Question 1

If households choose to take some fraction of each check they deposit and hold it as currency,then the simple deposit multiplier ________ the real-world multiplier.

Accepted Answer

A) is greater than 
B) is less than 
C) is equal to 
D) bears no relationship to

Question 2

If households in the economy decide to take money out of checking account deposits and put this money into savings accounts,this will initially

Accepted Answer

A) decrease M1 and increase M2. 
B) decrease M1 and decrease M2. 
C) decrease M1 and not change M2. 
D) increase M1 and decrease M2.

Question 3

Which of the following describes the degree of control that the Fed has over the money supply?

Accepted Answer

A) The Fed has absolute control over the money supply. 
B) The Fed has no control of the money supply. 
C) The Fed has substantial control over the money supply. 
D) The Fed is not concerned about the level of the money supply, and does not attempt to control it.

Question 4

Economists estimate that ________ of U.S.currency is outside the United States and held primarily by ________.

Accepted Answer

A) over half; households and firms in countries where there is little confidence in the local currency 
B) over half; foreign banks and foreign governments 
C) less than one quarter; households and firms in countries where there is little confidence in the local currency 
D) less than one quarter; foreign banks and foreign governments

Question 5

The statement,"My iPhone is worth $300" represents money's function as

Accepted Answer

A) a medium of exchange. 
B) a unit of account. 
C) a store of value. 
D) a standard of deferred payment.

Question 6

If a bank receives a $20 million discount loan from the Federal Reserve,then the bank's reserves will

Accepted Answer

A) not change. 
B) increase by $20 million. 
C) increase by less than $20 million. 
D) increase by more than $20 million.

Question 7

If the required reserve ratio is 10 percent,an increase in bank reserves of $1,000 can support an increase in checking account deposits (including the original deposit)in the banking system as a whole of up to

Accepted Answer

A) $100. 
B) $1,000. 
C) $10,000. 
D) $100,000.

Question 8

Money is

Accepted Answer

A) an asset that people are willing to accept in exchange for goods and services. 
B) a liability that people are willing to accept in exchange for goods and services. 
C) the income one earns over a period of time. 
D) one's assets net of one's liabilities at any point in time.

Question 9

Which of the following is the most liquid asset?

Accepted Answer

A) a Renoir painting 
B) bonds 
C) a car 
D) money

Question 10

A barter economy is an economy where

Accepted Answer

A) goods and services are exchanged for money. 
B)  money is exchanged for goods and services. 
C) goods and services are exchanged for other goods and services. 
D) goods and services are exchanged for liabilities.

Question 11

How do open market operations work?

Accepted Answer

The answer of How do open market operations work?...

Question 12

Fiat money has

Accepted Answer

A) little to no intrinsic value but is backed by the quantity of gold held by the central bank. 
B) little to no intrinsic value and is authorized by the central bank or governmental body. 
C) value, because it can be redeemed for gold by the central bank. 
D) a great intrinsic value that is independent of its use as money.

Question 13

The Fed has more control over open market operations as compared to discount policy.

Accepted Answer

A) True 
 B)False

Question 14

Suppose you withdraw $1,000 from your savings account and put it under your mattress.Briefly explain how this will affect M1 and M2.

Accepted Answer

The answer of Suppose you withdraw $1,000 from your savings...

Question 15

Hyperinflation can be caused by

Accepted Answer

A) the government selling bonds to the central bank. 
B) the central bank selling bonds to the public. 
C) the government selling bonds to the public. 
D) the central bank selling bonds to the government.

Question 16

Which of the following is not a consequence of hyperinflation?

Accepted Answer

A) Money's function as a medium of exchange is enhanced. 
B) Money loses value so rapidly that firms and individuals stop holding it. 
C) It causes an economy to suffer slow growth. 
D) The price level grows in excess of hundreds of percentage points per year.

Question 17

In an economy with money,as opposed to barter,people are more likely to specialize in the production of goods and services.

Accepted Answer

A) True 
 B)False

Question 18

Suppose there is a bank panic.Which of the following would not be a consequence of this bank panic?

Accepted Answer

A) Bank total reserves would decrease. 
B) Required reserves would increase. 
C) Bank checking account balances would decrease. 
D) Individual banks would have to shrink the value of loans they made. 
E) The economy would likely enter into a recession.

Question 19

The narrowest official definition of the money supply is

Accepted Answer

A) M1. 
B) M2. 
C) M3. 
D) L)

Question 20

In an attempt to bring lenders and borrowers together following the financial crisis of 2008,the Federal Reserve made a large amount of new funds available to financial markets.Any of these new funds that are loaned out by banks would be classified as ________ of the banks.

Accepted Answer

A) required reserves 
B) excess reserves 
C) deposits 
D) liabilities

Exam 16: Money, banks, and the Federal Reserve System