Question 1

What is the difference between commodity money and fiat money? Why do people accept fiat money in trade for goods and services?

Accepted Answer

Commodity money has "intrinsic value," o

Question 2

Which of the following lists two things that both decrease the money supply?

Accepted Answer

A)  lower the discount rate,raise the reserve requirement ratio 
B)  lower the discount rate,lower the reserve requirement ratio 
C)  raise the discount rate,raise the reserve requirement ratio 
D)  raise the discount rate,lower the reserve requirement ratio 
A)  lower the discount rate,raise the reserve requirement ratio 
B)  lower the discount rate,lower the reserve requirement ratio 
C)  raise the discount rate,raise the reserve requirement ratio 
D)  raise the discount rate,lower the reserve requirement ratio

Question 3

When the Fed decreases the discount rate,banks will

Accepted Answer

A)  borrow more from the Fed and lend more to the public.The money supply increases. 
B)  borrow more from the Fed and lend less to the public.The money supply decreases. 
C)  borrow less from the Fed and lend more to the public.The money supply increases. 
D)  borrow less from the Fed and lend less to the public.The money supply decreases. 
A)  borrow more from the Fed and lend more to the public.The money supply increases. 
B)  borrow more from the Fed and lend less to the public.The money supply decreases. 
C)  borrow less from the Fed and lend more to the public.The money supply increases. 
D)  borrow less from the Fed and lend less to the public.The money supply decreases.

Question 4

The discount rate is

Accepted Answer

A)  the rate at which public banks lend to other public banks. 
B)  the rate at which the Fed lends to banks. 
C)  the percentage difference between the face value of a Treasury bond and what the Fed pays for it. 
D)  the percentage of deposits banks hold as excess reserves. 
A)  the rate at which public banks lend to other public banks. 
B)  the rate at which the Fed lends to banks. 
C)  the percentage difference between the face value of a Treasury bond and what the Fed pays for it. 
D)  the percentage of deposits banks hold as excess reserves.

Question 5

At any given time,the voting members of the Federal Open Market Committee include

Accepted Answer

A)  five of the 12 presidents of the regional Federal Reserve banks. 
B)  the president of the Federal Reserve Bank of New York. 
C)  the seven members of the Board of Governors. 
D)  All of the above are correct. 
A)  five of the 12 presidents of the regional Federal Reserve banks. 
B)  the president of the Federal Reserve Bank of New York. 
C)  the seven members of the Board of Governors. 
D)  All of the above are correct.

Question 6

Suppose a bank has $200,000 in deposits and $190,000 in loans.It has loaned out all it can.It has a reserve ratio of

Accepted Answer

A)  2.5 percent. 
B)  5 percent. 
C)  9.5 percent. 
D)  10 percent. 
A)  2.5 percent. 
B)  5 percent. 
C)  9.5 percent. 
D)  10 percent.

Question 7

Which of the following statements is correct?

Accepted Answer

A)  Credit cards are important for our system of payments,but they are not important for analyzing the monetary system. 
B)  Account balances that lie behind debit cards are included in M1 and in M2. 
C)  People who have credit cards probably hold more money on average than people who do not have credit cards. 
D)  A debit card is more similar to a credit card than to a check. 
A)  Credit cards are important for our system of payments,but they are not important for analyzing the monetary system. 
B)  Account balances that lie behind debit cards are included in M1 and in M2. 
C)  People who have credit cards probably hold more money on average than people who do not have credit cards. 
D)  A debit card is more similar to a credit card than to a check.

Question 8

The president of each regional Federal Reserve Bank is appointed by

Accepted Answer

A)  the U.S.president with the approval of the Senate. 
B)  the Board of Governors. 
C)  the voting members of the Federal Open Market Committee. 
D)  the board of directors of that regional Federal Reserve Bank. 
A)  the U.S.president with the approval of the Senate. 
B)  the Board of Governors. 
C)  the voting members of the Federal Open Market Committee. 
D)  the board of directors of that regional Federal Reserve Bank.

Question 9

If the reserve ratio for all banks is 5 percent,then $2,500 of additional reserves can create up to

Accepted Answer

A)  $62,500 of new money. 
B)  $50,000 of new money. 
C)  $45,600 of new money. 
D)  $37,500 of new money. 
A)  $62,500 of new money. 
B)  $50,000 of new money. 
C)  $45,600 of new money. 
D)  $37,500 of new money.

