Macro Example Final Name
Fall 1999 Choose the best answer.
GOOD LUCK!

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1. Whose liabilities serve as cash in the United States?
A. The Federal Reserve Bank.
B. Deposit statements at all banks.
C. Accounts payable at corporations.
D. The Treasury Department.

 
2. One of the three functions of money is to serve as:
A. a store of wealth.
B. a medium of communication.
C. a median.
D. a mass medium.

 
3. Which of the following is not one of the functions of money? 
A. Medium of exchange.
B. Unit of account.
C. Hedge against inflation.
D. Store of wealth.

 
4. When you go to the store you can comparison shop with prices. In this instance, money is serving which function?
A. Medium of exchange.
B. Store of real assets.
C. Unit of account.
D. Store of wealth.

 
5. When money is saved to make purchases in the future it is being used as a:
A. medium of exchange.
B. standard of account.
C. store of wealth.
D. standard of exchange.

 
6. M1 consists primarily of:
A. demand deposits and savings account balances.
B. treasury bills and commercial paper.
C. cash in the hands of the public and demand deposits.
D. cash in the hands of the public and certificates of deposit.

 
7. The chief difference between the M1 and M2 definitions of the money supply is:
A. M1 exceeds M2.
B. M2 excludes traveler's checks.
C. M1 is a broader, more comprehensive definition.
D. M2 includes more assets than M1.

 
8. The measure of money that includes only the most liquid assets is: 
A. time deposits.
B. M2.
C. M1.
D. Treasury bills.

 
9. Saving deposits are included in:
A. M1.
B. M2.
C. traveler's checks.
D. checking accounts.

 
10. Commercial banks create money by:
A. issuing currency.
B. extending loans backed by deposits.
C. calling in loans.
D. creating demand deposits in the names of people who have deposited cash.

 
11. The goldsmith's ability to create money was based on the fact that:
A. people preferred to use paper money as a medium of exchange.
B. the goldsmith was required to keep 100% gold reserves.
C. consumers preferred to use gold for transactions.
D. withdrawals of gold tended to exceed deposits of gold.

 
12. Which of the following is not counted as money? 
A. Traveler's checks.
B. Checking account balances.
C. Bank reserves.
D. None of the above. All are money.

 
13. If the reserves at U.S. banks totaled $10,000 and total deposits were $50,000, the banking system's reserve ratio would be:
A. .20.
B. .50.
C. .10.
D. .08.

 
14. The minimum amount of reserves a bank must hold as vault cash or on deposit with the Fed is:
A. excess reserves.
B. time deposits.
C. demand deposits.
D. required reserves.

 
15. If the required reserve ratio is .05, a bank can lend out:
A. 5 percent of its deposit liabilities.
B. 5 percent of its assets.
C. 95 percent of its deposit liabilities.
D. 95 percent of its assets.

 
16. Which of the following is the formula for the simple money multiplier?
A. 1/(r+c) where r is the reserve ratio and c is the ratio of cash people hold to deposits.
B. r/c where r is the reserve ratio and c is the ratio of cash people hold to deposits.
C. 1/r where r is the required reserve ratio.
D. 1/c where c is the ratio of cash people hold to deposits.

 
17. If the reserve ratio is .1, the simple money multiplier is
A. 12.
B. 10.
C. 1
D. .10.

 
18. As the reserve ratio goes down, the simple money multiplier
A. goes up, and more money will be created.
B. goes down, and less money will be created.
C. goes up, and less money will be created.
D. goes down, and more money will be created.

 
19. As the reserve ratio goes down, more money will be created because
A. the Fed will have to issue more money.
B. people will have to deposit more of their money.
C. people will have to hold more of their money as cash.
D. the bank will be able to make more loans.

 
20. Suppose the money multiplier is 4. Assuming no cash is held by individuals, what is the required reserve ratio?
A. 10%.
B. 25%.
C. 15%.
D. 20%.

 
21. If the required reserve ratio is 20% and individuals hold no cash, what is the maximum amount money stock is ultimately created when $2 million in new reserves is made available to the banking system?
A. $ 4 million.
B. $10 million.
C. $20 million.
D. $ 2 million.

