Question 1

Which of the following is the most liquid asset?

Accepted Answer

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

Question 2

Innovations,including new products and services,in financial markets and institutions have made the job of defining the money supply easier.

Accepted Answer

A) True 
 B)False

Question 3

The amount of national income in an economy equals the money supply in an economy.

Accepted Answer

A) True 
 B)False

Question 4

A bank's largest liability is its

Accepted Answer

A) short-term borrowing. 
B) long-term debt. 
C) deposits of its customers. 
D) shareholder equity.

Question 5

If the bank of Waterloo receives a $10,000 deposit,and the reserve requirement is 10 percent,how much can the bank loan out? (Assume that before the deposit this bank is just meeting its legal reserve requirement.)

Accepted Answer

A) $1,000 
B) $9,000 
C) $10,000 
D) $11,000

Question 6

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 7

The primary tool the Federal Reserve uses to increase the money supply is

Accepted Answer

A) printing more money. 
B) lowering the required reserve ratio. 
C) buying Treasury securities. 
D) lowering the discount rate.

Question 8

A decrease in the reserve requirement ________ bank reserves and ________ the money supply.

Accepted Answer

A) increases; increases 
B) increases; decreases 
C) decreases; increases 
D) decreases; decreases

Question 9

Dollar bills in the modern economy serve as money because

Accepted Answer

A) they are backed by the gold stored in Fort Knox. 
B) they can be redeemed for gold by the central bank. 
C) they have value as a commodity independent of their use as money. 
D) people have confidence that others will accept them as money.

Question 10

Scenario 14-2

Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%.

-Refer to Scenario 14-2.As a result of Kristy's deposit,Bank A's required reserves increase by

Accepted Answer

A) $2,000. 
B) $8,000. 
C) $10,000. 
D) $50,000.

Question 11

According to the quantity theory of money,deflation will occur if the

Accepted Answer

A) money supply is less than real GDP. 
B) money supply is more than real GDP. 
C) money supply grows at a slower rate than real GDP. 
D) money supply grows at a faster rate than real GDP.

Question 12

In 2008,Zimbabwe ran out of locally produced Coca Cola and local Coke bottlers were not able to import the concentrated syrup needed to make Coke from the United States because they could not obtain U.S.dollars.A small amount of Coke was imported from South Africa,but a single bottle sold for around 15 billion Zimbabwean dollars.Zimbabwe was experiencing rapid increases in the price level,which is known as

Accepted Answer

A) stagflation. 
B) deflation. 
C) inflation. 
D) hyperinflation.

Question 13

If the required reserve ratio is RR,the simple deposit multiplier is defined as

Accepted Answer

A)   . 
B)   . 
C)   × change in bank reserves. 
D)   × change in bank reserves.

Question 14

Because Federal Reserve Notes (paper currency)are legal tender,

Accepted Answer

A) U.S.workers must accept them as payment for labor services. 
B) U.S.creditors must accept them in payment of debts. 
C) U.S.firms must accept them as payment for goods and services. 
D) All of he above are correct.

Question 15

A decrease in the discount rate ________ bank reserves and ________ the money supply if banks respond appropriately to the change in the rate.

Accepted Answer

A) increases; increases 
B) increases; decreases 
C) decreases; increases 
D) decreases; decreases

Question 16

The real-world money multiplier is greater than the simple money multiplier (1/RR).

Accepted Answer

A) True 
 B)False

Question 17

An increase in the purchasing power of money would not,on average,result in an increase in the purchasing power of people's income because a ________ price level would likely mean ________ wages and salaries.

Accepted Answer

A) rising; falling 
B) rising; rising 
C) falling; falling 
D) falling; rising

Question 18

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 19

Soldiers in a World War II prisoner-of-war camp

Accepted Answer

A) used gold as a fiat money. 
B) used cowrie shells as money. 
C) used cigarettes as money. 
D) used U.S.dollars as a commodity money.

Question 20

People hold money as opposed to financial assets because money

Accepted Answer

A) earns interest. 
B) is perfectly liquid. 
C) earns no interest. 
D) earns a higher return than other financial assets.

Exam 14: Money, banks, and the Federal Reserve System

Which of the following is the most liquid asset?

Innovations,including new products and services,in financial markets and institutions have made the job of defining the money supply easier.

The amount of national income in an economy equals the money supply in an economy.

A bank's largest liability is its

If the bank of Waterloo receives a $10,000 deposit,and the reserve requirement is 10 percent,how much can the bank loan out? (Assume that before the deposit this bank is just meeting its legal reserve requirement.)

A barter economy is an economy where

The primary tool the Federal Reserve uses to increase the money supply is

A decrease in the reserve requirement bank reserves and the money supply.

Dollar bills in the modern economy serve as money because

Scenario 14-2 Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. -Refer to Scenario 14-2.As a result of Kristy's deposit,Bank A's required reserves increase by

According to the quantity theory of money,deflation will occur if the

If the required reserve ratio is RR,the simple deposit multiplier is defined as

Because Federal Reserve Notes (paper currency) are legal tender,

A decrease in the discount rate bank reserves and the money supply if banks respond appropriately to the change in the rate.

The real-world money multiplier is greater than the simple money multiplier (1/RR).

An increase in the purchasing power of money would not,on average,result in an increase in the purchasing power of people's income because a price level would likely mean wages and salaries.

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

Soldiers in a World War II prisoner-of-war camp

People hold money as opposed to financial assets because money