Question 1

If gold is used as money in an economy,the money supply is easy to control.

Accepted Answer

A) True 
 B)False

Question 2

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 3

The seven members of the Board of Governors of the Federal Reserve are appointed by

Accepted Answer

A) Congress. 
B) the President. 
C) the Governors of the States. 
D) leaders in the banking industry. 
E) the Treasury Department.

Question 4

If the rate of growth in real GDP exceeds the rate of growth in the money supply,the quantity theory of money predicts a price deflation.

Accepted Answer

A) True 
 B)False

Question 5

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 6

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 7

The Federal Reserve was established in 1913 to

Accepted Answer

A) prevent inflation by decreasing the money supply. 
B) stimulate the economy by increasing bank reserves. 
C) stop bank panics by acting as a lender of last resort. 
D) prevent bad loans by requiring banks to hold reserves.

Question 8

Suppose you deposit $2,000 into Bank of America and that the required reserve ratio is 10 percent.How does this affect the bank's balance sheet?

Accepted Answer

A) Reserves rise by $200. 
B) Required reserves rise by $2,000. 
C) Deposits rise by $1,000. 
D) Excess reserves rise by $1,800.

Question 9

What are the four functions of money? Can something be considered money if it does not fulfill all four functions?

Accepted Answer

The answer of What are the four functions of money?...

Question 10

Fiat money

Accepted Answer

A) has no or very little value except as money. 
B) is rarely used in modern economies. 
C) functions well only if can be redeemed for gold or other precious metals. 
D) serves well as a medium of exchange,but not as a store of value.

Question 11

A good can serve as money only if

Accepted Answer

A) government mandates that the good must be accepted in payment of debts. 
B) it is declared by authorities to be legal tender. 
C) it has intrinsic value or if it is backed by precious metals. 
D) citizens accept the good as a means of payment for transactions and debts.

Question 12

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 13

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 14

Article Summary
The European Union (EU)has initiated a program called the Bank Recovery and Resolution Directive (BRRD),which is designed to protect taxpayers from bailing out banks during a banking crisis,and eleven EU countries are currently under pressure to adopt these new rules or face legal action.Under the rules,the burden of bailing out troubled banks is being placed on bank creditors,shareholders,and possibly depositors,with governments,and therefore taxpayers,no longer being saddled with this liability.The process is being referred to as a "bail-in," with the legislation advocated by the Bank of England,the European Central Bank,and the Federal Reserve.
-Refer to the Article Summary.In 2015,the European Union initiated the BRRD program,where the burden of bailing out troubled banks is being placed on bank creditors,shareholders,and possibly depositors.If this program were to confiscate funds from bank deposits to assist troubled banks,the possibility of a bank run,a situation in which ________,would likely increase.

Accepted Answer

A) a majority of the shareholders in a bank decide to sell off all their shares of stock. 
B) many depositors simultaneously decide to withdraw money from a bank. 
C) a majority of the bank's loans go into default all at once. 
D) a bank stops paying interest on all of its interest-bearing accounts.

Question 15

Which of the following is not a function of the Federal Reserve System,or the "Fed"?

Accepted Answer

A) acting as a lender of last resort 
B) acting as a banker's bank 
C) performing check clearing services 
D) insuring deposits in the banking system 
E) taking actions to control the money supply

Question 16

The simple deposit multiplier is the ratio of the amount of

Accepted Answer

A) new reserves created by the banks to the amount of deposits. 
B) new reserves created by the banks to the amount of loans. 
C) deposits created by the banks to the amount of new reserves. 
D) loans issued by the banks to deposits created by the banks.

Question 17

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 18

Would the maximum loan that a bank can make be different when receiving a discount loan from the Federal Reserve of $1 million versus receiving a checking account deposit of $1 million? Explain why or why not.

Accepted Answer

The answer of Would the maximum loan that a bank...

Question 19

Which of the following functions of money would be violated if inflation were high?

Accepted Answer

A) unit of account 
B) store of value 
C) certificate of gold 
D) medium of exchange

Question 20

Although gold is highly valued by most people,it is difficult to use as a medium of exchange.Explain.

Accepted Answer

The answer of Although gold is highly valued by most...

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