 
22. If the required reserve ratio is 25% and individuals hold no cash, what is the maximum amount of new money stock that can be created from $5 million in new reserves available to the banking system?
A. $ 5 million.
B. $25 million.
C. $20 million.
D. $50 million.

 
23. Depositors are insured against commercial bank failure by the:
A. Federal Savings and Loan Insurance Corporation.
B. Federal Deposit Insurance Corporation.
C. Federal Open Market Committee.
D. U.S. Treasury.

 
24. Liquidity refers to the ability to:
A. make a high rate of return on an investment.
B. hold an asset until its maturity.
C. turn an asset into cash quickly.
D. turn a financial asset into a real asset quickly.

 
25. A bond has a face value of $10,000 and a coupon rate of 20 percent. It is issued in 1997 and matures in 2007. How much does the bond pay annually?
A. It depends upon how much you pay for it.
B. It depends upon how much its value is each year.
C. $2,000 every year until 2007 when you receive $2,000 plus the $10,000 face value.
D. $2,000 the first year, but then more in subsequent years depending upon market interest rates.

 
26. The U.S. money supply is regulated by:
A. Congress.
B. the president.
C. the Supreme Court.
D. the Federal Reserve.

 
27. The Fed tries to stabilize the economy using:
A. fiscal policy.
B. foreign policy.
C. trade policy.
D. monetary policy.

 
28. Which of the following is not a role of the central bank in the U.S.?
A. Acts as a financial adviser for the government.
B. Loans money to individuals.
C. Loans money to banks.
D. Creates money.

 
29. Each member of the Board of Governors of the Federal Reserve serves a:
A. 2 year term.
B. 4 year term.
C. 14 year term.
D. lifetime term.

 
30. How many regional banks compose the Fed?
A. 5.
B. 7.
C. 11.
D. 12.

 
31. Most monetary policy decisions are made by the:
A. Federal Open Market Committee.
B. Federal Depository Insurance Corporation.
C. Federal Advisory Council.
D. National Federal Reserve Bank.

 
32. The group of Federal Reserve officials who include 5 regional Fed bank presidents and 7 Fed governors and who gather around a table to discuss whether to increase interest rates is known as the:
A. Federal Open Market Committee.
B. Federal Bank Chairs.
C. Federal Advisory Council.
D. National Federal Reserve Bank.

 
33. One of the tools of monetary policy is:
A. changing tariff rates.
B. changing the discount rate.
C. changing the prime interest rate.
D. changing the minimum wage.

 
34. The reserve requirement is the __________ ratio of reserves to ___________ that a bank must have.
A. minimum; net worth.
B. minimum; deposits.
C. maximum; net worth.
D. maximum; deposits.

 
35. The amount a bank can safely lend out is called:
A. total reserves.
B. excess reserves.
C. required reserves.
D. demand (checkable) deposits.

 
36. The Fed sets:
A. the corporate income tax.
B. the tax on unearned income.
C. reserve requirements.
D. the sales tax on gasoline.

 
37. To increase the nation's money supply, the Fed can:
A. buy government securities in the open market.
B. increase reserve requirements.
C. increase the discount rate.
D. sell government securities in the open market.

 
38. When the Fed decreases the reserve requirement, it:
A. expands the money supply because banks have more to lend.
B. expands the money supply because banks have less to lend.
C. contracts the money supply because banks have more to lend.
D. contracts the money supply because banks have less to lend.

 
39. If the Fed slightly increases the reserve requirement, it _________ the amount of excess reserves.
A. decreases.
B. doesn't affect.
C. increases.
D. slightly increases.

 
40. As a tool of monetary policy, changes in the required reserve ratio:
A. are extremely powerful, so the ratio is rarely changed.
B. have little or no impact on the money supply, so the ratio is rarely changed.
C. are frequently used to make adjustments in the money supply.
D. occur more frequently than changes in the discount rate.

 
41. Suppose the required reserve ratio is 25% and there are no cash holdings. A $1 billion purchase of government securities by the Fed will:
A. increase the potential amount of checkable deposits in the banking system by $4 billion.
B. increase the potential amount of checkable deposits in the banking system by $1 billion.
C. reduce the potential amount of checkable deposits in the banking system by $1 billion.
D. reduce the potential amount of checkable deposits in the banking system by $4 billion.

