Chapter 16 The Monetary System
1.Economists use the term âmoneyâ to refer to
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.
2.Which of the following is a function of money?
A.a unit of account
B.a store of value
C.medium of exchange
D.All of the above are correct.
3.You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate?
A.medium of exchange
B.unit of account
C.store of value
D.liquidity
4.Any item that people can use to transfer purchasing power from the present to the future is called
A.a medium of exchange.
B.a unit of account.
C.a store of value.
D.None of the above is correct.
5.Liquidity refers to
A.the ease with which an asset is converted to the medium of exchange.
B.the measurement of the intrinsic value of commodity money.
C.the measurment of the durability of a good.
D.how many time a dollar circulates in a given year.
6.Which list ranks assets from most to least liquid?
A.money, bonds, cars, houses
B.money, cars, houses, bonds
C.bonds, money, cars, houses
D.bonds, cars, money, houses
7.When we measure and record economic value, we use money as the
A.liquid asset.
B.medium of exchange.
C.unit of account.
D.store of value.
8.Commodity money is
A.backed by gold.
B.the principal type of money in use today.
C.money with intrinsic value.
D.receipts created in international trade that are used as a medium of exchange.
9.Fiat money
A.has no intrinsic value.
B.is backed by gold.
C.is a medium of exchange but not a unit of account.
D.is any close substitute for currency such as checkable deposits.
10.M1 includes
A.currency.
B.demand deposits.
C.traveler's checks.
D.All of the above are correct.
11.Which of the following items is included in M2?
A.credit cards
B.money market mutual funds
C.corporate bonds
D.large time deposits
12.Which of the following does the Federal Reserve not do?
A.conduct monetary policy
B.act as a lender of last resort
C.convert Federal Reserve Notes into gold
D.serve as a bank regulator
13.The Fed has the power to increase or decrease the number of dollars in the economy through the decisions of
A.the Board of Governors.
B.the FOMC.
C.the regional Federal Reserve Bank presidents.
D. the U.S. Treasury.
14.When conducting an open-market sale, the Fed
A.buys government bonds, and in so doing increases the money supply.
B.buys government bonds, and in so doing decreases the money supply.
C.sells government bonds, and in so doing increases the money supply.
D.sells government bonds, and in so doing decreases the money supply.
15.An open-market purchase
A.increases the number of dollars and the number of bonds in the hands of the public.
B.increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public.
C.decreases the number of dollars and the number of bonds in the hands of the public.
D.decreases the number of dollars in the hands of the public and increases the number of bonds in the hands of the public.
16. If a bank has a reserve ratio of 8 percent, then
A.government regulation requires the bank to use at least 8 percent of its deposits to make loans.
B.the bankâs ratio of loans to deposits is 8 percent.
C.the bank keeps 8 percent of its deposits as reserves and loans out the rest.
D.the bank keeps 8 percent of its assets as reserves and loans out the rest.
17.If a bank uses $100 of excess reserves to make a new loan when the reserve ratio is 20 percent, this action by itself initially makes the money supply
A.and wealth increase by $100.
B.and wealth decrease by $100.
C.increase by $100 while wealth does not change.
D.decrease by $100 while wealth decreases by $100.
18.The money multiplier equals
A.1/R, where R represents the quantity of reserves in the economy.
B.1/R, where R represents the reserve ratio for all banks in the economy.
C.1/(1+R), where R represents the quantity of reserves in the economy.
D.1/(1+R), where R represents the reserve ratio for all banks in the economy.
19.If the reserve ratio is 10 percent, the money multiplier is
A.100.
B.10.
C.9/10.
D.1/10.
20.As the reserve ratio increases, the money multiplier
A.increases.
B.does not change.
C.decreases.
D.could do any of the above.
21.If the reserve ratio is 5 percent, then $1,000 of additional reserves can create up to
A.$200 of new money.
B.$2,000 of new money.
C.$20,000 of new money.
D.None of the above is correct.
22.When the Fed makes open-market purchases, bank
A.withdrawals and lending increase.
B.withdrawals increase and lending decreases.
C.deposits and lending increase.
D.deposits increase and lending decreases.
23.The discount rate is the interest rate that
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.
24.If the discount rate is lowered, banks borrow
A.less from the Fed so reserves increase.
B.less from the Fed so reserves decrease.
C.more from the Fed so reserves increase.
D.more from the Fed so reserves decrease.
26.The Fed can increase the money supply by conducting open-market
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.
26.The Fed can directly protect a bank during a bank run by
A.increasing reserve requirements.
B.selling government bonds to the bank.
C.lending reserves to the bank.
D.doing any of the above.
27.The federal funds rate is the interest rate
A.the Federal Reserves charges for loans it makes to the federal government.
B.the Federal Reserve charges banks for short-term loans.
C.banks charge each other for short-term loans of reserves.
D.on newly issued one-year Treasury bonds.
28.If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by
A.buying bonds. This buying would increase the money supply.
B.buying bonds. This buying would reduce the money supply.
C.selling bonds. This selling would increase the money supply.
