Question 1

Which of the following is an example of a bank's reserves?

Accepted Answer

A) currency held in the vaults of the bank 
B) demand deposits with other member banks 
C) U.S.Treasury bills 
D) U.S.Treasury bonds 
A) currency held in the vaults of the bank 
B) demand deposits with other member banks 
C) U.S.Treasury bills 
D) U.S.Treasury bonds

Question 2

Suppose you deposit $1,000 cash in your checking account at a bank.If the bank is loaned up and if the required reserve ratio is 10%, the maximum amount that the bank can lend now, following your deposit is

Accepted Answer

A) $100. 
B) $900. 
C) $1,000. 
D) $10,000. 
A) $100. 
B) $900. 
C) $1,000. 
D) $10,000.

Question 3

An activity performed by commercial banks that is not performed by insurance companies is

Accepted Answer

A) functioning as financial intermediaries. 
B) creating financial obligations against themselves. 
C) accepting deposits and offering checking accounts. 
D) allocating financial resources between borrowers and lenders. 
A) functioning as financial intermediaries. 
B) creating financial obligations against themselves. 
C) accepting deposits and offering checking accounts. 
D) allocating financial resources between borrowers and lenders.

Question 4

If the Fed raises its target for the federal fund rate, this indicates

Accepted Answer

A) the Fed is pursuing an expansionary monetary policy. 
B) the Fed is pursuing a contractionary monetary policy. 
C) the Fed is attempting to lower unemployment. 
D) the Fed is concerned that the growth in aggregate demand will exceed potential GDP. 
A) the Fed is pursuing an expansionary monetary policy. 
B) the Fed is pursuing a contractionary monetary policy. 
C) the Fed is attempting to lower unemployment. 
D) the Fed is concerned that the growth in aggregate demand will exceed potential GDP.

Question 5

Money that some authority, generally a government, has ordered to be accepted as a medium of exchange is called _______ money.

Accepted Answer

A) fiat 
B) intrinsic 
C) commodity 
D) debt 
A) fiat 
B) intrinsic 
C) commodity 
D) debt

Question 6

Banks play two primary roles in the economy: They take in deposits from savers and lend them to borrowers, and they facilitate purchases of goods and services by allowing people to write checks against their deposits.

Accepted Answer

A) True 
 B)False

Question 7

Debit cards are the electronic equivalent of a check, but neither debit cards nor checks are money.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following would lead to a change in the money measure, M1?

Accepted Answer

A) a customer's cash withdrawal from an ATM 
B) a customer withdraws funds from her checking account to purchase a 6-month time deposit 
C) depositing a paycheck drawn against Bank of America into your checking account in Wells Fargo Bank 
D) interest payments by the Treasury on its debt 
A) a customer's cash withdrawal from an ATM 
B) a customer withdraws funds from her checking account to purchase a 6-month time deposit 
C) depositing a paycheck drawn against Bank of America into your checking account in Wells Fargo Bank 
D) interest payments by the Treasury on its debt

Question 9

Money is essentially defined by

Accepted Answer

A) the intrinsic value of what is being used as money. 
B) the judicial branch. 
C) the government. 
D) social usage. 
A) the intrinsic value of what is being used as money. 
B) the judicial branch. 
C) the government. 
D) social usage.

Question 10

Suppose the required reserve ratio is 10%.If a bank has total reserves of $80,000 and checkable deposits of $550,000, what is the amount of the bank's required reserves?

Accepted Answer

A) $25,000 
B) $55,000 
C) $80,000 
D) $135,000 
A) $25,000 
B) $55,000 
C) $80,000 
D) $135,000

Question 11

The Fed's narrowest measure of money supply is

Accepted Answer

A) M1. 
B) M2. 
C) credit card balances. 
D) balances held in money market funds. 
A) M1. 
B) M2. 
C) credit card balances. 
D) balances held in money market funds.

Question 12

When you buy a ticket to the rodeo, you are using money as a

Accepted Answer

A) source of economic activity. 
B) store of value. 
C) factor of production. 
D) medium of exchange. 
A) source of economic activity. 
B) store of value. 
C) factor of production. 
D) medium of exchange.

Question 13

The function of money illustrated by the prevailing prices of goods and services is the

Accepted Answer

A) medium of exchange function. 
B) unit of account function. 
C) standard of deferred payments function. 
D) store of value function. 
A) medium of exchange function. 
B) unit of account function. 
C) standard of deferred payments function. 
D) store of value function.

Question 14

To reduce the political influence on the Board of Governors,

Accepted Answer

A) the president of the United States appoints a new board every four years. 
B) the reelection campaign for each member is less than one year. 
C) each member is appointed for 7 years, with one term expiring every year. 
D) each member is appointed for 14 years, with one term expiring every two years. 
A) the president of the United States appoints a new board every four years. 
B) the reelection campaign for each member is less than one year. 
C) each member is appointed for 7 years, with one term expiring every year. 
D) each member is appointed for 14 years, with one term expiring every two years.

Question 15

Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel in exchange for goods and services.Why were they willing to accept mackerel in exchange for goods and services?

Accepted Answer

A) because mackerel is a good source of protein 
B) because prison authorities deemed mackerel legal tender 
C) because the inmates know that they could use the packages of mackerel to buy other goods and services 
D) because the inmates do not wish to consume mackerel 
A) because mackerel is a good source of protein 
B) because prison authorities deemed mackerel legal tender 
C) because the inmates know that they could use the packages of mackerel to buy other goods and services 
D) because the inmates do not wish to consume mackerel

Question 16

The seven members of the Board of Governors serve 14-year terms to

Accepted Answer

A) provide steady employment. 
B) reduce political influence. 
C) prevent illegal appointments. 
D) inhibit independent decisions. 
A) provide steady employment. 
B) reduce political influence. 
C) prevent illegal appointments. 
D) inhibit independent decisions.

Question 17

A bank has $100,000 in checkable deposits and $30,000 in reserves.If the required reserve ratio is 10%, what is the amount of required reserves?

Accepted Answer

A) $0 
B) $10,000 
C) $20,000 
D) $30,000 
A) $0 
B) $10,000 
C) $20,000 
D) $30,000

Question 18

Money is any item that

Accepted Answer

A) serves as a medium of exchange for goods and services. 
B) can be converted into silver with relatively little loss in value. 
C) can be converted into gold with relatively little loss in value. 
D) facilitates a connecting link between credit instruments and debt instruments. 
A) serves as a medium of exchange for goods and services. 
B) can be converted into silver with relatively little loss in value. 
C) can be converted into gold with relatively little loss in value. 
D) facilitates a connecting link between credit instruments and debt instruments.

Question 19

The Fed conducts an open market purchase of $10 million in government securities.If the reserve ratio is 20%, what is the maximum change in the money supply? Assume banks hold no excess reserves and there is no currency withdrawal from the banking system.

Accepted Answer

A) maximum increase in money supply = $10 million 
B) maximum decrease in money supply = $10 million 
C) maximum increase in money supply = $50 million 
D) maximum decrease in money supply = $50 million 
A) maximum increase in money supply = $10 million 
B) maximum decrease in money supply = $10 million 
C) maximum increase in money supply = $50 million 
D) maximum decrease in money supply = $50 million

Question 20

Currency is paper money and coin issued by the government.

Accepted Answer

A) True 
 B)False

Exam 24: The Nature and Creation of Money

Which of the following is an example of a bank's reserves?

Suppose you deposit $1,000 cash in your checking account at a bank.If the bank is loaned up and if the required reserve ratio is 10%, the maximum amount that the bank can lend now, following your deposit is

An activity performed by commercial banks that is not performed by insurance companies is

If the Fed raises its target for the federal fund rate, this indicates

Money that some authority, generally a government, has ordered to be accepted as a medium of exchange is called _______ money.

Banks play two primary roles in the economy: They take in deposits from savers and lend them to borrowers, and they facilitate purchases of goods and services by allowing people to write checks against their deposits.

Debit cards are the electronic equivalent of a check, but neither debit cards nor checks are money.

Which of the following would lead to a change in the money measure, M1?

Money is essentially defined by

Suppose the required reserve ratio is 10%.If a bank has total reserves of $80,000 and checkable deposits of $550,000, what is the amount of the bank's required reserves?

The Fed's narrowest measure of money supply is

When you buy a ticket to the rodeo, you are using money as a

The function of money illustrated by the prevailing prices of goods and services is the

To reduce the political influence on the Board of Governors,

Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel in exchange for goods and services.Why were they willing to accept mackerel in exchange for goods and services?

The seven members of the Board of Governors serve 14-year terms to

A bank has $100,000 in checkable deposits and $30,000 in reserves.If the required reserve ratio is 10%, what is the amount of required reserves?

Money is any item that

The Fed conducts an open market purchase of $10 million in government securities.If the reserve ratio is 20%, what is the maximum change in the money supply? Assume banks hold no excess reserves and there is no currency withdrawal from the banking system.

Currency is paper money and coin issued by the government.

Economics: the Study of Choice

Confronting Scarcity: Choices in Production

Demand and Supply

Applications of Demand and Supply

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Monopoly

The World of Imperfect Competition

Wages and Employment in Perfect Competition

Interest Rates and the Markets for Capital and Natural Resources

Imperfectly Competitive Markets for Factors of Production

Public Finance and Public Choice

Inflation and Unemployment

International Trade

The Economics of the Environment

Inequality, Poverty, and Discrimination

Macroeconomics: the Big Picture

Measuring Total Income and Output

Aggregate Demand and Aggregate Supply

Economic Growth

Financial Markets and the Economy

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Macro Inflation and Unemployment

Macro a Brief History of Macroeconomic Thought and Policy

Economic Development

Socialist Economies in Transition

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