Principles of macroeconomics Essay

PRINCIPLES OF MACROECONOMICS – SUMMER 2008 (TC295.ECO.201.O04N.SU08) > TAKE ASSESSMENT: TEST III CH 12-15

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Question 1 1 points Save
To say money is socially defined means that:

money has been defined in a Constitutional amendment.

whatever performs the functions of money extremely well is considered to be money.

the money supply includes all public and private securities purchased by society.

society, acting through Congress, specifies what shall be included in the money supply.

Question 2 1 points Save
Money functions as:

a store of value.

a unit of account.

a medium of exchange.

all of the above.

Question 3 1 points Save
A $70 price tag on a sweater in a department store window is an example of money functioning as a:

unit of account.

standard of deferred payments.

store of value.

medium of exchange.

Question 4 1 points Save
Purchasing common stock by writing a check best exemplifies money serving as a:

store of value.

unit of account.

medium of exchange.

index of satisfaction.

Question 5 1 points Save
The paper money used in the United States is:

National Bank Notes.

Treasury Notes.

United States Notes.

Federal Reserve Notes.

Question 6 1 points Save
The largest component of the money supply (M1) is:

gold certificates.

checkable deposits.

currency in circulation.

travelers’ checks.

Question 7 1 points Save
In the United States, the money supply (M1) is comprised of:

coins, paper currency, and checkable deposits.

currency, checkable deposits, and Series E bonds.

coins, paper currency, checkable deposits, and credit balances with brokers.

paper currency, coins, gold certificates, and time deposits.

Question 8 1 points Save
Currency held in the vault of First National Bank is:

counted as part of M1.

counted as part of M2, but not M1.

counted as part of MZM.

not counted as part of the money supply.

Question 9 1 points Save
The money supply is backed:

by the government’s ability to control the supply of money and therefore to keep its value relatively stable.

by government bonds.

dollar-for-dollar with gold and silver.

dollar-for-dollar with gold bullion.

Question 10 1 points Save
Checkable deposits are classified as money because:

they can be readily used in purchasing goods and paying debts.

banks hold currency equal to the value of their checkable deposits.

they are ultimately the obligations of the Treasury.

they earn interest income for the depositor.

Question 11 1 points Save
To say that coins are token money means that:

their face value is less than their intrinsic value.

their face value is greater than their intrinsic value.

their face value is equal to their intrinsic value.

they are not legal tender.

Question 12 1 points Save
In defining money as M1, economists exclude time deposits because:

the intrinsic value of time deposits is nil.

the purchasing power of time deposits is much less stable than that of checkable deposits and currency.

they are not directly or immediately a medium of exchange.

they are not recognized by the Federal government as legal tender.

Question 13 1 points Save
Checkable deposits are:

included in M1 but not in M2.

considered to be a near-money.

included in M1 and in M2.

also called time deposits.

Question 14 1 points Save
Paper money (currency) in the United States is issued by the:

United States Mint.

Federal Reserve Banks.

United States Treasury.

national banks.

Question 15 1 points Save
A $20 bill is a:

gold certificate.

Treasury note.

Treasury bill.

Federal Reserve Note.

Question 16 1 points Save
Checkable deposits include:

both large and small time deposits.

the deposits of banks and thrifts on which checks can be written.

only the checkable deposits of commercial banks.

only the checkable deposits of thrift institutions.

Question 17 1 points Save
The difference between M1 and M2 is that:

the former includes time deposits.

the latter includes small time deposits, noncheckable savings accounts, money market deposit accounts, and money market mutual fund balances.

the latter includes negotiable government bonds.

the latter includes cash held by commercial banks and the U.S. Treasury.

Question 18 1 points Save
MZM includes:

M2 plus small time deposits plus money market mutual funds held by businesses.

M2 plus small time deposits plus money market mutual funds held by individuals.

M2 minus small time deposits plus money market mutual funds held by businesses.

M2 minus large time deposits plus money market mutual funds held by businesses.

