Question 1

Fiat money

Accepted Answer

A)  is worthless.
B)  has no intrinsic value.
C)  may be used as a medium of exchange,but is not legal tender.
D)  refers to highly liquid assets that do not serve as a medium of exchange.

Question 2

Which of the following best illustrates the concept of a store of value?

Accepted Answer

A)  You are a precious-metals dealer,and you are always aware of how many ounces of platinum trade for an ounce of gold.
B)  You sell items on eBay,and your prices are stated in terms of dollars.
C)  You keep 6 ounces of gold in your safe-deposit box at the bank for emergencies.
D)  None of the above is correct.

Question 3

An open-market purchase

Accepted Answer

A)  increases the number of dollars and the number of bonds in the hands of the public.
B)  increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public.
C)  decreases the number of dollars and the number of bonds in the hands of the public.
D)  decreases the number of dollars in the hands of the public and increases the number of bonds in the hands of the public.

Question 4

Which of the following is correct?

Accepted Answer

A)  The Fed can control the money supply precisely.
B)  The amount of money in the economy does not depend on the behavior of depositors.
C)  The amount of money in the economy depends in part on the behavior of banks.
D)  None of the above is correct.

Question 5

The banking system currently has $50 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 sells $10 billion worth of bonds,then by how much does the money supply change?

Accepted Answer

A)  It falls by $20 billion.
B)  It falls by $110 billion.
C)  It falls by $180 billion.
D)  None of the above is correct.

Question 6

The money multiplier equals

Accepted Answer

A)  1/R,where R represents the quantity of reserves in the economy.
B)  1/R,where R represents the reserve ratio for all banks in the economy.
C)  1/(1+R) ,where R represents the quantity of reserves in the economy.
D)  1/(1+R) ,where R represents the reserve ratio for all banks in the economy.

Question 7

When the Fed buys government bonds,

Accepted Answer

A)  the money supply increases and the federal funds rate increases.
B)  the money supply increases and the federal funds rate decreases.
C)  the money supply decreases and the federal funds rate increases.
D)  the money supply decreases and the federal funds rate decreases.

Question 8

If the discount rate is raised then banks borrow

Accepted Answer

A)  more from the Fed so reserves increase.
B)  more from the Fed so reserves decrease.
C)  less from the Fed so reserves increase.
D)  less from the Fed so reserves decrease.

Question 9

The primary difference between commodity money and fiat money is that

Accepted Answer

A)  commodity money is a medium of exchange but fiat money is not.
B)  fiat money is a medium of exchange but commodity money is not.
C)  commodity money has intrinsic value but fiat money does not.
D)  fiat money has intrinsic value but commodity money does not. C

Question 10

If the Fed sells government bonds to the public,then reserves

Accepted Answer

A)  increase and the money supply increases.
B)  increase and the money supply decreases.
C)  decrease and the money supply increases.
D)  decrease and the money supply decreases.

Question 11

If a bank has a reserve ratio of 8 percent,then

Accepted Answer

A)  government regulation requires the bank to use at least 8 percent of its deposits to make loans.
B)  the bank's ratio of loans to deposits is 8 percent.
C)  the bank keeps 8 percent of its deposits as reserves and loans out the rest.
D)  the bank keeps 8 percent of its assets as reserves and loans out the rest.

Question 12

If the public decides to hold less currency and more deposits in banks,bank reserves

Accepted Answer

A)  decrease and the money supply eventually decreases.
B)  decrease but the money supply does not change.
C)  increase and the money supply eventually increases.
D)  increase but the money supply does not change.

Question 13

When conducting an open-market sale,the Fed

Accepted Answer

A)  buys government bonds,and in so doing increases the money supply.
B)  buys government bonds,and in so doing decreases the money supply.
C)  sells government bonds,and in so doing increases the money supply.
D)  sells government bonds,and in so doing decreases the money supply.

Question 14

What is meant by the term "lender of last resort?
" In what circumstances might the Fed be a lender of last resort?

Accepted Answer

A "lender of last resort" is a lender to...

Question 15

Economists argue that the move from barter to money increased trade and production.How is this possible?

Accepted Answer

The use of money allows people to trade more easily.When it is easier to trade,specialization increases.Increased specialization increases production and the standard of living.

Question 16

The use of money allows trade to be roundabout.

Accepted Answer

A) True 
 B)False

Question 17

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.

Question 18

Which of the following is not a tool of monetary policy?

Accepted Answer

A)  open market operations
B)  reserve requirements
C)  changing the discount rate
D)  increasing the government budget deficit D

Question 19

Today,bank runs are

Accepted Answer

A)  uncommon because of the high reserve requirement.
B)  uncommon because of FDIC deposit insurance.
C)  common because of the low reserve requirement.
D)  common because the FDIC is nearly bankrupt.

Question 20

Suppose banks decide to hold more 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 lower the discount rate.
B)  money supply to fall.To reduce the impact of this the Fed could raise the discount rate.
C)  money supply to rise.To reduce the impact of this the Fed could lower the discount rate.
D)  money supply to rise.To reduce the impact of this the Fed could raise the discount rate.

Exam 30: The Monetary System

Fiat money

Correct Answer
verified

Which of the following best illustrates the concept of a store of value?

Correct Answer
verified

An open-market purchase

Correct Answer
verified

Which of the following is correct?

Correct Answer
verified

Correct Answer
verified

The money multiplier equals

Correct Answer
verified

When the Fed buys government bonds,

Correct Answer
verified

If the discount rate is raised then banks borrow

Correct Answer
verified

The primary difference between commodity money and fiat money is that

Correct Answer
verified
C

If the Fed sells government bonds to the public,then reserves

Correct Answer
verified

If a bank has a reserve ratio of 8 percent,then

Correct Answer
verified

If the public decides to hold less currency and more deposits in banks,bank reserves

Correct Answer
verified

When conducting an open-market sale,the Fed

Correct Answer
verified

What is meant by the term "lender of last resort? " In what circumstances might the Fed be a lender of last resort?

Correct Answer
verified
A "lender of last resort" is a lender to...
View Answer

Economists argue that the move from barter to money increased trade and production.How is this possible?

Correct Answer
verified
The use of money allows people to trade more easily.When it is easier to trade,specialization increases.Increased specialization increases production and the standard of living.

The use of money allows trade to be roundabout.

Correct Answer
verified

When there is a reserve requirement,banks

Correct Answer
verified

Which of the following is not a tool of monetary policy?

Correct Answer
verified
D

Today,bank runs are

Correct Answer
verified

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

Correct Answer
verified

Exam 30: The Monetary System

Fiat money

Correct AnswerverifiedShow Answer

Which of the following best illustrates the concept of a store of value?

Correct AnswerverifiedShow Answer

An open-market purchase

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The money multiplier equals

Correct AnswerverifiedShow Answer

When the Fed buys government bonds,

Correct AnswerverifiedShow Answer

If the discount rate is raised then banks borrow

Correct AnswerverifiedShow Answer

The primary difference between commodity money and fiat money is that

Correct AnswerverifiedC

If the Fed sells government bonds to the public,then reserves

Correct AnswerverifiedShow Answer

If a bank has a reserve ratio of 8 percent,then

Correct AnswerverifiedShow Answer

If the public decides to hold less currency and more deposits in banks,bank reserves

Correct AnswerverifiedShow Answer

When conducting an open-market sale,the Fed

Correct AnswerverifiedShow Answer

What is meant by the term "lender of last resort? " In what circumstances might the Fed be a lender of last resort?

Correct AnswerverifiedA "lender of last resort" is a lender to...View AnswerShow Answer

Economists argue that the move from barter to money increased trade and production.How is this possible?

Correct AnswerverifiedThe use of money allows people to trade more easily.When it is easier to trade,specialization increases.Increased specialization increases production and the standard of living.

The use of money allows trade to be roundabout.

Correct AnswerverifiedShow Answer

When there is a reserve requirement,banks

Correct AnswerverifiedShow Answer

Which of the following is not a tool of monetary policy?

Correct AnswerverifiedD

Today,bank runs are

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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
C

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A "lender of last resort" is a lender to...
View Answer

Correct Answer
verified
The use of money allows people to trade more easily.When it is easier to trade,specialization increases.Increased specialization increases production and the standard of living.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
D

Correct Answer
verified

Correct Answer
verified