Question 1

Which of the following is part of M1?
I.currency in a bank's vault
II.cash in your purse
III.checkable deposits
IV.savings deposits

Accepted Answer

A)  I, II, III, and IV
B)  I, II, and III
C)  II and III
D)  II, III, and IV

Question 2

When the Fed _______ governments bonds it _______ bank reserves.

Accepted Answer

A)  sells; increases
B)  buys; increases
C)  buys; decreases
D)  issues new; increases

Question 3

What is the interest rate earned on the reserves that bank's keep at the Fed?

Accepted Answer

A)  These reserves earn no interest.
B)  It is equal to the prevailing prime lending rate.
C)  It varies depending on the federal funds rate.
D)  It is equal to the discount rate.

Question 4

When a person makes price comparisons among products, money is being used as a(n)

Accepted Answer

A)  unit of account.
B)  standard of quality.
C)  medium of exchange.
D)  checkable deposit.

Question 5

If you withdraw currency from your savings account, you are

Accepted Answer

A)  increasing M1, decreasing M2.
B)  increasing both M1 and M2.
C)  increasing M1 but not affecting M2.
D)  decreasing both M1 and M2. C

Question 6

The Federal Depository Insurance Corporation (FDIC) has the power to close a bank when

Accepted Answer

A)  the bank's net worth falls below a certain level.
B)  the bank's excess reserves fall below a certain level.
C)  the bank's total deposits fall below a certain level.
D)  the bank has inadequate insurance.

Question 7

Which of the following statements is true?

Accepted Answer

A)  In Romania under Communist Party rule in the 1980s, Kent cigarettes served as a medium of exchange.This illustrates the use of Kent cigarettes as fiat money.
B)  Commodity money has no value apart from its use as money.
C)  In Romania under Communist Party rule in the 1980s, Kent cigarettes served as a medium of exchange.This illustrates the use of Kent cigarettes as commodity money.
D)  Fiat money must be backed by gold; otherwise it is worthless. C

Question 8

When a member bank borrows reserves from the Fed,

Accepted Answer

A)  it pays an interest rate called the discount rate.
B)  it pays no interest rate but is required to repay the loan within the stipulated period.
C)  it pays an interest rate equivalent to the coupon rate on long-term government bonds.
D)  it pays an interest rate equal to the federal funds in the reserves market.

Question 9

Suppose a bank has $50,000 in deposits and $6,000 in reserves.The required reserve ratio is 10%.Which of the following occurs if the required reserve ratio is increased to 12%?

Accepted Answer

A)  The bank's total reserves will fall.
B)  The bank will now be fully loaned up.
C)  The bank will have insufficient required reserves.
D)  The bank's profit will fall.

Question 10

What happens to the value of the deposit multiplier when banks hold excess reserves?

Accepted Answer

A)  It is larger than the value implied by the formula.
B)  It is smaller than the value implied by the formula.
C)  It is only affected by the amount of loans that banks are willing to make, not the amount of excess reserves held.
D)  There is insufficient information to answer the question.

Question 11

Scenario 2: Fed sells bonds to Henry Hyde
Consider a banking system in which the reserve requirement is 10%, banks try not to hold excess reserves, consumers and firms hold money only in the form of checking account balances, and all loan proceeds are spent.Suppose initially all banks in the system are loaned up.Now, suppose that the Fed sells a $50,000 bond to Henry Hyde, who pays for the bond by writing a check drawn against Jekyll Bank.
-Refer to Scenario 2.As a result of the open market sale, Jekyll Bank

Accepted Answer

A)  can create $50,000 of new loans.
B)  will have $45,000 of excess reserves.
C)  will have to borrow reserves to replenish its reserve deficiency.
D)  will have an increase in checkable deposits. C

Question 12

When the Fed purchases government bonds it _____ reserves and ____ the money supply.

Accepted Answer

A)  decreases; increases
B)  increases; decreases
C)  decreases; decreases
D)  increases; increases

Question 13

Money, like other assets such as durable goods, stocks, and bonds is a way of transferring purchasing power from the present to the future but money is different from these other assets because it is a medium of exchange while the other assets are not.

Accepted Answer

A) True 
 B)False

Question 14

The rate of interest charged for reserves in the federal funds market is the

Accepted Answer

A)  federal funds rate.
B)  open market rate.
C)  required reserve rate.
D)  discount rate.

Question 15

The deposit multiplier is the inverse of

Accepted Answer

A)  legal reserves.
B)  excess reserves.
C)  checkable deposits.
D)  the required reserve ratio.

Question 16

The functions of money are

Accepted Answer

A)  a conductor of economic activity, a medium of exchange, and a store of value.
B)  a medium of exchange, a store of value, and a factor of production.
C)  a store of value, a medium of exchange, and a determinant of investment.
D)  a store of value, a unit of account, and a medium of exchange.

Question 17

The unit-of-account function of money means that money is used

Accepted Answer

A)  as a consistent means of measuring the value of things.
B)  as the common denominator of future payments.
C)  to pay for goods and services.
D)  to accumulate purchasing power.

