Questions:
1. The banking system can expand the total number of loans
as long as it wants to.
as long as there are excess reserves in the system.
only if it has the consent of the Fed.
only if all banks are national banks.
Question 2.2. If the Fed sells government bonds on the open market, which of the following will NOT occur?
the money supply will contract.
the yield on corporate bonds will increase.
the yield on government bonds will increase.
the interest rate will fall.
the amount of investment spending will decrease.
Question 3.3. If the demand for money is highly sensitive to changes in the interest rate, a small decrease in the interest rate will cause
people to buy more bonds.
people to hold much more money.
the money supply to fall.
the aggregate supply curve to shift to the left.
Question 4.4. The fact that money is legal tender increases its
recognizability.
durability.
acceptability.
divisibility.
portability.
Question 5.5. All but which one of the following are roles of the Fed?
lender of last resort
controller of the money supply
banker to the public
supervisor of banks
check-clearer for banks
Question 6.6. If the money supply expands, according to monetarists, what is the most likely response by households?
Spend it.
Lend it.
Save it.
No change in behavior unless real income has changed.
Question 7.7. M1 includes all but which one of the following?
checkable deposits
currency
traveler's checks
coins
bank CDs
Question 8.8. The most important monetary tool of the Federal Reserve System is
changes in the discount rate.
changes in legal reserve requirements.
loans to banks.
loans to the public.
open market operations.
Question 9.9. Suppose total reserves = $ 1,000,000, checkable deposits = $5,000,000, and reserve ratio = 10 percent. What are the bank's excess reserves?
$4,000,000
$6,000,000
$1,000,000
$4,900,000
$500,000
Question 10.10. A bank's lending out a portion of the deposits of its customers is
not allowed in banking practice today.
allowed with the permission of the borrower.
called fractional reserve banking.
not as important as it was in the Middle Ages.
called 100 percent.
reserves.