bank B
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
Question 22
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 for money but increase the total demand for money.
increase the transactions demand and the total demand for money.
decrease the transactions demand and the total demand for money.
Question 23
Traditionally, the Federal Reserve can give emergency loans only to
Multiple Choice
manufacturing firms.
securities firms.
investment banks.
commercial banks.
Question 24
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 3
Line 2
Line 4
Line 1
Question 25
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 26
What function is money serving when you deposit it in a savings account?
Multiple Choice
a checkable deposit
a medium of exchange
a store of value
a unit of account
Question 27
Which of the following items are included in money supply M2 but not M1?
Multiple Choice
savings deposits
Federal Reserve notes
checkable deposits
coins
Question 28
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.
creation of fiat money.
use of money as a medium of exchange.
Question 29
The main function of the Federal Reserve System is to
Multiple Choice
clear checks from member banks.
set reserve requirements of banks.
control the money supply.
serve as the fiscal agent for the federal government.
Question 30
Cash held by a bank in its vault is a part of the bank's
Multiple Choice
liabilities.
money supply.
net worth.
reserves.
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