Question 1

When prisoners use cigarettes or some other good as money, cigarettes become

Accepted Answer

A)  commodity money, but do not function as a unit of account. 
B)  commodity money and function as a unit of account. 
C)  fiat money, but do not function as a unit of account. 
D)  fiat money and function as a unit of account. 
A)  commodity money, but do not function as a unit of account. 
B)  commodity money and function as a unit of account. 
C)  fiat money, but do not function as a unit of account. 
D)  fiat money and function as a unit of account.

Question 2

The Federal Reserve primarily uses open-market operations to change the money supply.

Accepted Answer

A) True 
 B)False

Question 3

The reserve ratio is 10 percent, banks do not hold excess reserves, and people hold only deposits and no currency. When the Fed sells $20 million worth of bonds to the public, bank reserves

Accepted Answer

A)  increase by $20 million and the money supply eventually increases by $20 million. 
B)  increase by $20 million and the money supply eventually increases by $200 million. 
C)  decrease by $2 million and the money supply eventually increases by $20 million. 
D)  decrease by $20 million and the money supply eventually decreases by $200 million. 
A)  increase by $20 million and the money supply eventually increases by $20 million. 
B)  increase by $20 million and the money supply eventually increases by $200 million. 
C)  decrease by $2 million and the money supply eventually increases by $20 million. 
D)  decrease by $20 million and the money supply eventually decreases by $200 million.

Question 4

The Federal Reserve

Accepted Answer

A)  is responsible for conducting the nation's monetary policy, and it plays a role in regulating banks. 
B)  is responsible for conducing the nation's monetary policy, but it plays no role in regulating banks. 
C)  is not responsible for conducting the nation's monetary policy, and it plays a role in regulating banks. 
D)  is not responsible for conducing the nation's monetary policy, and it plays no role in regulating banks. 
A)  is responsible for conducting the nation's monetary policy, and it plays a role in regulating banks. 
B)  is responsible for conducing the nation's monetary policy, but it plays no role in regulating banks. 
C)  is not responsible for conducting the nation's monetary policy, and it plays a role in regulating banks. 
D)  is not responsible for conducing the nation's monetary policy, and it plays no role in regulating banks.

Question 5

The chair of the Board of Governors regularly testifies to Congress about Fed policy.

Accepted Answer

A) True 
 B)False

Question 6

What does the "double coincidence of wants" refer to?

Accepted Answer

"Double coincidence of wants" refers to

Question 7

Scenario 29-1.
The monetary policy of Namdian is determined by the Namdian Central Bank. The local currency is the dia. Namdian banks collectively hold 100 million dias of required reserves, 25 million dias of excess reserves, 250 million dias of Namdian Treasury Bonds, and their customers hold 1,000 million dias of deposits. Namdians prefer to use only demand deposits and so the money supply consists of demand deposits.
-Refer to Scenario 29-1. Suppose the Central Bank of Namdia loaned the banks of Namdia 5 million dias. Suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the same. By how much would the money supply of Namdia change?

Accepted Answer

A)  60 million dias 
B)  50 million dias 
C)  40 million dias 
D)  None of the above is correct. 
A)  60 million dias 
B)  50 million dias 
C)  40 million dias 
D)  None of the above is correct.

Question 8

Which of the following is not included in M1?

Accepted Answer

A)  currency 
B)  demand deposits 
C)  traveler's checks 
D)  credit cards 
A)  currency 
B)  demand deposits 
C)  traveler's checks 
D)  credit cards

Question 9

Economists call an institution designed to oversee the banking system and regulate the quantity of money in the economy

Accepted Answer

A)  a central bank. 
B)  a charter bank. 
C)  a national bank. 
D)  a state bank. 
A)  a central bank. 
B)  a charter bank. 
C)  a national bank. 
D)  a state bank.

Question 10

If an economy used gold as money, its money would be

Accepted Answer

A)  commodity money, but not fiat money. 
B)  fiat money, but not commodity money. 
C)  both fiat and commodity money. 
D)  functioning as a store of value and as a unit of account, but not as a medium of exchange. 
A)  commodity money, but not fiat money. 
B)  fiat money, but not commodity money. 
C)  both fiat and commodity money. 
D)  functioning as a store of value and as a unit of account, but not as a medium of exchange.

