Question 1

Demand 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 2

Banks are able to create money only when

Accepted Answer

A)  interest rates are above 2%. 
B)  the Fed sells U.S. government bonds. 
C)  the reserve ratio is 100%. 
D)  only a fraction of deposits are held in reserve. 
A)  interest rates are above 2%. 
B)  the Fed sells U.S. government bonds. 
C)  the reserve ratio is 100%. 
D)  only a fraction of deposits are held in reserve.

Question 3

Table 29-7.
  
-Refer to Table 29-7. 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)  8.1 percent 
B)  11.0 percent 
C)  12.4 percent 
D)  89.0 percent 
A)  8.1 percent 
B)  11.0 percent 
C)  12.4 percent 
D)  89.0 percent

Question 4

The most common method employed by the Fed to increase the money supply is the

Accepted Answer

A)  sale of U.S. government bonds. 
B)  purchase of U.S. government bonds. 
C)  sale of gold. 
D)  increase of the federal debt ceiling. 
A)  sale of U.S. government bonds. 
B)  purchase of U.S. government bonds. 
C)  sale of gold. 
D)  increase of the federal debt ceiling.

Question 5

M2 is both larger and less liquid than M1.

Accepted Answer

A) True 
 B)False

Question 6

Consider five individuals with different occupations.   In a barter system which of the following pairs has a double coincidence of wants?

Accepted Answer

A)  Allen and Eric 
B)  Diedre and Calvin 
C)  Both A and B are correct. 
D)  None of the above are correct. 
A)  Allen and Eric 
B)  Diedre and Calvin 
C)  Both A and B are correct. 
D)  None of the above are correct.

Question 7

If the reserve ratio 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 8

You believe the dollars you have today will be accepted in the future in exchange for goods and services. Which function of money does this illustrate?

Accepted Answer

The answer of You believe the dollars you have today...

Question 9

An increase in the reserve requirement increases reserves and decreases the money supply.

Accepted Answer

A) True 
 B)False

Question 10

A bank has a 5 percent reserve requirement, $5,000 in deposits, and has loaned out all it can given the reserve requirement.

Accepted Answer

A)  It has $25 in reserves and $4,975 in loans. 
B)  It has $250 in reserves and $4,750 in loans. 
C)  It has $1,000 in reserves and $4,000 in loans. 
D)  None of the above is correct. 
A)  It has $25 in reserves and $4,975 in loans. 
B)  It has $250 in reserves and $4,750 in loans. 
C)  It has $1,000 in reserves and $4,000 in loans. 
D)  None of the above is correct.

Question 11

Suppose banks decide to hold more excess reserves relative to deposits. Other things the same, this action will cause the

Accepted Answer

A)  money supply to fall. To reduce the impact of this the Fed could lower the discount rate. 
B)  money supply to fall. To reduce the impact of this the Fed could raise the discount rate. 
C)  money supply to rise. To reduce the impact of this the Fed could lower the discount rate. 
D)  money supply to rise. To reduce the impact of this the Fed could raise the discount rate. 
A)  money supply to fall. To reduce the impact of this the Fed could lower the discount rate. 
B)  money supply to fall. To reduce the impact of this the Fed could raise the discount rate. 
C)  money supply to rise. To reduce the impact of this the Fed could lower the discount rate. 
D)  money supply to rise. To reduce the impact of this the Fed could raise the discount rate.

Question 12

Money, such as gold, with some intrinsic value is called . Money with no intrinsic value is called .

Accepted Answer

commodity

Question 13

Which of the following is included in both M1 and M2?

Accepted Answer

A)  currency 
B)  demand deposits 
C)  other checkable deposits 
D)  All of the above are correct. 
A)  currency 
B)  demand deposits 
C)  other checkable deposits 
D)  All of the above are correct.

Question 14

If the reserve ratio is 4 percent, then the money multiplier is

Accepted Answer

A)  24. 
B)  25. 
C)  26. 
D)  4. 
A)  24. 
B)  25. 
C)  26. 
D)  4.

Question 15

Other things the same if reserve requirements are decreased, the reserve ratio

Accepted Answer

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

Question 16

The money multiplier is when the reserve ratio is 12.5 percent.

Accepted Answer

The answer of The money multiplier is when the reserve...

Question 17

The prices of goods at a grocery store are listed in dollars. Which function of money does this illustrate?

Accepted Answer

The answer of The prices of goods at a grocery...

Question 18

Table 29-6.
  
-Refer to Table 29-6. Assume the Fed's reserve requirement is 5 percent and all banks besides the Bank of Pleasantville are exactly in compliance with the 5 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 Pleasantville 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)  $10,833.33. 
B)  $13,000. 
C)  $8,333.33. 
D)  $10,000. 
A)  $10,833.33. 
B)  $13,000. 
C)  $8,333.33. 
D)  $10,000.

Exam 21: The Monetary System

Demand deposits are included in

Banks are able to create money only when

Table 29-7. -Refer to Table 29-7. 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 most common method employed by the Fed to increase the money supply is the

M2 is both larger and less liquid than M1.

Consider five individuals with different occupations. In a barter system which of the following pairs has a double coincidence of wants?

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

You believe the dollars you have today will be accepted in the future in exchange for goods and services. Which function of money does this illustrate?

An increase in the reserve requirement increases reserves and decreases the money supply.

A bank has a 5 percent reserve requirement, $5,000 in deposits, and has loaned out all it can given the reserve requirement.

Suppose banks decide to hold more excess reserves relative to deposits. Other things the same, this action will cause the

Money, such as gold, with some intrinsic value is called . Money with no intrinsic value is called .

Which of the following is included in both M1 and M2?

If the reserve ratio is 4 percent, then the money multiplier is

Other things the same if reserve requirements are decreased, the reserve ratio

The money multiplier is when the reserve ratio is 12.5 percent.

The prices of goods at a grocery store are listed in dollars. Which function of money does this illustrate?

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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