ECON 201 ECON201 Monetary Policy Quiz Answers
Econ 201 Module: Monetary Policy
Quiz:
1. Choose the BEST answer. Complete the following sentence. Fiat money is backed by:
precious metals such as gold.
the public’s trust in a government and an overarching economic system.
bartering arrangements.
2. Choose the BEST answer. Under certain conditions, goats, coins, and checks can all be used as payments. In economic terms these things are all what?
money
a medium of exchange
terms of trade
3. Choose the BEST answer. Debit cards are a form of:
money.
debt.
credit.
4. Choose ALL that apply. Credit is a(n):
IOU that must be repaid, usually with interest.
way to purchase goods using a debit card.
tool for buying things you cannot afford to pay for all at once.
5. Choose the BEST answer. Banks act as financial intermediaries by doing which of the following?
Converting business investments into household savings in which loans appear as a liability on the bank’s balance sheet.
Converting household savings into business investments in which savings appear as an asset on the bank’s balance sheet.
Converting household savings into business investments in which savings appear as a liability on the bank’s balance sheet.
6. Choose ALL that apply. Bonds are:
an asset on a bank’s balance sheet.
never used for by private companies to borrow money.
a mechanism for borrowing money.
commonly used by federal, state and local governments.
7. Choose the BEST answer. Which is true of banks’ deposits?
Banks lend out most of the deposits to earn income.
Banks lend out all of their deposits to earn income.
Banks keep the majority of their deposits as reserves with the Federal Reserve.
Banks keep all of their deposits on hand as cash to enable them to pay out withdrawals by depositors.
8. Choose the BEST answer. The reserve requirement is extremely important to money creation. This requirement is defined as which of the following?
The percentage of a bank’s deposits that it is required to maintain in the bank as a reserve.
The money over and above the reserve requirement of the Federal Reserve.
The maximum amount a bank can loan at any given time.
9. Choose the BEST answer. Money creation in the United States results from which of the following?
The rise in the value of gold.
The process of multiple banks’ lending of their deposits.
The purchases of government securities.
10. Choose the BEST answer. If Giant Bank has $500MM dollars in deposits and has a 12 percent reserve ratio, how much can Giant Bank lend?
$500MM
$70MM
$440MM
$120MM
11. Choose ALL that apply. The Federal Reserve consists of:
50 State Federal Reserve Districts
Board of Governors
Board of Chairmen
Federal Marketing Committee
12 Regional Federal Reserve Districts
Federal Open Market Committee
Board of District Banks
12. Choose ALL that apply. The Federal Reserve:
utilizes policies to support maximum employment.
influences inflation rates.
oversees macroeconomic policies outside the U.S.
helps keep economy stable.
affects interest rates.
13. Choose the BEST answer. The money multiplier is calculated as 1 / reserve requirement multiplied by the:
change in deposits following a change in government expenditure.
change in total reserves following a change in the money supply.
change in excess reserves following a change in the money supply.
14.Choose the BEST answer. If the reserve requirement is 10 percent and a monetary expansion increases excess reserves by $5 million, the total change in the money supply after all rounds of lending are completed is:
100 million
50 million
5 million
15. Choose the BEST answer. The M2 money supply consists of everything in the M1 money supply, savings deposits and which of the following?
certificates of deposit
personal checks
long term debt
16. Choose the BEST answer. Complete the following sentence. The M2 measure of the money supply is defined as currency:
minus savings accounts and other timed deposits, CDs and money market funds, and is larger in sum than M1.
minus savings accounts and other timed deposits, CDs and money market funds, and is smaller in sum than M1.
plus savings accounts and other timed deposits, CDs and money market funds, and is larger in sum than M1.
plus savings accounts and other timed deposits, CDs and money market funds, and is smaller in sum than M1.
17. Choose the BEST answer. A decision by the Federal Reserve to change reserve requirements for banks is an example of:
federal budget policy.
fiscal policy.
monetary policy.
18. Choose ALL that apply. Monetary policies include(s): partially correct
tax rates.
federal funds rate.
bank reserve requirements.
19. Choose ALL that apply. Which of the following is a tool of monetary policy? Partly correct
Reserve requirement
Open market operations
Discount rate
20. Choose ALL that apply. Which of the following is a part of the Federal Reserve System’s monetary policy toolkit?
The reserve requirement
The income tax rate
Open market operations
Choose ALL that apply. Interest rates measure the returns to investments for which financial instrument(s):
required reserve ratio
corporate bonds
U.S. Treasury securities
Choose ALL that apply. Interest rates measure:
returns on certificates of deposit.
changes in the unemployment rate.
borrowing costs of mortgages.
Choose the BEST answer. The prime rate is:
interest rate that banks charge their very best corporate customers.
interest rate charged by the Federal Reserve for discount loans.
the interest on overnight inter-bank loans.
Choose the BEST answer. The discount rate is:
the interest on overnight inter-bank loans.
interest rate charged by the Federal Reserve for discount loans.
interest rate that banks charge their very best corporate customers.
Choose the BEST answer. When the demand for loanable funds exceeds the supply of loanable funds:
the interest rate will rise.
the interest rate is unchanged.
the interest rate will fall.
Choose the BEST answer. Consumers must choose whether they prefer to consume goods, including money, now or in the future. This is known as:
the law of demand.
intertemporal decision making.
consumer confidence.
Choose the BEST answer. Complete the following sentence. In drawing an accurate money demand curve, one would:
place interest rate on the horizontal axis, place quantity of money on the vertical axis, and fix the line to show a negative relationship.
place interest rate on the vertical axis, place quantity of money on the horizontal axis, and fix the line to show a negative relationship.
place interest rate on the horizontal axis, place quantity of money on the vertical axis, and fix the line to show a positive relationship.
place interest rate on the vertical axis, place quantity of money on the horizontal axis, and fix the line to show a positive relationship.
Choose the BEST answer. The economic term “transactions demand for money” means which of the following?
money people set aside for future contingencies
money people demand, causing a run on banks
money people anticipate spending in the near term
Choose the BEST answer. Ceteris paribus, a reduction in the federal funds affects car loan rates in the following manner:
Car loan rates will stay the same.
Car loan rates will decrease.
Car loan rates will increase.
Choose ALL that apply. A contractionary or tight monetary policy:
reduces borrowing.
lowers interest rates.
increases interest rates.
Choose the BEST answer. An expansionary monetary policy affects aggregate demand:
indirectly, by lowering interest rates and the available quantity of loans, which stimulates spending.
directly, by increasing government expenditure.
indirectly, by increasing interest rates and the available quantity of loans, which reduces spending.
Choose the BEST answer. A contractionary monetary policy reduces GDP by:
raising interest rates and discouraging investment and consumption spending.
raising interest rates and encouraging investment and consumption spending.
lowering interest rates and encouraging investment and consumption spending.
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