Question 19 1 points Save
MZM (money zero maturity) measures the value of:

all financial assets in the system.

all currency in the system, whether held by individuals, businesses, or financial institutions.

all non-interest bearing forms of money.

monetary balances that are immediately available, at zero cost, for household and business transactions.

Question 20 1 points Save
The value of money varies:

inversely with the price level.

directly with the volume of employment.

directly with the price level.

directly with the interest rate.

Question 21 1 points Save
The basic policy-making body in the U.S. banking system is the:

Federal Open Market Committee (FOMC).

Board of Governors of the Federal Reserve.

Federal Monetary Authority.

Council of Economic Advisers.

Question 22 1 points Save
The twelve Federal Reserve Banks:

are owned and operated by the U.S. Treasury.

were created in 1776.

hold the reserve deposits of commercial banks.

are also known as national banks.

Question 23 1 points Save
In the U.S. economy the money supply is controlled by the:

U.S. Treasury.

Federal Reserve System.

Senate Committee on Banking and Finance.

Congress.

Question 24 1 points Save
The group that sets the Federal Reserve Systems policy on buying and selling government securities (bills, notes, and bonds) is the:

Federal Deposit Insurance Corporation (FDIC).

Federal Bond Sale Authority.

Council of Economic Advisers.

Federal Open Market Committee (FOMC).

Question 25 1 points Save
An important routine function of the Federal Reserve Bank is to:

supervise the liquidation of the assets of bankrupt state banks.

help large commercial banks develop correspondent relationships with smaller commercial banks.

advise commercial banks as to the most profitable ways of reinvesting profits.

provide facilities by which commercial banks and thrift institutions may collect checks.

Question 26 1 points Save
Which of the following statements best describes the twelve Federal Reserve Banks?

They are privately owned and privately controlled central banks whose basic goal is to provide an ample and orderly market for U.S. Treasury securities.

They are privately owned and publicly controlled central banks whose basic function is to minimize the risks in commercial banking in order to make it a reasonably profitable industry.

They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare.

They are privately owned and publicly controlled central banks whose basic goal is to earn profits for their owners.

Question 27 1 points Save
Which of the following is the basic economic policy function of the Federal Reserve Banks?

holding the deposits or reserves of commercial banks

acting as fiscal agents for the Federal government

controlling the supply of money

the collection or clearing of checks among commercial banks

Question 28 1 points Save
The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $100,000 in:

mutual fund companies and pension fund companies.

thrifts and insurance companies.

commercial banks and thrifts.

securities firms and insurance companies.

Question 29 1 points Save
The Financial Services Modernization Act of 1999:

set limits on the fees that banks can charge for automatic teller machine (ATM) withdrawals.

established a new dollar coin that will replace the dollar bill in 2008.

permitted banks, thrifts, pension companies, and securities firms to merge and to sell each other’s products.

outlawed “payday loans” that are advanced against forthcoming payroll checks.

Question 30 1 points Save
Plastic cards that contain computer chips that store account balances are known as:

credit cards.

smart cards.

debit cards.

E-cards.

Question 31 1 points Save
Smart cards sold by retailers, such as single-store gift cards and prepaid phone cards, are known as:

credit cards.

debit cards.

stored-value cards.

E-cards.

Question 32 1 points Save
(Consider This) Credits cards are:

the fastest growing component of the M1 money supply.

near-monies that are part of the MZM money supply but not part of the M2 or M1 money supplies.

not money, officially defined.

also known as time deposits.

Question 33 1 points Save
(Last Word) Major countries in which citizens hold and use large quantities of U.S. dollars are:

Germany, England, and France.

Russia, Argentina, and Poland.

Canada, Australia, and New Zealand.

Egypt, Spain, and Italy.

Question 34 1 points Save
(Last Word) The use of U.S. dollars in foreign countries:

is illegal under international law.

helps foreign buyers and sellers overcome problems with their domestic currencies.

varies directly (positively) with U.S. interest rates.

is less in volume than the use of foreign currencies in the United States.

