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Exam 16: The Monetary System

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Question 191

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One of the features of money is its store of value. However, most people do not hold their wealth as currency. Given that currency is the most liquid type of asset, why don't people hold all their wealth as currency?

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Currency is not a perfect store of value...

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Question 192

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If the Federal Open Market Committee decides to decrease the money supply, it will

A) sell government bonds.
B) purchase corporate bonds.
C) purchase government bonds.
D) reduce interest rates.

E) A) and D)
F) None of the above

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Question 193

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The banking system currently has $10 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed raises the reserve requirement to 12.5 percent and at the same time buys $1 billion worth of bonds, then by how much does the money supply change?

Describe how the use of leverage affects the impact of bank investments.

You believe the dollars you have today will be accepted in the future in exchange for goods and services. Which function of money does this illustrate?

Explain how each of the following changes the money supply. a. the Fed buys bonds b. the Fed auctions credit c. the Fed raises the discount rate d. the Fed raises the reserve requirement

Consider five individuals with different occupations. Which of the following pairs of individuals has a double coincidence of wants?

If the money multiplier is 3 and the Fed buys $50,000 worth of bonds, what happens to the money supply?

Suppose a bank is operating with a leverage rate of 10. A 6 percent increase in the value of assets

A decrease in the money supply might indicate that the Fed had

What are the functions of money?

Other things the same, if banks decide to hold a smaller part of their deposits as excess reserves, the money supply will fall.

To decrease the money supply, the Fed could

If the reserve ratio is 100-percent, then a new deposit of $1000 into a bank account

The Federal Reserve primarily uses open-market operations to change the money supply.

Which list ranks assets from most to least liquid?

Which of the following is included in M2 but not in M1?

What is the difference between commodity money and fiat money? Why do people accept fiat money in trade for goods and services?

Members of the Board of Governors are appointed by the president of the U.S. and confirmed by the U.S. Senate.

Table 29-6. -Refer to Table 29-6. Assume there is a reserve requirement and the Bank of Pleasantville is exactly in compliance with that requirement. Assume the same is true for all other banks. Lastly, assume people hold only deposits and no currency. What is the money multiplier?