All of the following are part of the narrowest definition of money supply, M1, e
ID: 1251433 • Letter: A
Question
All of the following are part of the narrowest definition of money supply, M1, except:A) Bill has $50 worth of pennies in a coffee jar
B) Mike has $600 in his checking account
C) Jill has $400 in traveler’s checks
D) Jules has $400 worth of $1 bills in the piggybank
E) John has $500 in his savings account
2. Which of the following make up the money supply as it is most narrowly defined?
A) coins and currency held by the nonbank public, traveler's checks, and savings deposits
B) all coins and currency held by the nonbank public
C) coins and currency held by the nonbank public, checking deposits, and traveler's checks
D) coins and currency held by the nonbank public, checking deposits, and savings deposits
E) checking deposits, savings deposits, and money market mutual fund accounts
3. Which of the following are included in the narrowest definition of the money supply?
A) cash in bank vaults
B) savings deposits
C) money market mutual fund accounts
D) negotiable certificates of deposit
E) checkable deposits
4. If you returned a $5 Federal Reserve note to the Fed, you could receive
A) $5 in silver
B) $5 in gold
C) 5 one-dollar bills
D) 10 one-dollar bills
E) a small gold bar
5. The Federal Reserve's narrowest definition of money is
A) M3
B) M2
C) M1
D) near money
E) money market mutual funds
6. As a lender, a bank holds an advantage over any individual person because
A) individuals do not diversify their asset holdings
B) individuals are better at enforcing loan contracts
C) banks have to engage in extensive and costly searches for potential borrowers
D) banks develop expertise in evaluating borrowers' loan applications
E) individuals have extensive knowledge of and experience in writing loan contracts
7. If a bank has $1 million in assets and $50,000 in net worth, its liabilities must equal
A) $50,000
B) $1,050,000
C) $50 million
D) $1,000,000
E) $950,000
8. Suppose the required reserve ratio is 0.1 and Linda deposits $4,000 in cash at the College State Bank. If the bank held no excess reserves before Linda's deposit and now increases its reserves by $500, which of the following is true?
A) The bank must have lent out an additional $4,000.
B) The $500 are required reserves.
C) The bank has excess reserves of $100.
D) Both the bank's assets and its liabilities rise by $500.
E) The bank has $500 in excess reserves.
9. Suppose that the First National Bank acquires $500,000 in new deposits and the required reserve ratio is 12 percent. Which of the following is true?
A) The First National Bank can increase the money supply by $500,000.
B) The First National Bank can increase the money supply by $400,000.
C) The First National Bank can increase the money supply by $440,000.
D) The entire banking system can increase the money supply by no more than $500,000 if the First National Bank lends out its excess reserves.
E) The entire banking system can increase the money supply by no more than $440,000 if the First National Bank lends out its excess reserves.
10. The ability to convert a store of value into a medium of exchange with little loss of value is known as
A) arbitrage
B) solvency
C) liquidity
D) liability
E) currency
11. Which of the following would likely increase the money supply?
A) One bank buys government securities from another bank.
B) The required reserve ratio increases.
C) The Fed increases the reserves of commercial banks and the banks hold these as excess reserves.
D) The discount rate increases.
E) A bank sells government securities to the Fed.
12. The simple money multiplier equals
A) the required reserve ratio
B) the reciprocal of the required reserve ratio
C) 1 minus the required reserve ratio
D) 1 minus the reciprocal of the required reserve ratio
E) the square of the required reserve ratio
13. If the simple money multiplier is 5, the required reserve ratio must be
A) 5 percent
B) 0
C) 10 percent
D) 50 percent
E) 20 percent
14. If an increase in excess reserves of $10 million increases checkable deposits in the banking system by a maximum of $200 million, the required reserve ratio is
A) 0
B) 5 percent
C) 10 percent
D) 20 percent
E) 2 percent
15. Suppose the reserve requirement ratio is 20 percent. Assuming no bank holds excess reserves and nobody withdraws cash, a $10,000 injection of new excess reserves by the Fed can create
A) $2,000 in new checkable deposits
B) $10,000 in new checkable deposits
C) $50,000 in new checkable deposits
D) $500,000 in new checkable deposits
E) $50,000 in cash
16. Which of the following is not one of the procedures the Fed uses to change the money supply?
A) buying government securities
B) selling government securities
C) lending reserves through the discount window
D) changing the required reserve ratio
E) extending loans to the public
17. Which of the following statements is correct?
A) To control the money supply, the Fed relies primarily on the reserve requirement.
