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Payment is deferred by using _______, but immediate access to funds occurs when using ______.


A) currency; demand deposits
B) credit cards; debit cards
C) demand deposits; savings deposits
D) debit cards; credit cards

E) B) and C)
F) C) and D)

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To increase the money multiplier, the Fed can:


A) conduct open-market purchases.
B) conduct open-market sales.
C) raise the interest rate paid on reserves.
D) lower the interest rate paid on reserves.

E) None of the above
F) B) and C)

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To prevent banks from using excess reserves to make loans that would increase the money supply, the Federal Reserve could conduct open-market ______ and _____ the interest rate paid on bank reserves.


A) purchases; raise
B) purchases; lower
C) sales; raise
D) sales; lower

E) A) and D)
F) A) and C)

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C

High-powered money is another name for:


A) currency.
B) demand deposits.
C) the monetary base.
D) M2.

E) A) and D)
F) All of the above

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C

Money that has no value other than as money is called ______ money.


A) fiat
B) intrinsic
C) commodity
D) government

E) A) and B)
F) A) and C)

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Macroeconomists call assets used to make transactions:


A) real income.
B) nominal income.
C) money.
D) consumption.

E) All of the above
F) A) and B)

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Explain at least three factors that will affect the quantity of reserves that a bank wishes to hold.

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Banks' demand for reserves will be affected by: (1) legal reserve requirements, (2) the size and regularity of customer deposits and withdrawals, (3) the interest rate paid on reserves relative to alternative bank investments, and (4) the number of bank failures and level of uncertainty in the economy.

(Table: Bank Balance Sheet) Based on the table, what is the reserve-deposit ratio at the bank?


A) 3 percent
B) 5 percent
C) 10 percent
D) 15 percent

E) A) and C)
F) C) and D)

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Open-market operations are:


A) Commerce Department efforts to open foreign markets to international trade.
B) Federal Reserve purchases and sales of government bonds.
C) Securities and Exchange Commission rules requiring open disclosure of market trades.
D) Treasury Department purchases and sales of the U.S. gold stock.

E) C) and D)
F) B) and D)

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Excess reserves are reserves that banks keep:


A) in their vaults.
B) at the central bank.
C) to meet legal reserve requirements.
D) above the legally required amount.

E) All of the above
F) A) and B)

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To increase the monetary base, the Fed can:


A) conduct open-market purchases.
B) conduct open-market sales.
C) raise the interest rate paid on reserves.
D) lower the required reserve ratio.

E) A) and B)
F) All of the above

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A bank balance sheet consists of only the following items:  Deposits $1,000 Reserves $100 Securities $400 Debt $500 Loans $2,000\begin{array} { l l } \text { Deposits } & \$ 1,000 \\\text { Reserves } & \$ 100 \\\text { Securities } & \$ 400 \\\text { Debt } & \$ 500 \\\text { Loans } & \$ 2,000\end{array} What is the value of bank capital?


A) -$1,000
B) +$500
C) +$1,000
D) +$1,500

E) C) and D)
F) A) and B)

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Compared to typical open-market operations, when pursuing quantitative easing, Federal Reserve purchases tended to be _____ securities.


A) safer and shorter-term
B) tax-favored and foreign
C) smaller-denomination and higher-grade
D) riskier and longer-term

E) A) and D)
F) All of the above

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The currency-deposit ratio is determined by:


A) the Federal Reserve.
B) business policies of banks and the laws regulating banks.
C) preferences of households about the form of money they wish to hold.
D) the Federal Deposit Insurance Corporation (FDIC) .

E) All of the above
F) A) and D)

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The banking system creates:


A) liquidity.
B) wealth.
C) reserves.
D) currency.

E) C) and D)
F) A) and B)

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Economists occasionally speak of "helicopter money" as a short-hand approach to explaining increases in the money supply. Suppose the Chairman of the Federal Reserve flies over the country in a helicopter dropping 10,000,000 in newly printed $100 bills (a total of $1 billion). By how much will the money supply increase if, holding everything else constant: a. all of the new bills are held by the public? b. all of the new bills are deposited in banks that choose to hold 10 percent of their deposits as reserves (and no one in the economy holds any currency)? c. all of the new bills are deposited in banks that practice 100-percent-reserve banking? d. people in the economy hold half of their money as currency and half as deposits, while banks choose to hold 10 percent of their deposits as reserves?

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"Some economists believe that the large decline in the money supply was the primary cause of the Great Depression of the 1930s." Explain how this can be the case.

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Banks defaulted on their deposits. This ...

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Demand deposits are funds held in:


A) currency.
B) certificates of deposit.
C) checking accounts.
D) money markets.

E) B) and D)
F) All of the above

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Banks create money in:


A) a 100-percent-reserve banking system but not in a fractional-reserve banking system.
B) a fractional-reserve banking system but not in a 100-percent-reserve banking system.
C) both a 100-percent-reserve banking system and a fractional-reserve banking system.
D) neither a 100-percent-reserve banking system nor a fractional-reserve banking system.

E) B) and C)
F) A) and B)

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In the United States, bank reserves consist of:


A) currency and demand deposits.
B) vault cash and deposits at the Federal Reserve.
C) gold deposits at the Federal Reserve.
D) the money supply.

E) All of the above
F) A) and B)

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