Chap27

Chapter27 TheMonetarySystem
MULTIPLECHOICE
1
Money a. ismoreefficientthanbarter. b. makestradeseasier. c. allowsgreaterspecialization. d. Alloftheabovearecorrect. ANSWER:d.Alloftheabovearecorrect. TYPE:MKEY1:DOBJECTIVE:1RANDOM:Y

2
Papermoney a. hasnointrinsicvalue. b. isusedinabartereconomy. c. isvaluablebecauseitisgenerallyacceptedintrade. d. BothAandCarecorrect. ANSWER:d.BothAandCarecorrect. TYPE:MKEY1:DOBJECTIVE:1RANDOM:Y

3
Barter a. requiresadoublecoincidenceofwants. b. islessefficientthanmoney. c. isthetradingofgoodsforgoods. d. Alloftheabovearecorrect. ANSWER:d.Alloftheabovearecorrect. TYPE:MKEY1:DOBJECTIVE:1RANDOM:Y

4
Foranindividual,money a. isaliability. b. isanasset. c. isnotaformofwealth. d. Noneoftheaboveiscorrect. ANSWER:b.isanasset. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.
2Chapter 27/The Monetary System

5
Whenbookkeepersusedollarstorecordincomeandexpenses,theyareusingmoneyasa a. unitofaccount. b. meansofpayment. c. storeofvalue. d. mediumofexchange. ANSWER:a.unitofaccount. TYPE:MKEY1:CSECTION:1OBJECTIVE:1RANDOM:Y

6
Whichofthefollowingisastoreofvalue? a. currency b. U.S.governmentbonds c. fineart d. Alloftheabovearecorrect. ANSWER:d.Alloftheabovearecorrect TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

7
Whenyouputmoneyinacookiejar,whichfunctionofmoneyareyouusing? a. storeofvalue b. mediumofexchange c. unitofaccount d. Noneoftheaboveiscorrect. ANSWER:a.storeofvalue TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

8
Whichofthefollowingbestillustratesthemediumofexchangefunctionofmoney? a. youpayforyourtextbookswithcurrency b. youmarkpricesofCDsatyourmusicstoreindollars c. youkeepajarofpennies d. Noneoftheaboveiscorrect. ANSWER:a.youpayforyourtextbookswithcurrency TYPE:MKEY1:CSECTION:1OBJECTIVE:1RANDOM:Y

9
Economistsusethewordmoneytoreferto a. incomegeneratedbytheproductionofgoodsandservices. b. thevalueofallassets. c. thevalueofstocksandbonds. d. thoseassetsregularlyusedtobuygoodsandservices. ANSWER:d.thoseassetsregularlyusedtobuygoodsandservices. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
Chapter 27/The Monetary System3

10
Liquidityrefersto a. thesuitabilityofanassettoserveasastoreofvalue. b. ameasurementoftheintrinsicvalueofcommoditymoney. c. theeasewithwhichanassetisconvertedtothemediumofexchange. d. Noneoftheabovereferstoliquidity. ANSWER:c.theeasewithwhichanassetisconvertedtothemediumofexchange. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

11
Whichlistranksassetsfrommosttoleastliquid? a. currency,fineart,stocks b. currency,stocks,fineart c. fineart,currency,stocks d. fineart,stocks,currency ANSWER:b.currency,stocks,fineart TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

12
CurrentU.S.currencyis a. commoditymoneywithintrinsicvalue. b. commoditymoneywithnointrinsicvalue. c. fiatmoneywithintrinsicvalue. d. fiatmoneywithnointrinsicvalue. ANSWER:d.fiatmoneywithnointrinsicvalue. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

13
Fiatcurrency a. isusedasamediumofexchange. b. isequivalenttowealth. c. isbackedbygold. d. Bothbandcarecorrect. ANSWER:a.isusedasamediumofexchange. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

14
Commoditymoneyis a. backedbygold. b. morecommonlyusedthanfiatmoney. c. moneywithintrinsicvalue. d. Alloftheabovearecorrect. ANSWER:c.moneywithintrinsicvalue. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

15
Someeconomiesusedsaltasmoney.Forsucheconomiessalt

a. hadnointrinsicvalue. b. servedasamediumofexchange. c. servedasfiatmoney. e. Bothbandcarecorrect. ANSWER:b.servedasamediumofexchange. TYPE:MKEY1:CSECTION:1OBJECTIVE:1RANDOM:Y
16
Fiatmoney a. performsallthefunctionsofmoneyexceptprovidingamediumofexchange. b. isworthless. c. hasnointrinsicvalue. d. maynotbeusedaslegaltender. ANSWER:c.hasnointrinsicvalue. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