Question 35 1 points Save
Which one of the following is presently a major deterrent to bank panics in the United States?

the legal reserve requirement

the fractional reserve system

the gold standard

deposit insurance

Question 36 1 points Save
Most modern banking systems are based on:

money of intrinsic value.

commodity money.

100 percent reserves.

fractional reserves.

Question 37 1 points Save
A bank that has assets of $85 billion and a net worth of $10 billion must have:

liabilities of $75 billion.

excess reserves of $10 billion.

liabilities of $10 billion.

excess reserves of $75 billion.

Question 38 1 points Save
Which of the following are all assets to a commercial bank?

demand deposits, stock shares, and reserves

vault cash, property, and reserves

vault cash, property, and stock shares

vault cash, stock shares, and demand deposits

Question 39 1 points Save
The reserves of a commercial bank consist of:

the amount of money market funds it holds.

deposits at the Federal Reserve Bank and vault cash.

government securities that the bank holds.

the bank’s net worth.

Question 40 1 points Save
A commercial bank’s reserves are:

liabilities to both the commercial bank and the Federal Reserve Bank holding them.

liabilities to the commercial bank and assets to the Federal Reserve Bank holding them.

assets to both the commercial bank and the Federal Reserve Bank holding them.

assets to the commercial bank and liabilities to the Federal Reserve Bank holding them.

Question 41 1 points Save
The primary purpose of the legal reserve requirement is to:

prevent banks from hoarding too much vault cash.

provide a means by which the monetary authorities can influence the lending ability of commercial banks.

prevent commercial banks from earning excess profits.

provide a dependable source of interest income for commercial banks.

Question 42 1 points Save
The ABC Commercial Bank has $5,000 in excess reserves and the reserve ratio is 30 percent. The bank must have:

$90,000 in outstanding loans and $35,000 in reserves.

$90,000 in checkable deposit liabilities and $32,000 in reserves.

$20,000 in checkable deposit liabilities and $10,000 in reserves.

$90,000 in checkable deposit liabilities and $35,000 in reserves.

Question 43 1 points Save
Commercial banks monetize claims when they:

collect checks through the Federal Reserve System.

make loans to the public.

accept repayment of outstanding loans.

borrow from the Federal Reserve Banks.

Question 44 1 points Save
Checkable deposits are also called:

checking accounts.

high-powered money.

savings balances.

Federal Reserve Notes.

Question 45 1 points Save
Banks create money when they:

add to their reserves in the Federal Reserve Bank.

accept deposits of cash.

sell government bonds.

exchange checkable deposits for the IOU’s of businesses and individuals.

Question 46 1 points Save
When a check is drawn and cleared, the

reserves and deposits of both the bank against which the check is cleared and the bank receiving the check are unchanged by this transaction.

bank against which the check is cleared loses reserves and deposits equal to the amount of the check.

bank receiving the check loses reserves and deposits equal to the amount of the check.

bank against which the check is cleared acquires reserves and deposits equal to the amount of the check.

Question 47 1 points Save
Suppose the ABC bank has excess reserves of $4,000 and outstanding checkable deposits of $80,000. If the reserve requirement is 25 percent, what is the size of the bank’s actual reserves?

$16,000

$84,000

$24,000

$20,000

Question 48 1 points Save
Assume the Continental National Bank’s balance statement is as follows:
Assets Liabilities and net worth
Reserves $ 40,000 Checkable deposits $130,000
Loans 25,000 Stock shares 45,000
Securities 110,000
Assuming a legal reserve ratio of 20 percent, how much excess reserves would this bank have after a check for $10,000 was drawn and cleared against it?

$3,000

$24,000

$6,000

$16,000

Question 49 1 points Save
The amount that a commercial bank can lend is determined by its:

required reserves.

excess reserves.

outstanding loans.

outstanding checkable deposits.

Question 50 1 points Save
Use the following balance sheet for the ABC National Bank in answering the next question(s). Assume the required reserve ratio is 20 percent.
Reference: 13-44

Refer to the above data. This commercial bank has excess reserves of:

$0.