Question 10

M1 equals currency plus demand deposits plus

Accepted Answer

A)  nothing else. 
B)  other checkable deposits. 
C)  traveler's checks plus other checkable deposits. 
D)  traveler's checks plus other checkable deposits plus savings deposits. 
A)  nothing else. 
B)  other checkable deposits. 
C)  traveler's checks plus other checkable deposits. 
D)  traveler's checks plus other checkable deposits plus savings deposits.

Question 11

Money

Accepted Answer

A)  is a perfect store of value. 
B)  is the most liquid asset. 
C)  has intrinsic value,regardless of which form it takes. 
D)  All of the above are correct. 
A)  is a perfect store of value. 
B)  is the most liquid asset. 
C)  has intrinsic value,regardless of which form it takes. 
D)  All of the above are correct.

Question 12

The members of the Federal Reserve's Board of Governors

Accepted Answer

A)  are appointed by the president of the U.S.and confirmed by the U.S.Senate. 
B)  serve six-year terms. 
C)  are also the presidents of the regional Federal Reserve banks. 
D)  share power equally,with no governor having any more influence or power than any other governor. 
A)  are appointed by the president of the U.S.and confirmed by the U.S.Senate. 
B)  serve six-year terms. 
C)  are also the presidents of the regional Federal Reserve banks. 
D)  share power equally,with no governor having any more influence or power than any other governor.

Question 13

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 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. 
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 14

Credit cards

Accepted Answer

A)  defer payments. 
B)  are a store of value. 
C)  have led to wider use of currency. 
D)  are part of the money supply. 
A)  defer payments. 
B)  are a store of value. 
C)  have led to wider use of currency. 
D)  are part of the money supply.

Question 15

The amount of currency per person in the United States is about

Accepted Answer

A)  $70. 
B)  $300. 
C)  $2,100. 
D)  $3,300. 
A)  $70. 
B)  $300. 
C)  $2,100. 
D)  $3,300.

Question 16

Table 29-3.
The First Bank of Johnson City
  
-Refer to Table 29-3.The reserve ratio for this bank is

Accepted Answer

A)  0 percent. 
B)  20 percent. 
C)  80 percent. 
D)  100 percent. 
A)  0 percent. 
B)  20 percent. 
C)  80 percent. 
D)  100 percent.

Question 17

The banking system currently has $100 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 lowers the reserve requirement to 8 percent and at the same time buys $10 billion of bonds,then by how much does the money supply change?

Accepted Answer

A)  It rises by $225 billion. 
B)  It rises by $375 billion. 
C)  It rises by $675 billion. 
D)  None of the above is correct. 
A)  It rises by $225 billion. 
B)  It rises by $375 billion. 
C)  It rises by $675 billion. 
D)  None of the above is correct.

Question 18

The Fed's primary tool to change the money supply is

Accepted Answer

A)  changing the discount rate. 
B)  changing the reserve requirement. 
C)  conducting open market operations. 
D)  redeeming Federal Reserve notes. 
A)  changing the discount rate. 
B)  changing the reserve requirement. 
C)  conducting open market operations. 
D)  redeeming Federal Reserve notes.

Question 19

Table 29-6.
Bank of Springfield
  
-Refer to Table 29-6.If the Bank of Springfield has lent out all the money it can given its level of deposits,then what is the reserve requirement?

Accepted Answer

A)  5.00 percent 
B)  8.00 percent 
C)  8.42 percent 
D)  95.00 percent 
A)  5.00 percent 
B)  8.00 percent 
C)  8.42 percent 
D)  95.00 percent

Question 20

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.

Exam 29: The Monetary System

What is the difference between commodity money and fiat money? Why do people accept fiat money in trade for goods and services?

Which of the following lists two things that both decrease the money supply?

When the Fed decreases the discount rate,banks will

The discount rate is

At any given time,the voting members of the Federal Open Market Committee include

Suppose a bank has $200,000 in deposits and $190,000 in loans.It has loaned out all it can.It has a reserve ratio of

Which of the following statements is correct?

The president of each regional Federal Reserve Bank is appointed by

If the reserve ratio for all banks is 5 percent,then $2,500 of additional reserves can create up to

M1 equals currency plus demand deposits plus

Money

The members of the Federal Reserve's Board of Governors

Credit cards

The amount of currency per person in the United States is about

Table 29-3. The First Bank of Johnson City -Refer to Table 29-3.The reserve ratio for this bank is

The Fed's primary tool to change the money supply is

Table 29-6. Bank of Springfield -Refer to Table 29-6.If the Bank of Springfield has lent out all the money it can given its level of deposits,then what is the reserve requirement?

The money supply decreases if

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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality 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 Basic Tools of Finance

Unemployment

Money Growth and Inflation

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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