Chapter 29

Chapter 29 The Monetary System
TRUE/FALSE 1. In an economy that relies on barter, trade requires a double-coincidence of wants. ANS: T DI : 1 !" : #$-% NAT: Analytic &'(: The role of money T'): *arter +S(: Definitional #. ,oe wants to trade e--s for sausa-e. &ashonda wants to trade sausa-e for e--s. ,oe and &ashonda ha.e a double-coincidence of wants. ANS: T DI : 1 !" : #$-% NAT: Analytic &'(: The role of money T'): *arter +S(: Definitional /. The use of money allows trade to be roundabout. ANS: T DI : 1 !" : #$-% NAT: Analytic &'(: The role of money +S(: Definitional 1. !oundabout trade is beneficial for an economy. ANS: T DI : 1 !" : NAT: Analytic &'(: The role of money +S(: Definitional #$-% T'): +oney 0 Trade
T'):
+oney 0 Trade
2. +oney allows 3eo3le to s3eciali4e in what they do best, thereby raisin- e.eryone5s standard of li.in-. ANS: T DI : # !" : #$-% NAT: Analytic &'(: The role of money T'): +oney +S(: Inter3reti.e 6. 7hen money functions as a unit of account, then it cannot be commodity money. ANS: DI : # !" : #$-1 NAT: Analytic &'(: The role of money T'): +oney +S(: Inter3reti.e 8. Demand deposits are balances in ban9 accounts that de3ositors can access by writin- a chec9. ANS: T DI : 1 !" : #$-1 NAT: Analytic &'(: The role of money T'): Demand de3osits +S(: Definitional :. Accordin- to economists, a collection of .aluable ;ewels is not money. ANS: T DI : # !" : #$-1 NAT: Analytic &'(: The Study of economics, and the definitions of economics T'): +oney +S(: Inter3reti.e $. A debit card is more similar to a credit card than to a chec9. ANS: DI : # !" : #$-1 NAT: Analytic &'(: The Study of economics, and the definitions of economics T'): +oney +S(: Inter3reti.e 1%. <ary=s wealth is >1 million. "conomists would say that <ary has >1 million worth of money. ANS: DI : 1 !" : #$-1 NAT: Analytic &'(: The role of money T'): +oney +S(: Definitional
12:
12$
11.
(ha3ter #$ ?The +onetary System
+arc 3uts 3rices on surfboards and s9ateboards at his s3ortin- -oods store. @e is usin- money as a unit of account. ANS: T DI : 1 !" : #$-1 NAT: Analytic &'(: The role of money T'): +oney +S(: Definitional 1#. Sandra routinely uses currency to 3urchase her -roceries. She is usin- money as a unit of account. ANS: DI : 1 !" : #$-1 NAT: Analytic &'(: The role of money T'): +oney +S(: Definitional 1/. *ottles of .ery fine wine are less liquid than demand de3osits. ANS: T DI : 1 !" : #$-1 NAT: Analytic &'(: The role of money +S(: Inter3reti.e
T'):
&iquidity
11. A.S. dollars are an eBam3le of commodity money and hides used to ma9e trades are an eBam3le of fiat money. ANS: DI : 1 !" : #$-1 NAT: Analytic &'(: The role of money T'): (ommodity money +S(: Definitional 12. 7hen the So.iet Anion be-an brea9in- u3 in the late 1$:%s, ci-arettes be-an re3lacin- the ruble as the medium of eBchan-e e.en thou-h the ruble was le-al tender. The ci-arettes 3ro.ide an eBam3le of fiat money. ANS: DI : 1 !" : #$-1 NAT: Analytic &'(: The role of money T'): (ommodity money +S(: Inter3reti.e 16. In order for currency to be widely used as a medium of eBchan-e, it is sufficient for the -o.ernment to desi-nate it as le-al tender. ANS: DI : 1 !" : #$-1 NAT: Analytic &'(: The role of money T'): (urrency +S(: Definitional 18. +1 includes sa.in-s de3osits. ANS: DI : 1 !" : NAT: Analytic &'(: The role of money +S(: Definitional 1:. +# is both lar-er and more liquid than +1. ANS: DI : 1 !" : NAT: Analytic &'(: The role of money +S(: Inter3reti.e 1$. (redit cards are a medium of eBchan-e. ANS: DI : # !" : NAT: Analytic &'(: The role of money +S(: Definitional #$-1 T'): +oney su33ly
#$-1 T'): +oney su33ly 0 &iquidity
#$-1 T'): +edium of eBchan-e
#%. The series of ban9 failures in 1$%8 occurred des3ite the creation of the ederal !eser.e many years earlier. ANS: DI : 1 !" : #$-# NAT: Analytic &'(: The role of money T'): ederal !eser.e System +S(: Inter3reti.e #1. ANS: NAT: +S(: ederal !eser.e -o.ernors are -i.en lon- terms to insulate them from 3olitics. T DI : # !" : #$-# Analytic &'(: +onetary and fiscal 3olicy T'): ederal !eser.e System Inter3reti.e

##. The ederal !eser.e is a 3ri.ately o3erated commercial ban9. ANS: DI : 1 !" : #$-# NAT: Analytic &'(: +onetary and fiscal 3olicy +S(: Definitional
16%
T'):
ederal !eser.e System
#/. The ederal !eser.e was created in 1$1/ after a series of ban9 failures in 1$%8. ANS: T DI : 1 !" : #$-# NAT: Analytic &'(: +onetary and fiscal 3olicy T'): ederal !eser.e System +S(: Definitional #1. +embers of the *oard of <o.ernors are a33ointed by the 3resident of the A.S. and confirmed by the A.S. Senate. ANS: T DI : 1 !" : #$-# NAT: Analytic &'(: +onetary and fiscal 3olicy T'): ederal !eser.e System +S(: Definitional #2. +onetary 3olicy is determined by a committee whose .otin- members include all the 3residents of the re-ional ederal !eser.e *an9s. ANS: DI : 1 !" : #$-# NAT: Analytic &'(: +onetary and fiscal 3olicy T'): ederal '3en +ar9et (ommittee +S(: Definitional #6. The ederal !eser.e 3rimarily uses o3en-mar9et o3erations to chan-e the money su33ly. ANS: T DI : 1 !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): '3en-mar9et o3erations +S(: Definitional #8. If the ed buys bonds in the o3en mar9et, the money su33ly decreases. ANS: DI : 1 !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): +S(: A33licati.e
'3en-mar9et o3erations
#:. *an9s cannot influence the money su33ly if they hold all de3osits in reser.e. ANS: T DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): *an9s 0 +oney su33ly +S(: Inter3reti.e #$. *an9s still could contribute to chan-es in the money su33ly, e.en if they were required to hold all de3osits in reser.e. ANS: DI : 1 !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): ractional-reser.e ban9in+S(: A33licati.e /%. If ban9s hold any amount of their de3osits in reser.e, then they do not ha.e the ability to influence the money su33ly. ANS: DI : # !" : #$-/ NAT: Analytic &'(: The role of money T'): !eser.es 0 +oney su33ly +S(: Inter3reti.e /1. 7hen the ederal !eser.e decreases the discount rate, the quantity of reser.es increases and the money su33ly increases. ANS: T DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): Discount rate 0 !eser.es 0 +oney su33ly +S(: Inter3reti.e /#. The money multi3lier equals 1?C1 - RD, where R re3resents the reser.e ratio. ANS: DI : 1 !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): +oney multi3lier +S(: Definitional
161
//.
Assume that when >1%% of new reser.es enter the ban9in- system, the money su33ly ultimately increases by >6#2. Assume also that no ban9s hold eBcess reser.es and that the entire money su33ly consists of ban9 de3osits. If, at a 3oint in time, reser.es for all ban9s amount to >2%%, then at that same 3oint in time, loans for all ban9s amount to >#,6#2. ANS: T DI : / !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): +oney multi3lier +S(: Analytical /1. Assume that when >1%% of new reser.es enter the ban9in- system, the money su33ly ultimately increases by >:%%. Assume also that no ban9s hold eBcess reser.es and that the entire money su33ly consists of ban9 de3osits. If, at a 3oint in time, reser.es for all ban9s amount to >82%, then at that same 3oint in time, loans for all ban9s amount to >6,%%%. ANS: DI : / !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): +oney multi3lier +S(: Analytical /2. As ban9s create money, they create wealth. ANS: DI : 1 !" : NAT: Analytic &'(: The role of money +S(: Definitional /6. #$-/ T'): *an9s 0 +oney
The money su33ly of @ooba is >1%,%%% in a 1%%-3ercent-reser.e ban9in- system. If @ooba decreases the reser.e requirement to 1% 3ercent, the money su33ly could increase by no more than >$,%%%. ANS: DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): +oney multi3lier +S(: A33licati.e /8. If the ed decreases reser.e requirements, the money su33ly will increase. ANS: T DI : 1 !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): !eser.e requirements +S(: A33licati.e /:. An increase in reser.e requirements increases reser.es and decreases the money su33ly. ANS: DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): !eser.e requirements +S(: A33licati.e /$. ,ust after the terrorist attac9 on Se3tember 11, #%%1, the ed stood ready to lend financial institutions funds. 7hen the ed did this, it was actin- in its role of lender of last resort. ANS: T DI : 1 !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): &ender of last resort +S(: Definitional 1%. *ecause of the multi3le tools at its dis3osal, the ed can control the money su33ly .ery 3recisely. ANS: DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): ederal !eser.e System +S(: Inter3reti.e 11. In the months of No.ember and December, 3eo3le in the Anited States hold a lar-er 3art of their money in the form of currency because they intend to sho3 and tra.el for the holidays. As a result, other thin-s the same the money su33ly increases. ANS: DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): (urrency 0 +oney multi3lier +S(: A33licati.e 1#. 'ther thin-s the same, if ban9s decide to hold a smaller 3art of their de3osits as eBcess reser.es, the money su33ly will fall. ANS: DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): !eser.es +S(: A33licati.e

1/.
16#
*an9 runs and the accom3anyin- increase in the money multi3lier caused the A.S. money su33ly to rise by #: 3ercent from 1$#$ to 1$//. ANS: DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): *an9s 0 +oney multi3lier +S(: Definitional SHORT ANSWER 1. "conomists ar-ue that the mo.e from barter to money increased trade and 3roduction. @ow is this 3ossibleE ANS: The use of money allows 3eo3le to trade more easily. 7hen it is easier to trade, s3eciali4ation increases. Increased s3eciali4ation increases 3roduction and the standard of li.in-. DI : # !" : &'(: The role of money +S(: Inter3reti.e #$-1 NAT: Analytic T'): *arter 0 +oney
#. 7hat is the difference between money and wealthE ANS: +oney is defined as the set of assets in the economy that 3eo3le re-ularly use to buy -oods and ser.ices from other 3eo3le. 7ealth includes all assets, both monetary and nonmonetary. DI : # !" : &'(: The role of money /. #$-1 NAT: Analytic T'): +oney +S(: Definitional
7hich of the three functions of money are commonly met by each of the followin- assets in the A.S. economyE a. 3a3er dollar b. 3recious metals c. collectibles such as baseball cards, stam3s, and antiques a. b. c. medium of eBchan-e, store of .alue, unit of account store of .alue store of .alue #$-1 NAT: Analytic T'): +oney +S(: Inter3reti.e
ANS:
DI : 1 !" : &'(: The role of money
1. Are credit cards and debit cards moneyE 7hat=s the difference between credit and debit cardsE ANS: Neither credit cards nor debit cards are money, but credit cards are .ery different from debit cards. (redit cards are not a medium of eBchan-e, but are a means of deferrin- 3ayment. Debit cards allow the user immediate access to de3osits in a ban9 account. These de3osits are 3art of the money su33ly. DI : # !" : &'(: The role of money 2. #$-1 NAT: Analytic T'): +oney +S(: Inter3reti.e
7hat is the difference between commodity money and fiat moneyE 7hy do 3eo3le acce3t fiat money in trade for -oods and ser.icesE
ANS: (ommodity money has Fintrinsic .alue,F or .alue in uses other than as money. iat money is established as money by the -o.ernment. It has .ery little, if any, intrinsic .alue. Althou-h fiat money has no intrinsic .alue, 3eo3le acce3t it in trade when they are confident that others will also acce3t it. The -o.ernment=s decree that fiat currency ser.es as le-al tender increases this confidence. DI : # !" : &'(: The role of money +S(: Definitional #$-1 NAT: Analytic T'): (ommodity money
16/
6. 7hat does the teBt mean by the question, F7here Is All the (urrencyEF @ow does it answer the questionE ANS: The amount of currency 3er 3erson is nearly >/,/%%. +ost 3eo3le carry far less than this. The question is, Fwhere is the rest of the currencyEF orei-ners and criminals hold some. In some forei-n countries, 3eo3le ha.e more confidence in the A.S. dollar than in their own currency. (riminals use currency because it ma9es it harder for the -o.ernment to trace their acti.ities than if they used ban9 accounts. So they may hold abo.e a.era-e amounts of currency. DI : # !" : &'(: The role of money 8. #$-1 NAT: Analytic T'): (urrency +S(: Definitional
7hat is meant by the term Flender of last resortEF In what circumstances mi-ht the ed be a lender of last resortE
ANS: A Flender of last resortF is a lender to those who cannot borrow anywhere else. The ed mi-ht loan funds to a sol.ent ban9 that is eB3eriencin- a ban9 run and so doesn=t currently ha.e enou-h cash on hand to meet de3ositors= demands. DI : 1 !" : #$-# &'(: +onetary and fiscal 3olicy +S(: Inter3reti.e NAT: Analytic T'): &ender of last resort
:. (om3are the *oard of <o.ernors and the ederal '3en +ar9et (ommittee. ANS: The *oard of <o.ernors runs the ederal !eser.e. It has se.en members who are a33ointed by the A.S. 3resident with the ad.ice and consent of the Senate. The .otin- members of the ederal '3en +ar9et (ommittee include the 8 members of the *oard of <o.ernors and 2 of the 1# re-ional ban9 3residents, rotated amon- the 1# re-ional 3residents, but always includin- the 3resident of the New Gor9 ed. The chair of the *'< also ser.es as chair of the '+(. The '+( meets about e.ery siB wee9s in 7ashin-ton, D.(. to discuss the condition of the economy and to consider chan-es in monetary 3olicy. DI : 1 !" : #$-# &'(: +onetary and fiscal 3olicy +S(: Definitional NAT: Analytic T'): ederal !eser.e System
$. 7hat ma9es the New Gor9 ederal !eser.e re-ional ban9 so im3ortantE ANS: The 3resident of the New Gor9 ederal !eser.e re-ional ban9 is the only re-ional ban9 3resident who is always a .otin- member of the '+(, the committee that determines monetary 3olicy. New Gor9 is the traditional financial center of the A.S. economy and the New Gor9 ederal !eser.e *an9 conducts all o3en-mar9et transactions. DI : 1 !" : #$-# &'(: +onetary and fiscal 3olicy +S(: Definitional 1%. NAT: Analytic T'): ederal !eser.e System
Desi-ners of the ederal !eser.e System were concerned that the ed mi-ht form 3olicy fa.orable to one 3art of the country or to a 3articular 3arty. 7hat are some ways that the or-ani4ation of the ed reflects such concernsE
ANS: 1. The 3resident a33oints the *oard of <o.ernors, but the Senate must a33ro.e them. #. The se.en members of the *oard of <o.ernors ser.e 11-year terms, so it is unli9ely that a sin-le 3resident will ha.e a33ointed most of them. /. The ederal !eser.e has 1# re-ional ban9s. 1. The 3residents of the re-ional ban9s ser.e as .otin- members of the '+( on a rotatin- basis. DI : # !" : #$-# &'(: +onetary and fiscal 3olicy +S(: Inter3reti.e NAT: Analytic T'): ederal !eser.e System

11. 7hich two of the Ten Principles of Economics im3ly that the ed can 3rofoundly affect the economyE ANS: 1. )rices rise when the -o.ernment 3rints too much money. #. There is a short-run tradeoff between inflation and unem3loyment. DI : # !" : #$-# &'(: +onetary and fiscal 3olicy +S(: Inter3reti.e NAT: Analytic T'): ederal !eser.e System
161
1#. "B3lain why ban9s can influence the money su33ly if the required reser.e ratio is less than 1%% 3ercent. ANS: 7hen the reser.e requirement is less than 1%% 3ercent, ban9s can lend out de3osits. The money they lend out is rede3osited. In this way, de3osits can be -reater than reser.es. Since de3osits are -reater under fractional-reser.e ban9in- and since de3osits are 3art of the money su33ly, the money su33ly will be -reater under fractional-reser.e ban9in-. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy +S(: Inter3reti.e NAT: Analytic T'): *an9s 0 +oney su33ly
1/. If the reser.e ratio is #% 3ercent, how much money can be created from >1%% of reser.esE Show your wor9. ANS: C1?.#%D >1%% H >2%%. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy +S(: A33licati.e 11. ANS: Assets !eser.es &oans irst National *an9 &iabilities De3osits NAT: Analytic T'): +oney multi3lier
Draw a sim3le T-account for irst National *an9 which has >2,%%% of de3osits, a required reser.e ratio of 1% 3ercent, and eBcess reser.es of >/%%. +a9e sure you balance sheet balances.
>:%% >1,#%%
>2,%%% NAT: Analytic T'): *an9s
DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy 12.
+S(: A33licati.e
"B3lain how each of the followin- chan-es the money su33ly. a. the ed buys bonds b. the ed raises the discount rate c. the ed raises the reser.e requirement a. b. c. If the ed buys bonds, it 3ays for them with reser.es so ban9s will ha.e more reser.es and can lend more which will create more de3osits and so more money. If the ed raises the discount rate ban9s will borrow less from the ed, and so ha.e fewer reser.es, which decreases the money su33ly. If the ed raises the reser.e requirement, ban9s will ha.e to hold more of their de3osits as reser.es and so will ha.e less to lend out. 7ith less to lend out, de3osits and the money su33ly decrease. NAT: Analytic T'): ederal !eser.e System 0 +oney su33ly
ANS:
DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy +S(: Inter3reti.e
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16.

