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Exam 16: The Monetary System

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Question 21

Multiple Choice

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Credit cards are

A) a medium of exchange.
B) counted as part of M2 but not as part of M1.
C) important for analyzing the monetary system.
D) All of the above are correct.

E) A) and B)
F) A) and C)

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Question 22

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To increase the money supply, the Fed could

A) sell government bonds.
B) decrease the discount rate.
C) increase the reserve requirement.
D) None of the above is correct.

E) B) and C)
F) A) and D)

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Question 23

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Which of the following increase when the Fed makes open market purchases?

If the Fed buys bonds in the open market, the money supply decreases.

Banks can hold deposits at the Federal Reserve. Balances in these accounts can be used by banks to meet their reserve requirements, but the Fed pays no interest on these deposits.

Fractional reserve banking is a system where banks must hold an amount of cash based on a percentage of its loans.

Scenario 29-2. The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi. The local unit of currency is the taz. Aggregate banking statistics show that collectively the banks of Tazi hold 300 million tazes of required reserves, 75 million tazes of excess reserves, have issued 7,500 million tazes of deposits, and hold 225 million tazes of Tazian Treasury bonds. Tazians prefer to use only demand deposits and so all money is on deposit at the bank. -Refer to Scenario 29-2. Suppose that the Bank of Tazi changes the reserve requirement to 3 percent. Assuming that the banks still want to hold the same percentage of excess reserves what is the value of the money supply after the change in the reserve requirement?

Which of the following is a store of value?

A bank loans Greg's Ice Cream $250,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

Many societies used gold as money, because

The banking system currently has $50 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed raises the reserve requirement to 12.5 percent and at the same time sells $10 billion worth of bonds, then by how much does the money supply change?

Which of the following is a liability of a bank and an asset of its customers?

The Fed can influence unemployment in

Suppose banks desire to hold no excess reserves and that the Fed has set a reserve requirement of 6 percent. If you deposit $8,000 into First Raven Bank,

Suppose the Federal Reserve increases bank reserves and banks lend out some of these reserves, but at some point banks still have $5 million more they wish to lend out. If the reserve requirement is 10 percent, how much more money can banks create if they lend out the remaining amount?

The discount rate is the rate the Federal Reserve charges banks for loans. By lowering this rate, the Fed provides banks with a greater incentive to borrow from it.

Roundabout trade decreases production.

If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

The money supply of Granov is $10,000 in a 100-percent-reserve banking system. If the Central Bank of Granov decreases the reserve requirement ratio to 10 percent, the money supply could increase by no more than $9,000.

U.S. dollars are an example of commodity money and hides used to make trades are an example of fiat money.