chapter 11 practice problem with answer.pdf

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Department
Economics
Course
ECON 1BB3
Professor
Bridget O' Shaughnessy
Semester
Winter

Description
Name: ________________________ Class: ___________________ Date: __________ ID: A Problem Set 11 Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. ____ 1. Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate? a. store of value b. medium of exchange c. unit of account d. None of the above is correct. ____ 2. Economists use the word "money" to refer to a. income generated by the production of goods and services. b. those assets regularly used to buy goods and services. c. the value of a person's assets. d. the value of stocks and bonds. ____ 3. Current U.S. currency is a. fiat money with intrinsic value. b. fiat money with no intrinsic value. c. commodity money with intrinsic value. d. commodity money with no intrinsic value. ____ 4. 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. ____ 5.Mi1ncludes a. currency. b. demand deposits. c. travelers' checks. d. All of the above are correct. ____ 6. Which of the following is included in M2 but not in M1? a. demand deposits b. corporate bonds c. large time deposits d. money market mutual funds ____ 7. Demand deposits are a type of a. checking account. b. time deposit. c. money market mutual fund. d. savings deposit. ____ 8. Demand deposits are included in a. M1 but not M2. b. M2 but not M1. c. M1 and M2. d. neither M1 nor M2. ____ 9. Savings deposits are included in a. M1 but not M2. b. M2 but not M1. c. M1 and M2. d. neither M1 nor M2. 1 Name: ________________________ ID: A ____ 10. Credit cards a. defer payments. b. are a store of value. c. have led to wider use of currency. d. are part of the money supply. ____ 11. Debit cards a. defer payments. b. are equivalent to credit cards. c. are included in M2. d. are used as a method of payment. Use the (hypothetical) information in the following table to answer the following Questions. Table 29-1 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 Travelers' checks $1 billion Money market mutual funds $15 billion Currency $100 billion SDRs $10 billion Miscellaneous categories of M2 $25 billion ____ 12. Refer to Table 29-1. What is the M1 money supply? a. $215 billion b. $216 billion c. $226 billion d. $301 billion ____ 13. Which of the following might explain why the United States has so much currency per person? a. U.S. citizens are holding a lot of foreign currency. b. Currency may be a preferable store of wealth for criminals. c. People use credit and debit cards more frequently. d. All of the above help explain the abundance of currency. ____ 14. Which of the following is correct? a. The Federal Reserve has 14 regional banks. The Board of Governors has 12 members who serve 7-year terms. b. The Federal Reserve has 14 regional banks. The Board of Governors has 7 members who serve 14-year terms. c. The Federal Reserve has 12 regional banks. The Board of Governors has 12 members who serve 7-year terms. d. The Federal Reserve has 12 regional banks. The Board of Governors has 7 members who serve 14-year terms. ____ 15. When the Federal Reserve conducts open-market operations to increase the money supply, it a. redeems Federal Reserve notes. b. buys government bonds from the public. c. raises the discount rate. d. decreases its lending to member banks. 2 Name: ________________________ ID: A ____ 16. The Fed can increase the money supply by conducting open market a. sales and raising the discount rate. b. sales and lowering the discount rate. c. purchases and raising the discount rate. d. purchases and lowering the discount rate. ____ 17. The Fed can increase the price level by conducting open market a. sales and raising the discount rate. b. sales and lowering the discount rate. c. purchases and raising the discount rate. d. purchases and lowering the discount rate. ____ 18. On a bank's T-account, a. both deposits and reserves are assets. b. both deposits and reserves are liabilities. c. deposits are assets, reserves are liabilities. d. reserves are assets, deposits are liabilities. ____ 19. Suppose that the reserve ratio is 5 percent and that a bank has $1,000 in deposits. Its reserves are a. $5. b. $50. c. $95. d. $950. ____ 20. Suppose a bank has a 10 percent reserve requirement, $5,000 in deposits, and has loaned out all it can given the reserve requirement. a. It has $50 in reserves and $4,950 in loans. b. It has $500 in reserves and $4,500 in loans. c. It has $555 in reserves and $4,445 in loans. d. None of the above is correct. ____ 21. If you deposit $100 of currency into a demand deposit at a bank, this action by itself a. does not change the money supply. b. increases the money supply. c. decreases the money supply. d. has an indeterminate effect on the money supply. ____ 22. When a bank loans out $1,000, the money supply a. does not change. b. decreases. c. increases. d. may do any of the above. ____ 23. Under a fractional reserve banking system, banks a. hold more reserves than deposits. b. generally lend out a majority of the funds deposited. c. cause the money supply to fall by lending out reserves. d. All of the above are correct. 3 Name: ________________________ ID: A Use the balance sheet for the following questions. Table 29-2 First Bank of Mason City Assets Liabilities Required Reserves $20.00 Deposits $100.00 Loans $80.00 ____ 24. Refer to Table 29-2. The reserve ratio is a. 0 percent. b. 20 percent. c. 80 percent. d. 100 percent. ____ 25. Refer to Table 29-2. If someone deposits $400 into the First Bank of Mason City, a. the bank will be able to make additional loans totaling $320. b. excess reserves initially increase by $320. c. required reserves initially increase by $80. d. All of the above are correct. Use the balance sheet for the following questions. Table 29-3 Last Bank of Cedar Bend Assets Liabilities Reserves $25,000 Deposits $150,000 Loans $125,000 ____ 26. Refer to Table 29-3. If the reserve requirement is 10 percent, then this bank a. is in a position to make a new loan of $15,000. b. has less reserves than required. c. has excess reserves of less than $15,000. d. None of the above is correct. ____ 27. Refer to Table 29-3. The reserve requirement is 10 percent and then someone deposits an additional $50,000 into the bank, then if the bank takes no other action it will a. have $65,000 in excess reserves. b. have $55,000 in excess reserves. c. need to raise an additional $5,000 of reserves to meet the reserve requirement d. None of the above is correct. ____ 28. 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. ____ 29. As the reserve ratio increases, the money multiplier a. increases. b. does not change. c. decreases. d. could do any of the above. 4 Name: ________________________ ID: A ____ 30. If the reserve ratio increased from 10 percent to 20 percent, the money multiplier would a. rise from 10 to 20
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