Describe the two thin-s that limit the 3recision of the ed=s control of the money su33ly and eB3lain how each limits that control.
ANS: irst, the ed does not control the amount of currency that households choose to hold relati.e to de3osits. If households decide to hold relati.ely more currency, ban9s ha.e fewer reser.es and the money su33ly decreases. Second, the ed cannot control the amount ban9s choose to hold as eBcess reser.es. If ban9ers decide to lend out less of their de3osits, the money su33ly will decrease. DI : / !" : #$-/ &'(: +onetary and fiscal 3olicy +S(: Inter3reti.e 18. NAT: Analytic T'): ederal !eser.e System 0 +oney su33ly
Durin- the early 1$/%s there were a number of ban9 failures in the Anited States. 7hat did this do to the money su33lyE The New Gor9 ederal !eser.e *an9 ad.ocated o3en mar9et 3urchases. 7ould these 3urchases ha.e re.ersed the chan-e in the money su33ly and hel3ed ban9sE "B3lain.
ANS: *an9 failures cause 3eo3le to lose confidence in the ban9in- system so that de3osits fall and ban9s ha.e less to lend. urther, under these circumstances ban9s are 3robably more cautious about lendin-. *oth of these reactions would tend to decrease the money su33ly. '3en mar9et 3urchases increase ban9 reser.es and so would ha.e at least made the decrease smaller. The increase in reser.es would also ha.e 3ro.ided ban9s with -reater liquidity to meet the demands of customers who wanted to ma9e withdrawals. In short, while the actions of de3ositors and ban9s lowered the money su33ly, the ed could ha.e increased it by buyin- bonds. DI : / !" : #$-/ &'(: +onetary and fiscal 3olicy +S(: Analytical NAT: Analytic T'): +onetary 3olicy 0 '3en-mar9et o3erations
1:. Su33ose that in a country the total holdin-s of ban9s were as follows: required reser.es H >12 million eBcess reser.es H >12 million de3osits H >82% million loans H >6%% million Treasury bonds H >$% million Show that the balance sheet balances if these are the only assets and liabilities. Assumin- that 3eo3le hold no currency, what ha33ens to each of these .alues if the central ban9 chan-es the reser.e requirement ratio to /I, ban9s still want to hold the same 3ercenta-e of eBcess reser.es, and ban9s don5t chan-e their holdin-s of Treasury bondsE @ow much does the money su33ly chan-e byE ANS: The only liability is de3osits which equal >82% million. Total reser.es are >6% billion which summed with loans, >6%% million, and Treasury bonds >$% million H >82%. Since liabilities equal assets, the balance sheet balances. Initially ban9s need to hold 6I on reser.e and want to hold #I as eBcess reser.es. 7hen the ed lowers the reser.e requirement ratio to #I, the ban9 only has to hold >12 million on reser.e and so now has >/% million of eBcess reser.es. *etween the #I requirement and the #I for eBcess the reser.e ratio is now 1I and the multi3lier is now 1?.%1 H #2. So, the decrease in the reser.e requirement ratio leads to an increase in de3osits of >82% million. CAlso, total reser.es are >6% million and the multi3lier is now #2, so de3osits should be >1,2%% million.D !equired reser.es are #I of >1,2%% million of de3osits H >/% million. "Bcess reser.es are #I of >1,2%% million of de3osits and so now also equal >/% million. De3osits rose by as much as the money su33ly since 3eo3le don5t hold currency, so that the money su33ly rose by >82% million. The additional de3osits came by way of additional lendin-, so loans should ha.e also increased by >82% million. Also, since de3osits rose by >82% million, liabilities should ha.e risen by >82% million. Ander the -i.en assum3tions, this means loans should ha.e risen by >82% million. '.erall the money su33ly rose by >82% as eB3lained abo.e. DI : / !" : #$-# 0 #$-/ &'(: +onetary and fiscal 3olicy +S(: Analytical NAT: Analytic T'): !eser.es 0 +oney multi3lier
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Sec00 The Monetary System

MULT!"LE CHO!CE 1. The double coincidence of wants a. is required when there is no item in an economy that is widely acce3ted in eBchan-e for -oods and ser.ices. b. is required in an economy that relies on barter. c. is a hindrance to the allocation of resources when it is required for trade. d. All of the abo.e are correct. DI : 1 !" : &'(: The role of money #$-% T'): *arter
ANS: D NAT: Analytic +S(: Inter3reti.e #.
In an economy that relies u3on barter, a. trade does not require a double coincidence of wants. b. scarce resources are allocated ;ust as easily as they are in economies that do not rely u3on barter. c. there is no item in the economy that is widely acce3ted in eBchan-e for -oods and ser.ices. d. All of the abo.e are correct. DI : 1 !" : &'(: The role of money #$-% T'): *arter
ANS: ( NAT: Analytic +S(: Inter3reti.e /.
7hich of the followin- is an eBam3le of barterE a. A 3arent -i.es a teena-er a >1% bill in eBchan-e for her babysittin- ser.ices. b. A homeowner -i.es an eBterminator a chec9 for >2% in eBchan-e for eBtermination ser.ices. c. A barber -i.es a 3lumber a haircut in eBchan-e for the 3lumber fiBin- the barber5s lea9y faucet. d. All of the abo.e are eBam3les of barter. DI : # !" : #$-% &'(: The study of economics, and the definitions of economics +S(: A33licati.e
ANS: ( NAT: Analytic T'): *arter 1.
(onsider fi.e hi-h school students wor9in- on homewor9 in study hall. !osie *ob )i3er Dewey +olly has math homewor9 has "n-lish homewor9 has math homewor9 has science homewor9 has science homewor9 wants science homewor9 wants history homewor9 wants science homewor9 wants "n-lish homewor9 wants math homewor9
7hich of the followin- 3airs of students has a double coincidence of wantsE a. !osie and )i3er b. )i3er and +olly c. Dewey and +olly d. *ob and Dewey ANS: * NAT: Analytic T'): *arter 2. DI : 1 !" : #$-% &'(: The study of economics, and the definitions of economics +S(: A33licati.e
(onsider fi.e indi.iduals with different occu3ations. +ary (lar9 Nathan )olly )aul 3ro.ides le-al ad.ice -rows tomatoes styles hair brews beer shar3ens 9ni.es wants 9ni.es shar3ened wants le-al ad.ice wants tomatoes wants 9ni.es shar3ened wants beer
168
7hich of the followin- 3airs of indi.iduals has a double coincidence of wantsE a. +ary and (lar9 b. (lar9 and Nathan c. Nathan and )olly d. )olly and )aul ANS: D NAT: Analytic T'): *arter 6. DI : 1 !" : #$-% &'(: The study of economics, and the definitions of economics +S(: A33licati.e
(onsider four sur.i.ors on an island. !u3ert Amber !ob Tom has machete has coo9in- 3ot has fishin- s3ear has coo9in- 3ot wants fishin- s3ear wants fishin- s3ear wants machete wants machete
7hich of the followin- 3airs of sur.i.ors has a double-coincidence of wantsE a. !u3ert with Amber, and !ob with Tom b. Amber with Tom c. !u3ert with !ob d. None of the abo.e are correct. ANS: ( NAT: Analytic +S(: A33licati.e 8. DI : 1 !" : &'(: The role of money #$-% T'): *arter
(onsider the followin- traders who meet. *ob Ted +ary Alice has an a33le has an oran-e has a 3ear has a 3each wants an oran-e wants a 3each wants an a33le wants an oran-e
7hich, if any, 3airs of traders has a double coincidence of wantsE a. *ob with Alice b. Ted with Alice c. *ob with +ary, Ted with *ob, and Ted with Alice d. None of the 3airs abo.e has a double coincidence of wants. ANS: * NAT: Analytic +S(: A33licati.e :. DI : 1 !" : &'(: The role of money #$-% T'): *arter
The eBistence of money leads to a. -reater s3eciali4ation in 3roduction, but not to a hi-her standard of li.in-. b. a hi-her standard of li.in-, but not to -reater s3eciali4ation. c. -reater s3eciali4ation and to a hi-her standard of li.in-. d. neither -reater s3eciali4ation nor to a hi-her standard of li.in-. DI : 1 !" : &'(: The role of money #$-% T'): +oney
ANS: ( NAT: Analytic +S(: Definitional $.
7hen we say that trade is roundabout we mean that a. 3eo3le sometimes trade -oods for -oods. b. trades require a double coincidence of wants. c. currency is acce3ted 3rimarily to ma9e further trades. d. 3eo3le must s3end time searchin- for the 3roducts they wish to 3urchase.

ANS: ( NAT: Analytic +S(: Definitional DI : 1 !" : &'(: The role of money #$-% T'): Trade
16:
Sec0# The Monetary System The Mean$n% o& Money

MULT!"LE CHO!CE 1. "conomists use the term money to refer to a. all wealth. b. all assets, includin- real assets and financial assets. c. all financial assets, but real assets are not re-arded as money. d. those ty3es of wealth that are re-ularly acce3ted by sellers in eBchan-e for -oods and ser.ices. DI : 1 !" : &'(: The role of money #$-1 T'): +oney
ANS: D NAT: Analytic +S(: Definitional #.
+oney a. is a 3erfect store of .alue. b. is the most liquid asset. c. has intrinsic .alue, re-ardless of which form it ta9es. d. All of the abo.e are correct. DI : # !" : &'(: The role of money #$-1 T'): +oney 0 &iquidity
ANS: * NAT: Analytic +S(: Inter3reti.e /.
+oney is the most liquid asset a.ailable because a. it is a store of .alue. b. it is a medium of eBchan-e. c. it is a unit of account. d. it has intrinsic .alue. DI : # !" : &'(: The role of money #$-1 T'): +oney 0 &iquidity
ANS: * NAT: Analytic +S(: Inter3reti.e 1.
The ease with which an asset can be a. traded for another asset determines whether or not that asset is a unit of account. b. trans3orted from one 3lace to another determines whether or not that asset could ser.e as fiat money. c. con.erted into a store of .alue determines the liquidity of that asset. d. con.erted into the economy5s medium of eBchan-e determines the liquidity of that asset. DI : 1 !" : &'(: The role of money #$-1 T'): &iquidity
ANS: D NAT: Analytic +S(: Inter3reti.e 2.
7hen we want to measure and record economic .alue, we use money as the a. liquid asset. b. medium of eBchan-e. c. unit of account. d. store of .alue. DI : 1 !" : &'(: The role of money #$-1 T'): +oney
ANS: ( NAT: Analytic +S(: Definitional 6.
In which of the followin- sets of assets are the assets correctly ran9ed from most liquid to least liquidE a. money, bonds, cars, houses b. money, cars, houses, bonds c. bonds, money, cars, houses d. bonds, cars, money, houses
16$

DI : # !" : &'(: The role of money #$-1 T'): &iquidity
ANS: A NAT: Analytic +S(: Inter3reti.e 8.
7hich of the followin- lists ran9s ty3es of assets from most liquid to least liquidE a. currency, demand de3osits, money mar9et mutual funds b. currency, money mar9et mutual funds, demand de3osits c. money mar9et mutual funds, demand de3osits, currency d. demand de3osits, money mar9et mutual funds, currency DI : # !" : #$-1 &'(: The study of economics, and the definitions of economics +S(: A33licati.e
ANS: A NAT: Analytic T'): &iquidity :.
7hich list ran9s assets from most to least liquidE a. currency, fine art, stoc9s b. currency, stoc9s, fine art c. fine art, currency, stoc9s d. fine art, stoc9s, currency DI : 1 !" : &'(: The role of money #$-1 T'): &iquidity
ANS: * NAT: Analytic +S(: Definitional $.
7hen an economy uses sil.er as money, then that economy5s money a. ser.es as a store of .alue but not as a medium of eBchan-e. b. ser.es as a medium of eBchan-e but not as a unit of account. c. is fiat money. d. has intrinsic .alue. DI : # !" : &'(: The role of money #$-1 T'): +oney 0 Intrinsic .alue
ANS: D NAT: Analytic +S(: Inter3reti.e 1%.
or 3ur3oses of analy4in- the money stoc9 and its relationshi3 to rele.ant economic .ariables, money is best thou-ht of as a. those items that can be readily accessed and used to buy -oods and ser.ices. b. currency only. c. currency 3lus all ban9 accounts. d. currency 3lus all ban9 accounts 3lus bonds. DI : # !" : &'(: The role of money #$-1 T'): +oney
The measure of the money stoc9 called +1 includes a. wealth held by 3eo3le in their chec9in- accounts. b. wealth held by 3eo3le in their sa.in-s accounts. c. wealth held by 3eo3le in money mar9et mutual funds. d. e.erythin- that is included in +# 3lus some additional items. DI : 1 !" : &'(: The role of money #$-1 T'): +oney su33ly
ANS: A NAT: Analytic +S(: Definitional 1#.
(redit cards are a. a medium of eBchan-e. b. counted as 3art of +# but not as 3art of +1. c. im3ortant for analy4in- the monetary system. d. All of the abo.e are correct. DI : # !" : &'(: The role of money #$-1 T'): +oney
ANS: ( NAT: Analytic +S(: Inter3reti.e

1/. The set of items that ser.e as media of eBchan-e clearly includes a. demand de3osits. b. short-term bonds. c. credit cards. d. All of the abo.e are correct.
18%
ANS: A DI : # !" : #$-1 NAT: Analytic &'(: The role of money T'): +oney 0 +edium of eBchan-e +S(: Inter3reti.e 11. The set of items that ser.e as media of eBchan-e clearly includes a. balances that lie behind debit cards. b. demand de3osits. c. de3osits other than demand de3osits, such as N'7 accounts, on which chec9s can be written. d. All of the abo.e are correct.
ANS: D DI : # !" : #$-1 NAT: Analytic &'(: The role of money T'): +oney 0 +edium of eBchan-e +S(: Inter3reti.e 12. Dollar bills, rare 3aintin-s, and emerald nec9laces are all a. media of eBchan-e. b. units of account. c. stores of .alue. d. All of the abo.e are correct. DI : # !" : #$-1 &'(: The study of economics, and the definitions of economics +S(: Inter3reti.e
ANS: ( NAT: Analytic T'): Store of .alue 16.
Ima-ine an economy in which: C1D 3ieces of 3a3er called yollars are the only thin- that buyers -i.e to sellers when they buy -oods and ser.ices, so it would be common to use, say, 2% yollars to buy a 3air of shoesJ C#D 3rices are 3osted in terms of yardstic9s, so you mi-ht wal9 into a -rocery store and see that, today, an a33le is worth # yardstic9sJ and C/D yardstic9s disinte-rate o.erni-ht, so no yardstic9 has any .alue for more than #1 hours. In this economy, a. the yardstic9 is a medium of eBchan-e but it cannot ser.e as a unit of account. b. the yardstic9 is a unit of account but it cannot ser.e as a store of .alue. c. the yardstic9 is a medium of eBchan-e but it cannot ser.e as a store of .alue, and the yollar is a unit of account. d. the yollar is a unit of account, but it is not a medium of eBchan-e and it is not a liquid asset.
ANS: * DI : # !" : #$-1 NAT: Analytic &'(: The study of economics, and the definitions of economics T'): +edium of eBchan-e 0 Store of .alue +S(: A33licati.e 18. +oney is a. the most liquid asset and a 3erfect store of .alue. b. the most liquid asset but an im3erfect store of .alue. c. the least liquid asset but a 3erfect store of .alue. d. the least liquid asset and an im3erfect store of .alue.
ANS: * DI : # !" : #$-1 NAT: Analytic &'(: The role of money T'): +oney 0 &iquidity 0 Store of .alue +S(: Inter3reti.e 1:. )a3er dollars a. are commodity money and -old coins are fiat money. b. are fiat money and -old coins are commodity money. c. and -old coins are both commodity monies. d. and -old coins are both fiat monies.
ANS: * DI : # !" : #$-1 NAT: Analytic &'(: The study of economics, and the definitions of economics T'): (urrency 0 (ommodity money +S(: Inter3reti.e
181
1$.

The So.iet -o.ernment in the 1$:%s ne.er abandoned the ruble as the official currency. The 3eo3le of +oscow 3referred to acce3t other items such as a. ci-arettes in eBchan-e for -oods and ser.ices, because they were con.inced that ci-arettes were -oin- to soon become hard to come by. b. American dollars in eBchan-e for -oods and ser.ices, because rubles were eBtremely hard to come by. c. ci-arettes or American dollars in eBchan-e for -oods and ser.ices, remindin- us of the fact that -o.ernment decree by itself is not sufficient for the success of a commodity money. d. All of the abo.e are correct.
ANS: ( DI : / !" : #$-1 NAT: Analytic &'(: The study of economics, and the definitions of economics T'): +edium of eBchan-e +S(: A33licati.e #%. (urrency includes a. 3a3er bills and coins. b. demand de3osits. c. credit cards. d. *oth CaD and CbD are correct. DI : # !" : #$-1 &'(: The study of economics, and the definitions of economics +S(: Inter3reti.e
ANS: A NAT: Analytic T'): (urrency #1.
7hich of the followin- is not included in +1E a. a >2 bill in your wallet b. >1%% in your chec9in- account c. >2%% in your sa.in-s account d. All of the abo.e are included in +1.
ANS: ( DI : # !" : #$-1 NAT: Analytic &'(: The study of economics, and the definitions of economics T'): +oney su33ly +S(: Inter3reti.e ##. +oney a. is more efficient than barter. b. ma9es trades easier. c. allows -reater s3eciali4ation. d. All of the abo.e are correct. DI : 1 !" : &'(: The role of money #$-1 T'): +oney
ANS: D NAT: Analytic +S(: Definitional #/.
)a3er money a. has a hi-h intrinsic .alue. b. is the 3rimary medium of eBchan-e in a barter economy. c. is .aluable because it is -enerally acce3ted in trade. d. is .aluable only because of the le-al tender requirement. DI : 1 !" : &'(: The role of money #$-1 T'): +oney
ANS: ( NAT: Analytic +S(: Definitional #1.
7hich of the followin- is a store of .alueE a. currency b. A.S. -o.ernment bonds c. fine art d. All of the abo.e are correct. DI : 1 !" : &'(: The role of money #$-1 T'): Store of .alue
ANS: D NAT: Analytic +S(: Inter3reti.e

#2. 7hich of the followin- best illustrates the unit of account function of moneyE a. Gou list 3rices for candy sold on your 7eb site, www.sweettooth.com, in dollars. b. Gou 3ay for your theater tic9ets with dollars. c. Gou 9ee3 6 ounces of -old in your safe-de3osit boB at the ban9 for emer-encies. d. None of the abo.e is correct. DI : 1 !" : &'(: The role of money #$-1 T'): Anit of account
18#
ANS: A NAT: Analytic +S(: Inter3reti.e #6.
7hich of the followin- best illustrates the conce3t of a store of .alueE a. Gou are a 3recious-metals dealer, and you are always aware of how many ounces of 3latinum trade for an ounce of -old. b. Gou sell items on e*ay, and your 3rices are stated in terms of dollars. c. Gou 9ee3 6 ounces of -old in your safe-de3osit boB at the ban9 for emer-encies. d. None of the abo.e is correct. DI : 1 !" : &'(: The role of money #$-1 T'): Store of .alue
ANS: ( NAT: Analytic +S(: Inter3reti.e #8.
The Kyardstic9L 3eo3le use to 3ost 3rices and record debts is called a. a medium of eBchan-e. b. a unit of account. c. a store of .alue. d. liquidity. DI : 1 !" : &'(: The role of money #$-1 T'): Anit of account
ANS: * NAT: Analytic +S(: Definitional #:.
+ia 3uts money into a 3i--y ban9 so she can s3end it later. 7hat function of money does this illustrateE a. store of .alue b. medium of eBchan-e c. unit of account d. None of the abo.e is correct. DI : 1 !" : &'(: The role of money #$-1 T'): Store of .alue
ANS: A NAT: Analytic +S(: Inter3reti.e #$.
7hich of the followin- best illustrates the medium of eBchan-e function of moneyE a. Gou 9ee3 some money hidden in your shoe. b. Gou 9ee3 trac9 of the .alue of your assets in terms of currency. c. Gou 3ay for your oil chan-e usin- currency. d. None of the abo.e is correct. DI : 1 !" : &'(: The role of money #$-1 T'): +edium of eBchan-e
ANS: ( NAT: Analytic +S(: Inter3reti.e /%.
Gou recei.e money as 3ayment for babysittin- your nei-hbors= children. This best illustrates which function of moneyE a. medium of eBchan-e b. unit of account c. store of .alue d. liquidity DI : 1 !" : &'(: The role of money #$-1 T'): +edium of eBchan-e
ANS: A NAT: Analytic +S(: Definitional
18/
/1.

