Homework Unit 8 Money, Banking, and the Federal Reserve System - PDF by akb12250


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									Name: ________________________ Class: ___________________ Date: __________                            ID: A

Homework 3, Macroeconomics

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.

____    1. In addition to fiscal policy, the other main tool used to affect aggregate demand is
           a. trade policy.
           b. industrial policy.
           c. planning policy.
           d. monetary policy.
____    2. Bankers' business decisions effect the money supply because bankers
           a. are respected men and women.
           b. have the ability to create money.
           c. use a special accounting system developed by the Federal Reserve Board.
           d. All of the above are correct.
____    3. Which of the following is an example of money serving as a medium of exchange?
           a. Richard puts money into a piggy bank.
           b. Ellen deposits cash into a money market account.
           c. Sean puts a new $20 bill into his currency collection.
           d. Marian buys a carbo-loaded drink before a marathon.
____    4. Money is an imperfect store of value when
           a. the rate of inflation is high.
           b. the unemployment rate is high.
           c. gold prices are falling.
           d. businesses are failing due to bankruptcy.
____    5. Money is almost always used to quote prices. This illustrates the function of money as a
           a. medium of exchange.
           b. store of value.
           c. unit of account.
           d. commodity value.
____    6. Liquidity refers to the
           a. rapidity with which money flows through the economy.
           b. ease with which an asset can be converted into cash.
           c. ease with which banks move funds from checking to savings accounts.
           d. All of the above are correct.
____    7. Fiat money is
           a. always backed by gold or silver.
           b. useful in buying Italian cars.
           c. only backed by government decree.
           d. not as liquid as precious metals.

Name: ________________________                                                                                 ID: A

____    8. Which of the following assets is most liquid?
           a. short-term government bonds
           b. savings accounts
           c. checking accounts
           d. currency and coins
____    9. Paper money in the United States is
           a. backed by gold in Fort Knox.
           b. partially backed by gold and silver.
           c. entirely fiat money.
           d. fully convertible into gold at fixed prices.
____ 10. Currently in the United States, money is backed by
         a. silver in the IMF vaults.
         b. Federal Reserve notes in banks.
         c. gold in Fort Knox.
         d. everyone's willingness to accept it.
____ 11. The official definition of the money supply that includes coins, paper money, travelers' checks, conventional
         checking accounts, and other checkable deposits at banks and savings institutions is called ________.
         a. M1
         b. M2
         c. M3
         d. L
____ 12. Which of the following definitions of the money supply is the most liquid?
         a. M1
         b. M2
         c. M3
         d. L
____ 13. On which of the following assets are you most likely to earn interest income?
         a. cash and currency
         b. checkable deposits
         c. money market deposit accounts
         d. gold and other precious metals
         e. All of the above are correct.
____ 14. If bankers decide to keep a lower fraction of deposits on reserve, the money supply will
         a. decrease.
         b. increase.
         c. remain unchanged.
         d. move more quickly through the economy.
____ 15. Excess reserves make a bank less vulnerable to runs, but bankers do not like to hold excess reserves because
         holding excess reserves
         a. are disliked by depositors.
         b. means lower profits for banks.
         c. are discouraged by government regulators.
         d. All of the above are correct.

Name: ________________________                                                                                 ID: A

____ 16. One intention of deposit insurance is to reduce the danger of
         a. excess lending.
         b. excess profits.
         c. risky lending.
         d. bank runs.
         e. All of the above are correct.
____ 17. Most checkable deposits are insured up to $100,000 by
         a. state banking commissions.
         b. the Federal Reserve Board.
         c. U.S. Department of the Treasury.
         d. the Federal Deposit Insurance Corporation.
____ 18. The oversimplified money multiplier formula, when the required reserve ratio is m, is
         a. change in money supply = change in excess reserves3m.
         b. change in money supply = (1/m) /change in excess reserves.
         c. change in money supply = (1/m) x change in excess reserves.
         d. change in money supply = m/change in excess reserves.
____ 19. If the required reserve ratio, m, is 20 percent, then the oversimplified money multiplier is
         a. 10.
         b. 5.
         c. 4.
         d. 2.
____ 20. If the banking system has $5 million in excess reserves, and the required reserve ratio is 25 percent, what is the
         maximum amount by which the money supply can be increased?
         a. $25 million
         b. $20 million
         c. $5 million
         d. $2.5 million
____ 21. An increase in the reserve ratio would tend to
         a. increase excess reserves and raise the money multiplier.
         b. decrease excess reserves and decrease the money multiplier.
         c. increase excess reserves and decrease the money multiplier.
         d. decrease excess reserves and raise the money multiplier.
____ 22. If people begin to hold more cash, the money multiplier process will
         a. increase in intensity.
         b. remain the same.
         c. decrease in actual size.
         d. cause larger amounts of excess reserves.
____ 23. The money creation formula is oversimplified because it assumes that
         a. every recipient of a bank loan will redeposit the proceeds in another bank.
         b. loan recipients will not take any of the proceeds in cash.
         c. every bank lends out all excess reserves.
         d. All of the above are correct.

