(11

)
In our Circular Flow example we see the Feds __________________ tool labeled as
Reserve Adjustments.


A weakest
B most powerful
C second most powerful
D next to weakest
An increase in interest rates generated by the FED selling bonds will, ceteris paribus,
___________ bond prices.
A decrease
B increase
C not change
D none of the aboveThe money multiplier process also works in reverse when a loan is repaid
since fewer checkable funds are then available to generate excess reserves.
True
False
Monetary policy is considered easy when the money supply is increasing rapidly, but considered
________ when the money supply is growing slowly.
A loose
B hard
C tight
Assume prices increase by 20 percent from a base year in 2010 to 2011. The price index moves
from 100 to 120 and therefore 1/120 x 100= _________ for the value (purchasing power) of a
dollar.
A 90 cents
B 83 cents
C 20 cents
D 11 cents
D none of the above
In the United States, the fractional reserve policy that governs commercial banking is controlled
by the ______________.
A Treasury Department
B Comptroller of the Currency
C Bureau of Engraving and the U.S. Mint
D Federal Reserve
With the multiplier effects in this example, Consumers obtained the income to spend an
additional $________ billion on new and efficiently produced products and services.


A 100
B 200
C 400
D 500
A requirement for maintaining a bank is that ____________ of depositors funds must be kept in
a legal reserve account .
A all
B none
C some (a relatively small portion)
D some ( a relatively large portion)
In our Circular Flow example we see the Feds __________________ tool labeled as Reserve
Adjustments.


A weakest
B most powerful
C second most powerful
D next to weakest
he equation of exchange is: M x ____ = P x Q
A S
B T
C U
D V
Credit cards are __________ according to the Feds definition since they are actually a debt
instrument for short term loans.
A part of M1
B part of M2
C not money
D money
In an inflationary period the money supply can be restrained by the Fed _______________
securities.
A selling
B buying
C either a. or b.
D none of the above
A bank holds the required reserve off of a new loan / deposit for one customer and then lends the
excess reserve to someone else, repeating the _______________ process many times.
A money creation
B money destruction
C both a. and b.
D none of the above
In the graph below, the equilibrium is at an interest rate is approximately __________ where the
quantity of money demanded is equal to quantity of money supplied.


A 2%
B 4%
C 6%
D 8%
______________ believe that there is only a small amount of crowding-out if any at all.
A Monetarists
B Keynesians
C All the above
D None of the above
Monetary policy is determined by the Fed, but must be coordinated with the _________ policy
through U.S. Treasury operations.
A fiscal
B environmental
C foreign
D domestic


_______________is the application of suggestion pressure and not force to encourage banks to
increase or decrease loan activity as is appropriate for the national economy.
A Reserve ratios
B Margin requirements
C Credit controls
D Moral suasion
One reason that monetary policy is believed to be very significant is because of its speed and
flexibility in implementation.
True
False
Only funds inside a banks vault are counted as part of the M1 money supply.
True
False
Assume $1,000 is deposited in a checkable account by Mr. Y in Bank A. Assume further that
the reserve requirement is 0.20. The total amount of money which can be created through the
entire banking system is $__________ .
A 9000
B 8000
C 4000
D 1000
In this Circular Flow example the Fed set about the task of cooling a powerful inflation that
resulted from too much __________________ .


A Consumer credit card binging
B Business borrowing and spending
C Buying of Foreign imports
D Government borrowing and spending
As a result of the rising interest rates in this example, Businesses had to reduce their Investment
Spending on _____________________.


A improved products, training and facilities
B the stock market
C gold
D Treasury bonds
Money functions as a _______________ when it is used to make purchases.
A Medium of exchange
B Standard of value
C Store of value
D All the above
In the middle portion of this decade, the $$$ value of currency as well as checkable deposits
was about $___________ billion each.
A 7000
B 3500
C 1400
D 700
The Fed can target both the growth in M1 and M2 as well as the _________________ (the
interest rate banks charge each other on overnight loans).
A Prime rate
B Discount rate
C Fed Funds rate
D None of the above
The quantity theory of money assumes there is a _________ relationship between the quantity of money and the
price level.
A strong
B weak
C very loose
D none of the above
The transactions demand for money varies __________ with nominal GDP, i.e. more money is
held for transactions when GDP is higher.
A reciprocally
B inversely
C directly
D indirectly
The ______________ demand for money is the quantity of money demanded at various interest
rate levels.
A transactions
B asset
C reciprocal
D inverse
________________ invested or made loans with 95 percent of the deposits that were being held.
A Adam Smith
B Milton Friedman
C John Say
D Goldsmiths
Approximately ___________ of commercial banks in the U.S. are chartered by state banking
commissions with the remainder being chartered by the Federal Comptroller of the Currency.
A one-third
B one-fourth
C two-thirds
D nine-tenths
The multiple by which the banking system can lend on the basis of __________ reserves is the
reciprocal of the reserve ratio.
A excess
B legal
C required
D none of the above
Paper money and coins in the United States is known as ____________ money since the
intrinsic value (commodity value) of the metal or paper is less than the face (purchasing power)
value.
A token
B funny
C silly
D none of the above
A banks balance sheet follows the accounting format that Assets = _______________ + Net
Worth
A Cash
B Buildings & Real Estate
C Liabilities
D None of the above
A higher Discount Rate tends to ___________ the price of loans because the overall supply of bank reserves tends to be smaller.
A increase
B stabilize
C decrease
D none of the above

Most of all, the American dollar is backed by ______________________ .
A the goods and services (GDP) produced by the economy
B the gold stored in Ft. Knox
C the gold stored by the New York Federal Reserve Bank
D none of the above
When a loan is repaid to a bank there are __________ funds available in the M1 money supply.
A more
B still the same amount of
C fewer
D none of the above
n this final Circular Flow example for our course, the starting point was a deep recession with 5
million cyclically unemployed people. A ______________ approach would suggest an active
approach by Government and might suggest that deficit spending be used to correct the problem.


A Utopian Socialist
B Classical
C Keynesian
D Monetarist
When a customer deposits $100 of cash into their checking account at a bank, there is an increase
within the banks equation (A = L + NW), but there is ______________ in the aggregate M1.
A a decrease
B also an increase
C no change
D none of the above
The level of reserves (depositor funds held back from making loans) is very important in
determining the money supply.
True
False
The functions of the Federal Reserve System are diverse. Among the functions performed by the
Fed are which of the following:
A Acts as a bankers bank by holding commercial bank deposits and lending money to commercial banks.
B Provides a check clearinghouse for commercial banks by electronic crediting and debiting of those banks
accounts
C Provides banking services for the U.S. federal government and supervises commercial banks in accordance
with banking law
D All the above
An increase in interest rates generated by the FED selling bonds will, ceteris paribus,
___________ bond prices.
A decrease
B increase
C not change
D none of the above
The money multiplier process also works in reverse when a loan is repaid since fewer checkable
funds are then available to generate excess reserves.
True
False
Monetary policy is considered easy when the money supply is increasing rapidly, but considered
________ when the money supply is growing slowly.
A loose
B hard
C tight
D none of the above