7hich of the followin- is a function of moneyE a. a unit of account b. a store of .alue c. medium of eBchan-e d. All of the abo.e are correct. DI : 1 !" : &'(: The role of money #$-1 T'): +oney
ANS: D NAT: Analytic +S(: Definitional /#.
An item that 3eo3le can use to transfer 3urchasin- 3ower from the 3resent to the future is called a. a medium of eBchan-e. b. a unit of account. c. a store of .alue. d. None of the abo.e is correct. DI : 1 !" : &'(: The role of money #$-1 T'): Store of .alue
ANS: ( NAT: Analytic +S(: Definitional //.
Treasury *onds are a. liquid, but not a store of .alue. b. a store of .alue, but not liquid. c. both liquid and a store of .alue. d. neither liquid nor a store of .alue. DI : 1 !" : &'(: The role of money #$-1 T'): &iquidity 0 Store of .alue
ANS: ( NAT: Analytic +S(: Inter3reti.e /1.
7hich of the followin- functions of money is also a common function of most other financial assetsE a. a unit of account b. a store of .alue c. medium of eBchan-e d. None of the abo.e is correct. DI : 1 !" : &'(: The role of money #$-1 T'): Store of .alue
ANS: * NAT: Analytic +S(: Definitional /2.
"conomists use the word FmoneyF to refer to a. income -enerated by the 3roduction of -oods and ser.ices. b. those assets re-ularly used to buy -oods and ser.ices. c. the .alue of a 3erson=s assets. d. the .alue of stoc9s and bonds. DI : 1 !" : &'(: The role of money #$-1 T'): +oney
ANS: * NAT: Analytic +S(: Definitional /6.
Liquidity refers to a. the ease with which an asset is con.erted to the medium of eBchan-e. b. a measurement of the intrinsic .alue of commodity money. c. the suitability of an asset to ser.e as a store of .alue. d. how many time a dollar circulates in a -i.en year. DI : 1 !" : &'(: The role of money #$-1 T'): &iquidity
ANS: A NAT: Analytic +S(: Definitional /8.
(urrently, A.S. currency is a. fiat money with intrinsic .alue. b. fiat money with no intrinsic .alue. c. commodity money with intrinsic .alue. d. commodity money with no intrinsic .alue.

ANS: * NAT: Analytic +S(: Definitional /:. DI : 1 !" : &'(: The role of money #$-1 T'): (ommodity money 0 +oney
181
iat money a. has no intrinsic .alue. b. is bac9ed by -old. c. has intrinsic .alue equal to its .alue in eBchan-e. d. is any close substitute for currency such as chec9able de3osits. DI : 1 !" : &'(: The role of money #$-1 T'): Intrinsic .alue
ANS: A NAT: Analytic +S(: Definitional /$.
(ommodity money is a. bac9ed by -old. b. the 3rinci3al ty3e of money in use today. c. money with intrinsic .alue. d. recei3ts created in international trade that are used as a medium of eBchan-e. DI : 1 !" : &'(: The role of money #$-1 T'): (ommodity money
ANS: ( NAT: Analytic +S(: Definitional 1%.
iat money a. is worthless. b. has no intrinsic .alue. c. may be used as a medium of eBchan-e, but it is not le-al tender. d. 3erforms all the functions of money eBce3t the unit-of-account function. DI : 1 !" : &'(: The role of money #$-1 T'): Intrinsic .alue
ANS: * NAT: Analytic +S(: Definitional 11.
7hich ty3e of money has intrinsic .alueE a. commodity money b. fiat money c. both commodity money and fiat money d. neither commodity money nor fiat money DI : 1 !" : &'(: The role of money #$-1 T'): (ommodity money
ANS: A NAT: Analytic +S(: Definitional 1#.
If an economy used -old as money, its money would be a. commodity money, but not fiat money. b. fiat money, but not commodity money. c. both fiat and commodity money. d. functionin- as a store of .alue and as a unit of account, but not as a medium of eBchan-e. DI : 1 !" : &'(: The role of money #$-1 T'): (ommodity money
ANS: A NAT: Analytic +S(: Definitional 1/.
The le-al tender requirement means that a. 3eo3le are more li9ely to acce3t the dollar as a medium of eBchan-e. b. the -o.ernment must hold enou-h -old to redeem all currency. c. 3eo3le may not ma9e trades with anythin- else. d. All of the abo.e are correct. DI : 1 !" : &'(: The role of money #$-1 T'): +edium of eBchan-e
ANS: A NAT: Analytic +S(: Definitional
182
11.

7ritin- in The New York Times in #%%1, economist @al !. Marian asserted that dollars are .aluable as a result of a. the fact that they are bac9ed by -old. b. the cost incurred by the -o.ernment when it 3rints 3a3er currency. c. Knetwor9 effects.L d. Kcommodity effects.L DI : 1 !" : &'(: The role of money #$-1 T'): +oney 0 Malue
7ritin- in The New York Times in #%%1, economist @al !. Marian li9ens the networ9 effects associated with dollars to the networ9 effects associated with a. faB machines. b. carbonated be.era-es. c. tele.isions and radios. d. ;ewelry and wor9s of art. DI : 1 !" : &'(: The role of money #$-1 T'): +oney 0 Malue
ANS: A NAT: Analytic +S(: Definitional 16.
In the early 1$$%s, the inflation rate in southern Iraq a.era-ed about a. / 3ercent a year, with the A.S. dollar ser.in- as the official currency in southern Iraq at that time. b. #% 3ercent a year, with a new currency, the KSaddam dinar,L ser.in- as the official currency in southern Iraq at that time. c. #2% 3ercent a year, with a new currency, the KSaddam dinar,L ser.in- as the official currency in southern Iraq at that time. d. #2% 3ercent a year, with an established currency, the KSwiss dinar,L ser.in- as the official currency in southern Iraq at that time. DI : # !" : &'(: The role of money #$-1 T'): +oney 0 Inflation rate
ANS: ( NAT: Analytic +S(: Inter3reti.e 18.
+1 equals currency 3lus demand de3osits 3lus a. nothin- else. b. other chec9able de3osits. c. tra.eler=s chec9s 3lus other chec9able de3osits. d. tra.eler=s chec9s 3lus other chec9able de3osits 3lus sa.in-s de3osits. DI : 1 !" : &'(: The role of money #$-1 T'): +oney su33ly
ANS: ( NAT: Analytic +S(: Definitional 1:.
+1 includes a. currency. b. demand de3osits. c. tra.elers= chec9s. d. All of the abo.e are correct. DI : 1 !" : &'(: The role of money #$-1 T'): +oney su33ly
ANS: D NAT: Analytic +S(: Definitional 1$.
7hich of the followin- is not included in +1E a. currency b. demand de3osits c. sa.in-s de3osits d. tra.elers= chec9s DI : 1 !" : &'(: The role of money #$-1 T'): +oney su33ly
ANS: ( NAT: Analytic +S(: Definitional

2%. 7hich of the followin- is not included in +1E a. currency b. demand de3osits c. tra.eler5s chec9s d. credit cards DI : 1 !" : &'(: The role of money #$-1 T'): +oney su33ly
186
ANS: D NAT: Analytic +S(: Definitional 21.
7hich of the followin- is included in +# but not in +1E a. currency b. demand de3osits c. sa.in-s de3osits d. All of the abo.e are included in both +1 and +#.
ANS: ( DI : 1 !" : #$-1 NAT: Analytic &'(: The role of money T'): +oney su33ly 0 +oney su33ly +S(: Definitional 2#. 7hen we add u3 currency, demand de3osits, other chec9able de3osits, and tra.elers chec9s, we -et a. the money su33ly, as uni.ersally defined by economists. b. the totality of common stores of .alue in the Anited States. c. +1. d. +#. DI : 1 !" : &'(: The role of money #$-1 T'): +oney su33ly
ANS: ( NAT: Analytic +S(: Definitional 2/.
7hich of the followin- is included in +# but not in +1E a. demand de3osits b. cor3orate bonds c. lar-e time de3osits d. money mar9et mutual funds DI : # !" : &'(: The role of money #$-1 T'): +oney su33ly
7hich of the followin- is not included in either +1 or +#E a. A.S. Treasury bills b. small time de3osits c. demand de3osits d. money mar9et mutual funds
ANS: A DI : # !" : #$-1 NAT: Analytic &'(: The role of money T'): +oney su33ly 0 +oney su33ly +S(: Definitional 22. 7hich of the followin- items is included in the +# definition of the money su33lyE a. credit cards b. money mar9et mutual funds c. cor3orate bonds d. lar-e time de3osits DI : 1 !" : &'(: The role of money #$-1 T'): +oney su33ly
7hich of the followin- statements is correctE a. All items that are included in +1 are included also in +#. b. All items that are included in +# are included also in +1. c. (redit cards are included in both +1 and +#. d. Sa.in-s de3osits are included in both +1 and +#.
188

DI : # !" : &'(: The role of money #$-1 T'): +oney su33ly
+oney mar9et mutual funds are included in a. +1 but not +#. b. +1 and +#. c. +# but not +1. d. neither +1 nor +#.
ANS: ( DI : 1 !" : #$-1 NAT: Analytic &'(: The role of money T'): +oney su33ly 0 +oney su33ly +S(: Definitional 2:. Demand de3osits are a ty3e of a. chec9in- account. b. time de3osit. c. money mar9et mutual fund. d. sa.in-s de3osit. DI : 1 !" : &'(: The role of money #$-1 T'): Demand de3osits
ANS: A NAT: Analytic +S(: Definitional 2$.
Demand de3osits are included in a. +1 but not +#. b. +# but not +1. c. +1 and +#. d. neither +1 nor +#. DI : 1 !" : &'(: The role of money #$-1 T'): +oney su33ly
Tra.elers chec9s are included in a. +1 but not +#. b. +# but not +1. c. +1 and +#. d. neither +1 nor +#. DI : 1 !" : &'(: The role of money #$-1 T'): +oney su33ly
(redit card limits are included in a. +1 but not +#. b. +# but not +1. c. +1 and +#. d. neither +1 nor +#. DI : 1 !" : &'(: The role of money #$-1 T'): +oney su33ly
ANS: D NAT: Analytic +S(: Definitional 6#.
Sa.in-s de3osits are included in a. +1 but not +#. b. +# but not +1. c. +1 and +#. d. neither +1 nor +#. DI : 1 !" : &'(: The role of money #$-1 T'): +oney su33ly
ANS: * NAT: Analytic +S(: Definitional

6/. 7hich of the followin- is included in both +1 and +#E a. sa.in-s de3osits b. demand de3osits c. small time de3osits d. money mar9et mutual funds DI : 1 !" : &'(: The role of money #$-1 T'): +oney su33ly
18:
7hich of the followin- is included in both +1 and +#E a. currency b. demand de3osits c. other chec9able de3osits d. All of the abo.e are correct. DI : 1 !" : &'(: The role of money #$-1 T'): +oney su33ly
(redit cards a. defer 3ayments. b. are a store of .alue. c. ha.e led to wider use of currency. d. are 3art of the money su33ly. DI : 1 !" : &'(: The role of money #$-1 T'): (redit cards
(redit cards a. are included in +1 but not +#. b. are included in +1 and +#. c. are included in +# but not +1 d. are not included in any measure of the money su33ly. DI : 1 !" : &'(: The role of money #$-1 T'): (redit cards
7hich of the followin- statements is correctE a. (redit cards are im3ortant for our system of 3ayments, but they are not im3ortant for analy4in- the monetary system. b. Account balances that lie behind debit cards are included in +1 and in +#. c. )eo3le who ha.e credit cards 3robably hold more money on a.era-e than 3eo3le who do not ha.e credit cards. d. A debit card is more similar to a credit card than to a chec9. DI : # !" : &'(: The role of money #$-1 T'): +oney su33ly
ANS: * NAT: Analytic +S(: Definitional 6:.
7hich of the followin- statements is correctE a. (redit cards are im3ortant for our system of 3ayments, but they are not im3ortant for analy4in- the monetary system. b. Account balances that lie behind debit cards are included in neither +1 nor +#. c. )eo3le who ha.e credit cards 3robably hold less money on a.era-e than 3eo3le who do not ha.e credit cards. d. A debit card allows its user to 3ost3one 3ayment for a 3urchase. DI : 1 !" : &'(: The role of money #$-1 T'): +oney su33ly
18$
6$.

7hich of the followin- defer 3aymentsE a. credit cards and debit cards b. neither credit cards nor debit cards c. credit cards but not debit cards d. debit cards but not credit cards DI : 1 !" : &'(: The role of money #$-1 T'): (redit cards 0 Debit cards
Table 29-1. The information in the table 3ertains to an ima-inary economy. Type o& Money &ar-e time de3osits Small time de3osits Demand de3osits 'ther chec9able de3osits Sa.in-s de3osits Tra.elers= chec9s +oney mar9et mutual funds (urrency (redit card balances +iscellaneous cate-ories of +# 8%. Amo'nt >:% billion >82 billion >82 billion >1% billion >1% billion >1 billion >12 billion >11% billion >1% billion >#2 billion
Re&er to Ta()e 29 #. 7hat is the +1 money su33lyE a. >#12 billion b. >#16 billion c. >##6 billion d. >/%1 billion DI : # !" : #$-1 &'(: +onetary and fiscal 3olicy T'): +oney su33ly
ANS: ( NAT: Analytic +S(: A33licati.e 81.
Re&er to Ta()e 29 #. 7hat is the +# money su33lyE a. >1#2 billion b. >#$6 billion c. >/21 billion d. >1/1 billion DI : # !" : #$-1 &'(: +onetary and fiscal 3olicy T'): +oney su33ly
ANS: ( NAT: Analytic +S(: A33licati.e 8#.
<i.en the followin- information, what are the .alues of +1 and +#E >62% billion >/%% billion >82% billion >6%% billion >#2 billion >6%% billion >1%% billion >#2 billion
Small time de3osits Demand de3osits and other chec9able de3osits Sa.in-s de3osits +oney mar9et mutual funds Tra.elers= chec9s &ar-e time de3osits (urrency +iscellaneous cate-ories in +# a. b. c. d. +1 H >1%% billion, +# H >#,182 billion. +1 H >1#2 billion, +# H >/,%#2 billion. +1 H >1#2 billion, +# H >#, 12% billion. +1 H >1#2 billion, +# H >1,:82 billion.

ANS: ( NAT: Analytic +S(: Definitional 8/. DI : # !" : #$-1 &'(: +onetary and fiscal 3olicy T'): +oney su33ly
1:%
The amount of currency 3er 3erson in the Anited States is about a. >8%. b. >/%%. c. >#,1%%. d. >/,/%%. DI : 1 !" : &'(: The role of money #$-1 T'): (urrency
In the A.S., the a.era-e adult holds about >/,/%% in a. currency. b. wealth. c. +1. d. +#. DI : 1 !" : &'(: The role of money #$-1 T'): (urrency
7hich of the followin- mi-ht eB3lain why the Anited States has so much currency 3er 3ersonE a. A.S. citi4ens are holdin- a lot of forei-n currency. b. (urrency may be a 3referable store of wealth for criminals. c. )eo3le use credit and debit cards more frequently. d. All of the abo.e hel3 eB3lain the abundance of currency. DI : 1 !" : &'(: The role of money #$-1 T'): (urrency
In the Anited States, currency holdin-s 3er 3erson a.era-e about a. >6%J one eB3lanation for this relati.ely small a.era-e is that many 3eo3le use credit and debit cards to ma9e transactions. b. >6%J one eB3lanation for this relati.ely small a.era-e is that A.S. citi4ens hold a lot of forei-n currency. c. >/,/%%J one eB3lanation for this relati.ely lar-e amount is that criminals 3robably 3refer currency as a medium of eBchan-e. d. >/,/%%J one eB3lanation for this relati.ely lar-e a.era-e is that A.S. citi4ens hold a lot of forei-n currency. DI : # !" : &'(: The role of money #$-1 T'): (urrency
'ne sur3risin- thin- about the A.S. money stoc9 is that a. ban9s hold so much currency relati.e to the 3ublic. b. the 3ublic holds so much currency relati.e to ban9s. c. there is so little currency 3er 3erson. d. there is so much currency 3er 3erson. DI : 1 !" : &'(: The role of money #$-1 T'): (urrency
ANS: D NAT: Analytic +S(: Definitional
1:1
Sec02 The Monetary System The Fe*era) Reser+e System

MULT!"LE CHO!CE 1. The ederal !eser.e a. was created in 1:/6. b. was created to facilitate the federal -o.ernment5s collection of taBes as well as its eB3enditures. c. is an eBam3le of a central ban9. d. All of the abo.e are correct. DI : # !" : #$-# &'(: +onetary and fiscal 3olicy T'): ederal !eser.e System
ANS: ( NAT: Analytic +S(: Inter3reti.e #.
The ederal !eser.e a. was created in 1$1/. b. has more than one s3ecific ;ob to 3erform. c. is an eBam3le of a central ban9. d. All of the abo.e are correct. DI : # !" : #$-# &'(: +onetary and fiscal 3olicy T'): ederal !eser.e System
ANS: D NAT: Analytic +S(: Inter3reti.e /.
The members of the ederal !eser.e5s *oard of <o.ernors a. are a33ointed by the 3resident of the A.S. and confirmed by the A.S. Senate. b. ser.e siB-year terms. c. are also the 3residents of the re-ional ederal !eser.e ban9s. d. share 3ower equally, with no -o.ernor ha.in- any more influence or 3ower than any other -o.ernor. DI : # !" : #$-# &'(: +onetary and fiscal 3olicy T'): ederal !eser.e System
At any -i.en time, the .otin- members of the ederal '3en +ar9et (ommittee include a. fi.e of the 1# 3residents of the re-ional ederal !eser.e ban9s. b. the 3resident of the ederal !eser.e *an9 of New Gor9. c. the se.en members of the *oard of <o.ernors. d. All of the abo.e are correct.
ANS: D DI : # !" : #$-# NAT: Analytic &'(: +onetary and fiscal 3olicy T'): ederal '3en +ar9et (ommittee +S(: Definitional 2. At the ederal !eser.e, a. the nation5s monetary 3olicy is made by the ederal '3en +ar9et (ommittee, which meets twice a year. b. the nation5s monetary and fiscal 3olicies are made by the ederal '3en +ar9et (ommittee, which meets twice a year. c. the nation5s monetary 3olicy is made by the ederal '3en +ar9et (ommittee, which meets about e.ery siB wee9s. d. the nation5s monetary and fiscal 3olicies are made by the ederal '3en +ar9et (ommittee, which meets about e.ery siB wee9s.
ANS: ( DI : # !" : #$-# NAT: Analytic &'(: +onetary and fiscal 3olicy T'): ederal '3en +ar9et (ommittee 0 +onetary 3olicy 6.
+S(: Inter3reti.e
If the ederal '3en +ar9et (ommittee decides to increase the money su33ly, then the ederal !eser.e a. creates dollars and uses them to 3urchase -o.ernment bonds from the 3ublic. b. sells -o.ernment bonds from its 3ortfolio to the 3ublic. c. creates dollars and uses them to 3urchase .arious ty3es of stoc9s and bonds from the 3ublic. d. sells .arious ty3es of stoc9s and bonds from its 3ortfolio to the 3ublic.

