Question 1

After the Federal Reserve increases reserves in the banking system, banks create new deposits through multiple rounds of lending and accepting deposits until the:

Accepted Answer

A)   Federal Reserve requires them to stop.
B)   deposit insurance limit is reached.
C)   actual reserve/deposit ratio is greater than the desired reserve/deposit ratio.
D)   actual reserve/deposit ratio is equal to the desired reserve/deposit ratio.E) A) and C)
F) B) and C)

Question 2

Based on the information in the table, what quantity of reserves did the Federal Reserve inject into the economy in 1932?

Accepted Answer

A)   $0.30 billion
B)   $0.23 billion
C)   $0.16 billion
D)   $0.07 billionE) A) and B)
F) A) and C)

Question 3

When the central bank sells $1,000,000 worth of government bonds to the public, the money supply:

Accepted Answer

A)   decreases by more than $1,000,000.
B)   decreases by $1,000,000.
C)   decreases by less than $1,000,000.
D)   increases by $1,000,000.E) A) and C)
F) A) and B)

Question 4

The two main responsibilities of the Federal Reserve System are to ______ and to ______.

Accepted Answer

A)   apprehend counterfeiters; regulate the stock market
B)   enable banks to make affordable mortgages; control the exchange rate of the U.S. dollar
C)   insure bank deposits; print currency
D)   conduct monetary policy; oversee financial marketsE) B) and D)
F) B) and C)

Question 5

Based on the information in the table, what quantity of reserves would the Federal Reserve have had to inject into the economy in 1932 to prevent the money supply from falling, given that the public increased the amount of currency it held and that banks increased the reserve-deposit ratio?

Accepted Answer

A)   $0.30 billion
B)   $0.66 billion
C)   $0.89 billion
D)   $3.54 billionE) B) and C)
F) C) and D)

Question 6

Assets of the commercial banking system include:

Accepted Answer

A)   reserves and loans.
B)   deposits.
C)   reserves and deposits.
D)   loans and deposits.E) B) and C)
F) C) and D)

Question 7

Savers may prefer to use financial intermediaries rather than lending directly to borrowers because financial intermediaries:

Accepted Answer

A)   reduce the cost of gathering information about borrowers.
B)   have a monopoly on lending.
C)   increase the risk of lending.
D)   offer higher rates of return than available elsewhere.E) B) and C)
F) A) and D)

Question 8

An increase in interest rates results in a(n)  ______ in the required rate of return to hold stocks and ______ current stock prices.

Accepted Answer

A)   increase; reduces
B)   increase; raises
C)   decrease; raises
D)   decrease; reducesE) B) and D)
F) B) and C)

Question 9

You expect a share of EconNews.Com to sell for $65 a year from now. If you are willing to pay $65.74 for one share of the stock today, and you require a return of 8%, what dividend payment must you expect to receive from the stock?

Accepted Answer

A)   $4.46
B)   $5.20
C)   $6.00
D)   $9.25E) None of the above
F) A) and C)

Question 10

The main disadvantage of using money as a store of value is that:

Accepted Answer

A)   other assets provide greater anonymity than cash.
B)   barter is a more efficient way to conduct transactions than using money.
C)   unlike other assets, money serves as a medium of exchange.
D)   other assets pay relatively higher rates of interest than money.E) None of the above
F) All of the above

Question 11

Deposit insurance is a system in which the government guarantees that:

Accepted Answer

A)   depositors will not lose any money even if their bank goes bankrupt.
B)   people can have deposits at commercial banks.
C)   commercial banks will not go bankrupt.
D)   commercial banks will not lose any deposits.E) None of the above
F) A) and B)

Question 12

The Federal Open Market Committee makes decisions about ______ policy.

Accepted Answer

A)   monetary
B)   fiscal
C)   banking
D)   deposit insuranceE) None of the above
F) A) and B)

Question 13

If you put a $20 bill in the pocket of your winter coat at the beginning of spring so that you will be surprised when you find it again next winter, you are using money as:

Accepted Answer

A)   bank reserves.
B)   a medium of exchange.
C)   a unit of account.
D)   a store of value.E) A) and C)
F) All of the above

Question 14

The central bank of the United States is:

Accepted Answer

A)   Bank of America.
B)   Bank of the United States.
C)   the U.S. Treasury.
D)   the Federal Reserve System.E) B) and C)
F) None of the above

