Question 1

What is the difference between commodity money and fiat money? Why do people accept fiat money in trade for goods and services?

Accepted Answer

Commodity money has "intrinsic value," o

Question 2

What is the change in the money supply when the Fed purchases $100 worth of bonds in a 100-percent-reserve banking system?

Accepted Answer

The answer of What is the change in the money...

Question 3

Table 29-6.  
-Refer to Table 29-6. If the Fed's reserve requirement is 5 percent, then what quantity of excess reserves does the Bank of Pleasantville now hold?

Accepted Answer

A)  $500 
B)  $250 
C)  $2,000 
D)  $3,600 
A)  $500 
B)  $250 
C)  $2,000 
D)  $3,600

Question 4

Consider five high school students working on homework in study hall.   Which of the following pairs of students has a double coincidence of wants?

Accepted Answer

A)  Rosie and Piper 
B)  Piper and Molly 
C)  Dewey and Molly 
D)  Bob and Dewey 
A)  Rosie and Piper 
B)  Piper and Molly 
C)  Dewey and Molly 
D)  Bob and Dewey

Question 5

Table 29-3. An economy starts with $50,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $45,750. The T-account of the bank is shown below.  
-Refer to Table 29-3. If all banks in the economy have the same reserve ratio as this bank, then an increase in reserves of $150 for this bank has the potential to increase deposits for all banks by

Accepted Answer

A)  $287.25. 
B)  $1,614.71. 
C)  $1,764.71. 
D)  $2,000 or more. 
A)  $287.25. 
B)  $1,614.71. 
C)  $1,764.71. 
D)  $2,000 or more.

Question 6

If the federal funds rate were below 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 7

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 currently holding 2% of deposits as excess reserves. What is the reserve requirement?

Accepted Answer

A)  12 percent 
B)  10 percent 
C)  8 percent 
D)  6 percent 
A)  12 percent 
B)  10 percent 
C)  8 percent 
D)  6 percent

Question 8

An increase in the money supply might indicate that the Fed had

Accepted Answer

A)  purchased bonds in an attempt to increase the federal funds rate. 
B)  purchased bonds in an attempt to reduce the federal funds rate. 
C)  sold bonds in an attempt to increase the federal funds rate. 
D)  sold bonds in an attempt to reduce the federal funds rate. 
A)  purchased bonds in an attempt to increase the federal funds rate. 
B)  purchased bonds in an attempt to reduce the federal funds rate. 
C)  sold bonds in an attempt to increase the federal funds rate. 
D)  sold bonds in an attempt to reduce the federal funds rate.

Question 9

The Fed sets the interest that borrowers pay on loans from

Accepted Answer

A)  the discount window and the term auction facility 
B)  the discount window but not the term auction facility 
C)  the term auction facility but not the discount window 
D)  neither the discount window nor the term auction facility 
A)  the discount window and the term auction facility 
B)  the discount window but not the term auction facility 
C)  the term auction facility but not the discount window 
D)  neither the discount window nor the term auction facility

Question 10

Which of the following is not a central bank?

Accepted Answer

A)  The Bank of England 
B)  The Bank of Japan 
C)  The Bank of America 
D)  The Federal Reserve 
A)  The Bank of England 
B)  The Bank of Japan 
C)  The Bank of America 
D)  The Federal Reserve

Question 11

The Fed increases reserves if it conducts open market

Accepted Answer

A)  purchases or auctions term credit. 
B)  purchases but not if it auctions term credit 
C)  sales or auctions term credit 
D)  sales but not if it auctions term credit 
A)  purchases or auctions term credit. 
B)  purchases but not if it auctions term credit 
C)  sales or auctions term credit 
D)  sales but not if it auctions term credit

Question 12

Given the following information, what are the values of M1 and M2? Small time deposits $2,200 billion
Demand deposits and other checkable deposits $1,700 billion
Savings deposits $2,600 billion
Money market mutual funds $1,500 billion
Traveler's checks $60 billion
Large time deposits $1,500 billion
Currency $350 billion
Miscellaneous categories in M2 $75 billion

Accepted Answer

A)  M1 = $4,310 billion, M2 = $6,285 billion. 
B)  M1 = $2,050 billion, M2 = $9,985 billion. 
C)  M1 = $2,110 billion, M2 = $8,485 billion. 
D)  M1 = $3,610 billion, M2 = $9,985 billion. 
A)  M1 = $4,310 billion, M2 = $6,285 billion. 
B)  M1 = $2,050 billion, M2 = $9,985 billion. 
C)  M1 = $2,110 billion, M2 = $8,485 billion. 
D)  M1 = $3,610 billion, M2 = $9,985 billion.