D.selling bonds. This selling would reduce the money supply
Chapter 16 The Monetary System
1.Economists use the term âmoneyâ to refer to
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.
2.Which of the following is a function of money?
A.a unit of account
B.a store of value
C.medium of exchange
D.All of the above are correct.
3.You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate?
A.medium of exchange
B.unit of account
C.store of value
D.liquidity
4.Any item that people can use to transfer purchasing power from the present to the future is called
A.a medium of exchange.
B.a unit of account.
C.a store of value.
D.None of the above is correct.
5.Liquidity refers to
A.the ease with which an asset is converted to the medium of exchange.
B.the measurement of the intrinsic value of commodity money.
C.the measurment of the durability of a good.
D.how many time a dollar circulates in a given year.
6.Which list ranks assets from most to least liquid?
A.money, bonds, cars, houses
B.money, cars, houses, bonds
C.bonds, money, cars, houses
D.bonds, cars, money, houses
7.When we measure and record economic value, we use money as the
A.liquid asset.
B.medium of exchange.
C.unit of account.
D.store of value.
8.Commodity money is
A.backed by gold.
B.the principal type of money in use today.
C.money with intrinsic value.
D.receipts created in international trade that are used as a medium of exchange.
9.Fiat money
A.has no intrinsic value.
B.is backed by gold.
C.is a medium of exchange but not a unit of account.
D.is any close substitute for currency such as checkable deposits.
10.M1 includes
A.currency.
B.demand deposits.
C.traveler's checks.
D.All of the above are correct.
11.Which of the following items is included in M2?
A.credit cards
B.money market mutual funds
C.corporate bonds
D.large time deposits
12.Which of the following does the Federal Reserve not do?
A.conduct monetary policy
B.act as a lender of last resort
C.convert Federal Reserve Notes into gold
D.serve as a bank regulator
13.The Fed has the power to increase or decrease the number of dollars in the economy through the decisions of
A.the Board of Governors.
B.the FOMC.
C.the regional Federal Reserve Bank presidents.
D. the U.S. Treasury.
14.When conducting an open-market sale, the Fed
A.buys government bonds, and in so doing increases the money supply.
B.buys government bonds, and in so doing decreases the money supply.
C.sells government bonds, and in so doing increases the money supply.
D.sells government bonds, and in so doing decreases the money supply.
15.An open-market purchase
A.increases the number of dollars and the number of bonds in the hands of the public.
B.increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public.
C.decreases the number of dollars and the number of bonds in the hands of the public.
D.decreases the number of dollars in the hands of the public and increases the number of bonds in the hands of the public.
16. If a bank has a reserve ratio of 8 percent, then
A.government regulation requires the bank to use at least 8 percent of its deposits to make loans.
B.the bankâs ratio of loans to deposits is 8 percent.
C.the bank keeps 8 percent of its deposits as reserves and loans out the rest.
D.the bank keeps 8 percent of its assets as reserves and loans out the rest.
17.If a bank uses $100 of excess reserves to make a new loan when the reserve ratio is 20 percent, this action by itself initially makes the money supply
A.and wealth increase by $100.
B.and wealth decrease by $100.
C.increase by $100 while wealth does not change.
D.decrease by $100 while wealth decreases by $100.
18.The money multiplier equals
A.1/R, where R represents the quantity of reserves in the economy.
B.1/R, where R represents the reserve ratio for all banks in the economy.
C.1/(1+R), where R represents the quantity of reserves in the economy.
D.1/(1+R), where R represents the reserve ratio for all banks in the economy.
19.If the reserve ratio is 10 percent, the money multiplier is
A.100.
B.10.
C.9/10.
D.1/10.
20.As the reserve ratio increases, the money multiplier
A.increases.
B.does not change.
C.decreases.
D.could do any of the above.
21.If the reserve ratio is 5 percent, then $1,000 of additional reserves can create up to
A.$200 of new money.
B.$2,000 of new money.
C.$20,000 of new money.
D.None of the above is correct.
22.When the Fed makes open-market purchases, bank
A.withdrawals and lending increase.
B.withdrawals increase and lending decreases.
C.deposits and lending increase.
D.deposits increase and lending decreases.
23.The discount rate is the interest rate that
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.
24.If the discount rate is lowered, banks borrow
A.less from the Fed so reserves increase.
B.less from the Fed so reserves decrease.
C.more from the Fed so reserves increase.
D.more from the Fed so reserves decrease.
26.The Fed can increase the money supply by conducting open-market
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.
26.The Fed can directly protect a bank during a bank run by
A.increasing reserve requirements.
B.selling government bonds to the bank.
C.lending reserves to the bank.
D.doing any of the above.
27.The federal funds rate is the interest rate
A.the Federal Reserves charges for loans it makes to the federal government.
B.the Federal Reserve charges banks for short-term loans.
C.banks charge each other for short-term loans of reserves.
D.on newly issued one-year Treasury bonds.
28.If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by
A.buying bonds. This buying would increase the money supply.
B.buying bonds. This buying would reduce the money supply.
C.selling bonds. This selling would increase the money supply.
D.selling bonds. This selling would reduce the money supply