Question 15

All of the following are considered money in the United States EXCEPT:

Accepted Answer

A)   credit cards.
B)   currency.
C)   travelers' checks.
D)   checking account balances.E) All of the above
F) C) and D)

Question 16

Firms that extend credit to borrowers using funds from raised from savers are called:

Accepted Answer

A)   bond dealers.
B)   stock brokers.
C)   central banks.
D)   financial intermediaries.E) None of the above
F) A) and B)

Question 17

Bank depositors will not lose their deposits in a banking panic if:

Accepted Answer

A)   there is fractional reserve banking.
B)   there is 100% reserve banking.
C)   there is a central bank.
D)   the actual reserve/deposit ratio equals the desired reserve/deposit ratio.E) C) and D)
F) A) and B)

Question 18

The practice of spreading one's wealth over a variety of different financial investments in order to reduce overall risk is called:

Accepted Answer

A)   allocation.
B)   following the risk premium.
C)   diversification.
D)   risk reservation.E) C) and D)
F) A) and B)

Question 19

The current price of a stock increases when:

Accepted Answer

A)   expected future dividends decrease.
B)   the expected future price of the stock decreases.
C)   interest rates decrease.
D)   the perceived riskiness of the stock increases.E) B) and C)
F) A) and D)

Question 20

If banks' desired reserve ratio increases from 0.10 to 0.15, the public still desires to hold the same amount of currency, and the Fed takes no actions, the money supply will:

Accepted Answer

A)   increase.
B)   decrease.
C)   not change.
D)   either increase or decrease.E) A) and B)
F) A) and D)

Exam 9: Money, The Federal Reserve, and Global Financial Markets

The central bank of the United States is:

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An increase in interest rates results in a(n) ______ in the required rate of return to hold stocks and ______ current stock prices.

Correct AnswerverifiedShow Answer

The practice of spreading one's wealth over a variety of different financial investments in order to reduce overall risk is called:

Correct AnswerverifiedShow Answer

Deposit insurance is a system in which the government guarantees that:

Correct AnswerverifiedShow Answer

The main disadvantage of using money as a store of value is that:

Correct AnswerverifiedShow Answer

Based on the information in the table, what quantity of reserves would the Federal Reserve have had to inject into the economy in 1932 to prevent the money supply from falling, given that the public increased the amount of currency it held and that banks increased the reserve-deposit ratio?

Correct AnswerverifiedShow Answer

If you put a $20 bill in the pocket of your winter coat at the beginning of spring so that you will be surprised when you find it again next winter, you are using money as:

Correct AnswerverifiedShow Answer

The Federal Open Market Committee makes decisions about ______ policy.

Correct AnswerverifiedShow Answer

Savers may prefer to use financial intermediaries rather than lending directly to borrowers because financial intermediaries:

Correct AnswerverifiedShow Answer

The two main responsibilities of the Federal Reserve System are to ______ and to ______.

Correct AnswerverifiedShow Answer

If banks' desired reserve ratio increases from 0.10 to 0.15, the public still desires to hold the same amount of currency, and the Fed takes no actions, the money supply will:

Correct AnswerverifiedShow Answer

You expect a share of EconNews.Com to sell for $65 a year from now. If you are willing to pay $65.74 for one share of the stock today, and you require a return of 8%, what dividend payment must you expect to receive from the stock?

Correct AnswerverifiedShow Answer

After the Federal Reserve increases reserves in the banking system, banks create new deposits through multiple rounds of lending and accepting deposits until the:

Correct AnswerverifiedShow Answer

Based on the information in the table, what quantity of reserves did the Federal Reserve inject into the economy in 1932?

Correct AnswerverifiedShow Answer

All of the following are considered money in the United States EXCEPT:

Correct AnswerverifiedShow Answer

When the central bank sells $1,000,000 worth of government bonds to the public, the money supply:

Correct AnswerverifiedShow Answer

The current price of a stock increases when:

Correct AnswerverifiedShow Answer

Firms that extend credit to borrowers using funds from raised from savers are called:

Correct AnswerverifiedShow Answer

Assets of the commercial banking system include:

Correct AnswerverifiedShow Answer

Bank depositors will not lose their deposits in a banking panic if:

Correct AnswerverifiedShow Answer

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An increase in interest rates results in a(n) in the required rate of return to hold stocks and current stock prices.

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The two main responsibilities of the Federal Reserve System are to and to .

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