 
42. To increase the nation's money supply, the Fed can:
A. increase the required reserve ratio.
B. buy bonds.
C. increase the discount rate.
D. sell bonds.

 
43. The discount rate is the interest rate:
A. that commercial banks charge investors.
B. that the Federal Reserve Banks charge individuals.
C. that the Federal Reserve Banks charge banks for loans.
D. that the World Bank charges developing countries.

 
44. The Fed expects an undesired decrease in aggregate expenditures this year. To offset that decrease, the Fed should:
A. engage in open market purchases of securities.
B. engage in open market sales of securities.
C. raise the discount rate.
D. raise reserve requirements.

 
45. Which of the following is the most commonly used tool by the Fed to affect money supply in the economy?
A. Changing the reserve requirement.
B. Changing the discount rate.
C. Buying and selling bonds.
D. Changing the exchange rate.

 
46. If the Fed sells securities through its open market operations the money supply will: 
A. decrease.
B. remain the same.
C. increase.
D. increase with how much depending on what happens to the discount rate.

 
47. Suppose the approximate money multiplier in the U.S. is 4. If the Fed wants to contract the money supply by 600 it should:
A. buy government securities worth 150.
B. buy government securities worth 600.
C. sell government securities worth 150.
D. sell government securities worth 600.

 
48. Suppose the approximate money multiplier in the U.S. is 2.5. If the Fed wants to increase money supply by 1000 it should:
A. buy government securities worth 250.
B. buy government securities worth 400.
C. sell government securities worth 250.
D. sell government securities worth 400.

 
49. Suppose the approximate money multiplier in the U.S. is 2.5. If the Fed wants to increase money supply by 1500 it should:
A. raise the required reserve ratio to 0.2.
B. raise the discount rate by 2 percentage points.
C. buy government securities worth 600.
D. sell government securities worth 600.

 
50. When the Fed sells bonds, this should:
A. should increase the Federal funds rate.
B. should reduce the reserve requirement.
C. should increase the reserve requirement.
D. should decrease the discount rate.

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macfinalF98
Macro Example Final Name
Fall 1999 Choose the best answer.
GOOD LUCK!

                home                        preivious page
 
1. Whose liabilities serve as cash in the United States?
A. The Federal Reserve Bank.
B. Deposit statements at all banks.
C. Accounts payable at corporations.
D. The Treasury Department.

 
2. One of the three functions of money is to serve as:
A. a store of wealth.
B. a medium of communication.
C. a median.
D. a mass medium.

 
3. Which of the following is not one of the functions of money? 
A. Medium of exchange.
B. Unit of account.
C. Hedge against inflation.
D. Store of wealth.

 
4. When you go to the store you can comparison shop with prices. In this instance, money is serving which function?
A. Medium of exchange.
B. Store of real assets.
C. Unit of account.
D. Store of wealth.

 
5. When money is saved to make purchases in the future it is being used as a:
A. medium of exchange.
B. standard of account.
C. store of wealth.
D. standard of exchange.

 
6. M1 consists primarily of:
A. demand deposits and savings account balances.
B. treasury bills and commercial paper.
C. cash in the hands of the public and demand deposits.
D. cash in the hands of the public and certificates of deposit.

 
7. The chief difference between the M1 and M2 definitions of the money supply is:
A. M1 exceeds M2.
B. M2 excludes traveler's checks.
C. M1 is a broader, more comprehensive definition.
D. M2 includes more assets than M1.

 
8. The measure of money that includes only the most liquid assets is: 
A. time deposits.
B. M2.
C. M1.
D. Treasury bills.

 
9. Saving deposits are included in:
A. M1.
B. M2.
C. traveler's checks.
D. checking accounts.

 
10. Commercial banks create money by:
A. issuing currency.
B. extending loans backed by deposits.
C. calling in loans.
D. creating demand deposits in the names of people who have deposited cash.

 
11. The goldsmith's ability to create money was based on the fact that:
A. people preferred to use paper money as a medium of exchange.
B. the goldsmith was required to keep 100% gold reserves.
C. consumers preferred to use gold for transactions.
D. withdrawals of gold tended to exceed deposits of gold.