17
U.S.dollars a. arecommoditymoney. b. arefiatmoney. c. havenointrinsicvalue. d. Bothbandcarecorrect. ANSWER:d.Bothbandcarecorrect. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

18
SincetheU.S.governmenthasdecreedthatU.S.currencyislegaltender, a. peoplearemorelikelytoacceptthedollarasamediumofexchange. b. thegovernmentmustholdenoughgoldtoredeemallcurrency. c. peoplemaynotmaketradeswithanythingelse. d. Alloftheabovearecorrect. ANSWER:a.peoplearemorelikelytoacceptthedollarasamediumofexchange. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

19
Money a. refersonlytocurrency. b. hasapowerfulinfluenceoneconomicvariables. c. iscontrolledbytheFederalReserve. d. Bothbandcarecorrect. ANSWER:d.Bothbandcarecorrect. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

20
M1includes a. currency. b. demanddeposits. c. travelerschecks. d. Alloftheabovearecorrect. ANSWER:d.Alloftheabovearecorrect. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

21
M2 a. issmallerthanM1. b. ismoreliquidthanM1. c. excludessomeassetsincludedinM1. d. Noneoftheabovearecorrect. ANSWER:d.Noneoftheabovearecorrect. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

22
WhichofthefollowingisnotincludedinM1? a. currency b. demanddeposits c. savingsdeposits d. NoneoftheaboveisincludedinM1. ANSWER:c.savingsdeposits TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

23
WhichofthefollowingisincludedinM2butnotinM1? a. currency b. demanddeposits c. savingsdeposits d. AlloftheaboveareincludedinM2butnotinM1. ANSWER:c.savingsdeposits. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

24
Checkingaccountsinclude a. currency. b. demanddeposits. c. savingsaccounts. d. Noneoftheaboveisacheckingaccount. ANSWER:b.checkingaccounts. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

25
WhichofthefollowingisincludedintheM2definitionofthemoneysupply? a. creditcards b. moneymarketmutualfunds c. corporatebonds d. largetimedeposits ANSWER:b.moneymarketmutualfunds TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

26
Creditcardsare a. usedasamethodofpayment. b. partoftheM1moneysupply. c. equivalenttodebitcards. d. amethodofdeferringpayment. ANSWER:d.amethodofdeferringpayment. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

27
Creditcards a. arepartofthemoneysupply. b. deferpayments. c. areastoreofvalue. d. haveleadtowideruseofcurrency. ANSWER:b.deferpayments. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

28
Debitcards a. areusedasamethodofpayment. b. allowtheusertopostponepayment. c. areequivalenttocreditcards. d. Noneoftheaboveiscorrect. ANSWER:a.areusedasamethodofpayment. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

29
TheamountofcurrencyperpersonintheUnitedStatesisabout a. $200. b. $500. c. $1,300. d. $2,000. ANSWER:d.$2,000. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

30
WhichofthefollowingmightexplainwhytheUnitedStateshassomuchcurrencyperperson? a. U.S.citizensareholdingalotofforeigncurrency. b. Currencymaybeapreferablestoreofwealthforcriminals. c. Peopleusecreditanddebitcardsmorefrequently. d. Alloftheabovehelpexplaintheabundanceofcurrency. ANSWER:b.Currencymaybeapreferablestoreofwealthforcriminals. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

31
GiventhesizeoftheU.S.moneystock,itispuzzlingthat a. banksholdsomuchcurrencyrelativetothepublic. b. thepublicholdssomuchcurrencyrelativetobanks. c. thereissolittlecurrencyperperson. d. thereissomuchcurrencyperperson. ANSWER:d.thereissomuchcurrencyperperson. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y 32 . TheagencyresponsibleforregulatingthemoneysupplyintheUnitedStatesis a. theComptrolleroftheCurrency. b. theU.S.Treasury. c. theFederalReserve. d. theU.S.Bank. ANSWER:c.theFederalReserve. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y
33
TheFederalReservedoesallexceptwhichofthefollowing? a. makeloanstoindividuals b. controlthesupplyofmoney c. controlthevalueofmoney d. regulatethebankingsystem ANSWER:a.makeloanstoindividuals. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