Question 11

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. 
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 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

Money allows people to specialize in what they do best, thereby raising everyone's standard of living.

Accepted Answer

A) True 
 B)False

Question 14

To decrease the money supply, the Fed could

Accepted Answer

A)  sell government bonds. 
B)  increase the discount rate. 
C)  increase the reserve requirement. 
D)  All of the above are correct. 
A)  sell government bonds. 
B)  increase the discount rate. 
C)  increase the reserve requirement. 
D)  All of the above are correct.

Question 15

Liquidity refers to

Accepted Answer

A)  the ease with which an asset is converted to the medium of exchange. 
B)  the measurement of the intrinsic value of commodity money. 
C)  the measurement of the durability of a good. 
D)  how many time a dollar circulates in a given year. 
A)  the ease with which an asset is converted to the medium of exchange. 
B)  the measurement of the intrinsic value of commodity money. 
C)  the measurement of the durability of a good. 
D)  how many time a dollar circulates in a given year.

Question 16

Which of the following is a store of value?

Accepted Answer

A)  currency 
B)  U.S. government bonds 
C)  fine art 
D)  All of the above are correct. 
A)  currency 
B)  U.S. government bonds 
C)  fine art 
D)  All of the above are correct.

Question 17

If the reserve ratio is 15 percent, the money multiplier is

Accepted Answer

A)  7.7. 
B)  6.7. 
C)  5.7. 
D)  15. 
A)  7.7. 
B)  6.7. 
C)  5.7. 
D)  15.

Question 18

In a system of 100-percent-reserve banking,

Accepted Answer

A)  banks do not make loans. 
B)  currency is the only form of money. 
C)  deposits are banks' only assets. 
D)  All of the above are correct. 
A)  banks do not make loans. 
B)  currency is the only form of money. 
C)  deposits are banks' only assets. 
D)  All of the above are correct.

Question 19

A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

Accepted Answer

A)  an asset for the bank and a liability for Kellie's Print Shop. The loan increases the money supply. 
B)  an asset for the bank and a liability for Kellie's Print Shop. The loan does not increase the money supply. 
C)  a liability for the bank and an asset for Kellie's Print Shop. The loan increases the money supply. 
D)  a liability for the bank and an asset for Kellie's Print Shop. The loan does not increase the money supply. 
A)  an asset for the bank and a liability for Kellie's Print Shop. The loan increases the money supply. 
B)  an asset for the bank and a liability for Kellie's Print Shop. The loan does not increase the money supply. 
C)  a liability for the bank and an asset for Kellie's Print Shop. The loan increases the money supply. 
D)  a liability for the bank and an asset for Kellie's Print Shop. The loan does not increase the money supply.

Question 20

The Fed has the power to increase or decrease the number of dollars in the economy through the decisions of

Accepted Answer

A)  the Board of Governors. 
B)  the FOMC. 
C)  the regional Federal Reserve Bank presidents. 
D)  the U.S. Treasury. 
A)  the Board of Governors. 
B)  the FOMC. 
C)  the regional Federal Reserve Bank presidents. 
D)  the U.S. Treasury.

Exam 21: The Monetary System

When prisoners use cigarettes or some other good as money, cigarettes become

The Federal Reserve primarily uses open-market operations to change the money supply.

The reserve ratio is 10 percent, banks do not hold excess reserves, and people hold only deposits and no currency. When the Fed sells $20 million worth of bonds to the public, bank reserves

The Federal Reserve

The chair of the Board of Governors regularly testifies to Congress about Fed policy.

What does the "double coincidence of wants" refer to?

Which of the following is not included in M1?

Economists call an institution designed to oversee the banking system and regulate the quantity of money in the economy

If an economy used gold as money, its money would be

When the Fed buys government bonds,

The members of the Federal Reserve's Board of Governors

Money allows people to specialize in what they do best, thereby raising everyone's standard of living.

To decrease the money supply, the Fed could

Liquidity refers to

Which of the following is a store of value?

If the reserve ratio is 15 percent, the money multiplier is

In a system of 100-percent-reserve banking,

A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

The Fed has the power to increase or decrease the number of dollars in the economy through the decisions of

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 Costs of Production

Firms in Competitive Markets

Monopoly

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

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

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