Question 1

Economists use the term "money" to refer to

Accepted Answer

A) all wealth. 
B) all assets, including real assets and financial assets. 
C) all financial assets, but not real assets. 
D) those types of wealth that are regularly accepted by sellers in exchange for goods and services. 
A) all wealth. 
B) all assets, including real assets and financial assets. 
C) all financial assets, but not real assets. 
D) those types of wealth that are regularly accepted by sellers in exchange for goods and services.

Question 2

If the reserve ratio is 8 percent, then an additional $1,000 of reserves can increase the money supply by as much as

Accepted Answer

A) $6,400. 
B) $8,000. 
C) $12,500. 
D) $20,000. 
A) $6,400. 
B) $8,000. 
C) $12,500. 
D) $20,000.

Question 3

Small time deposits are included in

Accepted Answer

A) M1 but not M2. 
B) M2 but not M1. 
C) M1 and M2. 
D) neither M1 nor M2. 
A) M1 but not M2. 
B) M2 but not M1. 
C) M1 and M2. 
D) neither M1 nor M2.

Question 4

If the Fed raised the reserve requirement, the demand for reserves would

Accepted Answer

A) increase, so the federal funds rate would fall. 
B) increase, so the federal funds rate would rise. 
C) decrease, so the federal funds rate would fall. 
D) decrease, so the federal funds rate would rise. 
A) increase, so the federal funds rate would fall. 
B) increase, so the federal funds rate would rise. 
C) decrease, so the federal funds rate would fall. 
D) decrease, so the federal funds rate would rise.

Question 5

In a fractional-reserve banking system, a decrease in reserve requirements

Accepted Answer

A) increases both the money multiplier and the money supply. 
B) decreases both the money multiplier and the money supply. 
C) increases the money multiplier, but decreases the money supply. 
D) decreases the money multiplier, but increases the money supply. 
A) increases both the money multiplier and the money supply. 
B) decreases both the money multiplier and the money supply. 
C) increases the money multiplier, but decreases the money supply. 
D) decreases the money multiplier, but increases the money supply.

Question 6

The money supply decreases if

Accepted Answer

A) households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively more excess reserves and make fewer loans. 
B) households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively fewer excess reserves and make more loans. 
C) households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively more excess reserves and make fewer loans. 
D) households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively less excess reserves and make more loans. 
A) households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively more excess reserves and make fewer loans. 
B) households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively fewer excess reserves and make more loans. 
C) households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively more excess reserves and make fewer loans. 
D) households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively less excess reserves and make more loans.

Question 7

If the Fed decreases reserve requirements, the money supply will increase.

Accepted Answer

A) True 
 B)False

Question 8

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) liquidity 
A) medium of exchange 
B) unit of account 
C) store of value 
D) liquidity

Question 9

In Ugoland, the money supply is $8 million and reserves are $1 million. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

Accepted Answer

A) 14 percent. 
B) 12.5 percent. 
C) 8 percent. 
D) None of the above is correct. 
A) 14 percent. 
B) 12.5 percent. 
C) 8 percent. 
D) None of the above is correct.

Question 10

Table 16-1. The information in the table pertains to an imaginary economy. $\begin{array}{|l|l|}
\hline \text { Type of Money } & \text { Amount } \
\hline \text { Large time deposits } & \$ 80 \text { billion } \
\hline \text { Small time deposits } & \$ 75 \text { billion } \
\hline \text { Demand deposits } & \$ 75 \text { billion } \
\hline \text { Other checkable deposits } & \$ 40 \text { billion } \
\hline \text { Savings deposits } & \$ 10 \text { billion } \
\hline \text { Traveler's checks } & \$ 1 \text { billion } \
\hline \text { Money market mutual funds } & \$ 15 \text { billion } \
\hline \text { Currency } & \$ 110 \text { billion } \
\hline \text { Credit card balances } & \$ 10 \text { billion } \
\hline \text { Miscellaneous categories of M2 } & \$ 25 \text { billion } \
\hline
\end{array}$

-Refer to Table 16-1. What is the M1 money supply?

