Question 1

In order for currency to be widely used as a medium of exchange, it is sufficient for the government to designate it as legal tender.

Accepted Answer

A) True 
 B)False

Question 2

The Fed can increase the money supply by conducting open-market

Accepted Answer

A)  sales or by raising the discount rate.
B)  sales or by lowering the discount rate.
C)  purchases or by raising the discount rate.
D)  purchases or by lowering the discount rate.E) B) and D)
F) A) and D)

Question 3

Which of the following is both a store of value and regularly used as a medium of exchange?

Accepted Answer

A)  cash and stocks
B)  cash but not stocks
C)  stocks but not cash
D)  neither cash nor stocksE) None of the above
F) All of the above

Question 4

Are credit cards and debit cards money? What's the difference between credit and debit cards?

Accepted Answer

Neither credit cards nor debit cards are...

Question 5

You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate?

Accepted Answer

A)  medium of exchange
B)  unit of account
C)  store of value
D)  liquidityE) A) and B)
F) C) and D)

Question 6

The money supply increases when the Fed

Accepted Answer

A)  buys bonds. The increase will be larger, the smaller is the reserve ratio.
B)  buys bonds. The increase will be larger, the larger is the reserve ratio.
C)  sells bonds. The increase will be larger, the smaller is the reserve ratio.
D)  sells bonds. The increase will be larger, the larger is the reserve ratio.E) None of the above
F) A) and C)

Question 7

If the reserve ratio is 8 percent, then an additional $1,000 of reserves can increase the money supply by as much as

Accepted Answer

A)  $6,400.
B)  $8,000.
C)  $12,500.
D)  $20,000.E) A) and C)
F) A) and D)

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

If the Fed raised the reserve requirement, the demand for reserves would

Accepted Answer

A)  increase, so the federal funds rate would fall.
B)  increase, so the federal funds rate would rise.
C)  decrease, so the federal funds rate would fall.
D)  decrease, so the federal funds rate would rise.E) None of the above
F) A) and B)

Question 10

In a fractional-reserve banking system, a decrease in reserve requirements

Accepted Answer

A)  increases both the money multiplier and the money supply.
B)  decreases both the money multiplier and the money supply.
C)  increases the money multiplier, but decreases the money supply.
D)  decreases the money multiplier, but increases the money supply.E) C) and D)
F) A) and B)

Question 11

The money supply decreases if

Accepted Answer

A)  households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively more excess reserves and make fewer loans.
B)  households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively fewer excess reserves and make more loans.
C)  households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively more excess reserves and make fewer loans.
D)  households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively less excess reserves and make more loans.E) B) and C)
F) A) and C)

Question 12

Table 16-1. The information in the table pertains to an imaginary economy.   Type of Money  Amount  Large time deposits $80 billion  Small time deposits $75 billion  Demand deposits $75 billion  Other checkable deposits $40 billion  Savings deposits $10 billion  Traveler’s checks $1 billion  Money market mutual funds $15 billion  Currency $110 billion  Credit card balances $10 billion  Miscellaneous categories of M2 $25 billion \begin{array}{|l|l|}\hline 	ext { Type of Money } & 	ext { Amount } \\hline 	ext { Large time deposits } & \$ 80 	ext { billion } \\hline 	ext { Small time deposits } & \$ 75 	ext { billion } \\hline 	ext { Demand deposits } & \$ 75 	ext { billion } \\hline 	ext { Other checkable deposits } & \$ 40 	ext { billion } \\hline 	ext { Savings deposits } & \$ 10 	ext { billion } \\hline 	ext { Traveler&#x27;s checks } & \$ 1 	ext { billion } \\hline 	ext { Money market mutual funds } & \$ 15 	ext { billion } \\hline 	ext { Currency } & \$ 110 	ext { billion } \\hline 	ext { Credit card balances } & \$ 10 	ext { billion } \\hline 	ext { Miscellaneous categories of M2 } & \$ 25 	ext { billion } \\hline\end{array} Type of Money  Large time deposits  Small time deposits  Demand deposits  Other checkable deposits  Savings deposits  Traveler’s checks  Money market mutual funds  Currency  Credit card balances  Miscellaneous categories of M2 ​ Amount $80 billion $75 billion $75 billion $40 billion $10 billion $1 billion $15 billion $110 billion $10 billion $25 billion ​​

-Refer to Table 16-1. What is the M1 money supply?