$3,000.

$12,000.

$5,000.

Question 51 1 points Save
Use the following balance sheet for the ABC National Bank in answering the next question(s). Assume the required reserve ratio is 20 percent.
Reference: 13-44

Refer to the above data. This bank can safely expand its loans by a maximum of:

$7,000.

$25,000.

$12,000.

$5,000.

Question 52 1 points Save
Use the following balance sheet for the ABC National Bank in answering the next question(s). Assume the required reserve ratio is 20 percent.
Reference: 13-44

Refer to the above data. Assuming the bank loans out all of its remaining excess reserves as a checkable deposit, and has a check cleared against it for that amount, its reserves and checkable deposits will now be:

$25,000 and $122,000 respectively.

$22,000 and $110,000 respectively.

$32,000 and $115,000 respectively.

$22,000 and $105,000 respectively.

Question 53 1 points Save
Use the following balance sheet for the ABC National Bank in answering the next question(s). Assume the required reserve ratio is 20 percent.
Reference: 13-44

Refer to the above data. Assuming the bank loans out all of its remaining excess reserves as a checkable deposit, and has a check cleared against it for that amount, the bank will now have excess reserves of:

$0.

$3,000.

$12,000.

$5,000.

Question 54 1 points Save
Use the following balance sheet for the ABC National Bank in answering the next question(s). Assume the required reserve ratio is 20 percent.
Reference: 13-44

Refer to the above data. If the original balance sheet was for the commercial banking system, rather than a single bank, loans and checkable deposits could have been expanded by a maximum of:

$8,000.

$15,000.

$48,000.

$25,000.

Question 55 1 points Save
If the reserve requirement is 10 percent, how much excess reserves does a bank acquire when a business deposits a $500 check drawn on another bank?

$450

$550

$5000

$500

Question 56 1 points Save
Banks create money when they:

allow loans to mature.

accept deposits of cash.

buy government bonds from households.

sell government bonds from households.

Question 57 1 points Save
Overnight loans from one bank to another for reserve purposes entail an interest rate called the:

prime rate.

discount rate.

Federal funds rate.

treasury bill rate.

Question 58 1 points Save
The Federal funds market is the market in which:

banks borrow from the Federal Reserve Banks.

U.S. securities are bought and sold.

banks borrow reserves from one another on an overnight basis.

Federal Reserve Banks borrow from one another.

Question 59 1 points Save
The multiple by which the commercial banking system can expand the supply of money is equal to the reciprocal of:

the MPS.

its actual reserves.

its excess reserves.

the reserve ratio.

Question 60 1 points Save
Suppose a commercial banking system has $100,000 of outstanding checkable deposits and actual reserves of $35,000. If the reserve ratio is 20 percent, the banking system can expand the supply of money by the maximum amount of:

$122,000.

$175,000.

$300,000.

$75,000.

Question 61 1 points Save
The basic reason why the commercial banking system can increase its checkable deposits by a multiple of its excess reserves is that:

reserves lost by any particular bank will be gained by some other bank.

the central banks follow policies that prevent reserves from falling below the level required by law.

the MPC of borrowers is greater than zero, but less than 1.

the banking system must keep reserves equal to 100 percent of its checkable-deposit liabilities.

Question 62 1 points Save
The transactions demand for money is most closely related to money functioning as a:

unit of account.

medium of exchange.

store of value.

measure of value.

Question 63 1 points Save
The asset demand for money is most closely related to money functioning as a:

unit of account.

medium of exchange.

store of value.

measure of value.

Question 64 1 points Save
On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively, the asset demand for money can be represented by:

a line parallel to the horizontal axis.

a vertical line.

a downsloping line or curve from left to right.

an upsloping line or curve from left to right.

Question 65 1 points Save
The total demand for money curve will shift to the right as a result of:

an increase in nominal GDP.

an increase in the interest rate.

a decline in the interest rate.

a decline in nominal GDP.