Question 13

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 14

If the reserve requirement is 10 percent, which of the following pairs of changes would both allow a bank to lend out an additional $10,000?

Accepted Answer

A)  the Fed buys a $10,000 bond from the bank or someone deposits $10,000 in the bank 
B)  the Fed buys a $10,000 bond from the bank or the Fed lends the bank $10,000 
C)  the Fed sells a $10,000 bond to the bank or someone deposits $10,000 in the bank 
D)  the Fed sells a $10,000 bond to the bank or the Fed lends the bank $10,000 
A)  the Fed buys a $10,000 bond from the bank or someone deposits $10,000 in the bank 
B)  the Fed buys a $10,000 bond from the bank or the Fed lends the bank $10,000 
C)  the Fed sells a $10,000 bond to the bank or someone deposits $10,000 in the bank 
D)  the Fed sells a $10,000 bond to the bank or the Fed lends the bank $10,000

Question 15

Who can vote on Federal Open Market Committee decisions?

Accepted Answer

A)  all of the members of the Board of Governors and all of the Federal Reserve Bank presidents 
B)  all of the members of the Board of Governors and some of the Federal Reserve Bank presidents 
C)  some of the members of the Board of Governors and all of the Federal Reserve Bank presidents 
D)  some of the members of the Board of Governors and some of the Federal Reserve Bank presidents 
A)  all of the members of the Board of Governors and all of the Federal Reserve Bank presidents 
B)  all of the members of the Board of Governors and some of the Federal Reserve Bank presidents 
C)  some of the members of the Board of Governors and all of the Federal Reserve Bank presidents 
D)  some of the members of the Board of Governors and some of the Federal Reserve Bank presidents

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

If the reserve ratio is 5 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed purchases $20 million worth of government bonds, bank reserves

Accepted Answer

A)  increase by $20 million and the money supply eventually increases by $400 million. 
B)  decrease by $20 million and the money supply eventually decreases by $400 million. 
C)  increase by $20 million and the money supply eventually increases by $100 million. 
D)  decrease by $20 million and the money supply eventually decreases by $100 million. 
A)  increase by $20 million and the money supply eventually increases by $400 million. 
B)  decrease by $20 million and the money supply eventually decreases by $400 million. 
C)  increase by $20 million and the money supply eventually increases by $100 million. 
D)  decrease by $20 million and the money supply eventually decreases by $100 million.

Question 18

M1 includes

Accepted Answer

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

Question 19

The federal funds rate is a long-term interest rate banks charge one another for loans.

Accepted Answer

A) True 
 B)False

Question 20

Economists equate money with

Accepted Answer

A)  individual wealth. 
B)  income regularly earned. 
C)  assets people use regularly to buy goods and services. 
D)  individual saving. 
A)  individual wealth. 
B)  income regularly earned. 
C)  assets people use regularly to buy goods and services. 
D)  individual saving.

Exam 29: The Monetary System

What is the difference between commodity money and fiat money? Why do people accept fiat money in trade for goods and services?

What is the change in the money supply when the Fed purchases $100 worth of bonds in a 100-percent-reserve banking system?

Table 29-6. -Refer to Table 29-6. If the Fed's reserve requirement is 5 percent, then what quantity of excess reserves does the Bank of Pleasantville now hold?

Consider five high school students working on homework in study hall. Which of the following pairs of students has a double coincidence of wants?

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

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 currently holding 2% of deposits as excess reserves. What is the reserve requirement?

An increase in the money supply might indicate that the Fed had

The Fed sets the interest that borrowers pay on loans from

Which of the following is not a central bank?

The Fed increases reserves if it conducts open market

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

If the reserve requirement is 10 percent, which of the following pairs of changes would both allow a bank to lend out an additional $10,000?

Who can vote on Federal Open Market Committee decisions?

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

If the reserve ratio is 5 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed purchases $20 million worth of government bonds, bank reserves

M1 includes

The federal funds rate is a long-term interest rate banks charge one another for loans.

Economists equate money with

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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