QUESTION 46 When the Fed buys a U.S. bond in the open market its action has no e
ID: 1205365 • Letter: Q
Question
QUESTION 46
When the Fed buys a U.S. bond in the open market
its action has no effect on the total reserves or the money supply because the check it writes increases reserves at one bank but they fall at another.
its action expands total reserves and the money supply.
its action contracts total reserves and the money supply.
total reserves increase by the amount of the purchase but the money supply stays the same.
1.11 points
QUESTION 47
When the Fed sells government securities,
reserves increase, leading to a decrease in the money supply by an amount more than the sale of the government securities.
reserves decrease, leading to a decrease in the money supply by an amount more than the sale of the government securities.
reserves increase, leading to a increase in the money supply by an amount more than the sale of the government securities.
reserves decrease, leading to a increase in the money supply by an amount more than the sale of the government securities.
1.11 points
QUESTION 48
The maximum potential money multiplier is equal to
the reserve ratio.
one minus the reserve ratio
the inverse of the required reserve ratio.
the number of dollars on reserve.
1.11 points
QUESTION 49
The potential money multiplier gives us
the growth in the money supply when income increases.
the growth in real national income when the money supply increases.
the maximum potential change in the money supply due to a change in income.
the maximum potential change in the money supply due to a change in reserves.
1.11 points
QUESTION 50
An increase in the reserve ratio
increases the money multiplier.
will cause banks to make more loans.
has an expansionary effect on the money supply.
has a contractionary effect on the money supply.
1.11 points
QUESTION 51
The Federal Deposit Insurance Corporation insures
banks against lawsuits.
the deposits held in member banks.
the deposits held in the Fed.
the federal funds market.
1.11 points
QUESTION 52
Bank runs are a possibility because
in difficult times people want currency instead of demand deposits.
the FDIC is inefficient.
banks do not keep enough reserves to cover all their depository liabilities.
bankers are often poor businesspeople.
1.11 points
QUESTION 53
The manner in which FDIC deposit insurance is set up in the United States encourages banks to
make riskier loans than they otherwise would.
reject some loans that probably would be profitable.
maintain excess reserves that are too great.
be too conservative in their lending practices.
1.11 points
QUESTION 54
The Federal Deposit Insurance Corporation
discourages banks from engaging in excessive risk taking.
was established after the Panic of 1907.
only insures deposits in money-center banks.
increases the stability of the banking system by reducing the likelihood of bank runs.
1.11 points
QUESTION 55
What are the two features of money that distinguish it from all other goods in the economy?
Money is government issued and it is redeemable for gold or silver.
Money is part of every barter transaction and it is divisible.
Money is accepted as a medium of exchange and it is the common unit of account used to express prices.
Money is a common unit of account and it is also can be traded for other currencies at a guaranteed exchange rate.
1.11 points
QUESTION 56
Holding money to meet unplanned expenditures and emergencies is known as
asset demand.
precautionary demand.
aggregate demand.
transactions demand.
1.11 points
QUESTION 57
When people want to hold money to make regular planned expenditures, this is
the transaction demand for money.
the spending demand for money.
the asset demand for money.
the precautionary demand for money.
1.11 points
QUESTION 58
When interest rates rise, the transactions demand for money usually
decreases.
increases.
decreases initially and then increases to the original position.
does not change.
1.11 points
QUESTION 59
As nominal Gross Domestic Product (GDP) rises, the transactions demand for money
increases, and the money demand curve shifts to the right.
remains constant, and the money demand curve remains the same.
decreases, and the money demand curve shifts to the left.
increases, and the money demand curve shifts to the left.
1.11 points
QUESTION 60
One of the economic costs of holding currency is that
it fulfills no precautionary role.
it fulfills no transactions role.
it earns no interest income.
its real value always increases.
its action has no effect on the total reserves or the money supply because the check it writes increases reserves at one bank but they fall at another.
its action expands total reserves and the money supply.
its action contracts total reserves and the money supply.
total reserves increase by the amount of the purchase but the money supply stays the same.
Explanation / Answer
# 46. When the Fed buys a U.S. bond in the open market:
* its action expands total reserves and the money supply.
# 47. When the Fed sells government securities:
* reserves increase, leading to a decrease in the money supply by an amount more than the sale of the government securities.
# 48. The maximum potential money multiplier is equal to:
* the inverse of the required reserve ratio.
# 49. The potential money multiplier gives us:
* the maximum potential change in the money supply due to a change in reserves.
# 50. An increase in the reserve ratio:
* has a contractionary effect on the money supply.
# 51. The Federal Deposit Insurance Corporation insures:
* the deposits held in member banks.
# 52. Bank runs are a possibility because:
* in difficult times people want currency instead of demand deposits.
# 53. The manner in which FDIC deposit insurance is set up in the United States encourages banks to:
* make riskier loans than they otherwise would.
# 54. The Federal Deposit Insurance Corporation:
* only insures deposits in money-center banks.
# 55. What are the two features of money that distinguish it from all other goods in the economy?
* Money is accepted as a medium of exchange and it is the common unit of account used to express prices.
# 56. Holding money to meet unplanned expenditures and emergencies is known as:
* precautionary demand.
# 57. When people want to hold money to make regular planned expenditures, this is:
* the transaction demand for money.
# 58. When interest rates rise, the transactions demand for money usually:
* decreases.
# 59. As nominal Gross Domestic Product (GDP) rises, the transactions demand for money:
* increases, and the money demand curve shifts to the right.
# 60. One of the economic costs of holding currency is that:
* it earns no interest income.
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