Question 1

If you withdraw $100 from your bank, then:

Accepted Answer

A)  the reserves of your bank will initially fall by $100 
B)  the money supply will initially increase by $100 
C)  the money supply will initially decrease by $100 
D)  the required reserves for your bank will fall by more than $100 
A)  the reserves of your bank will initially fall by $100 
B)  the money supply will initially increase by $100 
C)  the money supply will initially decrease by $100 
D)  the required reserves for your bank will fall by more than $100

Question 2

Use the following balance sheet for the First Bank:   If RBA announced a new reserve ratio of 10%, the First Bank would be in a position to make additional loans of:

Accepted Answer

A)  $10 000 
B)  $15 000 
C)  $0 
D)  $5000 
A)  $10 000 
B)  $15 000 
C)  $0 
D)  $5000

Question 3

All that is required for fiat money to circulate successfully in an economic system is for the government to declare that it is legal tender.

Accepted Answer

A) True 
 B)False

Question 4

In spite of bank runs and inflation, money has proven to be a very useful social convention.

Accepted Answer

A) True 
 B)False

Question 5

What is the difference between a medium of exchange and a store of value?

Accepted Answer

A medium of exchange is an asset that is

Question 6

As banks hold more excess reserves, the money multiplier:

Accepted Answer

A)  increases and the money supply increases 
B)  decreases and the money supply decreases 
C)  increases and the money supply decreases 
D)  decreases and the money supply increases 
A)  increases and the money supply increases 
B)  decreases and the money supply decreases 
C)  increases and the money supply decreases 
D)  decreases and the money supply increases

Question 7

If the reserve ratio is 10 per cent and a bank holds $1000 in deposits, then the bank must hold $100 in reserve.

Accepted Answer

A) True 
 B)False

Question 8

Money with intrinsic value is called fiat money, and money without intrinsic value is called commodity money.

Accepted Answer

A) True 
 B)False

Question 9

The term wealth is used to refer to the total of all stores of value, including both money and non-monetary assets.

Accepted Answer

A) True 
 B)False

Question 10

If the RBA purchased government securities, then:

Accepted Answer

A)  the money supply would decrease 
B)  the money supply would not change 
C)  the money supply would increase 
D)  none of the above 
A)  the money supply would decrease 
B)  the money supply would not change 
C)  the money supply would increase 
D)  none of the above

Question 11

If Trustus Bank has a reserve ratio of 25 per cent and keeps $100 in reserve, then Trustus's deposits are:

Accepted Answer

A)  $400 
B)  $25 
C)  $2500 
D)  $5000 
A)  $400 
B)  $25 
C)  $2500 
D)  $5000

Question 12

Under what circumstances can banks not influence the supply of money?

Accepted Answer

If banks hold all their deposi

Question 13

If banks choose to hold more excess reserves, then:

Accepted Answer

A)  the total reserves in the banking system will decrease 
B)  the money supply will fall 
C)  the money multiplier will increase 
D)  the discount rate will decrease 
A)  the total reserves in the banking system will decrease 
B)  the money supply will fall 
C)  the money multiplier will increase 
D)  the discount rate will decrease

Question 14

Money should have intrinsic value to be accepted in exchange for goods and services.

Accepted Answer

A) True 
 B)False

Question 15

If reserve requirements are increased:

Accepted Answer

A)  the reserve ratio will increase, the money multiplier will increase and the money supply will increase 
B)  the reserve ratio will decrease, the money multiplier will decrease and the money supply will decrease 
C)  the reserve ratio will decrease, the money multiplier will increase and the money supply will increase 
D)  the reserve ratio will increase, the money multiplier will decrease and the money supply will decrease 
A)  the reserve ratio will increase, the money multiplier will increase and the money supply will increase 
B)  the reserve ratio will decrease, the money multiplier will decrease and the money supply will decrease 
C)  the reserve ratio will decrease, the money multiplier will increase and the money supply will increase 
D)  the reserve ratio will increase, the money multiplier will decrease and the money supply will decrease

Question 16

In the absence of money, people would have to rely on credit cards in order to obtain the things they needed.

Accepted Answer

A) True 
 B)False

Question 17

Credit cards are:

Accepted Answer

A)  equivalent to debit cards like the VISA debit 
B)  part of the M3 money supply 
C)  a method of deferring payment 
D)  used as a method of payment 
A)  equivalent to debit cards like the VISA debit 
B)  part of the M3 money supply 
C)  a method of deferring payment 
D)  used as a method of payment

Question 18

Which of the following will lead to an increase in reserves in the banking system and which will lead to a decrease in the level of reserves?
a. The public deposits more notes and coins than they withdraw.
b. The Government runs a budget surplus.
c. The RBA buys government securities or other financial assets from the public or from financial institutions.
d. Public debt matures
e. The RBA buys government securities or other financial instruments.

Accepted Answer

a. Increase
b. Decre

Question 19

The growth in the level of electronic transactions has led to an increased ability for banks to predict the amount of cash they have on reserve.

Accepted Answer

A) True 
 B)False

Question 20

Imagine a simple world in which currency is the only form of money. If there is only a depository bank and the total quantity of currency is $100, then the total supply of money will be:

Accepted Answer

A)  $0 
B)  $10 
C)  $100 
D)  $1000 
A)  $0 
B)  $10 
C)  $100 
D)  $1000

Exam 29: The Monetary System

If you withdraw $100 from your bank, then:

Use the following balance sheet for the First Bank: If RBA announced a new reserve ratio of 10%, the First Bank would be in a position to make additional loans of:

All that is required for fiat money to circulate successfully in an economic system is for the government to declare that it is legal tender.

In spite of bank runs and inflation, money has proven to be a very useful social convention.

What is the difference between a medium of exchange and a store of value?

As banks hold more excess reserves, the money multiplier:

If the reserve ratio is 10 per cent and a bank holds $1000 in deposits, then the bank must hold $100 in reserve.

Money with intrinsic value is called fiat money, and money without intrinsic value is called commodity money.

The term wealth is used to refer to the total of all stores of value, including both money and non-monetary assets.

If the RBA purchased government securities, then:

If Trustus Bank has a reserve ratio of 25 per cent and keeps $100 in reserve, then Trustus's deposits are:

Under what circumstances can banks not influence the supply of money?

If banks choose to hold more excess reserves, then:

Money should have intrinsic value to be accepted in exchange for goods and services.

If reserve requirements are increased:

In the absence of money, people would have to rely on credit cards in order to obtain the things they needed.

Credit cards are:

The growth in the level of electronic transactions has led to an increased ability for banks to predict the amount of cash they have on reserve.

Imagine a simple world in which currency is the only form of money. If there is only a depository bank and the total quantity of currency is $100, then the total supply of money will be:

Ten Lessons From 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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Business Strategy

Competition Policy

Monopolistic Competition

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

Inflation: Its Causes and Costs

Open-Economy Macroeconomics: Basic Concepts

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

Five Debates Over Macroeconomic Policy

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