Question 1

The use of money allows trade to be roundabout.

Accepted Answer

A) True 
 B)False

Question 2

Paper dollars

Accepted Answer

A)  are commodity money and gold coins are fiat money. 
B)  are fiat money and gold coins are commodity money. 
C)  and gold coins are both commodity monies. 
D)  and gold coins are both fiat monies. 
A)  are commodity money and gold coins are fiat money. 
B)  are fiat money and gold coins are commodity money. 
C)  and gold coins are both commodity monies. 
D)  and gold coins are both fiat monies.

Question 3

The Fed can decrease 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 4

If the Fed buys bonds in the open market,the money supply decreases.

Accepted Answer

A) True 
 B)False

Question 5

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 neither M1 nor M2. 
C)  People who have credit cards probably hold less money on average than people who do not have credit cards. 
D)  A debit card allows its user to postpone payment for a purchase. 
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 neither M1 nor M2. 
C)  People who have credit cards probably hold less money on average than people who do not have credit cards. 
D)  A debit card allows its user to postpone payment for a purchase.

Question 6

The Federal Reserve

Accepted Answer

A)  was created in 1836. 
B)  was created to facilitate the federal government's collection of taxes as well as its expenditures. 
C)  is an example of a central bank. 
D)  All of the above are correct. 
A)  was created in 1836. 
B)  was created to facilitate the federal government's collection of taxes as well as its expenditures. 
C)  is an example of a central bank. 
D)  All of the above are correct.

Question 7

The Federal Reserve

Accepted Answer

A)  was created in 1913. 
B)  has more than one specific job to perform. 
C)  is an example of a central bank. 
D)  All of the above are correct. 
A)  was created in 1913. 
B)  has more than one specific job to perform. 
C)  is an example of a central bank. 
D)  All of the above are correct.

Question 8

Fiat money

Accepted Answer

A)  has no intrinsic value. 
B)  is backed by gold. 
C)  has intrinsic value equal to its value in exchange. 
D)  is any close substitute for currency such as checkable deposits. 
A)  has no intrinsic value. 
B)  is backed by gold. 
C)  has intrinsic value equal to its value in exchange. 
D)  is any close substitute for currency such as checkable deposits.

Question 9

Table 29-5.
Bank of Kopeka
  
-Refer to Table 29-5.Assume the Fed's reserve requirement is 9 percent and all banks besides the Bank of Kopeka are exactly in compliance with the 9 percent requirement.Further assume that people hold only deposits and no currency.Starting from the situation as depicted by the T-account,if the Bank of Kopeka decides to make new loans so as to end up with no excess reserves,then by how much does the money supply eventually increase?

Accepted Answer

A)  $555.00. 
B)  $1,200.00. 
C)  $1,777.78. 
D)  $2,222.22. 
A)  $555.00. 
B)  $1,200.00. 
C)  $1,777.78. 
D)  $2,222.22.

Question 10

Table 29-6.
Bank of Springfield
  
-Refer to Table 29-6.Assuming the Bank of Springfield and all other banks have the same reserve ratio,then what is the value of the money multiplier?

Accepted Answer

A)  5.0 
B)  7.5 
C)  10.00 
D)  12.5 
A)  5.0 
B)  7.5 
C)  10.00 
D)  12.5

Question 11

All Fed purchases and sales of

Accepted Answer

A)  corporate stocks and bonds are conducted at the New York Fed's trading desk. 
B)  government bonds are conducted at the New York Fed's trading desk. 
C)  real estate and other real assets are conducted by the Federal Open Market Committee. 
D)  All of the above are correct. 
A)  corporate stocks and bonds are conducted at the New York Fed's trading desk. 
B)  government bonds are conducted at the New York Fed's trading desk. 
C)  real estate and other real assets are conducted by the Federal Open Market Committee. 
D)  All of the above are correct.

Question 12

During the stock market crash of October 1987,the Fed

Accepted Answer

A)  nearly created a financial panic by not acting as a lender of last resort. 
B)  nearly created a financial panic by raising the discount rate. 
C)  prevented a financial panic by raising reserve requirements. 
D)  prevented a financial panic by providing liquidity to the financial system. 
A)  nearly created a financial panic by not acting as a lender of last resort. 
B)  nearly created a financial panic by raising the discount rate. 
C)  prevented a financial panic by raising reserve requirements. 
D)  prevented a financial panic by providing liquidity to the financial system.

