Which one of the following statements is true

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1. The Fed can change the money supply by buying or selling long-term Treasury bonds. Purchasing long-term securities is commonly called __________.

A. open market operations

B. discount operations

C. federal funds speculation

D. quantitative easing

2. The Federal Reserve influences the level of interest rates in the short run by changing the __________.

A. demand for money through open market operations

B. demand for money through changes in reserve requirements

C. supply of money through open market operations

D. supply of money through changes in stock market operations

3. Consider how the value of the U.S. dollar affects the worldwide increase in commodity prices to answer the following two question(s.. Starting in the summer of 2010, there was a rise in prices of commodities such as oil and food worldwide. Some economists suggested that monetary policy in the United States was the cause of the worldwide commodity boom. According to this scenario, some economists noticed that the U.S. dollar __________ largely because monetary policy in the United States had driven interest rates __________.

A. depreciated; down

B. depreciated; up

C. appreciated; down

D. appreciated; up

4. Which of the following serves as the central bank for the United States?

A. the Federal Reserve System

B. the Treasury Department

C. the Federal Deposit Insurance Corporation

D. the Congress

5. When money is used to express the value of goods and services, it is functioning as a __________.

A. medium of exchange

B. store of value

C. unit of account

D. store of purchasing power

6. When checks are exchanged between banks, the Fed oversees the banks to ensure the appropriate funds have been transferred. This is known as __________.

A. check kiting

B. check clearing

C. check floating

D. check balancing

7. If money is used as a mechanism to hold purchasing power for a period of time, it is functioning as a __________.

A. standard of value

B. store of value

C. medium of exchange

D. unit of account

8. An increase in the reserve requirement __________.

A. increases the money supply, which leads to increased interest rates and a decrease in GDP

B. increases the money supply, which leads to decreased interest rates and a decrease in GDP

C. decreases the money supply, which leads to increased interest rates and a decrease in GDP

D. decreases the money supply, which leads to decreased interest rates and a decrease in GDP

9. A bank's reserves __________.

A. are the sum of its excess and required reserves

B. can be held as cash in its vault

C. can be held as deposits with the Federal Reserve

D. all of the above

10. The supply of money in the U.S. economy is determined primarily by __________.

A. decisions made by the Federal Reserve and the U.S. Treasury

B. the actions of the Federal Reserve and the banking system

C. consumers and the banking system

D. the demand for money in the economy

11. A bank may make loans until its __________.

A. required reserves are exhausted

B. excess reserves are exhausted

C. total assets are exhausted

D. total liabilities are exhausted

12. To increase the money supply using the reserve requirements, what would the Fed typically do?

A. increase the reserve requirement for banks

B. reduce the reserve requirement for banks

C. make each bank set its own reserve levels

D. let each bank get more currency from the Treasury

13. Money guarantees that there is a(n. __________, because it will always be accepted in exchange for a desired service or good.

A. double coincidence of wants

B. open market

C. fiat

D. human interaction

14. Loans are examples of a bank's __________.

A. assets

B. liabilities

C. net worth

D. balance sheet

15. Which one of the following statements is true?

A. Demand deposits are assets of a bank.

B. A bank's assets plus its liabilities equals must equal zero.

C. A bank's reserves can only be kept as cash in its vault.

D. Assets generate income for a bank

16. An open market __________ by the Fed increases the money supply, which leads to __________ interest rates and increased GDP.

A. purchase; increased

B. purchase; decreased

C. sale; increased

D. sale; decreased

17. All of the following statements are true of the Federal Reserve EXCEPT __________.

A. it acts as the central bank for all countries in the world

B. along with the Board of Governors, the chairperson of the Federal Reserve determines monetary policies and strategies based on the state of economy

C. it supplies currency to the economy

D. it holds reserves from banks and regulates banks

18. By law, banks are required to __________.

A. hold 100 percent of customer deposits as reserves

B. hold a fraction of their reserves at the Federal Reserve bank

C. hold a fraction of demand deposits as reserves

D. lend out no more than the amount of their required reserves

19. Consider how the value of the U.S. dollar affects the worldwide increase in commodity prices to answer the following two question(s.. Starting in the summer of 2010, there was a rise in prices of commodities such as oil and food worldwide. Some economists suggested that monetary policy in the United States was the cause of the worldwide commodity boom. Some economists noticed that the change in the value of the U.S. dollar was largely due to the change in interest rates, and the change in interest rates occurred because of the Fed's use of __________ to further stimulate the economy.

A. open market sales

B. quantitative easing

C. discount operations

D. open market purchases

Reference no: EM131345106

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