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In defining money as M1, economists exclude time deposits because:
They are not directly or immediately a medium of exchange
Which of the following is NOT part of the M2 money supply?
Large (&100,000 or more) time deposits
The M2 money supply includes:
Individual shares in money market mutual funds
Currency in circulation is part of:
M1, M2 and MZM
Money market deposit accounts are included in:
Both M2 and MZM
Checkable deposits are:
Included in NM1 and in M2
The difference between M1 and M2 is that:
The latter included small time deposits, noncheckable savings accounts, money market deposit accounts, and money market mutual fund balances
MZM includes:
M2 minus small time deposits plus money market mutual funds held by buisnesses
During period of apid inflation, money may cease to work as a medium of exchange:
Because people and buisnesses will not want to accept it in transactions
Stabilizing a nation’s price level and the purchasing power of its money can be achieved:
With both fiscal and monetary policy
The basic policy-making body in the US banking system is the:
Board of Governors of the Federal Reserve
The Federal Reserve System was created in:
1913
In the US economy the money supply is controlled by the:
Federal Reserve System
The group that sets the Federal Reserve System policy on buying and selling governement securities (bills, notes and bonds) is the:
Federal Open Market Committee (FOMC)
An imoprtant routine function of the Federal Reserve Bank is to:
Provide facilities by which commercial bandes and thrift institutions may collect checks
Research for infustrially advanced countries indicates that:
The more independent the central bank, the lower the average annual rate of inflation.
Firms whose central buisness is providing individual account shares of collections of stocks, bonds, or both are known as:
Mutual Funds Companies
The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $100,000 in:
Commercial banks and thirfts
The Financial Services Modernization Act of 1999:
Permitted banks, thrifts, pension companies, and securities firms to merge and to sell each other’s products.
When the receipts given by goldsmiths to depositors were used to make purchases:
The recipts became in effect paper money
Which one of the following is presently a major deterrernt to bank panics in the US?
Deposit Insurance
In a fractional reserve banking system:
Banks can create money through the lending process
A bank that has assets of &85 billion and a net worth of $10 billion must have:
Liabilities of $75 billion
Which of the following are all assets to a commercial bank?
Vault cash, property and reserves
The primary purpose of the loegal reserve requirement is to:
Provide a means by which the monetary authorities can influence the lending ability of commercial banks
Suppose a commercial bank has checkable deposits of $100,000 and the legal reserve ration is 10 percent. If the bank’s required and excess reserves are equal, then its actual reserves:
Are $20,000
Suppose the reserve requirement is 20%. If a bank has checkable deposits of $4 million and actual reserves of $1 million, it can sdafely lend out:
$200,000
The amount that a commercial bank can lend is determined by its:
Excess reserves
Assume that Smith deposits $600 in currency into her checking account in the XYZ Bank. Later that same day, Jones negotiates a loan for $1,200 at the same bank. In what direction and by what amount has the supply of money changed?
Increased by $1,200
A single commercial bank must meet at 25 percent reserve requirement. If the bank has no excess reserves initially and $5,000 of cash is deposited in the bank, it can increase its loans by a maximum of:
$3,750
Which of the following are CORRECT?
Actual reserves MINUS required reserves EQUAL excess reserves
Suppose a savings and loan association has checkable deposits of $500,000 and the legal reserve ratio is 10 percent. If the institution has excess reserves of $4,000, then its actual reserves are:
$54,000
When commercial banks use excess reserves to buy goverment securities from the public:
New money is created
Which of the following would reduce the money supply?
Commercial banks sell government bonds to public
A bank temporarily short of required reserves may be able to remedy this situations by:
Borrowing funds in the Federal funds market
The multiple by which the commerical banking system can increase the supply of money on the basis of each dollar of excess reserves is equal to:
The reciproical of the legal reserve ratio
If the reserve ration is 15 percent an commerical bankers decide to hold additional excess reserves equal to 5 percent of any newly acquired checkable deposits, then the relevant monetary muliplier for the banking system will be:
5
Suppose a commercial banking system has $100,000 of outstanding checkable deposits and actual reserves of $35,000. If the reserve ration is 20 percent, the banking system can expand the supply of money by the maximum amount of:
$75,000
If a portion of the loans extended by commerical banks is taken as cash rather than as checkable deposits, the maximum money-creating potential of the commercial banking system will:
Decrease
If excess reserves in the banking system are $4,000, checkable deposits are $40,000 and the leal reserve ratio is 10 percent, then actual reserves are:
$8,000
If the monetary authorities want to reduce the monetary multiplier, they should:
Raise the legal reserve ration
On a diagram where the interest rate and the quanitity of money demanded are shown on the vertical and horizontal axes respectively, the total demand for money can befound by:
Horizontally adding the transactions and the asset demand for money
The equilibrium rate of interest in the market for money is determined by the intersectiopn of the:
Supply of money curve and the total demand for money curve
Which of the following is CORRECT?
Interst rates and bond prices vary inversely
Reserves must be deposited in the Federal Reserve Banks by:
All depository institutions, that is, all commercail banks and thrift institutions
Which of the following will INCREASE commerical bank reserves?
The purchaswe of government bonds in the open marketby the federal reserve banks
The Federal Reserve Banks sell government securities to the public. As a result, the checkable deposits:
And reserves of commercil banks both decrease
In the US, monetary policy is the responsibility of the:
Board of Governor of the Federal Reserve System
The three main tools of monetary policy are:
The discount rate, the reserve ration, and open market operations.
Open market operations refer to:
The purcahse of sale of government securities by the Fed
The purchase of government securitiesd from the publ by the Fed will cause:
The money supply to increase
Which of the following statements is correct?
Excess reserves are the amouint by which actual reserves exceed required reserves
The Federal Reserve Sytem regulates the money supply primarily by:
Altering the reserves of commercial banks, largely through sales and purchasesof governement bonds
An increase in the legal reserve ratio:
Decreases the money supply of decreasing excess reserves and decreasing the monetary multiplier
Assume that the commercial banking system has checkable deposits of $10 billion and excess reserves of $1 billion at a time when the reserve requirement is 20 percent. If the reserve requirement is now raised to 30 percent, the banking system then has:
neither an excess nor a deficiency of reserves
The discount rate is the interest:
Rate at which the Federal Reserve Banks lend to commercial banks
A commercial bank can add to its actual reserves by:
Borrowing from a Federal Reserve Bank
Which of the following tools of monetary policy is considered the most imporatant?
Open market operations
The interest rate that banks charge one another on overnighht loans is called the:
Federal funds rate
Which of the following statements is true?
The Federal Reserve doesd not set the Federal funds rate, but it influences it through the use of open market operations
Generally, the prime interest rate:
Moves in the same direction as the Federal funds rate
The Fed’s inital step in pursuing restrictive monetary policy using the Federal funds rate is to:
Announce a higher target
To increase the Federal funds rate, the Fed can:
Sell government bonds to commercial banks.
Which of the following bet describes the cause-effect chain of expansionary monetary policy?
An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP
A contraction of the money supply:
Increases the interest rate and decreases aggregate demand
Monetary policy is expected to have its greatest impact on:
Ig
One of the strenghts of monetary policy relative to fiscal policy is the monetary policy:
Can be implemented more quickly
Money functions as:
All of the above –

a store of value, a unit of account, a medium of exchange

When economists say that money serves as a store of value, they mean that it is:
A way to keep wealth in a readily spendable form for future use
The paper money used in the United States is:
Federal Reserve Notes
In the United States, the money supply (M1) is comprised of:
Coins, paper currency, and checkable deposits
The money supply is backed:
By the government’s ability t control the supply of money and therefore to keep its value relatively stable
Currency (paper money plus coins) constitutes about:
54 percent of the U.S. M1 money supply

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