ANS: A NAT: Analytic +S(: Inter3reti.e 8. DI : # !" : #$-# &'(: +onetary and fiscal 3olicy T'): '3en-mar9et o3erations
1:#
7hen the ederal !eser.e sells assets from its 3ortfolio to the 3ublic with the intent of chan-in- the money su33ly, a. those assets are -o.ernment bonds and the ed5s reason for sellin- them is to increase the money su33ly. b. those assets are -o.ernment bonds and the ed5s reason for sellin- them is to decrease the money su33ly. c. those assets are items that are included in +# and the ed5s reason for sellin- them is to increase the money su33ly. d. those assets are items that are included in +# and the ed5s reason for sellin- them is to decrease the money su33ly. DI : # !" : #$-# &'(: +onetary and fiscal 3olicy T'): '3en-mar9et o3erations
ANS: * NAT: Analytic +S(: Inter3reti.e :.
7hich of the followin- is not correctE a. The twel.e re-ional ederal !eser.e *an9s 3lay a role in re-ulatin- ban9s and ensurin- the health of the ban9in- system. b. A.S. monetary 3olicy is made by the ederal '3en +ar9et (ommittee. c. The ederal '3en +ar9et (ommittee meets e.ery 1# wee9s. d. All of the abo.e are correct. DI : # !" : #$-# &'(: +onetary and fiscal 3olicy T'): ederal !eser.e System
ANS: ( NAT: Analytic +S(: Inter3reti.e $. All a. b. c. d.
ed 3urchases and sales of cor3orate stoc9s and bonds are conducted at the New Gor9 ed5s tradin- des9. -o.ernment bonds are conducted at the New Gor9 ed5s tradin- des9. real estate and other real assets are conducted by the ederal '3en +ar9et (ommittee. All of the abo.e are correct. DI : # !" : #$-# &'(: +onetary and fiscal 3olicy T'): '3en-mar9et o3erations
ANS: * NAT: Analytic +S(: Inter3reti.e 1%.
7hich of the followin- is not correctE a. The 3resident of the New Gor9 ed -ets to .ote at e.ery meetin- of the ederal '3en +ar9et (ommittee, but this is not true of the 3residents of the other re-ional ederal !eser.e *an9s. b. The ed5s 3olicy decisions influence the economy5s rate of inflation in the short run and the economy5s em3loyment and 3roduction in the lon- run. c. The ed5s 3rimary tool of monetary 3olicy is o3en-mar9et o3erations. d. All of the abo.e are correct. DI : # !" : #$-# &'(: +onetary and fiscal 3olicy T'): ederal !eser.e System
The a-ency res3onsible for re-ulatin- the money su33ly in the Anited States is a. the (om3troller of the (urrency. b. the A.S. Treasury. c. the ederal !eser.e. d. the A.S. *an9. DI : 1 !" : #$-# &'(: +onetary and fiscal 3olicy T'): ederal !eser.e System
1:/
1#.

The ederal !eser.e a. is a central ban9J it is res3onsible for conductin- the nation5s monetary 3olicyJ and it 3lays a role in re-ulatin- ban9s. b. is a central ban9J it is res3onsible for conducin- the nation5s monetary 3olicyJ but it 3lays no role in re-ulatin- ban9s. c. is not a central ban9J it is res3onsible for conducin- the nation5s monetary 3olicyJ and it 3lays a role in re-ulatin- ban9s. d. is a central ban9J it 3lays a role in re-ulatin- ban9sJ but it is not res3onsible for conductin- the nation5s monetary 3olicy. DI : 1 !" : #$-# &'(: +onetary and fiscal 3olicy T'): ederal !eser.e System
ANS: A NAT: Analytic +S(: Definitional 1/.
The ederal !eser.e does all eBce3t which of the followin-E a. It controls the su33ly of money. b. It acts as a lender of last resort to ban9s. c. It ma9es loans to lar-e business firms. d. It tries to ensure the health of the ban9in- system. DI : 1 !" : #$-# &'(: +onetary and fiscal 3olicy T'): ederal !eser.e System
+embers of the *oard of <o.ernors a. are a33ointed by the A.S. 3resident, while 3residents of the re-ional ederal !eser.e *an9s are a33ointed by those ban9s= boards of directors. b. are a33ointed by the re-ional ederal !eser.e *an9s= boards of directors while the 3residents of the re-ional ederal !eser.e *an9s are a33ointed by the A.S. 3resident. c. and the 3residents of the re-ional ederal !eser.e *an9s are a33ointed by the A.S. 3resident. d. and the 3residents of the re-ional ederal !eser.e *an9s are a33ointed by the re-ional ederal !eser.e *an9s= boards of directors. DI : 1 !" : #$-# &'(: +onetary and fiscal 3olicy T'): ederal !eser.e System
The 3resident of each re-ional ederal !eser.e *an9 is a33ointed by a. the A.S. 3resident with the a33ro.al of the Senate. b. the *oard of <o.ernors. c. the .otin- members of the ederal '3en +ar9et (ommittee. d. the board of directors of that re-ional ederal !eser.e *an9. DI : # !" : #$-# &'(: +onetary and fiscal 3olicy T'): ederal !eser.e System
Decisions by 3olicyma9ers concernin- the money su33ly constitute a. monetary 3olicy. b. fiscal 3olicy. c. ban9in- 3olicy. d. o3erations 3olicy. DI : 1 !" : #$-# &'(: +onetary and fiscal 3olicy T'): +onetary 3olicy
7hich of the followin- entities actually eBecutes o3en-mar9et o3erationsE a. the *oard of <o.ernors b. the New Gor9 ederal !eser.e *an9 c. the ederal '3en +ar9et (ommittee d. the '3en +ar9et (ommittees of the re-ional ederal !eser.e *an9s

ANS: * NAT: Analytic +S(: Definitional 1:. DI : 1 !" : #$-# &'(: +onetary and fiscal 3olicy T'): ederal !eser.e System
1:1
7hich -rou3 within the ederal !eser.e System meets to discuss chan-es in the economy and determine monetary 3olicyE a. the *oard of <o.ernors b. the '+( c. the re-ional ederal !eser.e *an9 3residents d. the (entral *an9 )olicy (ommission DI : 1 !" : #$-# &'(: +onetary and fiscal 3olicy T'): ederal !eser.e System
ANS: * NAT: Analytic +S(: Definitional 1$.
The New Gor9 ederal !eser.e *an9 a. 3resident always -ets to .ote at the '+( meetin-s. b. conducts o3en mar9et transactions. c. is one of 1# re-ional ederal !eser.e *an9s. d. All of the abo.e are correct. DI : # !" : #$-# &'(: +onetary and fiscal 3olicy T'): ederal !eser.e System
ANS: D NAT: Analytic +S(: Definitional #%.
All of the 3residents of the re-ional ederal !eser.e ban9s a. attend each '+( meetin-. b. ha.e .otin- ri-hts at each '+( meetin-. c. are a33ointed by the 3resident of the A.S. and confirmed by the A.S. Senate. d. All of the abo.e are correct. DI : # !" : #$-# &'(: +onetary and fiscal 3olicy T'): ederal !eser.e System
ANS: A NAT: Analytic +S(: Definitional #1.
The *oard of <o.ernors a. is currently chaired by the S3ea9er of the @ouse of !e3resentati.es. b. has as its members indi.iduals who are a33ointed by the 3resident and confirmed by the Senate. c. has 1% members. d. All of the abo.e are correct. DI : 1 !" : #$-# &'(: +onetary and fiscal 3olicy T'): ederal !eser.e System
ANS: * NAT: Analytic +S(: Definitional ##.
7hich of the followin- is correctE a. The ederal !eser.e has 11 re-ional ban9s. The *oard of <o.ernors has 1# members who ser.e 8year terms. b. The ederal !eser.e has 11 re-ional ban9s. The *oard of <o.ernors has 8 members who ser.e 11year terms. c. The ederal !eser.e has 1# re-ional ban9s. The *oard of <o.ernors has 1# members who ser.e 8year terms. d. The ederal !eser.e has 1# re-ional ban9s. The *oard of <o.ernors has 8 members who ser.e 11year terms. DI : 1 !" : #$-# &'(: +onetary and fiscal 3olicy T'): ederal !eser.e System
1:2
#/.

7hich of the followin- statements about the ederal !eser.e is not correctE a. The members of the *oard of <o.ernors are also 3residents of the ederal !eser.e=s re-ional ban9s. b. The ederal '3en +ar9et (ommittee ma9es monetary 3olicy. c. All members of the *oard of <o.ernors sit on the ederal '3en +ar9et (ommittee. d. The ederal !eser.e ser.es as a ban9 re-ulator. DI : 1 !" : #$-# &'(: +onetary and fiscal 3olicy T'): ederal !eser.e System
ANS: A NAT: Analytic +S(: Definitional #1.
7hich indi.iduals amon- the followin- ser.e four-year termsE a. the members of the *oard of <o.ernors b. the (hair of the *oard of <o.ernors c. the members of the '+( d. All of the abo.e are correct. DI : 1 !" : #$-# &'(: +onetary and fiscal 3olicy T'): ederal !eser.e System
ANS: * NAT: Analytic +S(: Definitional #2.
7ho was a33ointed chairman of the *oard of <o.ernors in #%%2 by )resident <eor-e 7. *ushE a. Alan <reens3an b. *ennett +c(allum c. !. <lenn @ubbard d. *en *ernan9e DI : 1 !" : #$-# &'(: +onetary and fiscal 3olicy T'): ederal !eser.e System
ANS: D NAT: Analytic +S(: Definitional #6.
The 1# re-ional ederal !eser.e *an9s a. are not allowed to ma9e loans to ban9s in their districts. b. re-ulate ban9s in their districts. c. ha.e more .otin- members on the '+( than does the *oard of <o.ernors. d. are each headed by a member of the *oard of <o.ernors. DI : 1 !" : #$-# &'(: +onetary and fiscal 3olicy T'): ederal !eser.e System
ANS: * NAT: Analytic +S(: Definitional #8.
7hich of the followin- does the ederal !eser.e not doE a. conduct monetary 3olicy b. act as a lender of last resort c. con.ert ederal !eser.e Notes into -old d. ser.e as a ban9 re-ulator DI : 1 !" : #$-# &'(: +onetary and fiscal 3olicy T'): ederal !eser.e System
ANS: ( NAT: Analytic +S(: Definitional #:.
At any meetin- of the ederal '3en +ar9et (ommittee, that committee5s .otin- members consist of a. 2 ederal !eser.e !e-ional *an9 )residents and all the members of the *oard of <o.ernors. b. 2 ederal !eser.e !e-ional *an9 )residents and 2 members of the *oard of <o.ernors. c. 1# ederal !eser.e !e-ional *an9 )residents and all the members of the *oard of <o.ernors. d. 1# ederal !eser.e !e-ional *an9 )residents and 2 members of the *oard of <o.ernors.
ANS: A DI : # !" : #$-# NAT: Analytic &'(: +onetary and fiscal 3olicy T'): ederal '3en +ar9et (ommittee +S(: Definitional

#$. 7ho amon- the followin- is not always a .otin- member of the '+(E a. the 3resident of the New Gor9 ed b. the (hairman of the *oard of <o.ernors c. a member of the *oard of <o.ernors other than the chair d. the 3resident of the )hiladel3hia ed
1:6
ANS: D DI : 1 !" : #$-# NAT: Analytic &'(: +onetary and fiscal 3olicy T'): ederal '3en +ar9et (ommittee +S(: Definitional /%. The 3roblem faced by the ed stems from two of the Ten Principles of Economics. Those 3rinci3les are as follows: a. C1D <o.ernments can usually im3ro.e mar9et outcomes, and C#D society faces a short-run trade-off between inflation and unem3loyment. b. C1D <o.ernments can sometimes im3ro.e mar9et outcomes, and C#D interest rates fall when the -o.ernment 3rints too much money. c. C1D Society faces a short-run trade-off between inflation and unem3loyment, and C#D 3rices rise when the -o.ernment 3rints too much money. d. C1D Society faces a lon--run trade-off between inflation and unem3loyment, and C#D 3rices rise when the -o.ernment 3rints too much money. DI : 1 !" : #$-# &'(: +onetary and fiscal 3olicy T'): +onetary 3olicy
ANS: ( NAT: Analytic +S(: Inter3reti.e /1.
+onetary 3olicy affects em3loyment a. only in the lon- run. b. only in the short run. c. in both the lon- run and the short run. d. in neither the lon- run nor the short run. DI : # !" : #$-# &'(: +onetary and fiscal 3olicy T'): +onetary 3olicy
ANS: * NAT: Analytic +S(: A33licati.e /#.
'.er one time hori4on or another, ed 3olicy decisions influence a. inflation and em3loyment. b. inflation but not em3loyment. c. em3loyment but not inflation. d. neither inflation nor em3loyment. DI : # !" : #$-# &'(: +onetary and fiscal 3olicy T'): Inflation 0 Anem3loyment
ANS: A NAT: Analytic +S(: Definitional //.
There is a a. short-run tradeoff between inflation and unem3loyment. b. short-run tradeoff between an increase in the money su33ly and inflation. c. lon--run tradeoff between inflation and unem3loyment. d. lon--run tradeoff between an increase in the money su33ly and inflation. DI : 1 !" : #$-# &'(: +onetary and fiscal 3olicy T'): Inflation 0 Anem3loyment
ANS: A NAT: Analytic +S(: Definitional /1.
The ed can influence unem3loyment in a. the short run and in the lon- run. b. the short run, but not in the lon- run. c. the lon- run, but not in the short run. d. neither the short nor the lon- run. DI : # !" : #$-# &'(: +onetary and fiscal 3olicy T'): ederal !eser.e System
1:8
Sec0, The Monetary System -an.s an* the Money S'pp)y

MULT!"LE CHO!CE 1. In a system of 1%%-3ercent-reser.e ban9in-, a. ban9s do not ma9e loans. b. currency is the only form of money. c. de3osits are ban9s5 only assets. d. All of the abo.e are correct. DI : # !" : &'(: The role of money #$-/ T'): !eser.es
ANS: A NAT: Analytic +S(: Inter3reti.e #.
In a system of 1%%-3ercent-reser.e ban9in-, a. ban9s do not acce3t de3osits. b. ban9s do not influence the su33ly of money. c. loans are the only asset item for ban9s. d. All of the abo.e are correct. DI : # !" : &'(: The role of money #$-/ T'): !eser.es 0 +oney su33ly
ANS: * NAT: Analytic +S(: Inter3reti.e /.
In a system of 1%%-3ercent-reser.e ban9in-, the 3ur3ose of a ban9 is to a. ma9e loans to households. b. influence the money su33ly. c. -i.e de3ositors a safe 3lace to 9ee3 their money. d. buy and sell -old. DI : 1 !" : &'(: The role of money #$-/ T'): !eser.es
In a fractional-reser.e ban9in- system, a ban9 a. does not ma9e loans. b. does not acce3t de3osits. c. 9ee3s only a fraction of its reser.es in de3osits. d. 9ee3s only a fraction of its de3osits in reser.e. DI : 1 !" : &'(: The role of money #$-/ T'): !eser.es
'n a T-account for a ban9, a. reser.es and de3osits are both assets. b. reser.es are assets and de3osits are liabilities. c. de3osits are assets and reser.es are liabilities. d. reser.es and de3osits are both liabilities. DI : # !" : &'(: The role of money #$-/ T'): T-accounts
If a ban9 has a reser.e ratio of : 3ercent, then a. -o.ernment re-ulation requires the ban9 to use at least : 3ercent of its de3osits to ma9e loans. b. the ban95s ratio of loans to de3osits is : 3ercent. c. the ban9 9ee3s : 3ercent of its de3osits as reser.es and loans out the rest. d. the ban9 9ee3s : 3ercent of its assets as reser.es and loans out the rest. DI : # !" : &'(: The role of money #$-/ T'): !eser.e ratio
ANS: ( NAT: Analytic +S(: Inter3reti.e

8.
1::
Su33ose that ban9s desire to hold no eBcess reser.es, the reser.e requirement is 2 3ercent, and a ban9 recei.es a new de3osit of >1,%%%. This ban9 a. will increase its required reser.es by >2%. b. will initially see its total reser.es increase by >1,%%%. c. will be able to ma9e a new loan of >$2%. d. All of the abo.e are correct. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es
ANS: D NAT: Analytic +S(: A33licati.e :.
Su33ose ban9s desire to hold no eBcess reser.es. If the reser.e requirement is 1% 3ercent and if a ban9 recei.es a new de3osit of >1%, then this ban9 a. must increase its required reser.es by >1. b. will initially see its total reser.es increase by >1. c. will be able to ma9e new loans u3 to a maBimum of >1. d. All of the abo.e are correct. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es
ANS: A NAT: Analytic +S(: A33licati.e $.
Su33ose ban9s desire to hold no eBcess reser.es. If the reser.e requirement is 12 3ercent and if a ban9 recei.es a new de3osit of >1%, then this ban9 a. must increase its required reser.es by >1%. b. will initially see its total reser.es increase by >12. c. will be able to ma9e new loans u3 to a maBimum of >:.2%. d. All of the abo.e are correct. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es
ANS: ( NAT: Analytic +S(: A33licati.e 1%.
Su33ose that ban9s desire to hold no eBcess reser.es. If the reser.e requirement is 2 3ercent and a ban9 recei.es a new de3osit of >1%%, it a. must increase required reser.es by >#%. b. will initially see reser.es increase by >1%%. c. will be able to use this de3osit to ma9e new loans amountin- to >/:%. d. All of the abo.e are correct. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es
ANS: D NAT: Analytic +S(: A33licati.e 11.
If ban9s desire to hold no eBcess reser.es, the reser.e ratio is 1% 3ercent, and a ban9 that was 3re.iously ;ust meetin- its reser.e requirement recei.es a new de3osit of >1%%, then initially the ban9 has a a. >1%% increase in eBcess reser.es and no increase in required reser.es. b. >1%% increase in required reser.es and no increase in eBcess reser.es. c. >/6% increase in eBcess reser.es and >1% increase in required reser.es. d. >1% increase in eBcess reser.es and >/6% increase in required reser.es. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es
ANS: ( NAT: Analytic +S(: A33licati.e 1#.
Su33ose the ed requires ban9s to hold 1% 3ercent of their de3osits as reser.es. A ban9 has >#%,%%% of eBcess reser.es and then sells the ed a Treasury bill for >$,%%%. @ow much does this ban9 now ha.e to lend out if it decides to hold only required reser.esE a. >#$,%%% b. >#:,1%% c. >1$,1%% d. >11,%%%
1:$