Accepted Answer

A)  $215 billion
B)  $216 billion
C)  $226 billion
D)  $301 billion E) None of the above
F) All of the above

Question 13

Economists use the term "money" to refer to

Accepted Answer

A)  all wealth.
B)  all assets, including real assets and financial assets.
C)  all financial assets, but not real assets.
D)  those types of wealth that are regularly accepted by sellers in exchange for goods and services.E) A) and C)
F) A) and D)

Question 14

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

Accepted Answer

A)  fewer reserves, so the money multiplier will fall.
B)  fewer reserves, so the money multiplier will rise.
C)  more reserves, so the money multiplier will fall.
D)  more reserves, so the money multiplier will rise.E) A) and B)
F) A) and C)

Question 15

Today, bank runs are

Accepted Answer

A)  uncommon because of the high reserve requirement.
B)  uncommon because of FDIC deposit insurance.
C)  common because of the low reserve requirement.
D)  common because the FDIC is nearly bankrupt.E) All of the above
F) B) and C)

Question 16

During the Great Depression in the early 1930s,

Accepted Answer

A)  bank runs closed many banks.
B)  the money supply rose sharply.
C)  the Fed decreased reserve requirements.
D)  both a and b are correct.E) A) and B)
F) B) and C)

Question 17

Small time deposits are included in

Accepted Answer

A)  M1 but not M2.
B)  M2 but not M1.
C)  M1 and M2.
D)  neither M1 nor M2.E) C) and D)
F) B) and D)

Question 18

The Fed can reduce the federal funds rate by

Accepted Answer

A)  decreasing the money supply. To decrease the money supply it could sell bonds.
B)  decreasing the money supply. To decrease the money supply it could buy bonds.
C)  increasing the money supply. To increase the money supply it could sell bonds.
D)  increasing the money supply. To increase the money supply it could buy bonds.E) None of the above
F) A) and B)

Question 19

Table 16-6. 
-Refer to Table 16-6. Assume the Fed's reserve requirement is 6 percent and that the Bank of Springfield makes new loans so as to make its new reserve ratio 6 percent. From then on, no bank holds any excess reserves. Assume also that people hold only deposits and no currency. Then by what amount does the economy's money supply increase?

Accepted Answer

A)  $50,200
B)  $60,000
C)  $72,000
D)  $106,000E) All of the above
F) C) and D)

Question 20

In Ugoland, the money supply is $8 million and reserves are $1 million. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

Accepted Answer

A)  14 percent.
B)  12.5 percent.
C)  8 percent.
D)  None of the above is correct.E) A) and B)
F) A) and C)

Exam 16: The Monetary System

Which of the following is both a store of value and regularly used as a medium of exchange?

Correct Answer
verified

Today, bank runs are

Correct Answer
verified

In order for currency to be widely used as a medium of exchange, it is sufficient for the government to designate it as legal tender.

Correct Answer
verified

In Ugoland, the money supply is $8 million and reserves are $1 million. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

Correct Answer
verified

During the Great Depression in the early 1930s,

Correct Answer
verified

Small time deposits are included in

Correct Answer
verified

Correct Answer
verified

Economists use the term "money" to refer to

Correct Answer
verified

The Fed can reduce the federal funds rate by

Correct Answer
verified

If the Fed raised the reserve requirement, the demand for reserves would

Correct Answer
verified

Are credit cards and debit cards money? What's the difference between credit and debit cards?

Correct Answer
verified
Neither credit cards nor debit cards are...
View Answer

Correct Answer
verified

You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate?

Correct Answer
verified

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

Correct Answer
verified

The Fed can increase the money supply by conducting open-market

Correct Answer
verified

In a fractional-reserve banking system, a decrease in reserve requirements

Correct Answer
verified

If the reserve ratio is 8 percent, then an additional $1,000 of reserves can increase the money supply by as much as

Correct Answer
verified

The money supply increases when the Fed

Correct Answer
verified

The money supply decreases if

Correct Answer
verified

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

Correct Answer
verified

Exam 16: The Monetary System

Which of the following is both a store of value and regularly used as a medium of exchange?

Correct AnswerverifiedShow Answer

Today, bank runs are

Correct AnswerverifiedShow Answer

In order for currency to be widely used as a medium of exchange, it is sufficient for the government to designate it as legal tender.

Correct AnswerverifiedShow Answer

In Ugoland, the money supply is $8 million and reserves are $1 million. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

Correct AnswerverifiedShow Answer

During the Great Depression in the early 1930s,

Correct AnswerverifiedShow Answer

Small time deposits are included in

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Economists use the term "money" to refer to

Correct AnswerverifiedShow Answer

The Fed can reduce the federal funds rate by

Correct AnswerverifiedShow Answer

If the Fed raised the reserve requirement, the demand for reserves would

Correct AnswerverifiedShow Answer

Are credit cards and debit cards money? What's the difference between credit and debit cards?

Correct AnswerverifiedNeither credit cards nor debit cards are...View AnswerShow Answer

Correct AnswerverifiedShow Answer

You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The Fed can increase the money supply by conducting open-market

Correct AnswerverifiedShow Answer

In a fractional-reserve banking system, a decrease in reserve requirements

Correct AnswerverifiedShow Answer

If the reserve ratio is 8 percent, then an additional $1,000 of reserves can increase the money supply by as much as

Correct AnswerverifiedShow Answer

The money supply increases when the Fed

Correct AnswerverifiedShow Answer

The money supply decreases if

Correct AnswerverifiedShow Answer

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
Neither credit cards nor debit cards are...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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