 
12. Which of the following is not counted as money? 
A. Traveler's checks.
B. Checking account balances.
C. Bank reserves.
D. None of the above. All are money.

 
13. If the reserves at U.S. banks totaled $10,000 and total deposits were $50,000, the banking system's reserve ratio would be:
A. .20.
B. .50.
C. .10.
D. .08.

 
14. The minimum amount of reserves a bank must hold as vault cash or on deposit with the Fed is:
A. excess reserves.
B. time deposits.
C. demand deposits.
D. required reserves.

 
15. If the required reserve ratio is .05, a bank can lend out:
A. 5 percent of its deposit liabilities.
B. 5 percent of its assets.
C. 95 percent of its deposit liabilities.
D. 95 percent of its assets.

 
16. Which of the following is the formula for the simple money multiplier?
A. 1/(r+c) where r is the reserve ratio and c is the ratio of cash people hold to deposits.
B. r/c where r is the reserve ratio and c is the ratio of cash people hold to deposits.
C. 1/r where r is the required reserve ratio.
D. 1/c where c is the ratio of cash people hold to deposits.

 
17. If the reserve ratio is .1, the simple money multiplier is
A. 12.
B. 10.
C. 1
D. .10.

 
18. As the reserve ratio goes down, the simple money multiplier
A. goes up, and more money will be created.
B. goes down, and less money will be created.
C. goes up, and less money will be created.
D. goes down, and more money will be created.

 
19. As the reserve ratio goes down, more money will be created because
A. the Fed will have to issue more money.
B. people will have to deposit more of their money.
C. people will have to hold more of their money as cash.
D. the bank will be able to make more loans.

 
20. Suppose the money multiplier is 4. Assuming no cash is held by individuals, what is the required reserve ratio?
A. 10%.
B. 25%.
C. 15%.
D. 20%.

 
21. If the required reserve ratio is 20% and individuals hold no cash, what is the maximum amount money stock is ultimately created when $2 million in new reserves is made available to the banking system?
A. $ 4 million.
B. $10 million.
C. $20 million.
D. $ 2 million.

 
22. If the required reserve ratio is 25% and individuals hold no cash, what is the maximum amount of new money stock that can be created from $5 million in new reserves available to the banking system?
A. $ 5 million.
B. $25 million.
C. $20 million.
D. $50 million.

 
23. Depositors are insured against commercial bank failure by the:
A. Federal Savings and Loan Insurance Corporation.
B. Federal Deposit Insurance Corporation.
C. Federal Open Market Committee.
D. U.S. Treasury.

 
24. Liquidity refers to the ability to:
A. make a high rate of return on an investment.
B. hold an asset until its maturity.
C. turn an asset into cash quickly.
D. turn a financial asset into a real asset quickly.

 
25. A bond has a face value of $10,000 and a coupon rate of 20 percent. It is issued in 1997 and matures in 2007. How much does the bond pay annually?
A. It depends upon how much you pay for it.
B. It depends upon how much its value is each year.
C. $2,000 every year until 2007 when you receive $2,000 plus the $10,000 face value.
D. $2,000 the first year, but then more in subsequent years depending upon market interest rates.

 
26. The U.S. money supply is regulated by:
A. Congress.
B. the president.
C. the Supreme Court.
D. the Federal Reserve.

 
27. The Fed tries to stabilize the economy using:
A. fiscal policy.
B. foreign policy.
C. trade policy.
D. monetary policy.

 
28. Which of the following is not a role of the central bank in the U.S.?
A. Acts as a financial adviser for the government.
B. Loans money to individuals.
C. Loans money to banks.
D. Creates money.

 
29. Each member of the Board of Governors of the Federal Reserve serves a:
A. 2 year term.
B. 4 year term.
C. 14 year term.
D. lifetime term.

 
30. How many regional banks compose the Fed?
A. 5.
B. 7.
C. 11.
D. 12.

 
31. Most monetary policy decisions are made by the:
A. Federal Open Market Committee.
B. Federal Depository Insurance Corporation.
C. Federal Advisory Council.
D. National Federal Reserve Bank.

 
32. The group of Federal Reserve officials who include 5 regional Fed bank presidents and 7 Fed governors and who gather around a table to discuss whether to increase interest rates is known as the:
A. Federal Open Market Committee.
B. Federal Bank Chairs.
C. Federal Advisory Council.
D. National Federal Reserve Bank.

