Question 1

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 2

Other things the same, if banks decide to hold a smaller part of their deposits as excess reserves, the money supply will fall.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Fiat money

Accepted Answer

A)  has no intrinsic value. 
B)  is backed by gold. 
C)  is a medium of exchange but not a unit of account. 
D)  is any close substitute for currency such as checkable deposits. 
A)  has no intrinsic value. 
B)  is backed by gold. 
C)  is a medium of exchange but not a unit of account. 
D)  is any close substitute for currency such as checkable deposits.

Question 5

When there is a reserve requirement, banks

Accepted Answer

A)  must hold exactly the required quantity of reserves. 
B)  may hold more than, but not less than, the required quantity of reserves. 
C)  may hold less than, but not more than, the required quantity of reserves. 
D)  must seek the Fed's permission whenever they wish to expand or contract their loans to customers. 
A)  must hold exactly the required quantity of reserves. 
B)  may hold more than, but not less than, the required quantity of reserves. 
C)  may hold less than, but not more than, the required quantity of reserves. 
D)  must seek the Fed's permission whenever they wish to expand or contract their loans to customers.

Question 6

When the Fed conducts open-market sales,

Accepted Answer

A)  it sells Treasury securities, which increases the money supply. 
B)  it sells Treasury securities, which decreases the money supply. 
C)  it auctions term loans, which increases the money supply. 
D)  it auctions term loans, which decreases the money supply. 
A)  it sells Treasury securities, which increases the money supply. 
B)  it sells Treasury securities, which decreases the money supply. 
C)  it auctions term loans, which increases the money supply. 
D)  it auctions term loans, which decreases the money supply.

Question 7

If an economy uses silver as money, then that economy's money

Accepted Answer

A)  serves as a store of value but not as a medium of exchange. 
B)  serves as a medium of exchange but not as a unit of account. 
C)  is commodity money. 
D)  has no intrinsic value. 
A)  serves as a store of value but not as a medium of exchange. 
B)  serves as a medium of exchange but not as a unit of account. 
C)  is commodity money. 
D)  has no intrinsic value.

Question 8

Fractional reserve banking is a system where banks must hold an amount of cash based on a percentage of its loans.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following best illustrates the unit of account function of money?

Accepted Answer

A)  You list prices for candy sold on your Web site, HYPERLINK "http://www.sweettooth.com/" www.sweettooth.com, in dollars. 
B)  You pay for your theater tickets with dollars. 
C)  You hold currency even though you don't intend to spend it right away. 
D)  None of the above is correct. 
A)  You list prices for candy sold on your Web site, HYPERLINK "http://www.sweettooth.com/" www.sweettooth.com, in dollars. 
B)  You pay for your theater tickets with dollars. 
C)  You hold currency even though you don't intend to spend it right away. 
D)  None of the above is correct.

Question 10

The Federal Reserve Board of Governors

Accepted Answer

A)  rotate each four years. 
B)  are appointed by the President and confirmed by the Senate. 
C)  are elected by popular vote. 
D)  hold lifetime appointments. 
A)  rotate each four years. 
B)  are appointed by the President and confirmed by the Senate. 
C)  are elected by popular vote. 
D)  hold lifetime appointments.

Question 11

Table 29-9
Metropolis National Bank is currently holding 2% of its deposits as excess reserves.
  
-Refer to Table 29-9. Metropolis National Bank is holding 2% of its deposits as excess reserves. Assume that no banks in the economy want to maintain holdings of excess reserves and that people only hold deposits and no currency. The Fed makes open market purchases of $10,000. The person who sold bonds to the Fed deposits all the funds in Metropolis National Bank. If the bank now loans out all its excess reserves, by how much will the money supply increase?

Accepted Answer

A)  $190,000 
B)  $200,000 
C)  $240,000 
D)  None of the above are correct. 
A)  $190,000 
B)  $200,000 
C)  $240,000 
D)  None of the above are correct.

Question 12

Bank runs and the accompanying increase in the money multiplier caused the U.S. money supply to rise by 28 percent from 1929 to 1933.

Accepted Answer

A) True 
 B)False

Question 13

In the United States, currency holdings per person average about

Accepted Answer

A)  $110; one explanation for this relatively small average is that many people use credit and debit cards to make transactions. 
B)  $110; one explanation for this relatively small average is that U.S. citizens hold a lot of foreign currency. 
C)  $4,490; one explanation for this relatively large amount is that criminals probably prefer currency as a medium of exchange. 
D)  $4,490; one explanation for this relatively large average is that U.S. citizens hold a lot of foreign currency. 
A)  $110; one explanation for this relatively small average is that many people use credit and debit cards to make transactions. 
B)  $110; one explanation for this relatively small average is that U.S. citizens hold a lot of foreign currency. 
C)  $4,490; one explanation for this relatively large amount is that criminals probably prefer currency as a medium of exchange. 
D)  $4,490; one explanation for this relatively large average is that U.S. citizens hold a lot of foreign currency.

Question 14

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 15

Monetary policy is made by the .

Accepted Answer

Federal Op

Question 16

Discuss why the Fed rarely changes the reserve requirements.

Accepted Answer

There are two main reasons the Fed does

Question 17

If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

Accepted Answer

A)  buying bonds. This buying would increase the money supply. 
B)  buying bonds. This buying would reduce the money supply. 
C)  selling bonds. This selling would increase the money supply. 
D)  selling bonds. This selling would reduce the money supply. 
A)  buying bonds. This buying would increase the money supply. 
B)  buying bonds. This buying would reduce the money supply. 
C)  selling bonds. This selling would increase the money supply. 
D)  selling bonds. This selling would reduce the money supply.

Question 18

If a bank uses $500 of excess reserves to make a new loan when the reserve ratio is 8 percent, this action by itself initially makes the money supply

Accepted Answer

A)  and wealth increase by $500. 
B)  and wealth decrease by $500. 
C)  increase by $500 while wealth does not change. 
D)  decrease by $500 while wealth decreases by $500. 
A)  and wealth increase by $500. 
B)  and wealth decrease by $500. 
C)  increase by $500 while wealth does not change. 
D)  decrease by $500 while wealth decreases by $500.

Question 19

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

Accepted Answer

A)  five of the 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 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 20

The money multiplier equals 1/1 - R), where R represents the reserve ratio.

Accepted Answer

A) True 
 B)False

Exam 21: The Monetary System

Paper dollars

Other things the same, if banks decide to hold a smaller part of their deposits as excess reserves, the money supply will fall.

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

Fiat money

When there is a reserve requirement, banks

When the Fed conducts open-market sales,

If an economy uses silver as money, then that economy's money

Fractional reserve banking is a system where banks must hold an amount of cash based on a percentage of its loans.

Which of the following best illustrates the unit of account function of money?

The Federal Reserve Board of Governors

Bank runs and the accompanying increase in the money multiplier caused the U.S. money supply to rise by 28 percent from 1929 to 1933.

In the United States, currency holdings per person average about

The Fed can decrease the money supply by conducting open-market

Monetary policy is made by the .

Discuss why the Fed rarely changes the reserve requirements.

If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

If a bank uses $500 of excess reserves to make a new loan when the reserve ratio is 8 percent, this action by itself initially makes the money supply

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

The money multiplier equals 1/1 - R), where R represents the reserve ratio.

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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