DI : / !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es
ANS: A NAT: Analytic +S(: A33licati.e 1/.
Su33ose ban9s desire to hold no eBcess reser.es and that the ed has set a reser.e requirement of 1% 3ercent. If you de3osit >$,%%% into irst ,ayhaw9 *an9, a. irst ,ayhaw95s required reser.es increase by >$%%. b. irst ,ayhaw9 will be able to lend out >:,1%%. c. irst ,ayhaw95s assets and liabilities both will increase by >$,%%%. d. All of the abo.e are correct. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es
ANS: D NAT: Analytic +S(: A33licati.e
Ta()e 29 2/ An economy starts with >1%,%%% in currency. All of this currency is de3osited into a sin-le ban9, and the ban9 then ma9es loans totalin- >$,#2%. The T-account of the ban9 is shown below. Assets >82% $,#2% &iabilities >1%,%%%
!eser.es &oans 11.
De3osits
Re&er to Ta()e 29 2/ This ban9 o3erates in a a. system of %-3ercent-reser.e ban9in-. b. system of 1%%-3ercent-reser.e ban9in-. c. system of ederal-!eser.e ban9in-. d. fractional-reser.e ban9in- system. DI : 1 !" : &'(: The role of money #$-/ T'): ractional-reser.e ban9in-
Re&er to Ta()e 29 2/ The ban95s reser.e ratio is a. 8.2% 3ercent. b. :.1# 3ercent. c. $#.2% 3ercent. d. 1%% 3ercent. DI : # !" : &'(: The role of money #$-/ T'): !eser.e ratio
ANS: A NAT: Analytic +S(: A33licati.e 16.
Re&er to Ta()e 29 2/ If all ban9s in the economy ha.e the same reser.e ratio as this ban9, then the .alue of the economy5s money multi3lier is a. 1.//. b. 1%.%%. c. 1%.:1. d. 1/.//. DI : # !" : &'(: The role of money #$-/ T'): +oney multi3lier
Re&er to Ta()e 29 2/ If all ban9s in the economy ha.e the same reser.e ratio as this ban9, then an increase in reser.es of >12% for this ban9 has the 3otential to increase de3osits for all ban9s by a. >:66.68. b. >1,666.68. c. >#,%%%.%%. d. an infinite amount. DI : / !" : &'(: The role of money #$-/ T'): +oney multi3lier
ANS: ( NAT: Analytic +S(: A33licati.e

Ta()e 29 ,/ The F$rst -an. o& 0ohnson C$ty Assets >#,%%% :,%%% &iabilities De3osits >1%,%%%
1$%
!eser.es &oans 1:.
Re&er to Ta()e 29 ,. The reser.e ratio for this ban9 is a. % 3ercent. b. #% 3ercent. c. :% 3ercent. d. 1%% 3ercent. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.e ratio
ANS: * NAT: Analytic +S(: A33licati.e 1$.
Re&er to Ta()e 29 ,. If >1,%%% is de3osited into the irst *an9 of ,ohnson (ity, and the ban9 ta9es no other actions, its a. reser.es will increase by >#%%. b. liabilities will decrease by >1,%%%. c. assets will increase by >1,%%%. d. reser.es will increase by >:%%. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es
ANS: ( NAT: Analytic +S(: A33licati.e #%.
Re&er to Ta()e 29 ,. Startin- from the situation as de3icted by the T-account, if someone de3osits >2%% into the irst *an9 of ,ohnson (ity, and if the ban9 ma9es new loans so as to 9ee3 its reser.e ratio unchan-ed, then the amount of new loans that it ma9es will be a. >/#%. b. >1%%. c. >6:%. d. >82%. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es
ANS: * NAT: Analytic +S(: A33licati.e Table 29-4.
The F$rst -an. o& Wahooton Assets !eser.es &oans #1. &iabilities De3osits
>#2,%%% 1#2,%%%
>12%,%%%
Re&er to Ta()e 29 1. If the ban9 faces a reser.e requirement of 1% 3ercent, then the ban9 a. is in a 3osition to ma9e a new loan of >12,%%%. b. has fewer reser.es than are required. c. has eBcess reser.es of >1%,%%%. d. None of the abo.e is correct. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es
ANS: ( NAT: Analytic +S(: A33licati.e ##.
Re&er to Ta()e 29 1. If the ban9 faces a reser.e requirement of 1% 3ercent, then the ban9 a. is in a 3osition to ma9e a new loan of >1%,%%%. b. has fewer reser.es than are required. c. has eBcess reser.es of >1#,2%%. d. None of the abo.e is correct.
1$1

DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es
ANS: A NAT: Analytic +S(: A33licati.e #/.
Re&er to Ta()e 29 1. Su33ose the ban9 faces a reser.e requirement of 1% 3ercent. Startin- from the situation as de3icted by the T-account, a customer de3osits an additional >2%,%%% into his account at the ban9. If the ban9 ta9es no other action it will a. ha.e >62,%%% in eBcess reser.es. b. ha.e >22,%%% in eBcess reser.es. c. need to raise an additional >2,%%% of reser.es to meet the reser.e requirement d. None of the abo.e is correct. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es
ANS: * NAT: Analytic +S(: A33licati.e #1.
Re&er to Ta()e 29 1. If the ban9 faces a reser.e requirement of #% 3ercent, then it a. has >1%,%%% of eBcess reser.es. b. needs >1%,%%% more reser.es to meet its reser.e requirements. c. needs >2,%%% more reser.es to meet its reser.e requirements. d. ;ust meets its reser.e requirement. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es
ANS: ( NAT: Analytic +S(: A33licati.e #2.
Re&er to Ta()e 29 1. If the irst *an9 of 7ahooton is holdin- >1,%%% in eBcess reser.es, then the reser.e requirement with which it must com3ly is a. 1 3ercent. b. 6 3ercent. c. 1# 3ercent. d. 11 3ercent. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es
ANS: D NAT: Analytic +S(: A33licati.e Table 29-5.
-an. o& 2ope.a Assets !eser.es &oans #6. >#,%%% 1:,%%% De3osits &iabilities >#%,%%%
Re&er to Ta()e 29 3. rom the table it follows that *an9 of No3e9a o3erates in a a. fractional-reser.e ban9in- system, since its reser.es are less than its de3osits. b. fractional-reser.e ban9in- system, since its reser.es are less than its loans. c. 1%%-3ercent-reser.e ban9in- system, since its assets are equal to its liabilities. d. 1%%-3ercent-reser.e ban9in- system if the ed5s reser.e requirement is 1% 3ercentJ otherwise, it o3erates in a fractional-reser.e ban9in- system. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): ractional-reser.e ban9in-
ANS: A NAT: Analytic +S(: A33licati.e #8.
Re&er to Ta()e 29 3. The *an9 of No3e9a5s reser.e ratio is a. 1 3ercent. b. 2 3ercent. c. 1% 3ercent. d. #% 3ercent. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.e ratio

#:.
1$#
Re&er to Ta()e 29 3. Assume there is a reser.e requirement and the *an9 of No3e9a is eBactly in com3liance with that requirement. Assume the same is true for all other ban9s. &astly, assume 3eo3le hold only de3osits and no currency. 7hat is the money multi3lierE a. 2 b. 1% c. 12 d. #% DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier
ANS: * NAT: Analytic +S(: A33licati.e #$.
Re&er to Ta()e 29 3. If the ed5s reser.e requirement is $ 3ercent, then what quantity of eBcess reser.es does the *an9 of No3e9a now holdE a. >#%% b. >#2% c. >1%% d. >1,%%% DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.e requirements
ANS: A NAT: Analytic +S(: A33licati.e /%.
Re&er to Ta()e 29 3. Assume the ed5s reser.e requirement is $ 3ercent and all ban9s besides the *an9 of No3e9a are eBactly in com3liance with the $ 3ercent requirement. urther assume that 3eo3le hold only de3osits and no currency. Startin- from the situation as de3icted by the T-account, if the *an9 of No3e9a decides to ma9e new loans so as to end u3 with no eBcess reser.es, then by how much does the money su33ly e.entually increaseE a. >222.%%. b. >1,#%%.%%. c. >1,888.8:. d. >#,###.##. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier
ANS: D NAT: Analytic +S(: Analytical Table 29-6.
-an. o& Spr$n%&$e)* Assets !eser.es &oans /1. >1$,#%% ##:,%%% De3osits &iabilities >#1%,%%%
Re&er to Ta()e 29 4. If the *an9 of S3rin-field has lent out all the money it can -i.en its le.el of de3osits, then what is the reser.e requirementE a. 2.%% 3ercent b. :.%% 3ercent c. :.1# 3ercent d. $2.%% 3ercent DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.e ratio
ANS: * NAT: Analytic +S(: A33licati.e /#.
Re&er to Ta()e 29 4. Assumin- the *an9 of S3rin-field and all other ban9s ha.e the same reser.e ratio, then what is the .alue of the money multi3lierE a. 2.% b. 8.2 c. 1%.%% d. 1#.2
1$/

DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier
ANS: D NAT: Analytic +S(: A33licati.e //.
Re&er to Ta()e 29 4. If the ed requires a reser.e ratio of 6 3ercent, then what quantity of eBcess reser.es does the *an9 of S3rin-field now holdE a. >1,#%% b. >#,1%% c. >#,::% d. >1,:%% DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.e ratio
ANS: D NAT: Analytic +S(: A33licati.e /1.
Re&er to Ta()e 29 4. Assume the ed5s reser.e requirement is 6 3ercent and that the *an9 of S3rin-field ma9es new loans so as to ma9e its new reser.e ratio 6 3ercent. rom then on, no ban9 holds any eBcess reser.es. Assume also that 3eo3le hold only de3osits and no currency. Then by what amount does the economy5s money su33ly increaseE a. >2%,#%% b. >8#,%%% c. >:%,%%% d. >1%6,%%% DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier
ANS: ( NAT: Analytic +S(: Analytical /2.
7hich of the followin- statements is correctE a. In the s3ecial case of 1%%-3ercent-reser.e ban9in-, the reser.e ratio is 1, the money multi3lier is #, and ban9s create money. b. In the s3ecial case of 1%%-3ercent-reser.e ban9in-, the reser.e ratio is 1, the money multi3lier is 1, and ban9s do not create money. c. 7hen the reser.e ratio is %.2, then the money multi3lier is 1 and ban9s do not create money. d. 7hen the reser.e ratio is %.1#2, then the money multi3lier is :, and each ban9 loans >: for e.ery >1 that it acce3t in de3osits. DI : # !" : &'(: The role of money #$-/ T'): +oney multi3lier
ANS: * NAT: Analytic +S(: A33licati.e /6.
7hich tool of monetary 3olicy does the ederal !eser.e use most oftenE a. ad;ustments to lon--term interest rates b. o3en-mar9et o3erations c. chan-es in reser.e requirements d. chan-es in the discount rate DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +onetary 3olicy
ANS: * NAT: Analytic +S(: A33licati.e /8.
!e-ulations on the a. maBimum amount of reser.es that ban9s can hold a-ainst de3osits are called reser e requirements. b. minimum amount of reser.es that ban9s must hold a-ainst de3osits are called reser e requirements. c. eBtent to which ban9s can buy and sell bonds are called open!market requirements. d. eBtent to which ban9s can ma9e new loans are called open!market requirements. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.e requirements

/:. A 3roblem that the ed faces when it attem3ts to control the money su33ly is that a. the 1%%-3ercent-reser.e ban9in- system in the A.S. ma9es it difficult for the ed to carry out its monetary 3olicy. b. the ed has to -et the a33ro.al of the A.S. Treasury De3artment whene.er it uses any of its monetary 3olicy tools. c. the ed does not ha.e a tool that it can use to chan-e the money su33ly by either a small amount or a lar-e amount. d. the ed does not control the amount of money that households choose to hold as de3osits in ban9s. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +onetary 3olicy
1$1
ANS: D NAT: Analytic +S(: Inter3reti.e /$.
A 3roblem that the ed faces when it attem3ts to control the money su33ly is that a. since the A.S. has a fractional-reser.e ban9in- system, the amount of money in the economy de3ends in 3art on the beha.ior of de3ositors and ban9ers. b. the ed has to -et the a33ro.al of the A.S. Treasury De3artment whene.er it uses any of its monetary 3olicy tools. c. while the ed has the ability to chan-e the money su33ly by a lar-e amount, it does not ha.e the ability to chan-e it by a small amount. d. federal le-islation in the 1$2%s stri33ed the ed of its 3ower to act as a lender of last resort to ban9s. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +onetary 3olicy
ANS: A NAT: Analytic +S(: Inter3reti.e 1%.
A ban95s assets equal its liabilities under a. both 1%%-3ercent-reser.e ban9in- and fractional-reser.e ban9in-. b. neither 1%%-3ercent-reser.e ban9in- nor fractional-reser.e ban9in-. c. 1%%-3ercent-reser.e ban9in- but not under fractional-reser.e ban9in-. d. fractional-reser.e ban9in- but not under 1%%-3ercent-reser.e ban9in-. DI : # !" : #$-/ &'(: The Study of economics, and the definitions of economics +S(: Inter3reti.e
ANS: A NAT: Analytic T'): *an9s 11.
If the reser.e ratio for all ban9s is #% 3ercent, then >1%% of new reser.es can -enerate a. >6% of new money in the economy. b. >#2% of new money in the economy. c. >2%% of new money in the economy. d. >#,%%% of new money in the economy.
ANS: ( DI : # !" : #$-/ NAT: Analytic &'(: The Study of economics, and the definitions of economics T'): +oney multi3lier +S(: A33licati.e 1#. If >/%% of new reser.es -enerates >:%% of new money in the economy, then the reser.e ratio is a. #.8 3ercent. b. 1#.2 3ercent. c. /8.2 3ercent. d. 1% 3ercent. DI : # !" : #$-/ &'(: The Study of economics, and the definitions of economics +S(: A33licati.e
ANS: ( NAT: Analytic T'): !eser.e ratio 1/.
If the reser.e ratio is 1#.2 3ercent, then >2,6%% of money can be -enerated by a. >61 of new reser.es. b. >11: of new reser.es. c. >8%% of new reser.es. d. >:%% of new reser.es.
1$2
ANS: ( DI : # !" : #$-/ NAT: Analytic &'(: The Study of economics, and the definitions of economics T'): +oney multi3lier +S(: A33licati.e 11. If the reser.e ratio is 1 3ercent, then >:1,#2% of new money can be -enerated by a. >/#2 of new reser.es. b. >/,#2% of new reser.es. c. >#%,/1#.2% of new reser.es. d. >#,%/1,#2% of new reser.es.
ANS: * DI : # !" : #$-/ NAT: Analytic &'(: The Study of economics, and the definitions of economics T'): +oney multi3lier +S(: A33licati.e 12. 7hen the ed buys -o.ernment bonds, a. the money su33ly increases and the federal funds rate increases. b. the money su33ly increases and the federal funds rate decreases. c. the money su33ly decreases and the federal funds rate increases. d. the money su33ly decreases and the federal funds rate decreases. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): '3en-mar9et o3erations
A sale of -o.ernment bonds by the ed a. increases the money su33ly and increases the federal funds rate. b. increases the money su33ly and decreases the federal funds rate. c. decreases the money su33ly and increases the federal funds rate. d. decreases the money su33ly and decreases the federal funds rate. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): '3en-mar9et o3erations
7hen the ed 3urchases >#%% worth of -o.ernment bonds from the 3ublic, the A.S. money su33ly e.entually increases by a. more than >#%%. b. eBactly >#%%. c. less than >#%%. d. All of the abo.e are 3ossible. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): '3en-mar9et o3erations
ANS: A NAT: Analytic +S(: A33licati.e 1:.
7hich of the followin- is correctE 7hen there is a reser.e requirement, ban9s a. must hold eBactly the required quantity of reser.es. b. may hold more than, but not less than, the required quantity of reser.es. c. may hold less than, but not more than, the required quantity of reser.es. d. must see9 the ed5s 3ermission whene.er they wish to eB3and or contract their loans to customers.
ANS: * DI : # !" : #$-/ NAT: Analytic &'(: The Study of economics, and the definitions of economics T'): !eser.e requirements +S(: Inter3reti.e 1$. The discount rate is the interest rate that a. ban9s char-e one another for loans. b. ban9s char-e the ed for loans. c. the ed char-es ban9s for loans. d. the ed char-es (on-ress for loans. DI : 1 !" : #$-/ &'(: The Study of economics, and the definitions of economics +S(: Definitional
ANS: ( NAT: Analytic T'): Discount rate

2%. The federal funds rate is the interest rate that a. ban9s char-e one another for loans. b. ban9s char-e the ed for loans. c. the ed char-es ban9s for loans. d. the ed char-es (on-ress for loans. DI : 1 !" : #$-/ &'(: The Study of economics, and the definitions of economics +S(: Definitional
1$6
ANS: A NAT: Analytic T'): Discount rate 21.
To increase the money su33ly, the ed can a. buy -o.ernment bonds or increase the discount rate. b. buy -o.ernment bonds or decrease the discount rate. c. sell -o.ernment bonds or increase the discount rate. d. sell -o.ernment bonds or decrease the discount rate.
ANS: * DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): '3en-mar9et o3erations 0 Discount rate +S(: 2#. To decrease the money su33ly, the ed can a. buy -o.ernment bonds or increase the discount rate. b. buy -o.ernment bonds or decrease the discount rate. c. sell -o.ernment bonds or increase the discount rate. d. sell -o.ernment bonds or decrease the discount rate.
Inter3reti.e
ANS: ( DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): '3en-mar9et o3erations 0 Discount rate +S(: 2/.
Inter3reti.e
The ed5s control of the money su33ly is not 3recise because a. (on-ress can also ma9e chan-es to the money su33ly. b. there are not always -o.ernment bonds a.ailable for 3urchase when the ed wants to 3erform o3enmar9et o3erations. c. the ed does not 9now where all A.S. currency is located. d. the amount of money in the economy de3ends in 3art on the beha.ior of de3ositors and ban9ers. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): ederal !eser.e System
Today, ban9 runs are not a ma;or 3roblem for the A.S. ban9in- system because a. ban9 runs are now ille-al. b. ban9s now hold 1%% 3ercent of their de3osits in reser.e. c. ban9s are now all -o.ernment-o3erated. d. the federal -o.ernment now -uarantees the safety of de3osits at most ban9s. DI : # !" : #$-/ &'(: The role of -o.ernment T'): *an9s
In a 1%%-3ercent-reser.e ban9in- system, a. ban9s can create money by issuin- currency. b. ban9s can create money by lendin- out reser.es. c. the ed can increase the money su33ly with o3en-mar9et sales. d. ban9s hold as many reser.es as they hold de3osits. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es
1$8
26.