34
MembersoftheBoardofGovernors a. andthepresidentsoftheFederalReserveregionalbanksareappointedbytheU.S.president. b. andthepresidentsoftheFederalReserveregionalbanksareappointedbythebanksboardsof directors. c. areappointedbytheU.S.presidentwhilepresidentsoftheFederalReserveregionalbanksare appointedbythebanksboardsofdirectors. d. areappointedbythebanksboardsofdirectorswhilethepresidentsoftheFederalReserve regionalbanksareappointedbytheU.S.president. ANSWER:c.areappointedbytheU.S.presidentwhilepresidentsoftheFederalReserveregionalbanks areappointedbythebanksboardofdirectors. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

35
TheNewYorkFederalReserveBank a. PresidentalwaysgetstovoteattheFOMCmeetings. b. conductsopenmarkettransactions. c. islocatedinthetraditionalfinancialcenteroftheUnitedStates. d. Alloftheabovearecorrect. ANSWER:d.Alloftheabovearecorrect. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

36
TheBoardofGovernors a. iscurrentlychairedbyAlanGreenspan. b. areappointedbythepresidentandconfirmedbytheSenate. c. hassevenmembers. d. Alloftheabovearecorrect. ANSWER:d.Alloftheabovearecorrect. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

37
Whichofthefollowingiscorrect? a. TheFederalReservehas14regionalbanks.TheBoardofGovernorshas12memberswho serve7yearterms. b. TheFederalReservehas12regionalbanks.TheBoardofGovernorshas7memberswhoserve 14yearterms. c. TheFederalReservehas12regionalbanks.TheBoardofGovernorshas14memberswho serve7yearterms. d. Noneoftheaboveiscorrect. ANSWER:b.TheFederalReservehas12regionalbanks.TheBoardofGovernorshas7memberswho serve14yearterms. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y
38
WhichofthefollowingstatementsabouttheFederalReserveisincorrect? a. TheFederalOpenMarketCommitteemakesmonetarypolicy. b. AllmembersoftheBoardofGovernorssitontheFederalOpenMarketCommittee. c. ThemembersoftheBoardofGovernorsarealsopresidentsoftheFederalReservesregional banks. d. TheFederalReserveregulatesbanks. ANSWER:c.ThemembersoftheBoardofGovernorsarealsopresidentsoftheFederalReserves regionalbanks. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

39
TheFedisrunbythe a. PresidentoftheUnitedStates. b. FederalOpenMarketCommittee. c. BoardofGovernors. d. HouseBankingCommittee. ANSWER:c.BoardofGovernors. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

40
Whichofthefollowinghasafouryearterm? a. themembersoftheBoardofGovernors b. theChairoftheBoardofGovernors c. themembersoftheFOMC d. Bothaandbarecorrect. ANSWER:b.theChairoftheboardofGovernors TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

41
ThetwelveregionalFederalReserveBanks a. maynotmakeloanstobanksintheirdistricts. b. regulatebanksintheirdistricts. c. sendrepresentativestotheFOMCandhaveamajorityvote. d. Alloftheabovearecorrect. ANSWER:b.regulatebanksintheirdistricts. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y 42 . TheFeddoesallexceptwhichofthefollowing? a. conductmonetarypolicy b. convertFederalReserveNotesintogold c. actasalenderoflastresort d. regulatebanks e. TheFeddoesalloftheabove. ANSWER:b.convertFederalReserveNotesintogold TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y
43
TheFederalOpenMarketCommitteeismadeupof a. the12presidentsoftheFederalReserveRegionalbanks,andtheChairoftheBoardof Governors. b. the12presidentsoftheFederalReserveRegionalbanks,andthe7membersoftheBoardof Governors. c. 7ofthe12presidentsoftheFederalReserveRegionalbanks,andthe5membersoftheBoard ofGovernors. d. 5ofthe12presidentsoftheFederalReserveRegionalbanks,andthe7membersoftheBoard ofGovernors. ANSWER:d.5ofthe12presidentsoftheFederalReserveRegionalbanks,andthe7membersofthe BoardofGovernors. TYPE:MDIFFICULTY:3KEY1:DSECTION:2OBJECTIVE:2RANDOM:Y
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WhichofthefollowingisnotalwaysavotingmemberoftheFOMC? a. thePresidentoftheNewYorkFed b. theChairmanoftheBoardofGovernors c. thenewestmemberoftheBoardofGovernors d. Alloftheabovearevotingmembers. ANSWER:d.Alloftheabovearevotingmembers. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

