Question 1

Which list ranks assets from most to least liquid?

Accepted Answer

A)  currency, fine art, stocks 
B)  currency, stocks, fine art 
C)  fine art, currency, stocks 
D)  fine art, stocks, currency 
A)  currency, fine art, stocks 
B)  currency, stocks, fine art 
C)  fine art, currency, stocks 
D)  fine art, stocks, currency

Question 2

According to the article "Why Gold?', silver may be used as money. One problem with using silver as money is that

Accepted Answer

A)  silver is too abundant. 
B)  silver tarnishes over time. 
C)  it is not a precious metal. 
D)  it has a high melting point. 
A)  silver is too abundant. 
B)  silver tarnishes over time. 
C)  it is not a precious metal. 
D)  it has a high melting point.

Question 3

The primary difference between commodity money and fiat money is that

Accepted Answer

A)  commodity money is a medium of exchange but fiat money is not. 
B)  fiat money is a medium of exchange but commodity money is not. 
C)  commodity money has intrinsic value but fiat money does not. 
D)  fiat money has intrinsic value but commodity money does not. 
A)  commodity money is a medium of exchange but fiat money is not. 
B)  fiat money is a medium of exchange but commodity money is not. 
C)  commodity money has intrinsic value but fiat money does not. 
D)  fiat money has intrinsic value but commodity money does not.

Question 4

If a bank has a reserve ratio of 8 percent, then

Accepted Answer

A)  government regulation requires the bank to use at least 8 percent of its deposits to make loans. 
B)  the bank's ratio of loans to deposits is 8 percent. 
C)  the bank keeps 8 percent of its deposits as reserves and loans out the rest. 
D)  the bank keeps 8 percent of its assets as reserves and loans out the rest. 
A)  government regulation requires the bank to use at least 8 percent of its deposits to make loans. 
B)  the bank's ratio of loans to deposits is 8 percent. 
C)  the bank keeps 8 percent of its deposits as reserves and loans out the rest. 
D)  the bank keeps 8 percent of its assets as reserves and loans out the rest.

Question 5

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 6

Table 29-5.  
-Refer to Table 29-5. If the bank faces a reserve requirement of 20 percent, then it

Accepted Answer

A)  has $10,000 of excess reserves. 
B)  needs $10,000 more reserves to meet its reserve requirements. 
C)  needs $20,000 more reserves to meet its reserve requirements. 
D)  just meets its reserve requirement. 
A)  has $10,000 of excess reserves. 
B)  needs $10,000 more reserves to meet its reserve requirements. 
C)  needs $20,000 more reserves to meet its reserve requirements. 
D)  just meets its reserve requirement.

Question 7

Reserves decrease if the Federal Reserve

Accepted Answer

A)  raises the discount rate or auctions more credit. 
B)  raises the discount rate but not if it auctions more credit. 
C)  lowers the discount rate or auctions more credit. 
D)  lowers the discount rate but not if it auctions more credit. 
A)  raises the discount rate or auctions more credit. 
B)  raises the discount rate but not if it auctions more credit. 
C)  lowers the discount rate or auctions more credit. 
D)  lowers the discount rate but not if it auctions more credit.

Question 8

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 9

Scenario 29-2.
The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi. The local unit of currency is the taz. Aggregate banking statistics show that collectively the banks of Tazi hold 300 million tazes of required reserves, 75 million tazes of excess reserves, have issued 7,500 million tazes of deposits, and hold 225 million tazes of Tazian Treasury bonds. Tazians prefer to use only demand deposits and so all money is on deposit at the bank.
-Refer to Scenario 29-2. Suppose the Bank of Tazi loaned the banks of Tazi 10 million tazes. 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 change?

Accepted Answer

A)  250 million tazes 
B)  200 million tazes 
C)  125 million tazes 
D)  None of the above is correct. 
A)  250 million tazes 
B)  200 million tazes 
C)  125 million tazes 
D)  None of the above is correct.

Question 10

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 11

Table 29-1.
The information in the table pertains to an imaginary economy.  
-Refer to Table 29-1. What is the value of M1 in billions of dollars?

Accepted Answer

A)  $1,915 billion 
B)  $1,900 billion 
C)  $2,665 billion 
D)  $2,825 billion 
A)  $1,915 billion 
B)  $1,900 billion 
C)  $2,665 billion 
D)  $2,825 billion

Question 12

According to economists, "money" means the same thing as "wealth".

Accepted Answer

A) True 
 B)False

Question 13

Jim transfers money from his money market account to his savings account. This action

Accepted Answer

A)  reduced M1 and increases M2. 
B)  increases M1 and reduces M2. 
C)  has no effect on M1 or M2. 
D)  increases M1 and M2. 
A)  reduced M1 and increases M2. 
B)  increases M1 and reduces M2. 
C)  has no effect on M1 or M2. 
D)  increases M1 and M2.