In a 1%%-3ercent-reser.e ban9in- system, if 3eo3le decided to decrease the amount of currency they held by increasin- the amount they held in chec9able de3osits, then a. +1 would increase. b. +1 would decrease. c. +1 would not chan-e. d. +1 mi-ht rise or fall. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es
'n a ban9=s T-account, a. both de3osits and reser.es are assets. b. both de3osits and reser.es are liabilities. c. de3osits are assets and reser.es are liabilities. d. reser.es are assets and de3osits are liabilities. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): T-accounts
ANS: D NAT: Analytic +S(: Definitional 2:.
A ban95s a. reser.es and the de3osits of its customers are both assets. b. reser.es and the de3osits of its customers are both liabilities. c. reser.es are assets and the de3osits of its customers are liabilities. d. reser.es are liabilities and the de3osits of its customers are assets. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): *an9s 0 T-accounts
ANS: ( NAT: Analytic +S(: Definitional 2$.
A ban95s assets include a. both its reser.es and the de3osits of its customers. b. neither its reser.es nor the de3osits of its customers. c. its reser.es, but not the de3osits of its customers. d. the de3osits of its customers, but not its reser.es. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): *an9s 0 T-accounts
A ban95s liabilities include a. both its reser.es and the de3osits of its customers. b. neither its reser.es nor the de3osits of its customers. c. its reser.es, but not the de3osits of its customers. d. the de3osits of its customers, but not its reser.es. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): *an9s 0 T-accounts
A ban9 loans Nellie=s )rint Sho3 >/2%,%%% to remodel a buildin- near cam3us to use as a new store. 'n their res3ecti.e balance sheets, this loan is a. an asset for the ban9 and a liability for Nellie=s )rint Sho3. The loan increases the money su33ly. b. an asset for the ban9 and a liability for Nellie=s )rint Sho3. The loan does not increase the money su33ly. c. a liability for the ban9 and an asset for Nellie=s )rint Sho3. The loan increases the money su33ly. d. a liability for the ban9 and an asset for Nellie=s )rint Sho3. The loan does not increase the money su33ly. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): *an9s 0 T-accounts
ANS: A NAT: Analytic +S(: Inter3reti.e

6#. Su33ose a ban95s reser.e ratio is 2 3ercent and the ban9 has >1,%%% in de3osits. Its reser.es amount to a. >2. b. >2%. c. >$2. d. >$2%. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es
1$:
ANS: * NAT: Analytic +S(: A33licati.e 6/.
Su33ose a ban95s reser.e ratio is 1% 3ercent and the ban9 has >#,%%% in de3osits. Its reser.es amount to a. >#%. b. >#%%. c. >1%%. d. >1,:%%. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es
ANS: * NAT: Analytic +S(: A33licati.e 61.
Su33ose a ban95s reser.e ratio is 6.2 3ercent and the ban9 has >1,$2% in reser.e. Its de3osits amount to a. >6#.#2. b. >1#6.82. c. >##,2%%.%% d. >/%,%%%.%%. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es
Su33ose a ban9 has a 1% 3ercent reser.e requirement, >2,%%% in de3osits, and has loaned out all it can -i.en the reser.e requirement. a. It has >2% in reser.es and >1,$2% in loans. b. It has >2%% in reser.es and >1,2%% in loans. c. It has >222 in reser.es and >1,112 in loans. d. None of the abo.e is correct. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es
Su33ose a ban9 has a 1% 3ercent reser.e requirement, >1,%%% in de3osits, and has loaned out all it can -i.en the reser.e requirement. a. It has >1% in reser.es and >/,$6% in loans. b. It has >1%% in reser.es and >/,6%% in loans. c. It has >111 in reser.es and >/,226 in loans. d. None of the abo.e is correct. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es
Su33ose a ban9 has >1%,%%% in de3osits and >:,%%% in loans. It has loaned out all it can -i.en the reser.e requirement. It follows that the reser.e requirement is a. # 3ercent. b. 1#.2 3ercent. c. #% 3ercent. d. :% 3ercent. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es
1$$
6:.

Su33ose a ban9 has >#%%,%%% in de3osits and >1$%,%%% in loans. It has loaned out all it can. It has a reser.e ratio of a. #.2 3ercent. b. 2 3ercent. c. $.2 3ercent. d. 1% 3ercent. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es
ANS: * NAT: Analytic +S(: A33licati.e 6$.
The mana-er of the ban9 where you wor9 tells you that your ban9 has >2 million in eBcess reser.es. She also tells you that the ban9 has >/%% million in de3osits and >#22 million dollars in loans. <i.en this information you find that the reser.e requirement must be a. 2%?#22. b. 1%?#22. c. 2%?/%%. d. 1%?/%%. DI : / !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es
ANS: D NAT: Analytic +S(: A33licati.e 8%.
Su33ose the ban9in- system currently has >/%% billion in reser.esJ the reser.e requirement is 1% 3ercentJ and eBcess reser.es amount to >/ billion. 7hat is the le.el of de3ositsE a. >/,/%% billion b. >#,$8% billion c. >#,8%% billion d. >#,68/ billion DI : / !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es
If you de3osit >1%% of currency into a demand de3osit at a ban9, this action by itself a. does not chan-e the money su33ly. b. increases the money su33ly. c. decreases the money su33ly. d. has an indeterminate effect on the money su33ly. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): *an9s 0 +oney su33ly
ANS: A NAT: Analytic +S(: A33licati.e 8#.
7hen a ban9 loans out >1,%%%, the money su33ly a. does not chan-e. b. decreases. c. increases. d. may do any of the abo.e. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): *an9s 0 +oney su33ly
ANS: ( NAT: Analytic +S(: Definitional 8/.
Ander a fractional-reser.e ban9in- system, ban9s a. hold more reser.es than de3osits. b. -enerally lend out a ma;ority of the funds de3osited. c. cause the money su33ly to fall by lendin- out reser.es. d. All of the abo.e are correct. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): ractional-reser.e ban9in-

81.
#%%
If a ban9 uses >1%% of eBcess reser.es to ma9e a new loan when the reser.e ratio is #% 3ercent, this action by itself initially ma9es the money su33ly a. and wealth increase by >1%%. b. and wealth decrease by >1%%. c. increase by >1%% while wealth does not chan-e. d. decrease by >1%% while wealth decreases by >1%%. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier
As the reser.e ratio increases, the money multi3lier a. increases. b. does not chan-e. c. decreases. d. could do any of the abo.e. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier
If the central ban9 in some country lowered the reser.e requirement, then the money multi3lier for that country a. would increase. b. would not chan-e. c. would decrease. d. could do any of the abo.e. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier
ANS: A NAT: Analytic +S(: A33licati.e 88.
If the reser.e ratio is #.2 3ercent, then the money multi3lier is a. 1%. b. #2. c. #.2. d. 1.#2. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier
ANS: A NAT: Analytic +S(: A33licati.e 8:.
If the reser.e ratio is 1 3ercent, then the money multi3lier is a. #2. b. #%. c. 1. d. #. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier
ANS: A NAT: Analytic +S(: A33licati.e 8$.
If the reser.e ratio is 2 3ercent, then the money multi3lier is a. #2. b. #%. c. #.2. d. 1.#2. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier
ANS: * NAT: Analytic +S(: A33licati.e
#%1
:%.

If the reser.e ratio is 1% 3ercent, the money multi3lier is a. 1%%. b. 1%. c. $?1%. d. 1?1%. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier
ANS: * NAT: Analytic +S(: A33licati.e :1.
If the reser.e ratio is 1#.2 3ercent, the money multi3lier is a. 6.#2. b. :. c. 1#.2. d. #2. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier
ANS: * NAT: Analytic +S(: A33licati.e :#.
If the reser.e ratio is #% 3ercent, the money multi3lier is a. #. b. 1. c. 2. d. :. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier
ANS: ( NAT: Analytic +S(: A33licati.e :/.
If the reser.e ratio increased from 1% 3ercent to #% 3ercent, the money multi3lier would a. rise from 1% to #%. b. rise from 2 to 1%. c. fall from 1% to 2. d. not chan-e. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier
ANS: ( NAT: Analytic +S(: A33licati.e :1.
If R re3resents the reser.e ratio for all ban9s in the economy, then the money multi3lier is a. 1?C1-RD. b. 1?R. c. 1?C1ORD. d. C1ORD?R. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier
ANS: * NAT: Analytic +S(: Definitional :2.
The money multi3lier equals a. 1?R" where R re3resents the quantity of reser.es in the economy. b. 1?R" where R re3resents the reser.e ratio for all ban9s in the economy. c. 1?C1ORD, where R re3resents the reser.e ratio for all ban9s in the economy. d. 1?C1ORD, where R re3resents the lar-est reser.e ratio amon- all ban9s in the economy. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier
ANS: * NAT: Analytic +S(: A33licati.e :6.
If the reser.e ratio for all ban9s is 2 3ercent, then >1,%%% of additional reser.es can create u3 to a. >2,2%% of new money. b. >2,%%% of new money. c. >1,%%% of new money. d. None of the abo.e is correct.

ANS: D NAT: Analytic +S(: A33licati.e :8. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier
#%#
If the reser.e ratio for all ban9s is 2 3ercent, then >#,2%% of additional reser.es can create u3 to a. >6#,2%% of new money. b. >2%,%%% of new money. c. >12,6%% of new money. d. >/8,2%% of new money. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier
ANS: * NAT: Analytic +S(: A33licati.e ::.
If the reser.e ratio for all ban9s is 2 3ercent, then >1,%%% of additional reser.es can create u3 to a. >#%% of new money. b. >#,%%% of new money. c. >#%,%%% of new money. d. None of the abo.e is correct. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier
ANS: ( NAT: Analytic +S(: A33licati.e :$.
If the reser.e ratio for all ban9s is : 3ercent, then an additional >1,%%% of reser.es can increase the money su33ly by as much as a. >6,1%%. b. >:,%%%. c. >1#,2%%. d. >#%,%%%. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier
ANS: ( NAT: Analytic +S(: A33licati.e $%.
If the reser.e ratio for all ban9s is 1% 3ercent, >1,%%% of additional reser.es can create u3 to a. >1%% of new money. b. >1,%%% of new money. c. >1%,%%% of new money. d. None of the abo.e is correct. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier
ANS: ( NAT: Analytic +S(: A33licati.e $1.
If the reser.e ratio for all ban9s is : 3ercent, then >1,2%% of additional reser.es can create u3 to a. >1,2%% of new money. b. >1:, $1/ of new money. c. >26,#2% of new money. d. >82,%%% of new money. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier
ANS: ( NAT: Analytic +S(: A33licati.e $#.
If the reser.e ratio for all ban9s is $ 3ercent, then a decrease in reser.es of >6,%%% can cause the money su33ly to fall by as much as a. >6%,%%%.%%. b. >66,666.68. c. >$%,$%%.%%. d. >1%%,222.26. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier
#%/
$/.

If the reser.e ratio for all ban9s is 1#.2 3ercent, then >#,%%% of additional reser.es can create u3 to a. >:,%%% of new money. b. >16,%%% of new money. c. >/#,%%% of new money. d. None of the abo.e is correct. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier
ANS: * NAT: Analytic +S(: A33licati.e $1.
If the reser.e ratio for all ban9s is 1#.2 3ercent, then >1,%%% of additional reser.es can create u3 to a. >8,%%% of new money. b. >:,%%% of new money. c. >11,2%% of new money. d. >1#,2%% of new money. DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier
Su33ose the ederal !eser.e increases ban9 reser.es and ban9s lend out some of these reser.es, but at some 3oint ban9s still ha.e >2 million more they wish to lend out. If the reser.e requirement is 1% 3ercent, how much more money can ban9s create if they lend out the remainin- amountE a. >22 million b. >2% million c. >12 million d. >1% million DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier
In the nation of eutschland, the money su33ly is >:%,%%% and reser.es are >1:,%%%. Assumin- that 3eo3le hold only de3osits and no currency, and that ban9s hold no eBcess reser.es, then the reser.e requirement is a. #$ 3ercent. b. ##.2 3ercent. c. 16 3ercent. d. None of the abo.e is correct. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier
ANS: * NAT: Analytic +S(: Analytical $8.
In @u-oland, the money su33ly is >: million and reser.es are >1 million. Assumin- that 3eo3le hold only de3osits and no currency, and that ban9s hold no eBcess reser.es, then the reser.e requirement is a. 11 3ercent. b. 1#.2 3ercent. c. : 3ercent. d. None of the abo.e is correct. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier
ANS: * NAT: Analytic +S(: Analytical $:.
If the reser.e ratio is 1%% 3ercent, then a new de3osit of >2%% into a ban9 account a. e.entually increases the money su33ly by >2%%. b. lea.es the si4e of the money su33ly unchan-ed. c. e.entually decreases the si4e of the money su33ly by >2%%. d. None of the abo.e is correct. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier

Scenar$o 29 #/ The monetary 3olicy of Salidi.a is determined by the Salidi.ian (entral *an9. The local currency is the salido. Salidi.ian ban9s collecti.ely hold 1%% million salidos of required reser.es, #2 million salidos of eBcess reser.es, #2% million salidos of Salidi.ian Treasury *onds, and their customers hold 1,%%% million salidos of de3osits. Salidi.ians 3refer to use only demand de3osits and so the money su33ly consists of demand de3osits. $$. !efer to Scenar$o 29 #/ Assume that ban9s desire to continue holdin- the same ratio of eBcess reser.es to de3osits. 7hat is the reser.e requirement and what is the reser.e ratioE a. # 3ercent, : 3ercent b. : 3ercent, 1% 3ercent c. 1% 3ercent, 1#.2 3ercent d. None of the abo.e is correct. DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.e ratio
#%1
1%%. !efer to Scenar$o 29 #/ Assumin- the only other item Salidi.ian ban9s ha.e on their balance sheets is loans, what is the .alue of eBistin- loans made by Salidi.ian ban9sE a. 6#2 million salidos b. :82 million salidos c. 1,1#2 million salidos d. None of the abo.e is correct. ANS: A NAT: Analytic +S(: A33licati.e DI : / !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.e ratio
1%1. !efer to Scenar$o 29 #/ Su33ose the (entral *an9 of Salidi.a loaned the ban9s of Salidi.a 2 million salidos. Su33ose also that both the reser.e requirement and the 3ercenta-e of de3osits held as eBcess reser.es stay the same. *y how much would the money su33ly of Salidi.a chan-eE a. 6% million salidos b. 2% million salidos c. 1% million salidos d. None of the abo.e is correct. ANS: ( NAT: Analytic +S(: A33licati.e DI : / !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.e ratio
1%#. !efer to Scenar$o 29 # / Su33ose the (entral *an9 of Salidi.a 3urchases #2 million salidos of Salidi.ian Treasury *onds from ban9s. Su33ose also that both the reser.e requirement and the 3ercenta-e of de3osits held as eBcess reser.es stay the same. *y how much would the money su33ly of Salidi.a chan-eE a. #%% million salidos b. 12% million salidos c. 1%% million salidos d. None of the abo.e is correct. ANS: A NAT: Analytic +S(: A33licati.e DI : / !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.e ratio
#%2
Scenar$o 29 2/ The +onetary )olicy of Ta4i is controlled by the country5s central ban9 9nown as the *an9 of Ta4i. The local unit of currency is the Ta4. A--re-ate ban9in- statistics show that collecti.ely the ban9s of Ta4i hold /%% million Ta4es of required reser.es, 82 million Ta4es of eBcess reser.es, ha.e issued 8,2%% million Ta4es of de3osits, and hold ##2 million Ta4es of Ta4ian Treasury bonds. Ta4ians 3refer to use only demand de3osits and so all money is on de3osit at the ban9. 1%/. !efer to Scenar$o 29 2/ Assume that ban9s desire to continue holdin- the same ratio of eBcess reser.es to de3osits. 7hat is the reser.e requirement and the reser.e ratio for Ta4ian *an9sE a. 2 3ercent, : 3ercent b. 1 3ercent, : 3ercent c. 1 3ercent, 2 3ercent d. None of the abo.e is correct. ANS: ( NAT: Analytic +S(: A33licati.e DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.e ratio
1%1. !efer to Scenar$o 29 2/ Assumin- the only other thin- Ta4ian ban9s ha.e on their balance sheets is loans, what is the .alue of eBistin- loans made by Ta4ian ban9sE a. 6,$%% million Ta4es b. 8,1#2 million Ta4es c. 8,/2% million Ta4es d. None of the abo.e is correct. ANS: A NAT: Analytic +S(: A33licati.e DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.e ratio
1%2. !efer to Scenar$o 29 2/ Su33ose the *an9 of Ta4i loaned the ban9s of Ta4i 1% million Ta4es. Su33ose also that both the reser.e requirement and the 3ercenta-e of de3osits held as eBcess reser.es stay the same. *y how much would the money su33ly chan-eE a. #2% million Ta4es b. #%% million Ta4es c. 1#2 million Ta4es d. None of the abo.e is correct. ANS: * NAT: Analytic +S(: A33licati.e DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.e ratio
1%6. !efer to Scenar$o 29 2/ Su33ose the *an9 of Ta4i 3urchased 2% million Ta4es of Ta4ian Treasury *onds from the ban9s. Su33ose also that both the reser.e requirement and the 3ercenta-e of de3osits held as eBcess reser.es stay the same. *y how much does the money su33ly chan-eE a. 6#2 million Ta4es b. 1,%%% million Ta4es c. 1,#2% million Ta4es d. None of the abo.e is correct. ANS: * NAT: Analytic +S(: A33licati.e DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.e ratio
1%8. !efer to Scenar$o 29 2/ Su33ose that the *an9 of Ta4i chan-es the reser.e requirement ratio to / 3ercent. Assumin- that the ban9s still want to hold the same 3ercenta-e of eBcess reser.es what is the .alue of the money su33ly after the chan-e in the reser.e requirement ratioE a. $,/82 million Ta4es b. 1%,%%% million Ta4es c. 1#,2%% million Ta4es d. None of the abo.e is correct to the nearest million salidos. ANS: A NAT: Analytic +S(: A33licati.e DI : / !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.e ratio
#%6
1%:. The reser.e requirement ratio is 1% 3ercent. 7hich of the followin- 3airs of chan-es would both allow a ban9 to lend out an additional >1%,%%%E a. the ed buys a >1%,%%% bond from the ban9 or someone de3osits >1%,%%% in the ban9 b. the ed buys a >1%,%%% bond from the ban9 or the ed lends the ban9 >1%,%%% c. the ed sells a >1%,%%% bond to the ban9 or someone de3osits >1%,%%% in the ban9 d. the ed sells a >1%,%%% bond to the ban9 or the ed lends the ban9 >1%,%%% ANS: * NAT: Analytic +S(: A33licati.e DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es
1%$. The money su33ly increases when the ed a. buys bonds. The increase will be lar-er, the smaller is the reser.e ratio. b. buys bonds. The increase will be lar-er, the lar-er is the reser.e ratio. c. sells bonds. The increase will be lar-er, the smaller is the reser.e ratio. d. sells bonds. The increase will be lar-er, the lar-er is the reser.e ratio. ANS: A DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): +oney su33ly 0 '3en-mar9et o3erations +S(:
A33licati.e
11%. The money su33ly decreases if the ed a. sells Treasury bonds. The lar-er the reser.e requirement, the lar-er the decrease will be. b. sells Treasury bonds. The smaller the reser.e requirement, the lar-er the decrease will be. c. buys Treasury bonds. The lar-er the reser.e requirement, the lar-er the decrease will be. d. buys Treasury bonds. The smaller the reser.e requirement, the lar-er the decrease will be. ANS: * DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): !eser.e requirements 0 +oney multi3lier
+S(: A33licati.e
111. The money su33ly increases when the ed a. lowers the discount rate. The increase will be lar-er the smaller the reser.e ratio is. b. lowers the discount rate. The increase will be lar-er the lar-er the reser.e ratio is. c. raises the discount rate. The increase will be lar-er the smaller the reser.e ratio is. d. raises the discount rate. The increase will be lar-er the lar-er the reser.e ratio is. ANS: A DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): +oney su33ly 0 Discount rate +S(: A33licati.e 11#. If the ed wanted to increase the money su33ly, it would ma9e o3en mar9et a. 3urchases or lower the discount rate. b. sales or lower the discount rate. c. 3urchases or raise the discount rate. d. sales or raise the discount rate. ANS: A DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): +oney su33ly 0 '3en-mar9et o3erations 0 Discount rate 11/. To increase the money su33ly, the ed could a. sell -o.ernment bonds. b. increase the discount rate. c. decrease the reser.e requirement. d. None of the abo.e is correct. ANS: ( DI : 1 !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): +oney su33ly 0 !eser.e requirements +S(:
+S(: Definitional
Definitional
#%8
111. To increase the money su33ly, the ed could a. sell -o.ernment bonds. b. decrease the discount rate. c. increase the reser.e requirement. d. None of the abo.e is correct. ANS: * DI : 1 !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): +oney su33ly 0 Discount rate +S(: Definitional 112. To decrease the money su33ly, the ed could a. sell -o.ernment bonds. b. increase the discount rate. c. increase the reser.e requirement. d. All of the abo.e are correct. ANS: D NAT: Analytic +S(: Definitional DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney su33ly
116. 7hich of the followin- is not a tool of monetary 3olicyE a. o3en mar9et o3erations b. reser.e requirements c. chan-in- the discount rate d. increasin- the -o.ernment bud-et deficit ANS: D NAT: Analytic +S(: Definitional DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +onetary 3olicy
118. 7hich of the followin- lists two thin-s that both increase the money su33lyE a. the ed buys bonds and lowers the discount rate b. the ed buys bonds and raises the discount rate c. the ed sells bonds and lowers the discount rate d. the ed sells bonds and raises the discount rate ANS: A DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): +oney su33ly 0 '3en-mar9et o3erations 0 Discount rate
+S(: A33licati.e
11:. 7hich of the followin- lists two thin-s that both increase the money su33lyE a. lower the discount rate, raise the reser.e requirement b. lower the discount rate, lower the reser.e requirement c. raise the discount rate, raise the reser.e requirement d. raise the discount rate, lower the reser.e requirement ANS: * DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): +oney su33ly 0 Discount rate 0 !eser.e requirements
+S(: Definitional
11$. 7hich of the followin- lists two thin-s that both increase the money su33lyE a. raise the discount rate, ma9e o3en mar9et 3urchases b. raise the discount rate, ma9e o3en mar9et sales c. lower the discount rate, ma9e o3en mar9et 3urchases d. lower the discount rate, ma9e o3en mar9et sales ANS: ( DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): +oney su33ly 0 Discount rate 0 '3en-mar9et o3erations
+S(: Definitional
1#%. 7hich of the followin- lists two thin-s that both increase the money su33lyE a. ma9e o3en mar9et 3urchases, raise the reser.e requirement b. ma9e o3en mar9et 3urchases, lower the reser.e requirement c. ma9e o3en mar9et sales, raise the reser.e requirement d. ma9e o3en mar9et sales, lower the reser.e requirement

