Question 1

If an economy used gold as money, its money would be

Accepted Answer

A)   commodity money, but not fiat money.
B)   fiat money, but not commodity money.
C)   both fiat and commodity money.
D)   functioning as a store of value and as a unit of account, but not as a medium of exchange.E) B) and D)
F) All of the above

Question 2

When the Fed makes open-market purchases bank

Accepted Answer

A)   withdrawals and lending increase.
B)   withdrawals increase and lending decreases.
C)   deposits and lending increase.
D)   deposits increase and lending decreases.E) A) and C)
F) All of the above

Question 3

If the reserve ratio is 20 percent, then $100 of new reserves can generate

Accepted Answer

A)   $60 of new money in the economy.
B)   $250 of new money in the economy.
C)   $500 of new money in the economy.
D)   $2,000 of new money in the economy.E) C) and D)
F) B) and D)

Question 4

A central bank's setting or altering)  of the money supply is known as

Accepted Answer

A)   open-market operation.
B)   interest rate policy.
C)   monetary policy.
D)   employment policy.E) A) and B)
F) B) and C)

Question 5

Sam wants to trade eggs for sausage. Sally wants to trade sausage for eggs. Sam and Sally have a double- coincidence of wants.

Accepted Answer

A) True 
 B)False

Question 6

Currently, bank runs are a major problem for the U.S. banking system and the Fed.

Accepted Answer

A) True 
 B)False

Question 7

In a system of 100-percent-reserve banking,

Accepted Answer

A)   banks do not accept deposits.
B)   banks do not influence the supply of money.
C)   loans are the only asset item for banks.
D)   All of the above are correct.E) B) and D)
F) None of the above

Question 8

If a bank uses $200 of excess reserves to make a new loan when the reserve ratio is 15 percent, this action by itself initially makes the money supply

Accepted Answer

A)   and wealth increase by $200.
B)   and wealth decrease by $200.
C)   increase by $200 while wealth does not change.
D)   decrease by $200 while wealth decreases by $200.E) C) and D)
F) A) and B)

Question 9

The money supply of Granov is $10,000 in a 100-percent-reserve banking system. If the Central Bank of Granov decreases the reserve requirement ratio to 10 percent, the money supply could increase by no more than $9,000.

Accepted Answer

A) True 
 B)False

Question 10

Banks can hold deposits at the Federal Reserve. Balances in these accounts can be used by banks to meet their reserve requirements, but the Fed pays no interest on these deposits.

Accepted Answer

A) True 
 B)False

Question 11

When the Fed decreases the discount rate, banks will

Accepted Answer

A)   borrow more from the Fed and lend more to the public. The money supply increases.
B)   borrow more from the Fed and lend less to the public. The money supply decreases.
C)   borrow less from the Fed and lend more to the public. The money supply increases.
D)   borrow less from the Fed and lend less to the public. The money supply decreases.E) A) and B)
F) A) and C)

Question 12

Table 29-3. An economy starts with $50,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $45,750. The T-account of the bank is shown below.
 
-Refer to Table 29-3. The bank's reserve ratio is

Accepted Answer

A)   17.5 percent.
B)   8.5 percent.
C)   91.5 percent.
D)   100 percent.E) None of the above
F) All of the above

Question 13

What are the functions of money?

Accepted Answer

Medium of exchange, ...

Question 14

If you withdraw $500 from your savings account and deposit it in your checking account, then M1 will change by and M2 will change by .

Accepted Answer

The answer of If you withdraw $500 from your savings...

Question 15

Compare the Board of Governors and the Federal Open Market Committee.

Accepted Answer

The Board of Governors runs the Federal ...

Question 16

Describe the two things that limit the precision of the Fed's control of the money supply and explain how each limits that control.

Accepted Answer

First, the Fed does not control the amou...

Question 17

The federal funds rate is the interest rate that

Accepted Answer

A)   banks charge one another for loans.
B)   banks charge the Fed for loans.
C)   the Fed charges banks for loans.
D)   the Fed charges Congress for loans.E) A) and B)
F) A) and C)

Question 18

Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate?

Accepted Answer

A)   store of value
B)   medium of exchange
C)   unit of account
D)   None of the above is correct.E) C) and D)
F) B) and D)

Question 19

The use of money allows trade to be roundabout.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is a store of value?

Accepted Answer

A)   currency
B)   U.S. government bonds
C)   fine art
D)   All of the above are correct.E) None of the above
F) A) and B)

Exam 11: The Monetary System

If a bank uses $200 of excess reserves to make a new loan when the reserve ratio is 15 percent, this action by itself initially makes the money supply

Correct AnswerverifiedShow Answer

Sam wants to trade eggs for sausage. Sally wants to trade sausage for eggs. Sam and Sally have a double- coincidence of wants.

Correct AnswerverifiedShow Answer

A central bank's setting or altering) of the money supply is known as

Correct AnswerverifiedShow Answer

If an economy used gold as money, its money would be

Correct AnswerverifiedShow Answer

Banks can hold deposits at the Federal Reserve. Balances in these accounts can be used by banks to meet their reserve requirements, but the Fed pays no interest on these deposits.

Correct AnswerverifiedShow Answer

Currently, bank runs are a major problem for the U.S. banking system and the Fed.

Correct AnswerverifiedShow Answer

Describe the two things that limit the precision of the Fed's control of the money supply and explain how each limits that control.

Correct AnswerverifiedFirst, the Fed does not control the amou...View AnswerShow Answer

Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate?

Correct AnswerverifiedShow Answer

The money supply of Granov is $10,000 in a 100-percent-reserve banking system. If the Central Bank of Granov decreases the reserve requirement ratio to 10 percent, the money supply could increase by no more than $9,000.

Correct AnswerverifiedShow Answer

Table 29-3. An economy starts with $50,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $45,750. The T-account of the bank is shown below. -Refer to Table 29-3. The bank's reserve ratio is

Correct AnswerverifiedShow Answer

When the Fed decreases the discount rate, banks will

Correct AnswerverifiedShow Answer

Which of the following is a store of value?

Correct AnswerverifiedShow Answer

When the Fed makes open-market purchases bank

Correct AnswerverifiedShow Answer

If the reserve ratio is 20 percent, then $100 of new reserves can generate

Correct AnswerverifiedShow Answer

In a system of 100-percent-reserve banking,

Correct AnswerverifiedShow Answer

What are the functions of money?

Correct AnswerverifiedMedium of exchange, ...View AnswerShow Answer

The federal funds rate is the interest rate that

Correct AnswerverifiedShow Answer

The use of money allows trade to be roundabout.

Correct AnswerverifiedShow Answer

If you withdraw $500 from your savings account and deposit it in your checking account, then M1 will change by and M2 will change by .

Correct AnswerverifiedShow Answer

Compare the Board of Governors and the Federal Open Market Committee.

Correct AnswerverifiedThe Board of Governors runs the Federal ...View AnswerShow Answer

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First, the Fed does not control the amou...
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Medium of exchange, ...
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The Board of Governors runs the Federal ...
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