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Gold, silver and furs, when used as money, are referred to as
a. fiat money
b. precious money
c. paper currency
d. commodity money
e. exchange money
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d. commodity money
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If the government passed a law designating sea shells as money, sea shells
a. would not be legal tender
b. would not function as money because they would be unable to serve as a unit of account
c. would not function as money because they would be unable to serve as a means of payment
d. would not function as money because they would be unable to serve as a store of wealth
e. would function as money as long as they were accepted in exchange for goods and services
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e. would function as money as long as they were accepted in exchange for goods and services
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Which of the following could not serve as commodity money?
a. diamond
b. gold
c. paper
d. fur
e. silver
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c. paper
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The primary reason that U.S. money has value is that it
a. is backed by gold
b. is fiat money
c. is accepted by others in exchange for goods and services
d. is commodity money
e. has a fixed value established by the Federal Reserve.
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c. is accepted by others in exchange for goods and services
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Fiat money is
a. money with intrinsic value like gold coins.
b. anything that serves as a means of payment by government declaration.
c. any currency made of paper.
d. a tangible asset like a house.
e. money that is backed by gold.
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b. anything that serves as a means of payment by government declaration.
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Stocks and bonds are
a. financial assets; therefore, they are considered to be money
b. highly-liquid financial assets; therefore, they are considered to be money
c. not highly-liquid financial assets; therefore, they are not considered to be money
d. widely accepted means of payment; therefore, they are considered to be money
e. not financial assets; therefore, they are not considered to be money
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c. not highly-liquid financial assets; therefore, they are not considered to be money
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Which of the following is the most liquid form of asset?
a. Small time deposits
b. Large time deposits
c. Savings accounts
d. Money market mutual fund (MMMF) balances
e. Travelers’ checks.
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e. Travelers’ checks.
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Which of the following is included in the M2 money stock?
a. bonds
b. stocks
c. gold
d. savings-type accounts
e. credit card balances
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d. savings-type accounts
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Financial intermediaries
a. harm both borrowers and lenders because they pay lenders a lower rate of interest than they charge to borrowers
b. specialize in assembling loanable funds from households and firms, and channeling those funds to other households, firms, and government agencies
c. are all depository institutions
d. increase the risk of lending and borrowing because a financial intermediary has nothing to lose from such transactions
e. reduce efficiency because they add an extra step to many financial transactions
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b. specialize in assembling loanable funds from households and firms, and channeling those funds to other households, firms, and government agencies
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A bank’s balance sheet shows
a. information about the riskiness of its loans
b. the amount of money loaned to each individual borrower
c. the amount of cash in the hands of the public
d. the number of checking accounts it maintains
e. the bank’s assets and liabilities
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e. the bank’s assets and liabilities
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If the Federal Reserve sets a required reserve ratio of 0.2 and a bank has $100 million in loans and $80 million in deposits, what is the level of required reserves for the bank?
a. $100 million
b. $16 million
c. $80 million
d. $20 million
e. $36 million
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b. $16 million
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Reserves are defined as
a. the total cash in bank vaults
b. money deposited in Federal Reserve accounts
c. the sum of vault cash and deposits at Federal Reserve banks
d. the total amount of money a bank must hold
e. ten percent of demand deposit liabilities
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d. the total amount of money a bank must hold
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The Federal Reserve System is under the strict control of
a. the executive branch
b. the legislative branch
c. the judicial branch
d. the International Monetary Fund
e. none of the above
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e. none of the above
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The Fed sometimes acts as a lender of last resort. This means that
a. individuals can borrow from the Fed when the President declares a national disaster
b. individuals can try to borrow money from the Fed if they are unable to borrow from a bank
c. banks can always go to the Fed for reserves in order to purchase more government bonds
d. banks can always go to the Fed for reserves to meet their obligations to depositors
e. business firms can try to borrow money from the Fed they are unable to borrow from a bank
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d. banks can always go to the Fed for reserves to meet their obligations to depositors
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The Fed’s open market operations involve
a. buying and selling of government bonds
b. changes of the discount rate
c. setting the required reserve ratio
d. buying and selling corporate bonds
e. a policy of last resort used to avert a financial crisis.
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a. buying and selling of government bonds
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Assuming that households do not change their cash holdings and banks loan out all of their excess reserves, if the required reserve ratio (RRR) is 10 percent and the Fed purchases $2,000 worth of bonds from banks, how much money will be eventually created?
a. $1,800
b. $2,000
c. $9,000
d. $18,000
e. $20,000
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e. $20,000
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If the required reserve ratio is 0.2, what is the demand deposit multiplier?
a. 10.0
b. 0.4
c. 5.0
d. 2.5
e. 1.67
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c. 5.0
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If the total amount of demand deposits in the country increases by $12,000 after the Fed purchases $6,000 in bonds, what is the required reserve ratio?
a. 0.4
b. 0.1
c. 0.2
d. 0.5
e. 0.3
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d. 0.5
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If the Federal Reserve wishes to increase the money supply by $30,000 and the reserve requirement ratio is 0.4, how big a purchase of bonds will the Fed need to make?
a. $75,000
b. $12,000
c. $1,000
d. $30,000
e. $3,000
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b. $12,000
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An important function of the Federal Reserve is
a. clearing checks
b. Collecting deposits from members of the public
c. overturning reserve requirements
d. controlling the demand for money
e. making a large profit
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a. clearing checks
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Which of the following is not a function of the Federal Reserve System?
a. Setting the required reserve ratio
b. Establishing the prime lending rate
c. Clearing checks
d. Regulating banking activity
e. Controlling the money supply.
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b. Establishing the prime lending rate
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Which of the following will the Federal Reserve do in order to increase the money supply?
a. sell government bonds
b. buy corporate bonds
c. sell common stock
d. buy government bonds
e. increase the salaries of its governors.
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d. buy government bonds
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Which of the following is an open market purchase?
a. When private individuals sell government bonds
b. When the Fed sells government bonds
c. When private individuals purchase government bonds
d. When bond dealers buy government bonds from the fed
e. When the Fed buys government bonds.
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e. When the Fed buys government bonds.
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The Fed typically increases the money supply by
a. selling government bonds
b. buying government loans
c. selling government loans
d. printing more currency
e. buying government bonds
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e. buying government bonds
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Commercial banks can increase the money supply by
a. accepting demand deposits
b. loaning out required reserves
c. loaning out excess reserves
d. selling bonds to the public
e. buying bonds from the Fed
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c. loaning out excess reserves
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If the Fed conducts an open market purchase of bonds, the
a. money supply decreases as reserves are injected into the banking system
b. demand for money increases as reserves are drained from the banking system
c. demand for money decreases as reserves are injected into the banking system
d. money supply increases as reserves are injected into the banking system
e. money supply increases as reserves are drained from the banking system
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d. money supply increases as reserves are injected into the banking system
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If the reserve requirement is 0.2 and demand deposits are $800 (assume no earlier loans), the banks can lend out
a. $800
b. $80
c. $640
d. $160
e. $960.
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c. $640
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Banks can create
a. Income
b. Power
c. Wealth
d. Money
e. capital stock
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d. Money
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The Fed can decrease the money supply by
a. decreasing the reserve requirement
b. making open market purchases of bonds
c. selling government bonds
d. destroying printed currency
e. creating wealth
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c. selling government bonds
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If the Fed increased the discount rate,
a. banks would make more loans
b. the money supply would increase
c. firms would be more likely to seek out loans
d. the required reserve ratio would increase
e. banks would make fewer loans
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e. banks would make fewer loans
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Which of the following is the most liquid asset?
a. Traveler’s checks.
b. Savings-type deposits.
c. Small time deposits.
d. Large time deposits.
e. A modern art painting.
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a. Traveler’s checks.
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Which of the following is the least liquid asset?
a. checkable deposits.
b. savings-type deposits.
c. traveler’s checks.
d. demand deposits.
e. cash.
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b. savings-type deposits.
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Why do financial intermediaries aid in the efficient operation of the economy?
a. Without them it would be difficult for small savers to lend to large borrowers.
b. They lend funds to businesses at a zero interest rate.
c. They print currency.
d. They regulate the money supply.
e. They engage in open market operations.
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a. Without them it would be difficult for small savers to lend to large borrowers.
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From where do most of a bank’s profit come?
a. Issuing currency.
b. Subsidies from the Federal Reserve.
c. Lending out funds and charging interest.
d. Buying and selling bonds.
e. Selling mutual fund shares.
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c. Lending out funds and charging interest.
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The Federal Reserve
a. prints money for use by individuals during transactions.
b. is a nation’s monetary authority, responsible for controlling the money supply.
c. issues government debt.
d. makes loans and takes deposits from individuals.
e. collects taxes from corporations only while the Treasury Department collects personal income and Social Security taxes.
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b. is a nation’s monetary authority, responsible for controlling the money supply.
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Money is
a. only assets such as gold and silver
b. only fiat in nature
c. anything that is generally accepted as a means of payment
d. acceptable as a means of payment because the government guarantees that it must be
e. only those things backed by gold
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c. anything that is generally accepted as a means of payment
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The organization responsible for creating and regulating the U.S. money supply is
a. the Department of Commerce
b. the Council of Economic Advisers
c. the U.S. Mint
d. the Federal Reserve System
e. the Department of the Treasury
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d. the Federal Reserve System
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When money is used to compare the costs of different goods and services, it is functioning as
a. a unit of account
b. a means of payment
c. fiat money
d. a store of wealth
e. legal tender
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a. a unit of account
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Ceteris paribus, a decrease in the price level would be represented by a movement from
a. shift left
b. shift right
c. move up
d. move down
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d. move down
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Ceteris paribus, a decrease in government spending would be represented by a movement from
a. shift left
b. shift right
c. move up
d. move down
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a. shift left
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Which of the following would cause the short-run aggregate supply curve to shift to the left?
A) a technological advance
B) a decrease in interest rates
C) an increase in inflation expectations
D) an increase in the price level
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C) an increase in inflation expectations
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Ceteris paribus, a decrease in productivity would be represented by a movement from
a. shift left
b. shift right
c. move up
d. move down
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a. shift left
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A decrease in the price level will
A) shift the short-run aggregate supply curve to the right
B) move the economy down along a stationary short-run aggregate supply curve.
C) shift the short-run aggregate supply curve to the left.
D) move the economy up along a stationary short-run aggregate supply curve
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B) move the economy down along a stationary short-run aggregate supply curve.
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Ceteris paribus, an increase in workers and firms adjusting to having previously overestimated the price level would be represented by a movement from
a. shift left
b. shift right
c. move up
d. move down
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b. shift right
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Workers expect inflation to fall from 4% to 1% next year. As a result, this should
A) shift the short-run aggregate supply curve to the right.
B) shift the short-run aggregate supply curve to the left.
C) move the economy up along a stationary short-run aggregate supply curve.
D) move the economy down along a stationary short-run aggregate supply curve.
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A) shift the short-run aggregate supply curve to the right.
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46) Which of the following is not a reason why the wages of workers and the prices of inputs rise more slowly than the prices of final goods and services?
A) Firms are often slow to adjust wages.
B) Menu costs make some prices sticky.
C) Unions are successful in pushing up wages.
D) Contracts make prices and wages "sticky."
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C) Unions are successful in pushing up wages.
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