Money and the Banking System

Topics: Monetary policy, Federal Reserve System, Money supply Pages: 3 (1926 words) Published: October 29, 2014
Money and the Banking System 1.Money is a.valuable because it is backed by gold. b.whatever is generally accepted in exchange for goods and services. c.anything that is a liability of a commercial bank d.an object to be consumed. 2.In the United States, the purchasing power of money is determined by a.the underlying precious metals that back each unit of currency. b.the value of U.S. treasury bonds that back each unit of currency. c.Federal Reserve policy, which controls the money supply. d.Congress, which controls the money supply. 3.Which of the following is not a component of the M1 money supply a.demand deposits b.large-denomination (more than 100) bills c.interest-earning checking deposits d.outstanding balances on credit cards 4.Which of the following is primarily responsible for controlling the money supply in the United States a.the U.S. Congress b.the Board of Governors of the Federal Reserve System c.the U.S. Treasury d.the Council of Economic Advisors 5.Which of the following compose the reserves of a commercial bank a.demand deposits and time deposits b.vault cash and deposits of the bank with the Federal Reserve c.U.S. securities and stock equity d.cash and U.S. securities 6.If the Fed wanted to use all three of its major monetary control tools to decrease the money supply, it would a.buy bonds, reduce the discount rate, and reduce reserve requirements. b.sell bonds, reduce the discount rate, and reduce reserve requirements. c.sell bonds, increase the discount rate, and increase reserve requirements. d.buy bonds, increase the discount rate, and increase reserve requirements. 7.When the Federal Reserve sells government bonds to the public, it directly a.increases the M1 money supply and increases the reserves of the commercial banking system. b.increases the M1 money supply, while reducing the reserves of the commercial banking system. c.reduces the M1 money supply, while increasing the...
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