Question 13

If the reserve ratio for all banks is 12.5 percent,then $2,000 of additional reserves can create up to

Accepted Answer

A)  $8,000 of new money. 
B)  $16,000 of new money. 
C)  $32,000 of new money. 
D)  None of the above is correct. 
A)  $8,000 of new money. 
B)  $16,000 of new money. 
C)  $32,000 of new money. 
D)  None of the above is correct.

Question 14

Because of the multiple tools at its disposal,the Fed can control the money supply very precisely.

Accepted Answer

A) True 
 B)False

Question 15

M1 includes

Accepted Answer

A)  currency. 
B)  demand deposits. 
C)  travelers' checks. 
D)  All of the above are correct. 
A)  currency. 
B)  demand deposits. 
C)  travelers' checks. 
D)  All of the above are correct.

Question 16

As banks create money,they create wealth.

Accepted Answer

A) True 
 B)False

Question 17

Table 29-3.
The First Bank of Johnson City
  
-Refer to Table 29-3.If $1,000 is deposited into the First Bank of Johnson City,and the bank takes no other actions,its

Accepted Answer

A)  reserves will increase by $200. 
B)  liabilities will decrease by $1,000. 
C)  assets will increase by $1,000. 
D)  reserves will increase by $800. 
A)  reserves will increase by $200. 
B)  liabilities will decrease by $1,000. 
C)  assets will increase by $1,000. 
D)  reserves will increase by $800.

Question 18

Bank runs

Accepted Answer

A)  will affect neither the money supply nor the money multiplier. 
B)  are only a problem for insolvent banks. 
C)  can be neither prevented nor mitigated by the Federal Reserve. 
D)  are a problem because banks only hold a fraction of deposits as reserves. 
A)  will affect neither the money supply nor the money multiplier. 
B)  are only a problem for insolvent banks. 
C)  can be neither prevented nor mitigated by the Federal Reserve. 
D)  are a problem because banks only hold a fraction of deposits as reserves.

Question 19

Money is the most liquid asset available because

Accepted Answer

A)  it is a store of value. 
B)  it is a medium of exchange. 
C)  it is a unit of account. 
D)  it has intrinsic value. 
A)  it is a store of value. 
B)  it is a medium of exchange. 
C)  it is a unit of account. 
D)  it has intrinsic value.

Question 20

Suppose banks desire to hold no excess reserves and that the Fed has set a reserve requirement of 10 percent.If you deposit $9,000 into First Jayhawk Bank,

Accepted Answer

A)  First Jayhawk's required reserves increase by $900. 
B)  First Jayhawk will be able to lend out $8,100. 
C)  First Jayhawk's assets and liabilities both will increase by $9,000. 
D)  All of the above are correct. 
A)  First Jayhawk's required reserves increase by $900. 
B)  First Jayhawk will be able to lend out $8,100. 
C)  First Jayhawk's assets and liabilities both will increase by $9,000. 
D)  All of the above are correct.

Exam 29: The Monetary System

The use of money allows trade to be roundabout.

Paper dollars

The Fed can decrease the money supply by conducting open market

If the Fed buys bonds in the open market,the money supply decreases.

Which of the following statements is correct?

The Federal Reserve

The Federal Reserve

Fiat money

Table 29-6. Bank of Springfield -Refer to Table 29-6.Assuming the Bank of Springfield and all other banks have the same reserve ratio,then what is the value of the money multiplier?

All Fed purchases and sales of

During the stock market crash of October 1987,the Fed

If the reserve ratio for all banks is 12.5 percent,then $2,000 of additional reserves can create up to

Because of the multiple tools at its disposal,the Fed can control the money supply very precisely.

M1 includes

As banks create money,they create wealth.

Table 29-3. The First Bank of Johnson City -Refer to Table 29-3.If $1,000 is deposited into the First Bank of Johnson City,and the bank takes no other actions,its

Bank runs

Money is the most liquid asset available because

Suppose banks desire to hold no excess reserves and that the Fed has set a reserve requirement of 10 percent.If you deposit $9,000 into First Jayhawk Bank,

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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