Eco372 week 4 practice money and the federal reserve quiz – score 100

  

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.

  

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.

  

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.

  

b. Calculate the M2 money supply.

  

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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