Question 1

Imagine an economy in which: (1)  pieces of paper called yollars are the only thing that buyers give to sellers when they buy goods and services, so it would be common to use, say, 50 yollars to buy a pair of shoes; (2)  prices are posted in terms of yardsticks, so you might walk into a grocery store and see that, today, an apple is worth 2 yardsticks; and (3)  yardsticks disintegrate overnight, so no yardstick has any value for more than 24 hours. In this economy,

Accepted Answer

A)   the yardstick is a medium of exchange but it cannot serve as a unit of account.
B)   the yardstick is a unit of account but it cannot serve as a store of value.
C)   the yardstick is a medium of exchange but it cannot serve as a store of value, and the yollar is a unit of account.
D)   the yollar is a unit of account, but it is not a medium of exchange and it is not a liquid asset.

Question 2

If the Federal Open Market Committee decides to increase the money supply, then the Federal Reserve

Accepted Answer

A)   creates dollars and uses them to purchase government bonds from the public.
B)   sells government bonds from its portfolio to the public.
C)   creates dollars and uses them to purchase various types of stocks and bonds from the public.
D)   sells various types of stocks and bonds from its portfolio to the public.

Question 3

A bank's assets equal its liabilities under

Accepted Answer

A)   both 100-percent-reserve banking and fractional-reserve banking.
B)   100-percent-reserve banking but not under fractional-reserve banking.
C)   fractional-reserve banking but not under 100-percent-reserve banking.
D)   neither 100-percent-reserve banking nor fractional-reserve banking.

Question 4

Currently, U.S. currency is

Accepted Answer

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.

Question 5

In the 19th century, when crop failures often led to bank runs, banks would make relatively fewer loans and hold relatively more excess reserves. By itself, these actions by the banks should have

Accepted Answer

A)   increased the money multiplier and the money supply.
B)   decreased the money multiplier and increased the money supply.
C)   increased the money multiplier and decreased the money supply.
D)   decreased both the money multiplier and the money supply.

Question 6

The existence of money leads to

Accepted Answer

A)   greater specialization in production, but not to a higher standard of living.
B)   a higher standard of living, but not to greater specialization.
C)   greater specialization and to a higher standard of living.
D)   neither greater specialization nor to a higher standard of living.

Question 7

When the Fed makes open-market sales bank

Accepted Answer

A)   withdrawals and lending increase.
B)   withdrawals increase and lending decreases.
C)   deposits and lending increase.
D)   deposits increase and lending decreases.

Question 8

Savings 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.

Question 9

Which of the following does the Federal Reserve not do?

Accepted Answer

A)   It controls the supply of money.
B)   It acts as a lender of last resort to banks.
C)   It makes loans to any qualified business that requests one.
D)   It tries to ensure the health of the banking system.

Question 10

Suppose banks desire to hold no excess reserves and that the Fed has set a reserve requirement of 10 percent. If you deposit $9,000 into First Jayhawk Bank,

Accepted Answer

A)   First Jayhawk's required reserves increase by $900.
B)   First Jayhawk will be able to lend out $8,100.
C)   First Jayhawk's assets and liabilities both will increase by $9,000.
D)   All of the above are correct.

Question 11

Which of the following can the Fed do to change the money supply?

Accepted Answer

A)   change reserves or change the reserve ratio
B)   change reserves but not change the reserve ratio
C)   change the reserve ratio but not change the reserve ratio
D)   neither change reserves nor change the reserve ratio

Question 12

When the Fed buys government bonds,

Accepted Answer

A)   the money supply increases and the federal funds rate increases.
B)   the money supply increases and the federal funds rate decreases.
C)   the money supply decreases and the federal funds rate increases.
D)   the money supply decreases and the federal funds rate decreases.

Question 13

Money

Accepted Answer

A)   is a perfect store of value.
B)   is the most liquid asset.
C)   has intrinsic value, regardless of which form it takes.
D)   All of the above are correct.

Question 14

Money allows people to specialize in what they do best, thereby raising everyone's standard of living.

Accepted Answer

A) True 
 B)False

Question 15

A problem that the Fed faces when it attempts to control the money supply is that

Accepted Answer

A)   since the U.S. has a fractional-reserve banking system, the amount of money in the economy depends in part on the behavior of depositors and bankers.
B)   the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools.
C)   while the Fed has the ability to change the money supply by a large amount, it does not have the ability to change it by a small amount.
D)   federal legislation in the 1950s stripped the Fed of its power to act as a lender of last resort to banks.