45
WhentheFedwantstochangethemoneysupply,itmostfrequently a. conductsopenmarketoperations. b. changesthediscountrate. c. changesthereserverequirement. d. issuesFederalReservenotes. ANSWER:a.conductsopenmarketoperations. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

46
WhentheFederalReserveconductsopenmarkettransactions,it a. issuesFederalReservenotes. b. buysorsellsgovernmentbondsfromthepublic. c. lowersthediscountrate. d. Bothbandcareopenmarketoperations. ANSWER:b.buysorsellsgovernmentbondsfromthepublic. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

47
Anopenmarketsale a. increasesthemoneysupply. b. doesn'tchangethemoneysupply. c. decreasesthemoneysupply. d. hasanindeterminateeffectonthemoneysupply. ANSWER:c.decreasesthemoneysupply. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

48
Anopenmarketpurchase a. increasesthemoneysupply. b. doesn'tchangethemoneysupply. c. decreasesthemoneysupply. d. hasanindeterminateeffectonthemoneysupply. ANSWER:a.increasesthemoneysupply. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

49
TheFedconductsopenmarketoperations a. tochangethemoneysupply. b. bybuyingandsellinggovernmentbonds. c. toaffecttheeconomy. d. Alloftheabovearetrue. ANSWER:d.Alloftheabovearetrue. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

50
TheFedcanincreasethepricelevelby a. conductingopenmarketsalesandraisingthediscountrate. b. conductingopenmarketsalesandloweringthediscountrate. c. conductingopenmarketpurchasesandraisingthediscountrate. d. conductingopenmarketpurchasesandloweringthediscountrate. ANSWER:d.conductingopenmarketpurchasesandloweringthediscountrate. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

51
TheFedcaninfluenceunemployment a. intheshortandlongrun. b. intheshortrun,butnotthelongrun. c. inthelongrun,butnottheshortrun. d. inneithertheshortnorlongrun. ANSWER:b.intheshortrun,butnotthelongrun. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

52
Thereisa a. shortruntradeoffbetweeninflationandunemployment. b. shortruntradeoffbetweenanincreaseinthemoneysupplyandinflation. c. longruntradeoffbetweeninflationandunemployment. d. longruntradeoffbetweenanincreaseinthemoneysupplyandinflation. ANSWER:a.shortruntradeoffbetweeninflationandunemployment. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

53
Ina100percentreservebankingsystem, a. bankscancreatemoneybylendingoutreserves. b. bankscancreatemoneybyissuingcurrency. c. theFedcanincreasethemoneysupplywithopenmarketsales. d. banksholdasmanyreservesastheyholddeposits. ANSWER:a.bankscancreatemoneybylendingoutreserves. TYPE:MKEY1:DSECTION:3OBJECTIVE:3RANDOM:Y

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OnabanksTaccount, a. bothdepositsandreservesareassets. b. bothdepositsandreservesareliabilities. c. depositsareassets,reservesareliabilities. d. reservesareassets,depositsareliabilities. ANSWER:d.reservesareassets,depositsareliabilities. TYPE:MKEY1:DSECTION:3OBJECTIVE:3RANDOM:Y

55
Supposethatthereserveratiois10percentandthatabankhas$1,000indeposits.Itsreservesare a. $10. b. $90. c. $100. d. $1,000. ANSWER:c.$100. TYPE:MKEY1:ESECTION:3OBJECTIVE:3RANDOM:Y

56
Supposeabankhasa10percentreserveratio,$5,000indeposits,anditloansoutallitcangiventhe reserveratio. a. Ithas$50inreservesand$4,950inloans. b. Ithas$500inreservesand$4,500inloans. c. Ithas$555inreservesand$4,445inloans. d. Noneoftheaboveiscorrect. ANSWER:b.ithas$500inreservesand$4,500inloans. TYPE:MKEY1:ESECTION:3OBJECTIVE:3RANDOM:Y

57
Supposeabankhas$10,000indepositsand$8,000inloans.Ithasareserveratioof a. 8percent. b. 20percent. c. 25percent. d. 80percent. ANSWER:b.20percent. TYPE:MDIFFICULTLY:3KEY1:ESECTION:3OBJECTIVE:3RANDOM:Y

