Multiple Choice Questions
Question 1.The actual expansion of the money supply may be less than the potential maximum if
banks choose to hold excess reserves.
individuals deposit currency in banks.
there are fewer banks in the system.
fiscal policy is contractionary.
less money is printed.
Question 2.Which of the following actions by the Fed would expand the money supply?
raising the discount rate
raising the reserve ratio
making fewer loans to financial institutions
buying government bonds
buying government stocks
Question 3.Checkable deposits are
not money.
deposits at bank that are redeemed by writing checks.
not stores of wealth.
bank paper money.
money, but a very small part of the supply.
Question 4.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 5.The monetary base is defined as
currency plus bank borrowings from the Fed.
bank reserves.
the public's holding of currency.
bank reserves plus currency in the hands of the public.
bank reserves plus bank vault cash.
Question 6.Individuals accept dollars because
dollars are backed by gold.
the government says they must.
they believe someone else will accept the dollars.
the Federal Reserve says they must.
there is no other choice.
Question 7.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 8.If the Federal Reserve creates excess bank reserves, banks are likely to
call in loans to cover reserves.
raise interest rates.
lower interest rates.
raise service charges.
Question 9.The transactions demand for money is related to
money as a store of value.
money as a unit of account.
money as a medium of exchange.
the interest rate.
the value of money as a form of wealth.
Question 10.When the Fed sets an interest rate target, the interest rate that it focuses on specifically is
the T-bill rate.
the nominal rate.
the federal funds rate.
the prime rate.
the real rate.