Question 66 1 points Save
It is costly to hold money because:

deflation may reduce its purchasing power.

in doing so one sacrifices interest income.

bond prices are highly variable.

the velocity of money may decline.

Question 67 1 points Save
The transactions demand for money will shift to the:

right when the interest rate increases.

left when the interest rate decreases.

right when aggregate income increases.

right when aggregate income decreases.

Question 68 1 points Save
The opportunity cost of holding money:

is zero because money is not an economic resource.

varies inversely with the interest rate.

varies directly with the interest rate.

varies inversely with the level of economic activity.

Question 69 1 points Save
If the quantity of money demanded exceeds the quantity supplied:

the supply-of-money curve will shift to the left.

the demand-for-money curve will shift to the right.

the interest rate will rise.

the interest rate will fall.

Question 70 1 points Save
The equilibrium rate of interest in the market for money is determined by the intersection of the:

supply of money curve and the asset demand for money curve.

supply of money curve and the transactions demand for money curve.

supply of money curve and the total demand for money curve.

investment demand curve and total demand for money curve.

Question 71 1 points Save
If in the market for money the quantity of money demanded exceeds the money supply, the interest rate will:

fall, causing households and businesses to hold less money.

rise, causing households and businesses to hold less money.

rise, causing households and businesses to hold more money.

fall, causing households and businesses to hold more money.

Question 72 1 points Save

Reference: 14-25

Refer to the above diagram of the market for money. The downward slope of the money demand curve Dm is best explained in terms of the:

transactions demand for money.

direct or positive relationship between bond prices and interest rates.

asset demand for money.

wealth or real-balances effect.

Question 73 1 points Save

Reference: 14-25

Refer to the above diagram of the market for money. The vertical money supply curve Sm reflects the fact that:

bond prices and interest rates are inversely related.

the stock of money is determined by the Federal Reserve System and does not change when the interest rate changes.

the velocity of money is zero.

lower interest rates result in lower opportunity costs of supplying money.

Question 74 1 points Save

Reference: 14-25

Refer to the above diagram of the market for money. The equilibrium interest rate is:

i1.

i2.

i3.

not determinable without additional information.

Question 75 1 points Save

Reference: 14-25

Refer to the above diagram of the market for money. Given Dm and Sm, an interest rate of i3 is not sustainable because the:

supply of bonds in the bond market will decline and the interest rate will rise.

supply of bonds in the bond market will increase and the interest rate will decline.

demand for bonds in the bond market will decline and the interest rate will rise.

demand for bonds in the bond market will rise and the interest rate will fall.

Question 76 1 points Save

Reference: 14-25

Refer to the above diagram of the market for money. Other things equal, the money demand curve in the diagram would shift leftward if:

the asset demand for money increased.

the transactions demand for money increased.

nominal GDP decreased.

the overall price level rose.

Question 77 1 points Save

Reference: 14-33

Refer to the above market for money diagrams. The asset demand for money is shown by:

D1.

D2.

D3.

S.

Question 78 1 points Save

Reference: 14-33

Refer to the above market for money diagrams. Curve D1 represents the:

speculative demand for money.

transactions demand for money.

asset demand for money.

stock of money.

Question 79 1 points Save

Reference: 14-33

Refer to the above market for money diagrams. The total demand for money is shown by:

D1.

D2.

D3.

S.

Question 80 1 points Save
Which of the following is an asset on the consolidated balance sheet of the Federal Reserve Banks?

loans to commercial banks

Federal Reserve Notes in circulation

Treasury deposits

reserves of commercial banks

Question 81 0 points Save
The securities held as assets by the Federal Reserve Banks consist mainly of:

corporate bonds.

Treasury bills and Treasury bonds.

common stock.

certificates of deposit.

Question 82 1 points Save
Federal Reserve Notes in circulation are:

an asset as viewed by the Federal Reserve Banks.

a liability as viewed by the Federal Reserve Banks.

neither an asset nor a liability as viewed by the Federal Reserve Banks.

part of M1, but not of M2 or MZM.

