Question 1

In an open-market sale the Federal Reserve ______ government bonds and the supply of bank reserves ____.

Accepted Answer

A)   buys; increases
B)   buys; decreases
C)   sells; increases
D)   sells; decreasesE) C) and D)
F) B) and C)

Question 2

When money is used to purchase goods and services, it serves as a:

Accepted Answer

A)   double coincidence of wants.
B)   store of value.
C)   medium of exchange.
D)   unit of account.E) A) and B)
F) B) and C)

Question 3

A financial intermediary that sells shares in itself to the public, and then uses the funds to buy a wide variety of financial assets is called a:

Accepted Answer

A)   commercial bank.
B)   credit union.
C)   stock exchange.
D)   mutual fund.E) B) and C)
F) A) and D)

Question 4

If you post your car on eBay with a Buy-It-Now price of $1,800, 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) B) and C)
F) A) and D)

Question 5

When the actual reserve/deposit ratio exceeds the desired reserve/deposit ratio banks:

Accepted Answer

A)   do nothing because this is a profitable situation.
B)   stop making loans.
C)   send the extra reserves to the central bank.
D)   make more loans.E) A) and B)
F) None of the above

Question 6

The M2 measure of money consists of the sum of:

Accepted Answer

A)   savings deposits, small time deposits, and money market mutual funds.
B)   currency, checking and savings deposits, and small time deposits.
C)   currency, checking and savings deposits.
D)   M1, savings deposits, small time deposits, and money market mutual funds.E) A) and D)
F) B) and D)

Question 7

Based on the following information, the value of the M1 measure of the money supply is ______ and the value of the M2 measure of the money supply is ______.

Accepted Answer

A)   $530 billion; $3,700 billion
B)   $330 billion; $4,230 billion
C)   $520 billion; $4,320 billion
D)   $530 billion; $4,230 billionE) C) and D)
F) All of the above

Question 8

When a U.S. restaurant purchases French wine and the French wine company uses the proceeds to buy U.S. government debt, U.S. ______ and there is a capital ______ the United States.

Accepted Answer

A)   imports increase; outflow from
B)   imports decrease; inflow to
C)   imports increase; inflow to
D)   exports increase; outflow fromE) A) and D)
F) B) and C)

Question 9

Based on the information in the table, the total amount of bank deposits decreased from ______ to ______ over the course of 1932.

Accepted Answer

A)   $37.3 billion; $32.7 billion
B)   $32.7 billion; $29.2 billion
C)   $34.2 billion; $30.8 billion
D)   $37.3 billion; $34.0 billionE) All of the above
F) A) and C)

Question 10

An open-market purchase of government securities by the Fed will:

Accepted Answer

A)   increase bank reserves, and the money supply will increase.
B)   decrease bank reserves, and the money supply will increase.
C)   increase bank reserves, and the money supply will decrease.
D)   decrease bank reserves, and the money supply will decrease.E) A) and B)
F) A) and C)

Question 11

The most important, most convenient, and most flexible way in which the Federal Reserve affects the supply of bank reserves is through:

Accepted Answer

A)   conducting open-market operations.
B)   changing the Federal Reserve discount rate.
C)   changing bank reserve requirement ratios.
D)   changing interest rates.E) B) and D)
F) A) and D)

Question 12

The principal amount of a bond is the amount:

Accepted Answer

A)   originally lent.
B)   of interest agreed upon when the bond was originally issued.
C)   paid to the bondholders on a regular basis.
D)   of interest the bondholder is entitled to when the bond matures.E) C) and D)
F) A) and B)

Question 13

Shares of stock are:

Accepted Answer

A)   legal promises to repay a debt.
B)   claims to partial ownership of a firm.
C)   regular payments made to owners of a firm.
D)   legal promises to make regular payments to the stockholder.E) B) and D)
F) C) and D)

Question 14

At each value of the domestic interest rate, decreases in the riskiness of domestic assets ______ capital inflows, ______ capital outflows, and ______ net capital inflows.

Accepted Answer

A)   increase; increase; increase
B)   increase; increase; decrease
C)   increase; decrease; increase
D)   decrease; decrease; decreaseE) B) and C)
F) C) and D)

Question 15

During the 1960s and 1970s, the U.S. trade balance was close to zero, but during the 1980s, the trade deficit ballooned to unprecedented levels due to:

Accepted Answer

A)   an inability of U.S. companies to compete in the international market.
B)   a decline in private saving that resulted from an upsurge in consumption.
C)   a decline in national saving caused largely by rapidly rising government budget deficits.
D)   a worldwide recession that made it difficult for American companies to sell their products abroad.E) B) and D)
F) None of the above

Question 16

Refer to the table below. The amount of currency held by the public ______, and the amount of reserves held by banks ______. It must be the case that, in 1932, the Federal Reserve ______.

