Question 1

An increase in the money supply might indicate that the Fed had

Accepted Answer

A)  purchased bonds in an attempt to increase the federal funds rate.
B)  purchased bonds in an attempt to reduce the federal funds rate.
C)  sold bonds in an attempt to increase the federal funds rate.
D)  sold bonds in an attempt to reduce the federal funds rate.E) B) and C)
F) A) and C)

Question 2

Which of the following is not correct?

Accepted Answer

A)  The regional Federal Reserve Banks play a role in regulating banks and ensuring the health of the banking system.
B)  The President of the New York Federal Reserve Regional Bank always gets to vote on the decisions made by the Federal Open Market Committee.
C)  U.S. monetary policy is made by the Federal Open Market Committee.
D)  The Federal Open Market Committee meets every 12 weeks.E) A) and B)
F) B) and D)

Question 3

What does the "double coincidence of wants" refer to?

Accepted Answer

"Double coincidence of wants" refers to ...

Question 4

The money supply increases when the Fed

Accepted Answer

A)  buys bonds. The increase will be larger, the smaller is the reserve ratio.
B)  buys bonds. The increase will be larger, the larger is the reserve ratio.
C)  sells bonds. The increase will be larger, the smaller is the reserve ratio.
D)  sells bonds. The increase will be larger, the larger is the reserve ratio.E) A) and B)
F) B) and C)

Question 5

Which of the following institutions is a central bank?

Accepted Answer

A)  the Bank of Japan
B)  the Bank of England
C)  the Federal Reserve System
D)  All of the above are correct.E) A) and D)
F) C) and D)

Question 6

Explain how each of the following changes the money supply.
a.the Fed buys bonds
b.the Fed auctions credit
c.the Fed raises the discount rate
d.the Fed raises the reserve requirement

Accepted Answer

a.If the Fed buys bonds, it pays for the...

Question 7

When prisoners use cigarettes or some other good as money, cigarettes become

Accepted Answer

A)  commodity money, but do not function as a unit of account.
B)  commodity money and function as a unit of account.
C)  fiat money, but do not function as a unit of account.
D)  fiat money and function as a unit of account.E) None of the above
F) A) and C)

Question 8

Money is

Accepted Answer

A)  the most liquid asset and a perfect store of value.
B)  the most liquid asset but an imperfect store of value.
C)  not the most liquid asset but a perfect store of value.
D)  neither the most liquid asset and nor a perfect store of value.E) C) and D)
F) B) and D)

Question 9

Table 29-6. 
-Refer to Table 29-6. Assume there is a reserve requirement and the Bank of Pleasantville is exactly in compliance with that requirement. Assume the same is true for all other banks. Lastly, assume people hold only deposits and no currency. What is the money multiplier?

Accepted Answer

A)  6
B)  16.7
C)  15.6
D)  6.4E) All of the above
F) A) and B)

Question 10

Which of the three functions of money are commonly met by each of the following assets in the U.S. economy?
a.paper dollar
b.precious metals
c.collectibles such as baseball cards, stamps, and antiques

Accepted Answer

a.medium of exchange...

Question 11

At any meeting of the Federal Open Market Committee, that committee's voting members consist of

Accepted Answer

A)  5 Federal Reserve Regional Bank Presidents and all the members of the Board of Governors.
B)  5 Federal Reserve Regional Bank Presidents and 5 members of the Board of Governors.
C)  12 Federal Reserve Regional Bank Presidents and all the members of the Board of Governors.
D)  12 Federal Reserve Regional Bank Presidents and 5 members of the Board of Governors.E) A) and C)
F) A) and D)

Question 12

Fiat money

Accepted Answer

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.E) A) and C)
F) A) and B)

Question 13

Today, bank runs are

Accepted Answer

A)  uncommon because of the high reserve requirement.
B)  uncommon because of FDIC deposit insurance.
C)  common because of the low reserve requirement.
D)  common because the FDIC is nearly bankrupt.E) All of the above
F) C) and D)

Question 14

If the reserve ratio is 4 percent, then $81,250 of new money can be generated by

Accepted Answer

A)  $325 of new reserves.
B)  $3,250 of new reserves.
C)  $20,312.50 of new reserves.
D)  $2,031,250 of new reserves.E) C) and D)
F) A) and D)

Question 15

Which of the following is a store of value?

Accepted Answer

A)  cash and stocks
B)  cash but not stocks
C)  stocks but not cash
D)  neither cash nor stocksE) All of the above
F) A) and B)

Question 16

To increase the money supply, the Fed could

Accepted Answer

A)  sell government bonds.
B)  decrease the discount rate.
C)  increase the reserve requirement.
D)  None of the above is correct.E) A) and B)
F) None of the above

Question 17

Economists argue that the move from barter to money increased trade and production. How is this possible?

Accepted Answer

The use of money allows people...

Question 18

If a bank uses $500 of excess reserves to make a new loan when the reserve ratio is 8 percent, this action by itself initially makes the money supply

Accepted Answer

A)  and wealth increase by $500.
B)  and wealth decrease by $500.
C)  increase by $500 while wealth does not change.
D)  decrease by $500 while wealth decreases by $500.E) B) and C)
F) B) and D)

Question 19

In Ugoland, the money supply is $8 million and reserves are $1 million. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

Accepted Answer

A)  14 percent.
B)  12.5 percent.
C)  8 percent.
D)  None of the above is correct.E) B) and C)
F) A) and D)

Question 20

Members of the Board of Governors of the Federal Reserve System are appointed for life.

Accepted Answer

A) True 
 B)False

Exam 29: The Monetary System

The money supply increases when the Fed

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Fiat money

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If the reserve ratio is 4 percent, then $81,250 of new money can be generated by

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Which of the following is a store of value?

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If a bank uses $500 of excess reserves to make a new loan when the reserve ratio is 8 percent, this action by itself initially makes the money supply

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Today, bank runs are

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Table 29-6. -Refer to Table 29-6. Assume there is a reserve requirement and the Bank of Pleasantville is exactly in compliance with that requirement. Assume the same is true for all other banks. Lastly, assume people hold only deposits and no currency. What is the money multiplier?

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Economists argue that the move from barter to money increased trade and production. How is this possible?

Correct AnswerverifiedThe use of money allows people...View AnswerShow Answer

In Ugoland, the money supply is $8 million and reserves are $1 million. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

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At any meeting of the Federal Open Market Committee, that committee's voting members consist of

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Members of the Board of Governors of the Federal Reserve System are appointed for life.

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When prisoners use cigarettes or some other good as money, cigarettes become

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Which of the following is not correct?

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To increase the money supply, the Fed could

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Which of the three functions of money are commonly met by each of the following assets in the U.S. economy? a.paper dollar b.precious metals c.collectibles such as baseball cards, stamps, and antiques

Correct Answerverifieda.medium of exchange...View AnswerShow Answer

Money is

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Explain how each of the following changes the money supply. a.the Fed buys bonds b.the Fed auctions credit c.the Fed raises the discount rate d.the Fed raises the reserve requirement

Correct Answerverifieda.If the Fed buys bonds, it pays for the...View AnswerShow Answer

An increase in the money supply might indicate that the Fed had

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What does the "double coincidence of wants" refer to?

Correct Answerverified"Double coincidence of wants" refers to ...View AnswerShow Answer

Which of the following institutions is a central bank?

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The use of money allows people...
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a.medium of exchange...
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a.If the Fed buys bonds, it pays for the...
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"Double coincidence of wants" refers to ...
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