Accepted Answer

A) $215 billion 
B) $216 billion 
C) $226 billion 
D) $301 billion 
A) $215 billion 
B) $216 billion 
C) $226 billion 
D) $301 billion

Question 11

The money supply increases when the Fed

Accepted Answer

A) buys bonds. The increase will be larger, the smaller is the reserve ratio. 
B) buys bonds. The increase will be larger, the larger is the reserve ratio. 
C) sells bonds. The increase will be larger, the smaller is the reserve ratio. 
D) sells bonds. The increase will be larger, the larger is the reserve ratio. 
A) buys bonds. The increase will be larger, the smaller is the reserve ratio. 
B) buys bonds. The increase will be larger, the larger is the reserve ratio. 
C) sells bonds. The increase will be larger, the smaller is the reserve ratio. 
D) sells bonds. The increase will be larger, the larger is the reserve ratio.

Question 12

During the Great Depression in the early 1930s,

Accepted Answer

A) bank runs closed many banks. 
B) the money supply rose sharply. 
C) the Fed decreased reserve requirements. 
D) both a and b are correct. 
A) bank runs closed many banks. 
B) the money supply rose sharply. 
C) the Fed decreased reserve requirements. 
D) both a and b are correct.

Question 13

The Fed can reduce the federal funds rate by

Accepted Answer

A) decreasing the money supply. To decrease the money supply it could sell bonds. 
B) decreasing the money supply. To decrease the money supply it could buy bonds. 
C) increasing the money supply. To increase the money supply it could sell bonds. 
D) increasing the money supply. To increase the money supply it could buy bonds. 
A) decreasing the money supply. To decrease the money supply it could sell bonds. 
B) decreasing the money supply. To decrease the money supply it could buy bonds. 
C) increasing the money supply. To increase the money supply it could sell bonds. 
D) increasing the money supply. To increase the money supply it could buy bonds.

Question 14

Are credit cards and debit cards money? What's the difference between credit and debit cards?

Accepted Answer

Neither credit cards nor debit cards are

Question 15

Which of the following is both a store of value and regularly used as a medium of exchange?

Accepted Answer

A) cash and stocks 
B) cash but not stocks 
C) stocks but not cash 
D) neither cash nor stocks 
A) cash and stocks 
B) cash but not stocks 
C) stocks but not cash 
D) neither cash nor stocks

Question 16

The Fed can increase 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. 
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.

Question 17

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. 
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 18

In order for currency to be widely used as a medium of exchange, it is sufficient for the government to designate it as legal tender.

Accepted Answer

A) True 
 B)False

Question 19

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. 
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.

Question 20

Table 16-6.  
-Refer to Table 16-6. Assume the Fed's reserve requirement is 6 percent and that the Bank of Springfield makes new loans so as to make its new reserve ratio 6 percent. From then on, no bank holds any excess reserves. Assume also that people hold only deposits and no currency. Then by what amount does the economy's money supply increase?

Accepted Answer

A) $50,200 
B) $60,000 
C) $72,000 
D) $106,000 
A) $50,200 
B) $60,000 
C) $72,000 
D) $106,000

Exam 16: The Monetary System

Economists use the term "money" to refer to

If the reserve ratio is 8 percent, then an additional $1,000 of reserves can increase the money supply by as much as

Small time deposits are included in

If the Fed raised the reserve requirement, the demand for reserves would

In a fractional-reserve banking system, a decrease in reserve requirements

The money supply decreases if

If the Fed decreases reserve requirements, the money supply will increase.

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

In Ugoland, the money supply is $8 million and reserves are $1 million. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

The money supply increases when the Fed

During the Great Depression in the early 1930s,

The Fed can reduce the federal funds rate by

Are credit cards and debit cards money? What's the difference between credit and debit cards?

Which of the following is both a store of value and regularly used as a medium of exchange?

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

Today, bank runs are

In order for currency to be widely used as a medium of exchange, it is sufficient for the government to designate it as legal tender.

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

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

Money Growth and Inflation

Open-Economy Macroeconomic Models

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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