Monetary System practice problem with answer.pdf

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McMaster University
Bridget O' Shaughnessy

Chapter 27 Monetary System Practice Test Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. ____ 1. Fiat currency a. is used as a medium of exchange. b. is equivalent to wealth. c. is backed by gold. d. Both b and c are correct. ____ 2. Some economies used salt as money. For such economies salt a. had no intrinsic value. b. had an intrinsic value and served as a medium of exchange. c. served as fiat money. d. Both b and c are correct. ____ 3. Since the U.S. government has decreed that U.S. currency is legal tender, a. people are more likely to accept the dollar as a medium of exchange. b. the government must hold enough gold to redeem all currency. c. people may not make trades with anything else. d. All of the above are correct. ____ 4. Checking accounts include a. currency. b. demand deposits. c. savings accounts. d. None of the above is a checking account. ____ 5. Credit cards are a. used as a method of payment. b. part of the M1 money supply. c. equivalent to debit cards. d. a method of deferring payment. ____ 6. Credit cards a. are part of the money supply. b. defer payments. c. are a store of value. d. have led to wider use of currency. ____ 7. The Federal Reserve does all except which of the following? a. make loans to individuals b. control the supply of money c. control the value of money d. regulate the banking system ____ 8. When the Fed wants to change the money supply, it most frequently a. conducts open market operations. b. changes the discount rate. c. changes the reserve requirement. d. issues Federal Reserve notes. ____ 9. If the reserve ratio is 10 percent and a bank receives a new deposit of $10, this bank a. must increase required reserves by $1. b. will initially see its total reserves increase by $1. c. will be able to make new loans up to a maximum of $1. d. All of the above are true. Table 27-1 Use the balance sheet for the following questions. First Bank of Erehwon Assets Liabilities Required Reserves $20.00 Deposits $100.00 Loans $80.00 ____ 10. Refer to Table 27-1. The reserve ratio is a. zero percent. b. 20 percent. c. 80 percent. d. 100 percent. Table 27-2 Use the balance sheet for the following questions. Last Bank of Hope Assets Liabilities Reserves $2,500 Deposits $10,000 Loans $7
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