Question 1

A debit card is more similar to a credit card than to a check.

Accepted Answer

A) True 
 B)False

Question 2

Suppose banks decide to hold more excess reserves relative to deposits. Other things the same, this action will cause the

Accepted Answer

A)   money supply to fall. To reduce the impact of this the Fed could lower the discount rate.
B)   money supply to fall. To reduce the impact of this the Fed could raise the discount rate.
C)   money supply to rise. To reduce the impact of this the Fed could lower the discount rate.
D)   money supply to rise. To reduce the impact of this the Fed could raise the discount rate.E) A) and B)
F) C) and D)

Question 3

Marc puts prices on surfboards and skateboards at his sporting goods store. He is using money as a unit of account.

Accepted Answer

A) True 
 B)False

Question 4

In the nation of Wiknam, the money supply is $80,000 and reserves are $18,000. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

Accepted Answer

A)   29 percent.
B)   22.5 percent.
C)   16 percent.
D)   None of the above is correct.E) A) and B)
F) A) and C)

Question 5

According to economists, "money" means the same thing as "wealth".

Accepted Answer

A) True 
 B)False

Question 6

In an economy that relies upon barter,

Accepted Answer

A)   trade does not require a double coincidence of wants.
B)   scarce resources are allocated just as easily as they are in economies that do not rely upon barter.
C)   there is no item in the economy that is widely accepted in exchange for goods and services.
D)   All of the above are correct.E) B) and D)
F) All of the above

Question 7

The Fed has the power to increase or decrease the number of dollars in the economy through the decisions of

Accepted Answer

A)   the Board of Governors.
B)   the FOMC.
C)   the regional Federal Reserve Bank presidents.
D)   the U.S. Treasury.E) All of the above
F) C) and D)

Question 8

Suppose the Federal Reserve increases bank reserves and banks lend out some of these reserves, but at some point banks still have $5 million more they wish to lend out. If the reserve requirement is 10 percent, how much more money can banks create if they lend out the remaining amount?

Accepted Answer

A)   $55 million
B)   $50 million
C)   $45 million
D)   $40 millionE) B) and D)
F) None of the above

Question 9

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

Accepted Answer

A)   fewer reserves, so the reserve ratio will fall.
B)   fewer reserves, so the reserve ratio will rise.
C)   more reserves, so the reserve ratio will fall.
D)   more reserves, so the reserve ratio will rise.E) None of the above
F) A) and B)

Question 10

Which of the following is not included in M1?

Accepted Answer

A)   currency
B)   demand deposits
C)   savings deposits
D)   traveler's checksE) A) and C)
F) None of the above

Question 11

When you purchase school supplies at the book store using cash, you are using money as a medium of exchange.

Accepted Answer

A) True 
 B)False

Question 12

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

Accepted Answer

A)   fewer reserves, so the money multiplier will fall.
B)   fewer reserves, so the money multiplier will rise.
C)   more reserves, so the money multiplier will fall.
D)   more reserves, so the money multiplier will rise.E) A) and D)
F) B) and C)

Question 13

Which of the following is not a tool of monetary policy?

Accepted Answer

A)   open market operations
B)   reserve requirements
C)   changing the discount rate
D)   increasing the government budget deficitE) None of the above
F) A) and B)

Question 14

Fiat money

Accepted Answer

A)   is worthless.
B)   has no intrinsic value.
C)   may be used as a medium of exchange, but is not legal tender.
D)   refers to highly liquid assets that do not serve as a medium of exchange.E) All of the above
F) None of the above

Question 15

Commodity money cannot be used as a unit of account.

Accepted Answer

A) True 
 B)False

Question 16

If an economy uses silver as money, then that economy's money

Accepted Answer

A)   serves as a store of value but not as a medium of exchange.
B)   serves as a medium of exchange but not as a unit of account.
C)   is commodity money.
D)   has no intrinsic value.E) None of the above
F) All of the above

Question 17

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 B)
F) B) and D)

Question 18

Which of the following is included in both M1 and M2?

Accepted Answer

A)   savings deposits
B)   demand deposits
C)   small time deposits
D)   money market mutual fundsE) A) and C)
F) B) and C)

Question 19

An open-market purchase

Accepted Answer

A)   increases the number of dollars and the number of bonds in the hands of the public.
B)   increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public.
C)   decreases the number of dollars and the number of bonds in the hands of the public.
D)   decreases the number of dollars in the hands of the public and increases the number of bonds in the hands of the public.E) B) and D)
F) A) and B)

Question 20

Money is the most liquid asset available because

Accepted Answer

A)   it is a store of value.
B)   it is a medium of exchange.
C)   it is a unit of account.
D)   it has intrinsic value.E) A) and B)
F) A) and C)

Exam 11: The Monetary System

If an economy uses silver as money, then that economy's money

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Which of the following is included in both M1 and M2?

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The Fed has the power to increase or decrease the number of dollars in the economy through the decisions of

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When you purchase school supplies at the book store using cash, you are using money as a medium of exchange.

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An open-market purchase

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Fiat money

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If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

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Marc puts prices on surfboards and skateboards at his sporting goods store. He is using money as a unit of account.

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Which of the following institutions is a central bank?

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A debit card is more similar to a credit card than to a check.

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In an economy that relies upon barter,

Correct AnswerverifiedShow Answer

According to economists, "money" means the same thing as "wealth".

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In the nation of Wiknam, the money supply is $80,000 and reserves are $18,000. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

Correct AnswerverifiedShow Answer

Which of the following is not a tool of monetary policy?

Correct AnswerverifiedShow Answer

Suppose the Federal Reserve increases bank reserves and banks lend out some of these reserves, but at some point banks still have $5 million more they wish to lend out. If the reserve requirement is 10 percent, how much more money can banks create if they lend out the remaining amount?

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Which of the following is not included in M1?

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Commodity money cannot be used as a unit of account.

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If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

Correct AnswerverifiedShow Answer

Suppose banks decide to hold more excess reserves relative to deposits. Other things the same, this action will cause the

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Money is the most liquid asset available because

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