 
33. One of the tools of monetary policy is:
A. changing tariff rates.
B. changing the discount rate.
C. changing the prime interest rate.
D. changing the minimum wage.

 
34. The reserve requirement is the __________ ratio of reserves to ___________ that a bank must have.
A. minimum; net worth.
B. minimum; deposits.
C. maximum; net worth.
D. maximum; deposits.

 
35. The amount a bank can safely lend out is called:
A. total reserves.
B. excess reserves.
C. required reserves.
D. demand (checkable) deposits.

 
36. The Fed sets:
A. the corporate income tax.
B. the tax on unearned income.
C. reserve requirements.
D. the sales tax on gasoline.

 
37. To increase the nation's money supply, the Fed can:
A. buy government securities in the open market.
B. increase reserve requirements.
C. increase the discount rate.
D. sell government securities in the open market.

 
38. When the Fed decreases the reserve requirement, it:
A. expands the money supply because banks have more to lend.
B. expands the money supply because banks have less to lend.
C. contracts the money supply because banks have more to lend.
D. contracts the money supply because banks have less to lend.

 
39. If the Fed slightly increases the reserve requirement, it _________ the amount of excess reserves.
A. decreases.
B. doesn't affect.
C. increases.
D. slightly increases.

 
40. As a tool of monetary policy, changes in the required reserve ratio:
A. are extremely powerful, so the ratio is rarely changed.
B. have little or no impact on the money supply, so the ratio is rarely changed.
C. are frequently used to make adjustments in the money supply.
D. occur more frequently than changes in the discount rate.

 
41. Suppose the required reserve ratio is 25% and there are no cash holdings. A $1 billion purchase of government securities by the Fed will:
A. increase the potential amount of checkable deposits in the banking system by $4 billion.
B. increase the potential amount of checkable deposits in the banking system by $1 billion.
C. reduce the potential amount of checkable deposits in the banking system by $1 billion.
D. reduce the potential amount of checkable deposits in the banking system by $4 billion.

 
42. To increase the nation's money supply, the Fed can:
A. increase the required reserve ratio.
B. buy bonds.
C. increase the discount rate.
D. sell bonds.

 
43. The discount rate is the interest rate:
A. that commercial banks charge investors.
B. that the Federal Reserve Banks charge individuals.
C. that the Federal Reserve Banks charge banks for loans.
D. that the World Bank charges developing countries.

 
44. The Fed expects an undesired decrease in aggregate expenditures this year. To offset that decrease, the Fed should:
A. engage in open market purchases of securities.
B. engage in open market sales of securities.
C. raise the discount rate.
D. raise reserve requirements.

 
45. Which of the following is the most commonly used tool by the Fed to affect money supply in the economy?
A. Changing the reserve requirement.
B. Changing the discount rate.
C. Buying and selling bonds.
D. Changing the exchange rate.

 
46. If the Fed sells securities through its open market operations the money supply will: 
A. decrease.
B. remain the same.
C. increase.
D. increase with how much depending on what happens to the discount rate.

 
47. Suppose the approximate money multiplier in the U.S. is 4. If the Fed wants to contract the money supply by 600 it should:
A. buy government securities worth 150.
B. buy government securities worth 600.
C. sell government securities worth 150.
D. sell government securities worth 600.

 
48. Suppose the approximate money multiplier in the U.S. is 2.5. If the Fed wants to increase money supply by 1000 it should:
A. buy government securities worth 250.
B. buy government securities worth 400.
C. sell government securities worth 250.
D. sell government securities worth 400.

 
49. Suppose the approximate money multiplier in the U.S. is 2.5. If the Fed wants to increase money supply by 1500 it should:
A. raise the required reserve ratio to 0.2.
B. raise the discount rate by 2 percentage points.
C. buy government securities worth 600.
D. sell government securities worth 600.

 
50. When the Fed sells bonds, this should:
A. should increase the Federal funds rate.
B. should reduce the reserve requirement.
C. should increase the reserve requirement.
D. should decrease the discount rate.

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This is the end of the test. When you have completed all the questions and reviewed your answers, press the button below to grade the test.