Question 16

In a fractional-reserve banking system with no excess reserves and no currency holdings, if the central bank buys $100 million worth of bonds,

Accepted Answer

A)   reserves and the money supply increase by less than $100 million.
B)   reserves increase by $100 million and the money supply increases by $100 million.
C)   reserves increase by $100 million and the money supply increases by more than $100 million.
D)   both reserves and the money supply increase by more than $100 million.

Question 17

Which of the following lists is included in what economists call "money"?

Accepted Answer

A)   cash
B)   cash and stocks and bonds
C)   cash and stocks and bonds and real estate
D)   cash and stocks and bonds and real estate and all other assets

Question 18

Table 11-6.
 
-Refer to Table 11-6. If the Bank of Springfield has lent out all the money it can given its level of deposits, then what is the reserve requirement?

Accepted Answer

A)   5.00 percent
B)   8.00 percent
C)   8.42 percent
D)   95.00 percent

Question 19

Assume that when $100 of new reserves enter the banking system, the money supply ultimately increases by $800. Assume also that no banks hold excess reserves and that the entire money supply consists of bank deposits. If, at a point in time, reserves for all banks amount to $750, then at that same point in time, loans for all banks amount to $6,000.

Accepted Answer

A) True 
 B)False

Question 20

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)   liquidity

Exam 11: The Monetary System

Which of the following lists is included in what economists call "money"?

Correct Answer
verified

In a fractional-reserve banking system with no excess reserves and no currency holdings, if the central bank buys $100 million worth of bonds,

Correct Answer
verified

If the Federal Open Market Committee decides to increase the money supply, then the Federal Reserve

Correct Answer
verified

Correct Answer
verified

Which of the following does the Federal Reserve not do?

Correct Answer
verified

Money

Correct Answer
verified

Suppose banks desire to hold no excess reserves and that the Fed has set a reserve requirement of 10 percent. If you deposit $9,000 into First Jayhawk Bank,

Correct Answer
verified

A bank's assets equal its liabilities under

Correct Answer
verified

Money allows people to specialize in what they do best, thereby raising everyone's standard of living.

Correct Answer
verified

In the 19th century, when crop failures often led to bank runs, banks would make relatively fewer loans and hold relatively more excess reserves. By itself, these actions by the banks should have

Correct Answer
verified

When the Fed buys government bonds,

Correct Answer
verified

A problem that the Fed faces when it attempts to control the money supply is that

Correct Answer
verified

Table 11-6. -Refer to Table 11-6. If the Bank of Springfield has lent out all the money it can given its level of deposits, then what is the reserve requirement?

Correct Answer
verified

The existence of money leads to

Correct Answer
verified

When the Fed makes open-market sales bank

Correct Answer
verified

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

Which of the following can the Fed do to change the money supply?

Correct Answer
verified

Savings deposits are included in

Correct Answer
verified

Currently, U.S. currency is

Correct Answer
verified

Exam 11: The Monetary System

Which of the following lists is included in what economists call "money"?

Correct AnswerverifiedShow Answer

In a fractional-reserve banking system with no excess reserves and no currency holdings, if the central bank buys $100 million worth of bonds,

Correct AnswerverifiedShow Answer

If the Federal Open Market Committee decides to increase the money supply, then the Federal Reserve

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following does the Federal Reserve not do?

Correct AnswerverifiedShow Answer

Money

Correct AnswerverifiedShow Answer

Suppose banks desire to hold no excess reserves and that the Fed has set a reserve requirement of 10 percent. If you deposit $9,000 into First Jayhawk Bank,

Correct AnswerverifiedShow Answer

A bank's assets equal its liabilities under

Correct AnswerverifiedShow Answer

Money allows people to specialize in what they do best, thereby raising everyone's standard of living.

Correct AnswerverifiedShow Answer

In the 19th century, when crop failures often led to bank runs, banks would make relatively fewer loans and hold relatively more excess reserves. By itself, these actions by the banks should have

Correct AnswerverifiedShow Answer

When the Fed buys government bonds,

Correct AnswerverifiedShow Answer

A problem that the Fed faces when it attempts to control the money supply is that

Correct AnswerverifiedShow Answer

Table 11-6. -Refer to Table 11-6. If the Bank of Springfield has lent out all the money it can given its level of deposits, then what is the reserve requirement?

Correct AnswerverifiedShow Answer

The existence of money leads to

Correct AnswerverifiedShow Answer

When the Fed makes open-market sales bank

Correct AnswerverifiedShow 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

Which of the following can the Fed do to change the money supply?

Correct AnswerverifiedShow Answer

Savings deposits are included in

Correct AnswerverifiedShow Answer

Currently, U.S. currency is

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified