Question 1

Which type of money has intrinsic value?

Accepted Answer

A)  commodity money 
B)  fiat money 
C)  both commodity money and fiat money 
D)  neither commodity money nor fiat money 
A)  commodity money 
B)  fiat money 
C)  both commodity money and fiat money 
D)  neither commodity money nor fiat money

Question 2

If the public decides to hold less currency and more deposits in banks, bank reserves

Accepted Answer

A)  decrease and the money supply eventually decreases. 
B)  decrease but the money supply does not change. 
C)  increase and the money supply eventually increases. 
D)  increase but the money supply does not change. 
A)  decrease and the money supply eventually decreases. 
B)  decrease but the money supply does not change. 
C)  increase and the money supply eventually increases. 
D)  increase but the money supply does not change.

Question 3

The Fed began paying interest on reserves in October 2008. Holding all else constant, what effect would this have on the money supply?

Accepted Answer

This would

Question 4

If you withdraw $500 from your savings account and deposit it in your checking account, then M1 will change by and M2 will change by .

Accepted Answer

The answer of If you withdraw $500 from your savings...

Question 5

A bank has $8,000 in deposits and $6,000 in loans. It has loaned out all it can given the reserve requirement. It follows that the reserve requirement is

Accepted Answer

A)  2.5 percent. 
B)  33.3 percent. 
C)  25 percent. 
D)  75 percent. 
A)  2.5 percent. 
B)  33.3 percent. 
C)  25 percent. 
D)  75 percent.

Question 6

The Federal Reserve

Accepted Answer

A)  was created in 1836. 
B)  serves as a lender of last resort. 
C)  was created to facilitate the federal government's collection of taxes as well as its expenditures. 
D)  All of the above are correct. 
A)  was created in 1836. 
B)  serves as a lender of last resort. 
C)  was created to facilitate the federal government's collection of taxes as well as its expenditures. 
D)  All of the above are correct.

Question 7

A bank's assets equal its liabilities under

Accepted Answer

A)  both 100-percent-reserve banking and fractional-reserve banking. 
B)  100-percent-reserve banking but not under fractional-reserve banking. 
C)  fractional-reserve banking but not under 100-percent-reserve banking. 
D)  neither 100-percent-reserve banking nor fractional-reserve banking. 
A)  both 100-percent-reserve banking and fractional-reserve banking. 
B)  100-percent-reserve banking but not under fractional-reserve banking. 
C)  fractional-reserve banking but not under 100-percent-reserve banking. 
D)  neither 100-percent-reserve banking nor fractional-reserve banking.

Question 8

M2 is both larger and less liquid than M1.

Accepted Answer

A) True 
 B)False

Question 9

Prisoners sometimes determine a single good to be used as money. This good becomes

Accepted Answer

A)  a medium of exchange and a unit of account. 
B)  a medium of exchange, but not a unit of account. 
C)  a unit of account, but not a medium of exchange. 
D)  neither a unit of account nor a medium of exchange. 
A)  a medium of exchange and a unit of account. 
B)  a medium of exchange, but not a unit of account. 
C)  a unit of account, but not a medium of exchange. 
D)  neither a unit of account nor a medium of exchange.

Question 10

At one time, people in a certain country had no access to banks; they relied exclusively on currency. Then, a fractional-reserve banking system was created. As a result, the money supply

Accepted Answer

A)  increased. The central bank could have reduced the size of this increase by buying bonds. 
B)  increased. The central bank could have reduced the size of this increase by selling bonds. 
C)  decreased. The central bank could have reduced the size of this decrease by buying bonds. 
D)  decreased. The central bank could have reduced the size of this decrease by selling bonds. 
A)  increased. The central bank could have reduced the size of this increase by buying bonds. 
B)  increased. The central bank could have reduced the size of this increase by selling bonds. 
C)  decreased. The central bank could have reduced the size of this decrease by buying bonds. 
D)  decreased. The central bank could have reduced the size of this decrease by selling bonds.

Question 11

The Fed can directly protect a bank during a bank run by

Accepted Answer

A)  increasing reserve requirements. 
B)  selling government bonds to the bank. 
C)  lending reserves to the bank. 
D)  doing any of the above. 
A)  increasing reserve requirements. 
B)  selling government bonds to the bank. 
C)  lending reserves to the bank. 
D)  doing any of the above.

Question 12

An open-market purchase

Accepted Answer

A)  increases the number of dollars and the number of bonds in the hands of the public. 
B)  increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public. 
C)  decreases the number of dollars and the number of bonds in the hands of the public. 
D)  decreases the number of dollars in the hands of the public and increases the number of bonds in the hands of the public. 
A)  increases the number of dollars and the number of bonds in the hands of the public. 
B)  increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public. 
C)  decreases the number of dollars and the number of bonds in the hands of the public. 
D)  decreases the number of dollars in the hands of the public and increases the number of bonds in the hands of the public.

Question 13

Economists argue that the move from barter to money increased trade and production. How is this possible?

Accepted Answer

The use of money allows people

Question 14

The Fed's control of the money supply is not precise because

Accepted Answer

A)  Congress can also make changes to the money supply. 
B)  there are not always government bonds available for purchase when the Fed wants to perform open-market operations. 
C)  the Fed does not know where all U.S. currency is located. 
D)  the amount of money in the economy depends in part on the behavior of depositors and bankers. 
A)  Congress can also make changes to the money supply. 
B)  there are not always government bonds available for purchase when the Fed wants to perform open-market operations. 
C)  the Fed does not know where all U.S. currency is located. 
D)  the amount of money in the economy depends in part on the behavior of depositors and bankers.

Question 15

The interest rate the Fed charges on loans it makes to banks is called

Accepted Answer

A)  the prime rate. 
B)  the federal funds rate. 
C)  the discount rate. 
D)  the LIBOR. 
A)  the prime rate. 
B)  the federal funds rate. 
C)  the discount rate. 
D)  the LIBOR.

Exam 29: The Monetary System

Which type of money has intrinsic value?

If the public decides to hold less currency and more deposits in banks, bank reserves

The Fed began paying interest on reserves in October 2008. Holding all else constant, what effect would this have on the money supply?

If you withdraw $500 from your savings account and deposit it in your checking account, then M1 will change by and M2 will change by .

A bank has $8,000 in deposits and $6,000 in loans. It has loaned out all it can given the reserve requirement. It follows that the reserve requirement is

The Federal Reserve

A bank's assets equal its liabilities under

M2 is both larger and less liquid than M1.

Prisoners sometimes determine a single good to be used as money. This good becomes

At one time, people in a certain country had no access to banks; they relied exclusively on currency. Then, a fractional-reserve banking system was created. As a result, the money supply

The Fed can directly protect a bank during a bank run by

An open-market purchase

Economists argue that the move from barter to money increased trade and production. How is this possible?

The Fed's control of the money supply is not precise because

The interest rate the Fed charges on loans it makes to banks is called

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

Six Debates Over Macroeconomic Policy

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