58
Ifyoudeposit$100intoademanddepositatabank,thisactionbyitself a. doesnotchangethemoneysupply. b. increasesthemoneysupply. c. decreasesthemoneysupply. d. hasanindeterminateeffectonthemoneysupply. ANSWER:a.doesnotchangethemoneysupply. TYPE:MKEY1:DSECTION:3OBJECTIVE:3RANDOM:Y

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Whenabankloansout$100,themoneysupply a. doesnotchange. b. increases. c. decreases. d. maydoanyoftheabove. ANSWER:b.increases. TYPE:MKEY1:DSECTION:3OBJECTIVE:3RANDOM:Y

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Underafractionalreservebankingsystem,banks a. holdmorereservesthandeposits. b. generallylendoutamajorityofthefundsdeposited. c. causethemoneysupplytofallbylendingoutreserves. d. Alloftheabovearecorrect. ANSWER:b.generallylendoutamajorityoftheirdeposits. TYPE:MKEY1:DSECTION:3OBJECTIVE:3RANDOM:Y

61
Ifthereserveratiois5percentandabankreceivesanewdepositof$500,thisbank a. mustincreaseitsrequiredreservesby$25. b. willinitiallyseeitstotalreservesincreaseby$500. c. willbeabletomakeanewloanof$475. d. Alloftheabovearetrue. ANSWER:d.Alloftheabovearetrue. TYPE:MDIFFICULTY:3KEY1:ESECTION:3OBJECTIVE:3RANDOM:Y

62
Ifthereserveratiois10percentandabankreceivesanewdepositof$10,thisbank a. mustincreaserequiredreservesby$1. b. willinitiallyseeitstotalreservesincreaseby$1. c. willbeabletomakenewloansuptoamaximumof$1. d. Alloftheabovearetrue. ANSWER:a.mustincreaserequiredreservesby$1. TYPE:MDIFFICULTY:3KEY1:ESECTION:3OBJECTIVE:3RANDOM:Y Usethebalancesheetforthefollowingthreequestions. FirstBankofErehwon Assets Liabilities RequiredReserves $20.00 Deposits $100.00 Loans $80.00
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Thereserveratiois a. zeropercent. b. 20percent. c. 80percent. d. 100percent. ANSWER:b.20percent. TYPE:MKEY1:ESECTION:3OBJECTIVE:3INSTRUCTION:1RANDOM:N

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If$1,000isdepositedintotheFirstBankofErehwon, a. liabilitieswilldecreaseby$1,000. b. assetswillincreaseby$1,000. c. totalreserveswillinitiallyincreaseby$200. d. requiredreserveswillincreaseby$800. ANSWER:b.assetswillincreaseby$1,000. TYPE:MKEY1:ESECTION:3OBJECTIVE:3INSTRUCTION:1RANDOM:N

65
If$400isdepositedintotheFirstBankofErewhon, a. thebankwillbeabletomakeadditionalloanstotaling$320. b. excessreservesinitiallyincreaseby$320. c. requiredreservesinitiallyincreaseby$80. d. Alloftheabovearetrue. ANSWER:d.Alloftheabovearetrue. TYPE:MDIFFICULTY:3KEY1:ESECTION:3OBJECTIVE:3INSTRUCTION:1RANDOM:N Usethebalancesheetforthefollowingquestions. LastBankofHope Assets Liabilities Reserves $2,500 Deposits $10,000 Loans $7,500
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Ifthereserverequirementis10percent,thisbank a. isholdingexcessreservesof$1,000. b. isinapositiontomakeanewloanof$1,500. c. hastotalreservesof$10,000. d. haslessreservesthanrequired. ANSWER:b.isinapositiontomakeanewloanof$1,500. TYPE:MDIFFICULTY:3KEY1:ESECTION:3OBJECTIVE:3INSTRUCTION:2RANDOM:N

67
Ifthereserverequirementis25percent,thisbank a. hasfewerreservesthanrequired. b. canmakenofurtherloans. c. canmakefurtherloans. d. Bothaandbarecorrect. ANSWER:b.canmakenofurtherloans. TYPE:MDIFFICULTY:3KEY1:ESECTION:3OBJECTIVE:3INSTRUCTION:2RANDOM:N

68
IftheLastBankofHopeisholdingonlytheamountofreservesrequired, a. thereserverequirementis10percent. b. thereserverequirementis25percent. c. thereserverequirementis75percent. d. thereserverequirementis100percent. ANSWER:b.thereserverequirementis25percent. TYPE:MKEY1:ESECTION:3OBJECTIVE:3INSTRUCTION:2RANDOM:N

