Question 1

The major shortcoming of a barter economy is

Accepted Answer

A)  the requirement of a double coincidence of wants. 
B)  the requirement of specialization and exchange. 
C)  that goods and services are not traded. 
D)  that money loses value from inflation.

Question 2

How will the purchase of $100 million of government securities by the Federal Reserve change bank reserves and total checking account deposits in the banking system as a whole? Assume that banks do not hold any excess reserves,that households and firms do not change the amount of currency they hold,and that the required reserve ratio is 20 percent.

Accepted Answer

The answer of How will the purchase of $100 million...

Question 3

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 4

If a bank receives a $1 million discount loan from the Federal Reserve,then the bank's reserves will

Accepted Answer

A)  not change. 
B)  increase by $1 million. 
C)  increase by less than $1 million. 
D)  increase by more than $1 million.

Question 5

How is the quantity theory of money different from the quantity equation and why must the quantity equation always be true?

Accepted Answer

The answer of How is the quantity theory of money...

Question 6

Why do banks create money? Do they create money to help the Federal Reserve control the money supply or is there a more basic reason?

Accepted Answer

The answer of Why do banks create money? Do they...

Question 7

Which of the following is not one of the problems associated with the U.S.penny?

Accepted Answer

A)  It subjects consumers to a "rounding tax." 
B)  Its face value is less than its cost of production. 
C)  Its seigniorage is negative. 
D)  Inflation has degraded its worth to where it essentially useless.

Question 8

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 9

The Federal Open Market Committee consists of the seven members of the ________,the president of the Federal Reserve Bank of New York,and ________.

Accepted Answer

A)  Federal Reserve's Board of Governors; four members of the Council of Economic Advisors 
B)  Federal Reserve's Board of Governors; four presidents from the other 11 Federal Reserve banks 
C)  Council of Economic Advisors; four presidents from the 11 Federal Reserve banks 
D)  Council of Economic Advisors; four members of the U.S. Banking Committee

Question 10

Money's most narrow definition is based on its function as a

Accepted Answer

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

Question 11

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 12

Liquidity increases as we move from the M1 to the M2 definition of the money supply.

Accepted Answer

A) True 
 B)False

Question 13

The Federal Reserve's narrowest definition of the money supply is

Accepted Answer

A)  M0. 
B)  M1. 
C)  M2. 
D)  M3.

Question 14

If a person withdraws $500 from his/her checking account and holds it as currency,then M1 will ________ and M2 will ________.

Accepted Answer

A)  increase; decrease 
B)  not change; not change 
C)  not change; increase 
D)  decrease; increase 
E)  decrease: decrease

Question 15

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

Question 16

The M1 measure of the money supply equals

Accepted Answer

A)  paper money plus coins in circulation. 
B)  currency plus checking account balances. 
C)  currency plus checking account balances plus traveler's checks. 
D)  currency plus checking account balances plus traveler's checks plus savings account balances.

Question 17

According to the quantity theory of money,the inflation rate equals

Accepted Answer

A)  the money supply minus real output. 
B)  the growth rate of the money supply minus the growth rate of real output. 
C)  real output minus the money supply. 
D)  the growth rate of real output minus the growth rate of the money supply.

Question 18

The U.S.government makes a profit from issuing fiat money.

Accepted Answer

A) True 
 B)False

Question 19

If bankers become more uncertain regarding future deposits and withdrawals and choose to hold more excess reserves against deposits,the money multiplier will increase.

Accepted Answer

A) True 
 B)False

Question 20

In countries that have experienced hyperinflation,what role have large government budget deficits played in causing the very high inflation rates?

Accepted Answer

The answer of In countries that have experienced hyperinflation,what role...

Exam 25: Money, banks, and the Federal Reserve System

The major shortcoming of a barter economy is

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

If a bank receives a $1 million discount loan from the Federal Reserve,then the bank's reserves will

How is the quantity theory of money different from the quantity equation and why must the quantity equation always be true?

Why do banks create money? Do they create money to help the Federal Reserve control the money supply or is there a more basic reason?

Which of the following is not one of the problems associated with the U.S.penny?

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

The Federal Open Market Committee consists of the seven members of the ,the president of the Federal Reserve Bank of New York,and .

Money's most narrow definition is based on its function as a

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

Liquidity increases as we move from the M1 to the M2 definition of the money supply.

The Federal Reserve's narrowest definition of the money supply is

If a person withdraws $500 from his/her checking account and holds it as currency,then M1 will and M2 will .

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.

The M1 measure of the money supply equals

According to the quantity theory of money,the inflation rate equals

The U.S.government makes a profit from issuing fiat money.

If bankers become more uncertain regarding future deposits and withdrawals and choose to hold more excess reserves against deposits,the money multiplier will increase.

In countries that have experienced hyperinflation,what role have large government budget deficits played in causing the very high inflation rates?