b. a government bond
c. a share of corporate stock
d. a checking account balance
e. fine jewelry
b. small time deposits
c. savings-type deposits
d. demand deposits
e. large time deposits
Small time deposits $650 billion
Checking deposits $300 billion
Savings-type accounts $750 billion
Money market mutual funds $600 billion
Travelers' checks $ 25 billion
Large time deposits $600 billion
Cash in hand $100 billion
b. M1: $100 billion; M2: $1,075 billion
c. M1: $425 billion; M2: $2,425 billion
d. M1: $425 billion; M2: $3,025 billion
e. M1: $1,175 billion; M2: $1,850 billion
4. Financial intermediaries
b. specialize in assembling loanable funds from households and firms, and channeling those funds to other households, firms, and government agencies
c. are all depository institutions
d. increase the risk of lending and borrowing because a financial intermediary has nothing to lose from such transactions
e. reduce efficiency because they add an extra step to many financial transactions
5. According to the text, a bank's most basic service
is
b. providing checking account services
c. organizing money flowing into accounts
d. providing investment advice
e. increasing the amount of cash the public holds
6. If the Federal Reserve sets a required reserve
ratio of 0.2 and a bank has $100 million in loans and $80 million in deposits,
what is the level of required reserves for the bank?
b. $16 million
c. $80 million
d. $20 million
e. $36 million
7. The Federal Reserve System
b. is under the jurisdiction of the executive branch
c. is under the control of the private banks that own it
d. is directed in its actions by the U.S. Congress
e. answers only to the judicial branch
8. The Federal Open Market Committee is important
because
b. it sets the course for the nation's money supply
c. it is composed of people who are most knowledgeable about the economy
d. it discusses unemployment and inflation
e. of its influence on fiscal policy
9. The Fed typically increases the money supply
by
b. buying government loans
c. selling government loans
d. printing more currency
e. buying government bonds
10. If the reserve requirement is .2 and demand
deposits are $800 (assume no earlier loans), the banks can lend out
b. $80
c. $640
d. $160
e. $460
11. If the Federal Reserve wishes to increase the
money supply by $30,000 and the reserve requirement ratio is 0.4, how big
a purchase of bonds will the Fed need to make?
b. $12,000
c. $1,000
d. $30,000
e. $3,000
12. If the required reserve ratio is 0.25 and the
First National Bank holds $10 million in demand deposits and $2.5 million
in reserves, how much more money is the bank capable of creating?
b. $0.625 million
c. $1.875 million
d. $2.5 million
e. $10 million
13. If the Federal Reserve sells a $2,000 bond
to a bond dealer who pays with a check written on an account at Second
National Bank, what changes will occur on the bank's balance sheet after
the check clears?
b. reserves, demand deposits, total assets, and total liabilities will all increase by $2,000
c. reserves and total assets will decrease by $2,000; demand deposits and total liabilities will increase by $2,000
d. reserves, demand deposits, total assets, and total liabilities will all decrease by $2,000
e. reserves will decrease by $2,000; demand deposits, total assets, and total liabilities will all increase by $2,000
14. The demand deposit multiplier is likely to
be smaller than 1/RRR if
b. the public holds no currency
c. banks want to hold excess reserves
d. want to hold no excess reserves
e. banks increase the number of loans they offer to make a larger profit
15. One problem with using discount rate changes
to influence deposit creation or destruction is that
b. the discount rate changes are covert
c. banks like to borrow from the Fed, and they will borrow even more after the changes
d. the Fed must change the discount rate each time they meet
e. banks do not have enough control over their demand deposits
16. Because of the history of banking panics in
the U.S., one of the Fed's primary functions is to
b. act as a lender of last resort
c. hold banks accountable for their actions
d. call in loans
e. increase the profit that each bank makes
17. Which of the following is a reason that the
number of bank failures has generally decreased over time?
b. the overall riskiness of bank loans has decreased
c. the Federal Reserve stands ready to inject reserves into the banking system
d. all banks have been in good financial health
e. banks hold most of their assets in the form of reserves
(T/F)
19. Which of the following statements is true?
b. the U.S. Treasury deals in previously issued bonds and the Fed deals in newly issued bonds
c. the U.S. Treasury deals in only newly issued bonds and the Fed deals in both new and second-hand bonds
d. the U.S. Treasury deals in both new and second-hand bonds and the Fed only deals in second-hand bonds
e. both the U.S. Treasury and the Fed deal in both new and second-hand bonds
20. Assuming that households do not change their
cash holding and banks loan out all of their excess reserves, if the required
reserve ratio (RRR) is 10 percent and the Fed purchases $2,000 worth of
bonds from banks, how much money will be eventually created?
b. $2,000
c. $9,000
d. $18,000
e. $20,000
