Question 1

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.

Question 2

Table 29-5. 
-Refer to Table 29-5. Suppose the bank faces a reserve requirement of 10 percent. Starting from the situation as depicted by the T-account, a customer deposits an additional $60,000 into his account at the bank. If the bank takes no other action it will

Accepted Answer

A)  have $64,000 in excess reserves.
B)  have $4,000 in excess reserves.
C)  be in a position to make new loans equal to $6,000
D)  None of the above is correct.

Question 3

If the reserve ratio is 15 percent, the money multiplier is

Accepted Answer

A)  7.7.
B)  6.7.
C)  5.7.
D)  15.

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

If the Fed decreases reserve requirements, the money supply will increase.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is correct?

Accepted Answer

A)  The Fed can control the money supply precisely.
B)  The amount of money in the economy does not depend on the behavior of depositors.
C)  The amount of money in the economy depends in part on the behavior of banks.
D)  None of the above is correct.

Question 7

Which of the following is correct?

Accepted Answer

A)  A bank's deposits at the Federal Reserve counts as part of the bank's reserves. The Federal Reserve pays interest on these deposits.
B)  A bank's deposits at the Federal Reserve counts as part of the bank's reserves. The Federal Reserve does not pay interest on these deposits.
C)  A bank's deposits at the Federal Reserve does not count as part of the bank's reserves. The Federal Reserve pays interest on these deposits.
D)  A bank's deposits at the Federal Reserve does not count as part of the bank's reserves. The Federal Reserve does not pay interest on these deposits.

Question 8

When we measure and record economic value, we use money as the

Accepted Answer

A)  liquid asset.
B)  medium of exchange.
C)  unit of account.
D)  store of value.

Question 9

In a fractional reserve economy where the required reserve ratio is 10%, must it be the case that an initial deposit of $100 increases the total money supply by $1,000? Explain.

Accepted Answer

No, this is not necessarily the case.It ...

Question 10

The most common method employed by the Fed to increase the money supply is the

Accepted Answer

A)  sale of U.S. government bonds.
B)  purchase of U.S. government bonds.
C)  sale of gold.
D)  increase of the federal debt ceiling.

Question 11

Over one time horizon or another, Fed policy decisions influence

Accepted Answer

A)  inflation and employment.
B)  inflation but not employment.
C)  employment but not inflation.
D)  neither inflation nor employment.

Question 12

The measure of the money stock called M1 includes

Accepted Answer

A)  wealth held by people in their checking accounts.
B)  wealth held by people in their savings accounts.
C)  wealth held by people in money market mutual funds.
D)  everything that is included in M2 plus some additional items.

Question 13

Roundabout trade decreases production.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is a store of value?

Accepted Answer

A)  currency
B)  U.S. government bonds
C)  fine art
D)  All of the above are correct.

Question 15

Gary's wealth is $1 million. Economists would say that Gary has $1 million worth of money.

Accepted Answer

A) True 
 B)False

Question 16

Credit cards

Accepted Answer

A)  defer payments.
B)  are a store of value.
C)  have led to wider use of currency.
D)  are part of the money supply.

Question 17

Consider four survivors on an island.  Which of the following pairs of survivors has a double-coincidence of wants?

Accepted Answer

A)  Ron with Alice, and Ron with Lee
B)  Alice with Lee
C)  Ron with Raymond
D)  None of the above are correct.

Question 18

The Fed purchases $200 worth of government bonds from the public. The reserve requirement is 12.5 percent, people hold no currency, and the banking system keeps no excess reserves. The U.S. money supply eventually increases by

Accepted Answer

A)  $25.
B)  between $200 and $300.
C)  $1,600.
D)  $2,500.

Question 19

The federal funds rate is the interest rate that

Accepted Answer

A)  banks charge one another for loans.
B)  banks charge the Fed for loans.
C)  the Fed charges banks for loans.
D)  the Fed charges Congress for loans.

Question 20

When the Fed conducts open-market purchases,

Accepted Answer

A)  banks buy Treasury securities from Fed, which increases the money supply.
B)  banks buy Treasury securities from the Fed, which decreases the money supply.
C)  it buys Treasury securities, which increases the money supply.
D)  it buys Treasury securities, which decreases the money supply.

Exam 29: The Monetary System

Consider four survivors on an island. Which of the following pairs of survivors has a double-coincidence of wants?

Correct AnswerverifiedShow Answer

Table 29-5. -Refer to Table 29-5. Suppose the bank faces a reserve requirement of 10 percent. Starting from the situation as depicted by the T-account, a customer deposits an additional $60,000 into his account at the bank. If the bank takes no other action it will

Correct AnswerverifiedShow Answer

The Fed purchases $200 worth of government bonds from the public. The reserve requirement is 12.5 percent, people hold no currency, and the banking system keeps no excess reserves. The U.S. money supply eventually increases by

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

If the Fed decreases reserve requirements, the money supply will increase.

Correct AnswerverifiedShow Answer

When we measure and record economic value, we use money as the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Over one time horizon or another, Fed policy decisions influence

Correct AnswerverifiedShow Answer

Gary's wealth is $1 million. Economists would say that Gary has $1 million worth of money.

Correct AnswerverifiedShow Answer

When the Fed conducts open-market purchases,

Correct AnswerverifiedShow Answer

Roundabout trade decreases production.

Correct AnswerverifiedShow Answer

The measure of the money stock called M1 includes

Correct AnswerverifiedShow Answer

In a fractional reserve economy where the required reserve ratio is 10%, must it be the case that an initial deposit of $100 increases the total money supply by $1,000? Explain.

Correct AnswerverifiedNo, this is not necessarily the case.It ...View AnswerShow Answer

The most common method employed by the Fed to increase the money supply is the

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Which of the following is a store of value?

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If the reserve ratio is 15 percent, the money multiplier is

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Credit cards

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The primary difference between commodity money and fiat money is that

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The federal funds rate is the interest rate that

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Which of the following is correct?

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No, this is not necessarily the case.It ...
View Answer

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