ANS: NAT: T'): +S(: * DI : # !" : #$-/ Analytic &'(: +onetary and fiscal 3olicy +oney su33ly 0 '3en-mar9et o3erations 0 !eser.e requirements Definitional
#%:
1#1. 7hich of the followin- lists two thin-s that both decrease the money su33lyE a. lower the discount rate, raise the reser.e requirement ratio b. lower the discount rate, lower the reser.e requirement ratio c. raise the discount rate, raise the reser.e requirement ratio d. raise the discount rate, lower the reser.e requirement ratio ANS: ( DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): +oney su33ly 0 Discount rate 0 !eser.e requirements
+S(: Definitional
1##. 7hich of the followin- lists two thin-s that both decrease the money su33lyE a. raise the discount rate, ma9e o3en mar9et 3urchases b. raise the discount rate, ma9e o3en mar9et sales c. lower the discount rate, ma9e o3en mar9et 3urchases d. lower the discount rate, ma9e o3en mar9et sales ANS: * DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): +oney su33ly 0 Discount rate 0 '3en-mar9et o3erations
+S(: Definitional
1#/. 7hich of the followin- lists two thin-s that both decrease the money su33lyE a. ma9e o3en mar9et 3urchases, raise the reser.e requirement b. ma9e o3en mar9et 3urchases, lower the reser.e requirement c. ma9e o3en mar9et sales, raise the reser.e requirement d. ma9e o3en mar9et sales, lower the reser.e requirement ANS: NAT: T'): +S(: ( DI : # !" : #$-/ Analytic &'(: +onetary and fiscal 3olicy +oney su33ly 0 '3en-mar9et o3erations 0 !eser.e requirements Definitional
1#1. 7hich of the followin- actions would ha.e the combined effect of raisin- the money su33ly and raisin- the money multi3lierE a. The ed sells bonds and raises the reser.e requirement b. The ed sells bonds and lowers the reser.e requirement c. The ed buys bonds and raises the reser.e requirement d. The ed buys bonds and lowers the reser.e requirement ANS: D DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): +oney su33ly 0 +oney multi3lier +S(: Analytical 1#2. The ed increases the reser.e requirement and ma9es o3en mar9et 3urchases. 7hich of these by itself will increase the money su33lyE a. neither the increase in the reser.e requirement nor the o3en mar9et 3urchases b. both the increase in the reser.e requirement and the o3en mar9et 3urchases c. only the increase in the reser.e requirement d. only the o3en mar9et 3urchases ANS: D DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): !eser.e requirements 0 '3en-mar9et o3erations +S(: 1#6. 7hen the ed conducts o3en mar9et 3urchases, reser.es a. increase and ban9s can increase lendin-. b. increase and ban9s must decrease lendin-. c. decrease and ban9s can increase lendin-. d. decrease and ban9s must decrease lendin-.
A33licati.e
#%$
ANS: A DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): '3en-mar9et o3erations 0 !eser.es +S(: Inter3reti.e 1#8. If the ed sells -o.ernment bonds to the 3ublic, then reser.es a. increase and the money su33ly increases. b. increase and the money su33ly decreases. c. decrease and the money su33ly increases. d. decrease and the money su33ly decreases. ANS: D DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): '3en-mar9et o3erations 0 !eser.es +S(: Analytical 1#:. If the ed ma9es o3en mar9et 3urchases of bonds, a. the money su33ly increases by more than the amount of bonds 3urchased. b. the money su33ly increases by less than the amount of bonds 3urchased. c. the money su33ly decreases by more than the amount of bonds 3urchased. d. the money su33ly decreases by less than the amount of bonds 3urchased. ANS: A DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): '3en-mar9et o3erations 0 +oney su33ly +S(:
Analytical
1#$. !eser.e requirements are re-ulations concernina. the amount ban9s are allowed to borrow from the ed. b. the amount of reser.es ban9s must hold a-ainst de3osits. c. reser.es ban9s must hold based on the number and ty3e of loans they ma9e. d. the interest rate at which ban9s can borrow from the ed. ANS: * NAT: Analytic +S(: Definitional DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.e requirements
1/%. In a fractional-reser.e ban9in- system, an increase in reser.e requirements a. increases both the money multi3lier and the money su33ly. b. decreases both the money multi3lier and the money su33ly. c. increases the money multi3lier, but decreases the money su33ly. d. decreases the money multi3lier, but increases the money su33ly. ANS: * DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): ractional-reser.e ban9in- 0 !eser.e requirements
+S(: Inter3reti.e
1/1. In a fractional-reser.e ban9in- system, a decrease in reser.e requirements a. increases both the money multi3lier and the money su33ly. b. decreases both the money multi3lier and the money su33ly. c. increases the money multi3lier, but decreases the money su33ly. d. decreases the money multi3lier, but increases the money su33ly. ANS: A DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): ractional-reser.e ban9in- 0 !eser.e requirements
+S(: Inter3reti.e
1/#. 'ther thin-s the same, if reser.e requirements are increased, the reser.e ratio a. increases, the money multi3lier increases, and the money su33ly increases. b. increases, the money multi3lier decreases, and the money su33ly decreases. c. decreases, the money multi3lier increases, and the money su33ly increases. d. decreases, the money multi3lier decreases, and the money su33ly increases. ANS: * NAT: Analytic +S(: Inter3reti.e DI : / !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.e requirements

1//. 'ther thin-s the same if reser.e requirements are decreased, the reser.e ratio a. decreases, the money multi3lier increases, and the money su33ly decreases. b. increases, the money multi3lier increases, and the money su33ly increases. c. decreases, the money multi3lier increases, and the money su33ly increases. d. increases, the money multi3lier increases, and the money su33ly decreases. ANS: ( NAT: Analytic +S(: Inter3reti.e DI : / !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.e requirements
#1%
1/1. In a fractional-reser.e ban9in- system with no eBcess reser.es and no currency holdin-s, if the central ban9 buys >1%% million of bonds, a. reser.es and the money su33ly increase by less than >1%% million. b. reser.es increase by >1%% million and the money su33ly increases by >1%% million. c. reser.es increase by >1%% million and the money su33ly increases by more than >1%% million. d. both reser.es and the money su33ly increase by more than >1%% million. ANS: ( DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): ractional-reser.e ban9in- 0 '3en-mar9et o3erations
+S(: A33licati.e
1/2. If the reser.e ratio is : 3ercent, ban9s do not hold eBcess reser.es, and 3eo3le do not hold currency, then when the ed 3urchases >#% million of -o.ernment bonds, ban9 reser.es a. increase by >#% million and the money su33ly e.entually increases by >#2% million. b. decrease by >#% million and the money su33ly e.entually increases by >#2% million. c. increase by >#% million and the money su33ly e.entually decreases by >#2% million. d. decrease by >#% million and the money su33ly e.entually decreases by >#2% million. ANS: A DI : / !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): '3en-mar9et o3erations 0 +oney multi3lier
+S(: A33licati.e
1/6. If the reser.e ratio is 12 3ercent, and ban9s do not hold eBcess reser.es, and 3eo3le hold only de3osits and no currency, then when the ed sells >62 million of bonds to the 3ublic, ban9 reser.es a. increase by >62 million and the money su33ly e.entually increases by >#66.68 million. b. increase by >62 million and the money su33ly e.entually increases by >1//.// million. c. decrease by >62 million and the money su33ly e.entually decreases by >#66.68 million. d. decrease by >62 million and the money su33ly e.entually decreases by >1//.// million. ANS: D DI : / !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): '3en-mar9et o3erations 0 +oney multi3lier
+S(: A33licati.e
1/8. If the reser.e ratio is 1% 3ercent, ban9s do not hold eBcess reser.es, and 3eo3le hold only de3osits and no currency, when the ed sells >1% million dollars of bonds to the 3ublic, ban9 reser.es a. increase by >1 million and the money su33ly e.entually increases by >1% million. b. increase by >1% million and the money su33ly e.entually increases by >1%% million. c. decrease by >1 million and the money su33ly e.entually increases by >1% million. d. decrease by >1% million and the money su33ly e.entually decreases by >1%% million. ANS: D DI : / !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): '3en-mar9et o3erations 0 +oney multi3lier
+S(: A33licati.e
1/:. The interest rate the ed char-es on loans it ma9es to ban9s is called a. the 3rime rate. b. the federal funds rate. c. the discount rate. d. the &I*'!. ANS: ( NAT: Analytic +S(: Definitional DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): Discount rate
#11
1/$. The discount rate is a. the interest rate the ed char-es ban9s. b. one di.ided by the difference between one and the reser.e ratio. c. the interest rate ban9s recei.e on reser.e de3osits with the ed. d. the interest rate that ban9s char-e on o.erni-ht loans to other ban9s. ANS: A NAT: Analytic +S(: Definitional DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): Discount rate
11%. The discount rate is a. the rate at which 3ublic ban9s lend to other 3ublic ban9s. b. the rate at which the ed lends to ban9s. c. the 3ercenta-e difference between the face .alue of a Treasury bond and what the ed 3ays for it. d. the 3ercenta-e of de3osits ban9s hold as eBcess reser.es. ANS: * NAT: Analytic +S(: Definitional DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): Discount rate
111. The interest rate that the ed char-es ban9s that borrow reser.es from it is the a. federal funds rate. b. discount rate. c. reser.e requirement. d. 3rime rate. ANS: * NAT: Analytic +S(: Definitional DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): Discount rate
11#. If the discount rate is lowered, ban9s choose to borrow a. less from the ed so reser.es increase. b. less from the ed so reser.es decrease. c. more from the ed so reser.es increase. d. more from the ed so reser.es decrease. ANS: ( NAT: Analytic +S(: Definitional DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): Discount rate
11/. 'ther thin-s the same, if the ed raises the discount rate, then ban9s choose to borrow a. more from the ed so reser.es increase. b. more from the ed so reser.es decrease. c. less from the ed so reser.es increase. d. less from the ed so reser.es decrease. ANS: D NAT: Analytic +S(: Definitional DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): Discount rate
111. 7hen the ed decreases the discount rate, ban9s will a. borrow more from the ed and lend more to the 3ublic. The money su33ly increases. b. borrow more from the ed and lend less to the 3ublic. The money su33ly decreases. c. borrow less from the ed and lend more to the 3ublic. The money su33ly increases. d. borrow less from the ed and lend less to the 3ublic. The money su33ly decreases. ANS: A NAT: Analytic +S(: Inter3reti.e DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): Discount rate
112. Durin- the stoc9 mar9et crash of 'ctober 1$:8, the ed a. nearly created a financial 3anic by not actin- as a lender of last resort. b. nearly created a financial 3anic by raisin- the discount rate. c. 3re.ented a financial 3anic by raisin- reser.e requirements. d. 3re.ented a financial 3anic by 3ro.idin- liquidity to the financial system.

ANS: D DI : 1 !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): Stoc9 mar9et 0 ederal !eser.e System +S(:
#1#
Definitional
116. The ban9in- system currently has >1% billion of reser.es, none of which are eBcess. )eo3le hold only de3osits and no currency, and the reser.e requirement is 1% 3ercent. If the ed raises the reser.e requirement to #% 3ercent and at the same time buys >1 billion of bonds, then by how much does the money su33ly chan-eE a. It falls by >12 billion. b. It falls by >2# billion. c. It falls by >22 billion. d. None of the abo.e is correct. ANS: A DI : / !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): +oney multi3lier 0 '3en-mar9et o3erations
+S(: Analytical
118. The ban9in- system currently has >1%% billion of reser.es, none of which are eBcess. )eo3le hold only de3osits and no currency, and the reser.e requirement is 1% 3ercent. If the ed lowers the reser.e requirement to : 3ercent and at the same time buys >1% billion of bonds, then by how much does the money su33ly chan-eE a. It rises by >##2 billion. b. It rises by >/82 billion. c. It rises by >682 billion. d. None of the abo.e is correct. ANS: * DI : / !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): +oney multi3lier 0 '3en-mar9et o3erations
+S(: Analytical
11:. The ban9in- system currently has >2% billion of reser.es, none of which are eBcess. )eo3le hold only de3osits and no currency, and the reser.e requirement is 1% 3ercent. If the ed raises the reser.e requirement to 1#.2 3ercent and at the same time sells >1% billion of bonds, then by how much does the money su33ly chan-eE a. It falls by >#% billion. b. It falls by >11% billion. c. It falls by >1:% billion. d. None of the abo.e is correct. ANS: ( DI : / !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): +oney multi3lier 0 '3en-mar9et o3erations
+S(: Analytical
11$. The ban9in- system currently has >#%% billion of reser.es, none of which are eBcess. )eo3le hold only de3osits and no currency, and the reser.e requirement is 1 3ercent. If the ed raises the reser.e requirement to 1% 3ercent and at the same time buys >2% billion of bonds, then by how much does the money su33ly chan-eE a. It rises by >6%% billion. b. It rises by >1#2 billion. c. It falls by >#,2%% billion. d. None of the abo.e is correct. ANS: ( DI : / !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): +oney multi3lier 0 '3en-mar9et o3erations
+S(: Analytical
12%. If the 3ublic decides to hold more currency and fewer de3osits in ban9s, ban9 reser.es a. decrease and the money su33ly e.entually decreases. b. decrease but the money su33ly does not chan-e. c. increase and the money su33ly e.entually increases. d. increase but the money su33ly does not chan-e. ANS: A NAT: Analytic +S(: A33licati.e DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): (urrency 0 +oney multi3lier
#1/
121. If the 3ublic decides to hold less currency and more de3osits in ban9s, ban9 reser.es a. decrease and the money su33ly e.entually decreases. b. decrease but the money su33ly does not chan-e. c. increase and the money su33ly e.entually increases. d. increase but the money su33ly does not chan-e. ANS: ( NAT: Analytic +S(: A33licati.e DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): (urrency 0 +oney multi3lier
12#. Su33ose that in a country 3eo3le -ain more confidence in the ban9in- system and so hold relati.ely less currency and more de3osits. As a result, ban9 reser.es will a. decrease and the money su33ly will e.entually decrease. b. decrease and the money su33ly will e.entually increase. c. increase and the money su33ly will e.entually decrease. d. increase and the money su33ly will e.entually increase. ANS: D DI : # &'(: +onetary and fiscal 3olicy +S(: A33licati.e !" : T'): #$-/ (urrency 0 +oney multi3lier
12/. At one time, 3eo3le in a certain country had no access to ban9sJ they relied eBclusi.ely on currency. Then, a fractional-reser.e ban9in- system was created. As a result, the money su33ly a. increased. The central ban9 could ha.e reduced the si4e of this increase by buyin- bonds. b. increased. The central ban9 could ha.e reduced the si4e of this increase by sellin- bonds. c. decreased. The central ban9 could ha.e reduced the si4e of this decrease by buyin- bonds. d. decreased. The central ban9 could ha.e reduced the si4e of this decrease by sellin- bonds. ANS: * DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): ractional-reser.e ban9in- 0 +oney su33ly
+S(: A33licati.e
121. Durin- recessions, ban9s ty3ically choose to hold more eBcess reser.es relati.e to their de3osits. This action a. increases the money multi3lier and increases the money su33ly. b. decreases the money multi3lier and decreases the money su33ly. c. does not chan-e the money multi3lier, but increases the money su33ly. d. does not chan-e the money multi3lier, but decreases the money su33ly. ANS: * NAT: Analytic +S(: A33licati.e DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es 0 +oney multi3lier
122. Su33ose ban9s decide to hold more eBcess reser.es relati.e to de3osits. 'ther thin-s the same, this action will cause the a. money su33ly to fall. To reduce the im3act of this the ed could sell Treasury bonds. b. money su33ly to fall. To reduce the im3act of this the ed could buy Treasury bonds. c. money su33ly to rise. To reduce the im3act of this the ed could sell Treasury bonds. d. money su33ly to rise. To reduce the im3act of this the ed could buy Treasury bonds. ANS: * NAT: Analytic +S(: A33licati.e DI : / !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es 0 +oney multi3lier
126. Su33ose ban9s decide to hold fewer eBcess reser.es relati.e to de3osits. 'ther thin-s the same, this action will cause the a. money su33ly to fall. To reduce the im3act of this the ed could sell Treasury bonds. b. money su33ly to fall. To reduce the im3act of this the ed could buy Treasury bonds. c. money su33ly to rise. To reduce the im3act of this the ed could sell Treasury bonds. d. money su33ly to rise. To reduce the im3act of this the ed could buy Treasury bonds. ANS: ( NAT: Analytic +S(: A33licati.e DI : / !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es 0 +oney multi3lier
#11
128. Su33ose ban9s decide to hold more eBcess reser.es relati.e to de3osits. 'ther thin-s the same, this action will cause the a. money su33ly to fall. To reduce the im3act of this the ed could lower the discount rate. b. money su33ly to fall. To reduce the im3act of this the ed could raise the discount rate. c. money su33ly to rise. To reduce the im3act of this the ed could lower the discount rate. d. money su33ly to rise. To reduce the im3act of this the ed could raise the discount rate. ANS: A NAT: Analytic +S(: A33licati.e DI : / !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.es 0 +oney multi3lier
12:. If 3eo3le decide to hold more currency relati.e to de3osits, the money su33ly a. falls. The lar-er the reser.e ratio is, the more the money su33ly falls. b. falls. The lar-er the reser.e ratio is, the less the money su33ly falls. c. rises. The lar-er the reser.e ratio is, the more the money su33ly rises. d. rises. The lar-er the reser.e ratio is, the less the money su33ly rises. ANS: * NAT: Analytic +S(: A33licati.e DI : / !" : #$-/ &'(: +onetary and fiscal 3olicy T'): (urrency 0 +oney multi3lier
12$. If 3eo3le decide to hold more currency relati.e to de3osits, the money su33ly a. falls. The ed could lessen the im3act of this by buyin- Treasury bonds. b. falls. The ed could lessen the im3act of this by sellin- Treasury bonds. c. rises. The ed could lessen the im3act of this by buyin- Treasury bonds. d. rises. The ed could lessen the im3act of the by sellin- Treasury bonds. ANS: A NAT: Analytic +S(: A33licati.e DI : / !" : #$-/ &'(: +onetary and fiscal 3olicy T'): (urrency 0 +oney multi3lier
16%. If 3eo3le decide to hold less currency relati.e to de3osits, the money su33ly a. falls. The ed could lessen the im3act of this by buyin- Treasury bonds. b. falls. The ed could lessen the im3act of this by sellin- Treasury bonds. c. rises. The ed could lessen the im3act of this by buyin- Treasury bonds. d. rises. The ed could lessen the im3act of this by sellin- Treasury bonds. ANS: D NAT: Analytic +S(: A33licati.e DI : / !" : #$-/ &'(: +onetary and fiscal 3olicy T'): (urrency 0 +oney multi3lier
161. 7hich of the followin- is correctE a. The ed can control the money su33ly 3recisely. b. The amount of money in the economy does not de3end on the beha.ior of de3ositors. c. The amount of money in the economy de3ends in 3art on the beha.ior of ban9s. d. None of the abo.e is correct. ANS: ( NAT: Analytic +S(: Definitional DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +oney multi3lier
16#. Durin- wars the 3ublic tends to hold relati.ely more currency and relati.ely fewer de3osits. This decision ma9es reser.es a. and the money su33ly increase. b. and the money su33ly decrease. c. increase, but lea.es the money su33ly unchan-ed. d. decrease, but lea.es the money su33ly unchan-ed. ANS: * NAT: Analytic +S(: A33licati.e DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): (urrency 0 +oney multi3lier
#12
16/. In December 1$$$ 3eo3le feared that there mi-ht be com3uter 3roblems at ban9s as the century chan-ed. (onsequently, 3eo3le wanted to hold relati.ely more in currency and relati.ely less in de3osits. In antici3ation ban9s raised their reser.e ratios to ha.e enou-h cash on hand to meet de3ositors= demands. These actions by the 3ublic a. would increase the multi3lier. If the ed wanted to offset the effect of this on the si4e of the money su33ly, it could ha.e sold bonds. b. would increase the multi3lier. If the ed wanted to offset the effect of this on the si4e of the money su33ly, it could ha.e bou-ht bonds. c. would reduce the multi3lier. If the ed wanted to offset the effect of this on the si4e of the money su33ly, it could ha.e sold bonds. d. would reduce the multi3lier. If the ed wanted to offset the effect of this on the si4e of the money su33ly, it could ha.e bou-ht bonds. ANS: D DI : / !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): +oney multi3lier 0 '3en-mar9et o3erations
+S(: Analytical
161. In the 1$th century, when cro3 failures often led to ban9 runs, ban9s would ma9e relati.ely fewer loans and hold relati.ely more eBcess reser.es. *y itself, these actions by the ban9s should ha.e a. increased the money multi3lier and the money su33ly. b. decreased the money multi3lier and increased the money su33ly. c. increased the money multi3lier and decreased the money su33ly. d. decreased both the money multi3lier and the money su33ly. ANS: D NAT: Analytic +S(: A33licati.e DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): *an9s 0 +oney su33ly
162. Durin- a ban9 run, de3ositors decide to hold more currency relati.e to de3osits and ban9s decide to hold more eBcess reser.es relati.e to de3osits. a. *oth the decision to hold relati.ely more currency and the decision to hold relati.ely more eBcess reser.es would ma9e the money su33ly increase. b. *oth the decision to hold relati.ely more currency and the decision to hold relati.ely more eBcess reser.es would ma9e the money su33ly decrease. c. The decision to hold relati.ely more currency would ma9e the money su33ly increase. The decision to hold relati.ely more eBcess reser.es would ma9e the money su33ly decrease. d. The decision to hold relati.ely more currency would ma9e the money su33ly increase. The decision to hold relati.ely more eBcess reser.es would ma9e the money su33ly decrease. ANS: * NAT: Analytic +S(: A33licati.e DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): *an9s 0 +oney su33ly
166. The money su33ly decreases if a. households decide to hold relati.ely more currency and relati.ely fewer de3osits and ban9s decide to hold relati.ely more eBcess reser.es and ma9e fewer loans. b. households decide to hold relati.ely more currency and relati.ely fewer de3osits and ban9s decide to hold relati.ely fewer eBcess reser.es and ma9e more loans. c. households decide to hold relati.ely less currency and relati.ely more de3osits and ban9s decide to hold relati.ely more eBcess reser.es and ma9e fewer loans. d. households decide to hold relati.ely less currency and relati.ely more de3osits and ban9s decide to hold relati.ely less eBcess reser.es and ma9e more loans. ANS: A DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): (urrency 0 !eser.es 0 +oney su33ly
+S(: Analytical
168. *an9 runs a. will affect neither the money su33ly nor the money multi3lier. b. are only a 3roblem for insol.ent ban9s. c. can be neither 3re.ented nor miti-ated by the ederal !eser.e. d. are a 3roblem because ban9s only hold a fraction of de3osits as reser.es.