Question 83 1 points Save
Which of the following will increase commercial bank reserves?

the purchase of government bonds in the open market by the Federal Reserve Banks

a decrease in the reserve ratio

an increase in the discount rate

the sale of government bonds in the open market by the Federal Reserve Banks

Question 84 1 points Save
When a commercial bank borrows from a Federal Reserve Bank:

the supply of money automatically increases.

it indicates that the commercial bank is unsound financially.

the commercial bank’s lending ability is increased.

the commercial bank’s reserves are reduced.

Question 85 1 points Save
The Federal Reserve Banks sell government securities to the public. As a result, the checkable deposits:

of commercial banks are unchanged, but their reserves increase.

and reserves of commercial banks both decrease.

of commercial banks are unchanged, but their reserves decrease.

of commercial banks are both unchanged.

Question 86 1 points Save
The commercial banking system borrows from the Federal Reserve Banks. As a result, the checkable deposits:

of commercial banks are unchanged, but their reserves increase.

and reserves of commercial banks both decrease.

of commercial banks are unchanged, but their reserves decrease.

and reserves of commercial banks are both unchanged.

Question 87 1 points Save
Which of the following is a tool of monetary policy?

open market operations

changes in banking laws

changes in tax rates

changes in government spending

Question 88 1 points Save
In the United States monetary policy is the responsibility of the:

U.S. Treasury.

Department of Commerce.

Board of Governors of the Federal Reserve System.

U.S. Congress.

Question 89 1 points Save
The three main tools of monetary policy are:

tax rate changes, the discount rate, and open-market operations.

tax rate changes, changes in government expenditures, and open-market operations.

the discount rate, the reserve ratio, and open-market operations.

changes in government expenditures, the reserve ratio, and the discount rate.

Question 90 1 points Save
Open-market operations

purchases of stocks in the New York Stock Exchange.

the purchase or sale of government securities by the Fed.

central bank lending to commercial banks.

the specifying of loan maximums on stock purchases.

Question 91 1 points Save
The purchase of government securities from the public by the Fed will cause:

commercial bank reserves to decrease.

the money supply to increase.

demand deposits to decrease

the interest rate to increase.

Question 92 1 points Save
The discount rate is the interest:

rate at which the central banks lend to the U.S. Treasury.

rate at which the Federal Reserve Banks lend to commercial banks.

yield on long-term government bonds.

rate at which commercial banks lend to the public.

Question 93 1 points Save
The interest rate at which the Federal Reserve Banks lend to commercial banks is called the:

prime rate.

short-term rate.

discount rate.

Federal funds rate.

Question 94 1 points Save
When the Fed lends money to a commercial bank, the bank:

increases its reserves and enhances its ability to extend credit to bank customers.

decreases its reserves and reduces its ability to extend credit to bank customers.

pays the Federal funds interest rate on the loan.

pays the prime rate interest rate on the loan.

Question 95 1 points Save
The Fed sets the discount rate at 1 percentage point above:

the prime lending rate.

the Fed target for the Federal funds rate.

the rate of inflation.

the rate paid on series EE saving bonds .

Question 96 1 points Save
Which of the following tools of monetary policy is considered the most important?

the discount rate

the reserve ratio

open market operations

the Federal funds rate

Question 97 1 points Save
Which of the following will likely accompany an expansionary money policy?

a higher prime interest rate

a lower Federal funds rate

a higher discount rate

higher income tax rates

Question 98 1 points Save
The Fed directly sets:

the prime interest rate but not the Federal funds rate.

both the Federal funds rate and the prime interest rate.

neither the Federal funds rate nor the prime interest rate.

the discount rate and the prime interest rate.

Question 99 1 points Save
Which of the following will likely accompany an expansionary money policy?

a higher prime interest rate

a lower Federal funds rate

a higher discount rate

higher income tax rates

Question 100 1 points Save
A Federal funds rate reduction that is caused by monetary policy will:

increase the prime interest rate.

decrease the size of the monetary multiplier.

increase the Fed’s discount rate.

decrease the prime interest rate.

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