Name: ________________________                                                                              ID: A

____ 24. It is necessary for the Federal Reserve to regulate the money supply because
         a. banks tend to act in a counter-cyclical manner with regard to the money supply.
         b. banks are not profit-oriented, and tend to be unresponsive to the needs of business.
         c. left to itself, the banking system will create a gyrating money supply that will be
         d. left to itself, the banking system will not be able to increase or decrease the money supply.
____ 25. The central bank of the United States is known as the
         a. Internal Revenue Service.
         b. Federal Reserve System.
         c. Federal Deposit Insurance Corporation.
         d. Department of Commerce.
____ 26. The Federal Reserve System functions as America's
         a. tax collector.
         b. stock and bond market.
         c. savings bank.
         d. central bank.
____ 27. The current chair of the Federal Reserve System is
         a. George W. Bush.
         b. Hillary Clinton.
         c. Alan Greenspan.
         d. Trent Lott.
         e. Paul O'Neill.
____ 28. The principal difference between income and money is that income is a __________ and money is a
         a. schedule, curve
         b. point, line
         c. stock, flow
         d. flow, stock
____ 29. Part of the reason that people confuse money and income is because
         a. money is tangible, but income is intangible.
         b. money serves as the unit of account.
         c. money is abstract, but income is concrete.
         d. income is almost impossible to measure.
____ 30. Technically, the Federal Reserve district banks are corporations whose stockholders are the
         a. state governments in each district.
         b. citizens of the United States.
         c. Departments of Treasury and Commerce.
         d. member banks.
____ 31. The actual control of the Federal Reserve System resides in the
         a. Congress of the United States.
         b. member banks.
         c. Senate Banking Committee.
         d. Board of Governors.

Name: ________________________                                                                            ID: A

____ 32. The president has influence on Federal Reserve policy because
         a. he can veto any Fed policy.
         b. he appoints the board members and the chair.
         c. he can fire the chair.
         d. he can replace board members at any time.
____ 33. The Federal Open Market Committee consists of
         a. the president and the Board of Governors.
         b. Congresspeople, Senators, and the Board of Governors.
         c. the Secretary of the Treasury and the Board of Governors.
         d. the Board of Governors and five district bank presidents.
____ 34. The Federal Open Market Committee meets
         a. once a month.
         b. eight times a year.
         c. four times a year.
         d. semi-annually.
____ 35. In practice, money supply and short-term interest rates are determined by the
         a. Treasury and Commerce departments.
         b. Federal Open Market Committee.
         c. Board of Governors.
         d. House and Senate.
____ 36. Open market operations generally involve the purchase and sales of
         a. government securities.
         b. stocks and bonds.
         c. coins and currency.
         d. Federal Reserve notes.
____ 37. When the Fed wants to expand the money supply through open market operation, it
         a. sells government securities to the Treasury.
         b. sells government securities to member banks.
         c. buys government securities from member banks.
         d. buys government securities from the Treasury.
____ 38. Assume the required reserve ratio is 10 percent and the FOMC orders an open market sale of $50 million in
         government securities from member banks. If the oversimplified money multiplier is assumed, then the money
         supply will
         a. increase by $500 million.
         b. increase by $100 million.
         c. decrease by $100 million.
         d. decrease by $500 million.
____ 39. Banks will hold additional excess reserves when
         a. loans to customers look safe and interest rates are high.
         b. they anticipate a bank audit.
         c. loans to customers look risky and interest rates are low.
         d. the economy is booming and there is a large demand for loans.

Name: ________________________                                                                                   ID: A

____ 40. Interest rates rose in the second quarter of 1999. What happened to bond prices during this time?
         a. They were unchanged.
         b. Not enough data to answer.
         c. They decreased.
         d. They also rose.
____ 41. If the Fed raises the reserve requirement on deposits from 15 percent to 20 percent, what would happen to the
         money supply?
         a. It would decrease.
         b. It would increase.
         c. It would remain unchanged.
         d. It depends on the value of interest rates.
____ 42. Which one of the following policies might the Fed initiate if it wanted to increase the money supply?
         a. sell government securities
         b. increase the reserve requirement
         c. increase the discount rate
         d. decrease the reserve requirement
____ 43. The money supply schedule has a positive slope because
         a. the Fed lowers the discount rate as interest rates rise.
         b. the Fed makes more money available at higher interest rates.
         c. as interest rates rise, banks will find loans more profitable.
         d. as interest rates rise, people will demand more loans.
____ 44. If the price level rises, what will happen to the demand for money?
         a. It will shift outward.
         b. It will shift inward.
         c. It will remain unchanged.
         d. It depends on what happens to interest rates.
____ 45. What will happen to the demand for money if real GDP increases?
         a. It will shift outward.
         b. It will shift inward.
         c. It will remain unchanged.
         d. It depends on what happens to interest rates.
____ 46. If interest rates increase, what will happen to the demand for money?
         a. It will shift outward.
         b. It will shift inward.
         c. Nothing, the economy will move to a new quantity demanded.
         d. It depends on what happens to prices.
____ 47. The quantity of money demanded decreases as interest rates rise because
         a. people want more liquid assets as interest rates rise.
         b. the price of bonds rise as interest rates rise.
         c. the opportunity cost of holding money increases as interest rates rise.
         d. people want more money to invest as interest rates rise.

Name: ________________________                                                         ID: A

____ 48. Which of the following will cause movement along the money demand schedule?
         a. a change in the price level
         b. a change in real GDP
         c. a change in tax rates
         d. a change in interest rates


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