Question 14

The Fed can reduce the federal funds rate by

Accepted Answer

A)  decreasing the money supply. To decrease the money supply it could sell bonds. 
B)  decreasing the money supply. To decrease the money supply it could buy bonds. 
C)  increasing the money supply. To increase the money supply it could sell bonds. 
D)  increasing the money supply. To increase the money supply it could buy bonds. 
A)  decreasing the money supply. To decrease the money supply it could sell bonds. 
B)  decreasing the money supply. To decrease the money supply it could buy bonds. 
C)  increasing the money supply. To increase the money supply it could sell bonds. 
D)  increasing the money supply. To increase the money supply it could buy bonds.

Question 15

At the Federal Reserve,

Accepted Answer

A)  the nation's monetary and fiscal policies are made by the Federal Open Market Committee, which meets about every six weeks. 
B)  the nation's monetary and fiscal policies are made by the Federal Open Market Committee, which meets twice a year. 
C)  the nation's monetary policy is made by the Federal Open Market Committee, which meets about every six weeks. 
D)  the nation's monetary policy is made by the Federal Open Market Committee, which meets twice a year. 
A)  the nation's monetary and fiscal policies are made by the Federal Open Market Committee, which meets about every six weeks. 
B)  the nation's monetary and fiscal policies are made by the Federal Open Market Committee, which meets twice a year. 
C)  the nation's monetary policy is made by the Federal Open Market Committee, which meets about every six weeks. 
D)  the nation's monetary policy is made by the Federal Open Market Committee, which meets twice a year.

Question 16

In a fractional-reserve banking system with no excess reserves and no currency holdings, if the central bank buys $100 million worth of bonds,

Accepted Answer

A)  reserves and the money supply increase by less than $100 million. 
B)  reserves increase by $100 million and the money supply increases by $100 million. 
C)  reserves increase by $100 million and the money supply increases by more than $100 million. 
D)  both reserves and the money supply increase by more than $100 million. 
A)  reserves and the money supply increase by less than $100 million. 
B)  reserves increase by $100 million and the money supply increases by $100 million. 
C)  reserves increase by $100 million and the money supply increases by more than $100 million. 
D)  both reserves and the money supply increase by more than $100 million.

Question 17

A central bank's setting (or altering) of the money supply is known as

Accepted Answer

A)  open-market operation. 
B)  interest rate policy. 
C)  monetary policy. 
D)  employment policy. 
A)  open-market operation. 
B)  interest rate policy. 
C)  monetary policy. 
D)  employment policy.

Question 18

Paper money

Accepted Answer

A)  has a high intrinsic value. 
B)  is the primary medium of exchange in a barter economy. 
C)  is valuable because it is generally accepted in trade. 
D)  is valuable only because of the legal tender requirement. 
A)  has a high intrinsic value. 
B)  is the primary medium of exchange in a barter economy. 
C)  is valuable because it is generally accepted in trade. 
D)  is valuable only because of the legal tender requirement.

Question 19

Banks can hold deposits at the Federal Reserve. Balances in these accounts can be used by banks to meet their reserve requirements, but the Fed pays no interest on these deposits.

Accepted Answer

A) True 
 B)False

Question 20

Dollar bills, rare paintings, and emerald necklaces are all

Accepted Answer

A)  media of exchange. 
B)  units of account. 
C)  stores of value. 
D)  All of the above are correct. 
A)  media of exchange. 
B)  units of account. 
C)  stores of value. 
D)  All of the above are correct.

Exam 29: The Monetary System

Which list ranks assets from most to least liquid?

According to the article "Why Gold?', silver may be used as money. One problem with using silver as money is that

The primary difference between commodity money and fiat money is that

If a bank has a reserve ratio of 8 percent, then

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

Table 29-5. -Refer to Table 29-5. If the bank faces a reserve requirement of 20 percent, then it

Reserves decrease if the Federal Reserve

Demand deposits are included in

Liquidity refers to

Table 29-1. The information in the table pertains to an imaginary economy. -Refer to Table 29-1. What is the value of M1 in billions of dollars?

According to economists, "money" means the same thing as "wealth".

Jim transfers money from his money market account to his savings account. This action

The Fed can reduce the federal funds rate by

At the Federal Reserve,

In a fractional-reserve banking system with no excess reserves and no currency holdings, if the central bank buys $100 million worth of bonds,

A central bank's setting (or altering) of the money supply is known as

Paper money

Banks can hold deposits at the Federal Reserve. Balances in these accounts can be used by banks to meet their reserve requirements, but the Fed pays no interest on these deposits.

Dollar bills, rare paintings, and emerald necklaces are all

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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