Question 18

Rank the following items in terms of most liquid to least liquid.

Accepted Answer

A)  checkable deposits, cash, an office building your father owns
B)  cash, credit card, money market mutual funds, checkable deposits,
C)  cash, checkable deposits, savings deposits, an office building your father owns
D)  cash, Microsoft stock certificates you own, checkable deposits

Question 19

When her $1,000 time deposit expires, Suneeta decides not to renew the time deposit and opts to cash out.As a result of her transaction

Accepted Answer

A)  M1 and M2 increase.
B)  M1 increases and M2 decreases.
C)  M1 is unaffected and M2 decreases.
D)  M1 increases and M2 is unaffected.

Question 20

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

Accepted Answer

A)  writing a check to buy a new Volkswagen
B)  noting that the price of a $20,000 Volkswagen is 30,000 German marks
C)  keeping $20,000 in cash in your mattress instead of buying a new Volkswagen
D)  driving your $20,000 Volkswagen to a friend's house

Exam 24: The Nature and Creation of Money

Which of the following is part of M1? I.currency in a bank's vault II.cash in your purse III.checkable deposits IV.savings deposits

Correct Answer
verified

When the Fed _ governments bonds it _ bank reserves.

Correct Answer
verified

What is the interest rate earned on the reserves that bank's keep at the Fed?

Correct Answer
verified

When a person makes price comparisons among products, money is being used as a(n)

Correct Answer
verified

If you withdraw currency from your savings account, you are

Correct Answer
verified
C

The Federal Depository Insurance Corporation (FDIC) has the power to close a bank when

Correct Answer
verified

Which of the following statements is true?

Correct Answer
verified
C

When a member bank borrows reserves from the Fed,

Correct Answer
verified

Suppose a bank has $50,000 in deposits and $6,000 in reserves.The required reserve ratio is 10%.Which of the following occurs if the required reserve ratio is increased to 12%?

Correct Answer
verified

What happens to the value of the deposit multiplier when banks hold excess reserves?

Correct Answer
verified

Correct Answer
verified
C

When the Fed purchases government bonds it _ reserves and the money supply.

Correct Answer
verified

Money, like other assets such as durable goods, stocks, and bonds is a way of transferring purchasing power from the present to the future but money is different from these other assets because it is a medium of exchange while the other assets are not.

Correct Answer
verified

The rate of interest charged for reserves in the federal funds market is the

Correct Answer
verified

The deposit multiplier is the inverse of

Correct Answer
verified

The functions of money are

Correct Answer
verified

The unit-of-account function of money means that money is used

Correct Answer
verified

Rank the following items in terms of most liquid to least liquid.

Correct Answer
verified

When her $1,000 time deposit expires, Suneeta decides not to renew the time deposit and opts to cash out.As a result of her transaction

Correct Answer
verified

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

Correct Answer
verified

Exam 24: The Nature and Creation of Money

Which of the following is part of M1? I.currency in a bank's vault II.cash in your purse III.checkable deposits IV.savings deposits

Correct AnswerverifiedShow Answer

When the Fed _______ governments bonds it _______ bank reserves.

Correct AnswerverifiedShow Answer

What is the interest rate earned on the reserves that bank's keep at the Fed?

Correct AnswerverifiedShow Answer

When a person makes price comparisons among products, money is being used as a(n)

Correct AnswerverifiedShow Answer

If you withdraw currency from your savings account, you are

Correct AnswerverifiedC

The Federal Depository Insurance Corporation (FDIC) has the power to close a bank when

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedC

When a member bank borrows reserves from the Fed,

Correct AnswerverifiedShow Answer

Suppose a bank has $50,000 in deposits and $6,000 in reserves.The required reserve ratio is 10%.Which of the following occurs if the required reserve ratio is increased to 12%?

Correct AnswerverifiedShow Answer

What happens to the value of the deposit multiplier when banks hold excess reserves?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedC

When the Fed purchases government bonds it _____ reserves and ____ the money supply.

Correct AnswerverifiedShow Answer

Money, like other assets such as durable goods, stocks, and bonds is a way of transferring purchasing power from the present to the future but money is different from these other assets because it is a medium of exchange while the other assets are not.

Correct AnswerverifiedShow Answer

The rate of interest charged for reserves in the federal funds market is the

Correct AnswerverifiedShow Answer

The deposit multiplier is the inverse of

Correct AnswerverifiedShow Answer

The functions of money are

Correct AnswerverifiedShow Answer

The unit-of-account function of money means that money is used

Correct AnswerverifiedShow Answer

Rank the following items in terms of most liquid to least liquid.

Correct AnswerverifiedShow Answer

When her $1,000 time deposit expires, Suneeta decides not to renew the time deposit and opts to cash out.As a result of her transaction

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

When the Fed _ governments bonds it _ bank reserves.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
C

Correct Answer
verified

Correct Answer
verified
C

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
C

When the Fed purchases government bonds it _ reserves and the money supply.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified