Question 1

An increase in the purchasing power of money would not,on average,result in an increase in the purchasing power of people's income because a ________ price level would likely mean ________ wages and salaries.

Accepted Answer

A)  rising; falling
B)  rising; rising
C)  falling; falling
D)  falling; risingE) None of the above
F) B) and C)

Question 2

Suppose the reserve ratio is RR.Then,

Accepted Answer

A)  required reserves = RR × actual reserves.
B)  required reserves = RR × excess reserves.
C)  required reserves = RR × deposits.
D)  required reserves = RR × loans.E) None of the above
F) A) and B)

Question 3

Reserves of a bank equal its

Accepted Answer

A)  vault cash.
B)  deposits with the Federal Reserve.
C)  vault cash plus deposits with the Federal Reserve.
D)  vault cash plus deposits of its customers.E) A) and B)
F) C) and D)

Question 4

Using the five criteria in the book,explain how U.S.currency is suitable to use as a medium of exchange.

Accepted Answer

1. Dollars are acceptable to most trader...

Question 5

A fractional reserve banking system is one in which banks hold less than 100 percent of ________ in reserves.

Accepted Answer

A)  loans
B)  deposits
C)  securities
D)  shareholder equityE) A) and C)
F) A) and B)

Question 6

Which of the following determines the amount of money the banking system as a whole can create?

Accepted Answer

A)  the quantity of bank reserves
B)  the quantity of vault cash held by banks
C)  the gold reserves held by the Federal Reserve
D)  the limit on profits by banks imposed by the U.S.CongressE) A) and B)
F) All of the above

Question 7

Dollar bills in the modern economy serve as money because

Accepted Answer

A)  they are backed by the gold stored in Fort Knox.
B)  they can be redeemed for gold by the central bank.
C)  they have value as a commodity independent of their use as money.
D)  people have confidence that others will accept them as money.E) None of the above
F) A) and B)

Question 8

When banks gain ________,they can ________ their loans; and the money supply ________.

Accepted Answer

A)  reserves; increase; contracts
B)  withdrawals; increase; expands
C)  withdrawals; decrease; expands
D)  reserves; increase; expandsE) A) and B)
F) A) and C)

Question 9

The real-world money multiplier is greater than the simple money multiplier (1/RR).

Accepted Answer

A) True 
 B)False

Question 10

Most payments in the United States for goods and services are made using

Accepted Answer

A)  currency.
B)  checking account deposits.
C)  traveler's checks.
D)  gold.E) B) and C)
F) C) and D)

Question 11

Among potential stores of value,money

Accepted Answer

A)  offers the highest rate of return.
B)  increases in value during periods of inflation.
C)  has the advantage of being the most liquid asset.
D)  provides more services than the other assets.E) All of the above
F) C) and D)

Question 12

Innovations,including new products and services,in financial markets and institutions have made the job of defining the money supply easier.

Accepted Answer

A) True 
 B)False

Question 13

Consider the following T-account for a bank:
 $$\begin{array} { | l | l  | } 
\hline { \text { Assets } } & { \text { Liabilities } } \
\hline \text { Reserves }  \$ 1,000 & \text { Deposits }  \$ 5,000 \
\hline \text { Loans }  \$ 4,000  \
\hline
\end{array}$$ 
If the required reserve ratio is 10 percent,the bank at this point can make no more loans.

Accepted Answer

A) True 
 B)False

Question 14

If the central bank can act as a lender of last resort during a banking panic,banks can

Accepted Answer

A)  call in their loans to their customers and eventually restore the public's faith in the banking system.
B)  satisfy customer withdrawal needs and eventually restore the public's faith in the banking system.
C)  borrow more and more money from the central bank, and this will lower its reserves and decrease the public's faith in the banking system.
D)  encourage the public to borrow directly from the central bank, and this will worsen the banking panic.E) All of the above
F) B) and C)

Question 15

Which of the following criteria would make gold a poor medium of exchange?

Accepted Answer

A)  its value depends on its purity, and its purity is not easy to visibly identify
B)  durability so that value is not lost by spoilage
C)  value relative to its weight so that amounts large enough to be useful in trade can be easily transported
D)  divisibility because different goods are valued differentlyE) All of the above
F) B) and C)

Question 16

What are the four functions of money? Can something be considered money if it does not fulfill all four functions?

Accepted Answer

The four functions are medium ...

Question 17

Money cannot serve as a medium of exchange unless it also serves as a store of value.Is this statement true or false? Explain.

Accepted Answer

This statement is true.If money does not...