Accepted Answer

A)   increased; also increased; increased the discount rate
B)   decreased; also decreased; kept the rate of inflation low
C)   decreased; increased; performed open-market operations
D)   increased; also increased; injected reserves into the economyE) All of the above
F) C) and D)

Question 17

When a bank makes a loan by crediting the borrower's checking account balance with an amount equal to the loan:

Accepted Answer

A)   money is created.
B)   the bank gains new reserves.
C)   the bank immediately loses reserves.
D)   the Fed has made an open-market purchase.E) B) and C)
F) A) and C)

Question 18

In an open economy, the domestic real interest rate is determined by:

Accepted Answer

A)   domestic saving, domestic investment, and net capital inflows.
B)   domestic investment.
C)   domestic saving and domestic investment.
D)   domestic saving and net capital inflows.E) B) and C)
F) A) and B)

Question 19

A banking panic is an episode in which:

Accepted Answer

A)   depositors, spurred by news or rumors of possible bankruptcy of one bank, rush to withdraw deposits from the banking system.
B)   commercial banks, fearing Federal Reserve sanctions, unwillingly participate in open-market operations.
C)   commercial banks, concerned about high interest rates, rush to borrow at the Federal Reserve discount rate.
D)   depositors, afraid of increasing interest rates, attempt to engage in discount-window borrowing at the Federal Reserve.E) B) and C)
F) A) and D)

Question 20

The direct trade of goods and services for other goods and services is called:

Accepted Answer

A)   financial intermediation.
B)   diversification.
C)   barter.
D)   using a medium of exchange.E) C) and D)
F) All of the above

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

Based on the information in the table, the total amount of bank deposits decreased from ______ to ______ over the course of 1932.

Correct AnswerverifiedShow Answer

When a bank makes a loan by crediting the borrower's checking account balance with an amount equal to the loan:

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An open-market purchase of government securities by the Fed will:

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Based on the following information, the value of the M1 measure of the money supply is ______ and the value of the M2 measure of the money supply is ______.

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Shares of stock are:

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When money is used to purchase goods and services, it serves as a:

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In an open economy, the domestic real interest rate is determined by:

Correct AnswerverifiedShow Answer

A banking panic is an episode in which:

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The M2 measure of money consists of the sum of:

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When a U.S. restaurant purchases French wine and the French wine company uses the proceeds to buy U.S. government debt, U.S. ______ and there is a capital ______ the United States.

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The principal amount of a bond is the amount:

Correct AnswerverifiedShow Answer

When the actual reserve/deposit ratio exceeds the desired reserve/deposit ratio banks:

Correct AnswerverifiedShow Answer

The direct trade of goods and services for other goods and services is called:

Correct AnswerverifiedShow Answer

If you post your car on eBay with a Buy-It-Now price of $1,800, you are using money as:

Correct AnswerverifiedShow Answer

In an open-market sale the Federal Reserve ______ government bonds and the supply of bank reserves ____.

Correct AnswerverifiedShow Answer

At each value of the domestic interest rate, decreases in the riskiness of domestic assets ______ capital inflows, ______ capital outflows, and ______ net capital inflows.

Correct AnswerverifiedShow Answer

A financial intermediary that sells shares in itself to the public, and then uses the funds to buy a wide variety of financial assets is called a:

Correct AnswerverifiedShow Answer

During the 1960s and 1970s, the U.S. trade balance was close to zero, but during the 1980s, the trade deficit ballooned to unprecedented levels due to:

Correct AnswerverifiedShow Answer

The most important, most convenient, and most flexible way in which the Federal Reserve affects the supply of bank reserves is through:

Correct AnswerverifiedShow Answer

Refer to the table below. The amount of currency held by the public ______, and the amount of reserves held by banks ______. It must be the case that, in 1932, the Federal Reserve ______.

Correct AnswerverifiedShow Answer

Based on the information in the table, the total amount of bank deposits decreased from to over the course of 1932.

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Based on the following information, the value of the M1 measure of the money supply is and the value of the M2 measure of the money supply is .

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When a U.S. restaurant purchases French wine and the French wine company uses the proceeds to buy U.S. government debt, U.S. and there is a capital the United States.

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In an open-market sale the Federal Reserve __ government bonds and the supply of bank reserves .

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At each value of the domestic interest rate, decreases in the riskiness of domestic assets capital inflows, capital outflows, and __ net capital inflows.

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Refer to the table below. The amount of currency held by the public , and the amount of reserves held by banks . It must be the case that, in 1932, the Federal Reserve __.

Correct Answer
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