Question 1

Which of the following best illustrates the medium of exchange function of money?

Accepted Answer

A)   You keep some money hidden in your shoe.
B)   You keep track of the value of your assets in terms of currency.
C)   You pay for your oil change using currency.
D)   None of the above is correct.E) All of the above
F) A) and B)

Question 2

If the reserve requirement is 5 percent,a bank desires to hold no excess reserves,and it receives a new deposit of $400,it

Accepted Answer

A)   must increase required reserves by $20.
B)   will initially see reserves increase by $400.
C)   will be able to use this deposit to make new loans amounting to $380.
D)   All of the above are correct.E) A) and C)
F) B) and C)

Question 3

If the Federal Reserve increases the interest rate on bank deposits at the Fed,banks will want to hold

Accepted Answer

A)   fewer reserves,so the money multiplier will fall.
B)   fewer reserves,so the money multiplier will rise.
C)   more reserves,so the money multiplier will fall.
D)   more reserves,so the money multiplier will rise.E) C) and D)
F) B) and C)

Question 4

Which of the following will not help to prevent bank runs?

Accepted Answer

A)   government insurance of deposits
B)   fractional reserve banking
C)   100% reserve banking
D)   All of the above prevent bank runs.E) B) and D)
F) A) and C)

Question 5

Table 21-3.
 
-Refer to Table 21-3.Starting from the situation as depicted by the T-account,if someone deposits $500 into the First Bank of Fairfield,and if the bank makes new loans so as to keep its reserve ratio unchanged,then the amount of new loans that it makes will be

Accepted Answer

A)   $320.
B)   $400.
C)   $680.
D)   $750.E) C) and D)
F) A) and C)

Question 6

In the nation of Wiknam,the money supply is $80,000 and reserves are $18,000.Assuming that people hold only deposits and no currency,and that banks hold no excess reserves,then the reserve requirement is

Accepted Answer

A)   29 percent.
B)   22.5 percent.
C)   16 percent.
D)   None of the above is correct.E) A) and C)
F) A) and B)

Question 7

The Fed can decrease the money supply by conducting open-market

Accepted Answer

A)   sales or by raising the discount rate.
B)   sales or by lowering the discount rate.
C)   purchases or by raising the discount rate.
D)   purchases or by lowering the discount rate.E) A) and B)
F) All of the above

Question 8

Which of the following does the Federal Reserve not do?

Accepted Answer

A)   It controls the supply of money.
B)   It acts as a lender of last resort to banks.
C)   It makes loans to any qualified business that requests one.
D)   It tries to ensure the health of the banking system.E) B) and C)
F) All of the above

Question 9

You pay for cheese and bread from the deli with currency.Which function of money does this best illustrate?

Accepted Answer

A)   medium of exchange
B)   unit of account
C)   store of value
D)   liquidityE) All of the above
F) None of the above

Question 10

In an economy that relies upon barter,

Accepted Answer

A)   trade does not require a double coincidence of wants.
B)   scarce resources are allocated just as easily as they are in economies that do not rely upon barter.
C)   there is no item in the economy that is widely accepted in exchange for goods and services.
D)   All of the above are correct.E) C) and D)
F) B) and C)

Question 11

As banks create money,they create wealth.

Accepted Answer

A) True 
 B)False

Question 12

Which type of money has intrinsic value?

Accepted Answer

A)   commodity money
B)   fiat money
C)   both commodity money and fiat money
D)   neither commodity money nor fiat moneyE) A) and C)
F) None of the above

Question 13

Suppose banks decide to hold fewer excess reserves relative to deposits.Other things the same,this action will cause the

Accepted Answer

A)   money supply to fall.To reduce the impact of this the Fed could sell Treasury bonds.
B)   money supply to fall.To reduce the impact of this the Fed could buy Treasury bonds.
C)   money supply to rise.To reduce the impact of this the Fed could sell Treasury bonds.
D)   money supply to rise.To reduce the impact of this the Fed could buy Treasury bonds.E) A) and B)
F) None of the above

Question 14

To increase the money supply,the Fed could

Accepted Answer

A)   sell government bonds.
B)   increase the discount rate.
C)   decrease the reserve requirement.
D)   None of the above is correct.E) All of the above
F) A) and D)

Question 15

When there is a reserve requirement,banks

Accepted Answer

A)   must hold exactly the required quantity of reserves.
B)   may hold more than,but not less than,the required quantity of reserves.
C)   may hold less than,but not more than,the required quantity of reserves.
D)   must seek the Fed's permission whenever they wish to expand or contract their loans to customers.E) None of the above
F) B) and D)

Question 16

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) None of the above
F) A) and C)

Question 17

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits.As a result,bank reserves will

Accepted Answer

A)   decrease and the money supply will eventually decrease.
B)   decrease and the money supply will eventually increase.
C)   increase and the money supply will eventually decrease.
D)   increase and the money supply will eventually increase.E) None of the above
F) C) and D)

Question 18

Currently,U.S.currency is

Accepted Answer

A)   fiat money with intrinsic value.
B)   fiat money with no intrinsic value.
C)   commodity money with intrinsic value.
D)   commodity money with no intrinsic value.E) B) and D)
F) C) and D)

Question 19

The confidence you have that a retailer will accept dollars in exchange for goods is based primarily on money

Accepted Answer

A)   being a unit of account.
B)   being a medium of exchange.
C)   serving as a store of value.
D)   having intrinsic value.E) C) and D)
F) B) and D)

Question 20

Which group within the Federal Reserve System meets to discuss changes in the economy and determine monetary policy?

Accepted Answer

A)   the Board of Governors
B)   the FOMC
C)   the regional Federal Reserve Bank presidents
D)   the Central Bank Policy CommissionE) B) and C)
F) A) and D)

Exam 21: The Monetary System

The federal funds rate is the interest rate that

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To increase the money supply,the Fed could

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If the reserve requirement is 5 percent,a bank desires to hold no excess reserves,and it receives a new deposit of $400,it

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Which group within the Federal Reserve System meets to discuss changes in the economy and determine monetary policy?

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In an economy that relies upon barter,

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Which type of money has intrinsic value?

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In the nation of Wiknam,the money supply is $80,000 and reserves are $18,000.Assuming that people hold only deposits and no currency,and that banks hold no excess reserves,then the reserve requirement is

Correct AnswerverifiedShow Answer

When there is a reserve requirement,banks

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Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits.As a result,bank reserves will

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Which of the following best illustrates the medium of exchange function of money?

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Currently,U.S.currency is

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As banks create money,they create wealth.

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Suppose banks decide to hold fewer excess reserves relative to deposits.Other things the same,this action will cause the

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Which of the following does the Federal Reserve not do?

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The Fed can decrease the money supply by conducting open-market

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If the Federal Reserve increases the interest rate on bank deposits at the Fed,banks will want to hold

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Which of the following will not help to prevent bank runs?

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The confidence you have that a retailer will accept dollars in exchange for goods is based primarily on money

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You pay for cheese and bread from the deli with currency.Which function of money does this best illustrate?

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Table 21-3. -Refer to Table 21-3.Starting from the situation as depicted by the T-account,if someone deposits $500 into the First Bank of Fairfield,and if the bank makes new loans so as to keep its reserve ratio unchanged,then the amount of new loans that it makes will be

Correct AnswerverifiedShow Answer

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