Question 18

According to the quantity theory of money,if the money supply grows at 6%,real GDP grows at 2%,and the velocity of money is constant,then the inflation rate will be

Accepted Answer

A)  8%.
B)  6%.
C)  4%.
D)  2%.E) B) and C)
F) All of the above

Question 19

Commodity money is a good

Accepted Answer

A)  used as money that has no secondary use.
B)  that is designated as money by law.
C)  used as money that also has value independent of its use as money.
D)  used as money that has no intrinsic value.E) B) and C)
F) A) and D)

Question 20

Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 10 percent.If the Federal Reserve raises the required reserve ratio to 15 percent,then the bank will now have excess reserves of

Accepted Answer

A)  $0.
B)  -$5 million.
C)  $5 million.
D)  $15 million.E) B) and C)
F) None of the above

Exam 16: Money, banks, and the Federal Reserve System

Suppose the reserve ratio is RR.Then,

Correct Answer
verified

If the central bank can act as a lender of last resort during a banking panic,banks can

Correct Answer
verified

Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 10 percent.If the Federal Reserve raises the required reserve ratio to 15 percent,then the bank will now have excess reserves of

Correct Answer
verified

Reserves of a bank equal its

Correct Answer
verified

Money cannot serve as a medium of exchange unless it also serves as a store of value.Is this statement true or false? Explain.

Correct Answer
verified
This statement is true.If money does not...
View Answer

Among potential stores of value,money

Correct Answer
verified

Innovations,including new products and services,in financial markets and institutions have made the job of defining the money supply easier.

Correct Answer
verified

According to the quantity theory of money,if the money supply grows at 6%,real GDP grows at 2%,and the velocity of money is constant,then the inflation rate will be

Correct Answer
verified

Which of the following criteria would make gold a poor medium of exchange?

Correct Answer
verified

Commodity money is a good

Correct Answer
verified

When banks gain ,they can their loans; and the money supply .

Correct Answer
verified

Which of the following determines the amount of money the banking system as a whole can create?

Correct Answer
verified

Correct Answer
verified

A fractional reserve banking system is one in which banks hold less than 100 percent of ________ in reserves.

Correct Answer
verified

Using the five criteria in the book,explain how U.S.currency is suitable to use as a medium of exchange.

Correct Answer
verified
1. Dollars are acceptable to most trader...
View Answer

The real-world money multiplier is greater than the simple money multiplier (1/RR).

Correct Answer
verified

Dollar bills in the modern economy serve as money because

Correct Answer
verified

An increase in the purchasing power of money would not,on average,result in an increase in the purchasing power of people's income because a price level would likely mean wages and salaries.

Correct Answer
verified

What are the four functions of money? Can something be considered money if it does not fulfill all four functions?

Correct Answer
verified
The four functions are medium ...
View Answer

Most payments in the United States for goods and services are made using

Correct Answer
verified

Exam 16: Money, banks, and the Federal Reserve System

Suppose the reserve ratio is RR.Then,

Correct AnswerverifiedShow Answer

If the central bank can act as a lender of last resort during a banking panic,banks can

Correct AnswerverifiedShow Answer

Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 10 percent.If the Federal Reserve raises the required reserve ratio to 15 percent,then the bank will now have excess reserves of

Correct AnswerverifiedShow Answer

Reserves of a bank equal its

Correct AnswerverifiedShow Answer

Money cannot serve as a medium of exchange unless it also serves as a store of value.Is this statement true or false? Explain.

Correct AnswerverifiedThis statement is true.If money does not...View AnswerShow Answer

Among potential stores of value,money

Correct AnswerverifiedShow Answer

Innovations,including new products and services,in financial markets and institutions have made the job of defining the money supply easier.

Correct AnswerverifiedShow Answer

According to the quantity theory of money,if the money supply grows at 6%,real GDP grows at 2%,and the velocity of money is constant,then the inflation rate will be

Correct AnswerverifiedShow Answer

Which of the following criteria would make gold a poor medium of exchange?

Correct AnswerverifiedShow Answer

Commodity money is a good

Correct AnswerverifiedShow Answer

When banks gain ________,they can ________ their loans; and the money supply ________.

Correct AnswerverifiedShow Answer

Which of the following determines the amount of money the banking system as a whole can create?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A fractional reserve banking system is one in which banks hold less than 100 percent of ________ in reserves.

Correct AnswerverifiedShow Answer

Using the five criteria in the book,explain how U.S.currency is suitable to use as a medium of exchange.

Correct Answerverified1. Dollars are acceptable to most trader...View AnswerShow Answer

The real-world money multiplier is greater than the simple money multiplier (1/RR).

Correct AnswerverifiedShow Answer

Dollar bills in the modern economy serve as money because

Correct AnswerverifiedShow Answer

An increase in the purchasing power of money would not,on average,result in an increase in the purchasing power of people's income because a ________ price level would likely mean ________ wages and salaries.

Correct AnswerverifiedShow Answer

What are the four functions of money? Can something be considered money if it does not fulfill all four functions?

Correct AnswerverifiedThe four functions are medium ...View AnswerShow Answer

Most payments in the United States for goods and services are made using

Correct AnswerverifiedShow Answer

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Correct Answer
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Correct Answer
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This statement is true.If money does not...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

When banks gain ,they can their loans; and the money supply .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
1. Dollars are acceptable to most trader...
View Answer

Correct Answer
verified

Correct Answer
verified

An increase in the purchasing power of money would not,on average,result in an increase in the purchasing power of people's income because a price level would likely mean wages and salaries.

Correct Answer
verified

Correct Answer
verified
The four functions are medium ...
View Answer

Correct Answer
verified