ANS: D NAT: Analytic +S(: Definitional DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): *an9s 0 !eser.es
#16
16:. The ed can directly 3rotect a ban9 durin- a ban9 run by a. increasin- reser.e requirements. b. sellin- -o.ernment bonds to the ban9. c. lendin- reser.es to the ban9. d. doin- any of the abo.e. ANS: ( DI : 1 !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): *an9s 0 ederal !eser.e System +S(: Definitional 16$. Durin- the <reat De3ression in the early 1$/%s, a. ban9 runs closed many ban9s. b. the money su33ly rose shar3ly. c. the ed decreased reser.e requirements. d. both a and b are correct. ANS: A NAT: Analytic +S(: Definitional DI : 1 !" : &'(: The role of money #$-/ T'): <reat De3ression
18%. S3ea9in- at a conference in #%%# as a member of the *oard of <o.ernors, *en *ernan9e a. ac9nowled-ed that the ed had been res3onsible for the <reat De3ression of the 1$/%s. b. asserted that the ed was in no way res3onsible for the <reat De3ression of the 1$/%s. c. asserted that the ed should abandon, in the not-too-distant future, its reliance on o3en-mar9et o3erations for control of the money su33ly. d. asserted that the ed should abandon, in the not-too-distant future, its fiBation on the federal funds rate. ANS: A NAT: Analytic +S(: Definitional DI : # !" : &'(: The role of money #$-/ T'): <reat De3ression
181. In early #%%:, the ederal !eser.e a. announced that it was tem3orarily sus3endin- its 3ractice of ma9in- loans a.ailable to ban9s. b. declared that the credit crisis, which had recently resulted in se.ere financial-mar9et 3roblems, had come to an end. c. too9 actions to 3re.ent the imminent ban9ru3tcy of ,) +or-an (hase, a ban9. d. too9 actions to 3re.ent the imminent ban9ru3tcy of *ear Stearns, an in.estment ban9. ANS: D NAT: Analytic +S(: Definitional DI : # !" : &'(: The role of money #$-/ T'): <reat De3ression
18#. Today, ban9 runs are a. uncommon because of the hi-h reser.e requirement. b. uncommon because of DI( de3osit insurance. c. common because of the low reser.e requirement. d. common because the DI( is nearly ban9ru3t. ANS: * DI : 1 !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): *an9s 0 ederal De3osit Insurance (or3oration +S(:
Definitional
18/. The ederal De3osit Insurance (or3oration a. 3rotects de3ositors in the e.ent of ban9 failures. b. has become insol.ent in recent years due to a lar-e number of ban9 failures. c. is 3art of the ederal !eser.e System. d. in 3ractice has seldom been of much use.
#18
ANS: A DI : 1 !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): ederal De3osit Insurance (or3oration +S(:
Definitional
181. The federal funds rate is the a. 3ercenta-e of face .alue that the ederal !eser.e is willin- to 3ay for Treasury Securities. b. 3ercenta-e of de3osits that ban9s must hold as reser.es. c. interest rate at which the ederal !eser.e ma9es short-term loans to ban9s. d. interest rate at which ban9s lend reser.es to each other o.erni-ht. ANS: D NAT: Analytic +S(: Definitional DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): ederal funds rate
182. The federal funds rate is the interest rate a. the ederal !eser.es char-es for loans it ma9es to the federal -o.ernment. b. the ederal !eser.e char-es ban9s for short-term loans. c. ban9s char-e each other for short-term loans of reser.es. d. on newly issued one-year Treasury bonds. ANS: ( NAT: Analytic +S(: Definitional DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): ederal funds rate
186. In recent years the ederal '3en +ar9et (ommittee has focused on a tar-et for a. +1 -rowth. b. the federal funds rate. c. the number of Treasury Securities issued by the federal -o.ernment. d. total reser.es of ban9s. ANS: * NAT: Analytic +S(: Definitional DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): ederal funds rate
188. Ima-ine that the federal funds rate was below the le.el the ederal !eser.e had tar-eted. To mo.e the rate bac9 towards it5s tar-et the ederal !eser.e could a. buy bonds. This buyin- would reduce reser.es. b. buy bonds. This buyin- would increase reser.es. c. sell bonds. This sellin- would reduce reser.es. d. sell bonds. This sellin- would increase reser.es. ANS: ( DI : / !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): ederal funds rate 0 '3en-mar9et o3erations
+S(: Analytical
18:. Ima-ine that the federal funds rate was abo.e the le.el the ederal !eser.e had tar-eted. To mo.e the rate bac9 towards it5s tar-et the ederal !eser.e could a. buy bonds. This buyin- would reduce reser.es. b. buy bonds. This buyin- would increase reser.es. c. sell bonds. This sellin- would reduce reser.es. d. sell bonds. This sellin- would increase reser.es. ANS: * DI : / !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): ederal funds rate 0 '3en-mar9et o3erations
+S(: Analytical
18$. Ima-ine that the federal funds rate was below the le.el the ederal !eser.e had tar-eted. To mo.e the rate bac9 towards it5s tar-et the ederal !eser.e could a. buy bonds. This buyin- would increase the money su33ly. b. buy bonds. This buyin- would reduce the money su33ly. c. sell bonds. This sellin- would increase the money su33ly. d. sell bonds. This sellin- would reduce the money su33ly.

ANS: D DI : / !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): ederal funds rate 0 '3en-mar9et o3erations
#1:
+S(: Analytical
1:%. Ima-ine that the federal funds rate was abo.e the le.el the ederal !eser.e had tar-eted. To mo.e the rate bac9 towards it5s tar-et the ederal !eser.e could a. buy bonds. This buyin- would increase the money su33ly. b. buy bonds. This buyin- would reduce the money su33ly. c. sell bonds. This sellin- would increase the money su33ly.. d. sell bonds. This sellin- would reduce the money su33ly.. ANS: A DI : / !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): ederal funds rate 0 '3en-mar9et o3erations
+S(: Analytical
1:1. An increase in the money su33ly mi-ht indicate that the ed had a. 3urchased bonds in an attem3t to increase the federal funds rate. b. 3urchased bonds in an attem3t to reduce the federal funds rate. c. sold bonds in an attem3t to increase the federal funds rate. d. sold bonds in an attem3t to reduce the federal funds rate. ANS: * DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): +oney su33ly 0 ederal funds rate +S(: Analytical 1:#. A decrease in the money su33ly mi-ht indicate that the ed had a. 3urchased bonds in an attem3t to increase the federal funds rate. b. 3urchased bonds in an attem3t to reduce the federal funds rate. c. sold bonds in an attem3t to increase the federal funds rate. d. sold bonds in an attem3t to reduce the federal funds rate. ANS: ( DI : # !" : #$-/ NAT: Analytic &'(: +onetary and fiscal 3olicy T'): +oney su33ly 0 ederal funds rate +S(: Analytical 1:/. 7hen the ederal !eser.e conducts o3en-mar9et o3erations to increase the money su33ly, it a. redeems ederal !eser.e notes. b. buys -o.ernment bonds from the 3ublic. c. raises the discount rate. d. decreases its lendin- to member ban9s. ANS: * NAT: Analytic +S(: Definitional DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): '3en-mar9et o3erations
1:1. 7hen the ed conducts o3en-mar9et 3urchases, a. it buys Treasury securities, which increases the money su33ly. b. it buys Treasury securities, which decreases the money su33ly. c. it borrows money from member ban9s, which increases the money su33ly. d. it lends money to member ban9s, which decreases the money su33ly. ANS: A NAT: Analytic +S(: Definitional DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): '3en-mar9et o3erations
1:2. 7hen the ed conducts o3en-mar9et sales, a. it sells Treasury securities, which increases the money su33ly. b. it sells Treasury securities, which decreases the money su33ly. c. it borrows from member ban9s, which increases the money su33ly. d. it lends money to member ban9s, which decreases the money su33ly. ANS: * NAT: Analytic +S(: Definitional DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): '3en-mar9et o3erations
#1$
1:6. 7hen the ed conducts o3en-mar9et 3urchases, a. it buys Treasury securities, which increases the money su33ly. b. it buys Treasury securities, which decreases the money su33ly. c. ban9s buy Treasury securities from ed, which increases the money su33ly. d. ban9s buy Treasury securities from the ed, which decreases the money su33ly. ANS: A NAT: Analytic +S(: Definitional DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): '3en-mar9et o3erations
1:8. The ed can increase the money su33ly by conductin- o3en-mar9et a. sales or by raisin- the discount rate. b. sales or by lowerin- the discount rate. c. 3urchases or by raisin- the discount rate. d. 3urchases or by lowerin- the discount rate. ANS: D NAT: Analytic +S(: Definitional DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): '3en-mar9et o3erations
1::. The ed can decrease the money su33ly by conductin- o3en mar9et a. sales or by raisin- the discount rate. b. sales or by lowerin- the discount rate. c. 3urchases or by raisin- the discount rate. d. 3urchases or by lowerin- the discount rate. ANS: A NAT: Analytic +S(: Definitional DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): '3en-mar9et o3erations
1:$. In 1$$1, the ederal !eser.e lowered the reser.e requirement ratio from 1# 3ercent to 1% 3ercent. 'ther thin-s the same this should ha.e a. increased both the money multi3lier and the money su33ly. b. decreased both the money multi3lier and the money su33ly. c. increased the money multi3lier and decreased the money su33ly. d. decreased the money multi3lier and increased the money su33ly. ANS: A NAT: Analytic +S(: Inter3reti.e DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy T'): !eser.e requirements
1$%. The ed5s 3rimary tool to chan-e the money su33ly is a. chan-in- the discount rate. b. chan-in- the reser.e requirement. c. conductin- o3en mar9et o3erations. d. redeemin- ederal !eser.e notes. ANS: ( NAT: Analytic +S(: Definitional DI : 1 !" : #$-/ &'(: +onetary and fiscal 3olicy T'): +onetary 3olicy
1$1. The ed can increase the 3rice le.el by conductin- o3en-mar9et a. sales and raisin- the discount rate. b. sales and lowerin- the discount rate. c. 3urchases and raisin- the discount rate. d. 3urchases and lowerin- the discount rate. ANS: D NAT: Analytic +S(: Definitional DI : / !" : #$-/ &'(: +onetary and fiscal 3olicy T'): '3en-mar9et o3erations

Chapter 29

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Chapter 29

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Chapter 29 The Monetary System

(ha3ter #$ ?The +onetary System

#$-1 T'): +oney su33ly 0 &iquidity

#$-1 T'): +edium of eBchan-e

(ha3ter #$ ?The +onetary System

ederal !eser.e System

(ha3ter #$ ?The +onetary System

(ha3ter #$ ?The +onetary System

DI : 1 !" : &'(: The role of money

(ha3ter #$ ?The +onetary System

(ha3ter #$ ?The +onetary System

>2,%%% NAT: Analytic T'): *an9s

DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy 12.

DI : # !" : #$-/ &'(: +onetary and fiscal 3olicy +S(: Inter3reti.e

(ha3ter #$ ?The +onetary System

(ha3ter #$ ?The +onetary System

Sec00 The Monetary System

ANS: D NAT: Analytic +S(: Inter3reti.e #.

ANS: ( NAT: Analytic +S(: Inter3reti.e /.

ANS: ( NAT: Analytic T'): *arter 1.

(ha3ter #$ ?The +onetary System

ANS: ( NAT: Analytic +S(: Definitional $.

(ha3ter #$ ?The +onetary System

Sec0# The Monetary System The Mean$n% o& Money

ANS: D NAT: Analytic +S(: Definitional #.

ANS: * NAT: Analytic +S(: Inter3reti.e /.

ANS: * NAT: Analytic +S(: Inter3reti.e 1.

ANS: D NAT: Analytic +S(: Inter3reti.e 2.

ANS: ( NAT: Analytic +S(: Definitional 6.

(ha3ter #$ ?The +onetary System

ANS: A NAT: Analytic +S(: Inter3reti.e 8.

ANS: A NAT: Analytic T'): &iquidity :.

ANS: * NAT: Analytic +S(: Definitional $.

ANS: D NAT: Analytic +S(: Inter3reti.e 1%.

ANS: A NAT: Analytic +S(: Inter3reti.e 11.

ANS: A NAT: Analytic +S(: Definitional 1#.

ANS: ( NAT: Analytic +S(: Inter3reti.e

(ha3ter #$ ?The +onetary System

ANS: ( NAT: Analytic T'): Store of .alue 16.

(ha3ter #$ ?The +onetary System

ANS: A NAT: Analytic T'): (urrency #1.

ANS: D NAT: Analytic +S(: Definitional #/.

ANS: ( NAT: Analytic +S(: Definitional #1.

ANS: D NAT: Analytic +S(: Inter3reti.e

(ha3ter #$ ?The +onetary System

ANS: A NAT: Analytic +S(: Inter3reti.e #6.

ANS: ( NAT: Analytic +S(: Inter3reti.e #8.

ANS: * NAT: Analytic +S(: Definitional #:.

ANS: A NAT: Analytic +S(: Inter3reti.e #$.

ANS: ( NAT: Analytic +S(: Inter3reti.e /%.

ANS: A NAT: Analytic +S(: Definitional

(ha3ter #$ ?The +onetary System

ANS: D NAT: Analytic +S(: Definitional /#.

ANS: ( NAT: Analytic +S(: Definitional //.

ANS: ( NAT: Analytic +S(: Inter3reti.e /1.

ANS: * NAT: Analytic +S(: Definitional /2.

ANS: * NAT: Analytic +S(: Definitional /6.

ANS: A NAT: Analytic +S(: Definitional /8.

(ha3ter #$ ?The +onetary System

ANS: A NAT: Analytic +S(: Definitional /$.

ANS: ( NAT: Analytic +S(: Definitional 1%.

ANS: * NAT: Analytic +S(: Definitional 11.

ANS: A NAT: Analytic +S(: Definitional 1#.