B) The discount rate is the rate of interest banks charge to their best customers.
C) The Fed changes the reserve requirement frequently.
D) Because the Fed has no way to earn income, it is dependent upon Congress for appropriations.
E) Banks can turn a borrower's IOU into money--i.e., they can create money.
18. Lowering the discount rate is a way to expand the money supply because
A) it encourages banks to borrow from the Fed so they can more easily accommodate their customers' needs for loans
B) it encourages business customers to borrow directly from the Fed
C) a lower discount rate reduces the amount of reserves banks are required to keep
D) a lower discount rate automatically reduces excess reserves
E) it encourages banks to sell U.S. government securities and increase their cash reserves
19. The Fed operates
A) on a balanced budget
B) at a loss, since Federal Reserve notes and member bank deposits earn no interest
C) at a profit, since Federal Reserve notes and bank deposits earn no interest, but government securities and loans to commercial banks do
D) at a profit, since Federal Reserve notes and member bank deposits earn interest
E) at a loss, since Federal Reserve notes and member bank deposits earn interest, but government securities and loans to commercial banks do not
20. Katie Sierra is willing to pay a higher interest rate. With no income verification, she can apply for a type of loan commonly called
A) lion loans
B) liars loans
C) phantom loans
D) vaporware loans
E) prime-rate loans
Explanation / Answer
1. All of the following are part of the narrowest definition of money supply, M1, except: E) John has $500 in his savings account 2. Which of the following make up the money supply as it is most narrowly defined? C) coins and currency held by the nonbank public, checking deposits, and traveler's checks 3. Which of the following are included in the narrowest definition of the money supply? E) checkable deposits 4. If you returned a $5 Federal Reserve note to the Fed, you could receive C) 5 one-dollar bills 5. The Federal Reserve's narrowest definition of money is C) M1 6. As a lender, a bank holds an advantage over any individual person because D) banks develop expertise in evaluating borrowers' loan applications 7. If a bank has $1 million in assets and $50,000 in net worth, its liabilities must equal E) $950,000 8. Suppose the required reserve ratio is 0.1 and Linda deposits $4,000 in cash at the College State Bank. If the bank held no excess reserves before Linda's deposit and now increases its reserves by $500, which of the following is true? C) The bank has excess reserves of $100. 9. Suppose that the First National Bank acquires $500,000 in new deposits and the required reserve ratio is 12 percent. Which of the following is true? C) The First National Bank can increase the money supply by $440,000. 10. The ability to convert a store of value into a medium of exchange with little loss of value is known as C) liquidity 11. Which of the following would likely increase the money supply? E) A bank sells government securities to the Fed. 12. The simple money multiplier equals B) the reciprocal of the required reserve ratio 13. If the simple money multiplier is 5, the required reserve ratio must be E) 20 percent 14. If an increase in excess reserves of $10 million increases checkable deposits in the banking system by a maximum of $200 million, the required reserve ratio is B) 5 percent 15. Suppose the reserve requirement ratio is 20 percent. Assuming no bank holds excess reserves and nobody withdraws cash, a $10,000 injection of new excess reserves by the Fed can create C) $50,000 in new checkable deposits 16. Which of the following is not one of the procedures the Fed uses to change the money supply? E) extending loans to the public 17. Which of the following statements is correct? A) To control the money supply, the Fed relies primarily on the reserve requirement. 18. Lowering the discount rate is a way to expand the money supply because A) it encourages banks to borrow from the Fed so they can more easily accommodate their customers' needs for loans 19. The Fed operates C) at a profit, since Federal Reserve notes and bank deposits earn no interest, but government securities and loans to commercial banks do 20. Katie Sierra is willing to pay a higher interest rate. With no income verification, she can apply for a type of loan commonly called B) liars loans