69
Ifabankuses$80ofreservestomakeanewloanwhenthereserveratiois25percent, a. themoneysupplyinitiallydecreasesby$80. b. themoneysupplyinitiallyincreasesby$20. c. themoneysupplywilleventuallyincreasebymorethan$20butlessthan$80. d. thelevelofwealthintheeconomywillnotchange. ANSWER:d.thelevelofwealthintheeconomywillnotchange. TYPE:MDIFFICULTY:3KEY1:ESECTION:3OBJECTIVE:3RANDOM:Y

70
Ifabankuses$100ofreservestomakeanewloanwhenthereserveratiois20percent,thisaction byitselfinitiallymakesthemoneysupply a. andwealthincreaseby$100. b. increaseby$100whilewealthdoesnotchange. c. decreaseby$100whilewealthdecreasesby$100. d. andwealthdecreaseby$100. ANSWER:b.increaseby$100whilewealthdoesnotchange. TYPE:KEY1:DSECTION:3OBJECTIVE:3RANDOM:Y

71
Asthereserveratioincreases,themoneymultiplier a. increases. b. doesnotchange. c. decreases. d. coulddoanyoftheabove. ANSWER:c.decreases. TYPE:MKEY1:ESECTION:3OBJECTIVE:3RANDOM:Y

72
Ifthereserveratiois10percent,themoneymultiplieris a. 100. b. 10. c. 9/10. d. 1/10. ANSWER:b.10. TYPE:MKEY1:ESECTION:3OBJECTIVE:3RANDOM:Y

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Ifthereserveratiois20percent,themoneymultiplieris a. 2. b. 4. c. 5. d. 8. ANSWER:b.4. TYPE:MKEY1:ESECTION:3OBJECTIVE:3RANDOM:Y

74
Whichofthefollowingiscorrect? a. Inafractionalreservebankingsystem,bankscancreatemoney. b. TheFedcanchangethemoneysupply. c. TheFedcanchangethereserverequirement. d. Alloftheabovearecorrect. ANSWER:d.Alloftheabovearecorrect. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

75
Ifthereserveratiois20percent,$1,000ofexcessreservescancreate a. $1,250ofnewmoney. b. $5,000ofnewmoney. c. $12,500ofnewmoney. d. $50,000ofnewmoney. ANSWER:b.$5,000ofnewmoney. TYPE:MKEY1:ESECTION:3OBJECTIVE:4RANDOM:Y

76
Ifthereserveratiois15percent,anadditional$1,000ofreserveswillincreasethemoneysupplyby a. $150. b. $850. c. $6,667. d. $15,000. ANSWER:c.$6,667. TYPE:MKEY1:ESECTION:3OBJECTIVE:4RANDOM:Y

77
InMaercsthemoneysupplyis$80,000andreservesare$20,000.Assumingthatpeopleholdonly depositsandnocurrency,andthatbanksholdonlyrequiredreserves,therequiredreserveratiois a. 40percent. b. 25percent. c. 20percent. d. 5percent. ANSWER:b.25percent. TYPE:MKEY1:ESECTION:3OBJECTIVE:4RANDOM:Y

78
Ifthereserveratiois100percent,depositing$500ofpapermoneyinabankwillincreasethemoney supplyby a. $500,000. b. $50,000. c. $5,000. d. Noneoftheaboveiscorrect. ANSWER:d.Noneoftheaboveiscorrect. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

79
Whichlistcontainsonlyactionsthatincreasethemoneysupply? a. raisethediscountrate,raisethereserverequirementratio b. raisethediscountrate,lowerthereserverequirementratio c. lowerthediscountrate,raisethereserverequirementratio d. lowerthediscountrate,lowerthereserverequirementratio ANSWER:d.lowerthediscountrate,lowerthereserverequirementratio TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

80
Whichlistcontainsonlyactionsthatincreasethemoneysupply? a. raisethediscountrate,makeopenmarketpurchases b. raisethediscountrate,makeopenmarketsales c. lowerthediscountrate,makeopenmarketpurchases d. lowerthediscountrate,makeopenmarketsales ANSWER:c.lowerthediscountrate,makeopenmarketpurchases TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

81
Whichlistcontainsonlyactionsthatincreasethemoneysupply? a. makeopenmarketpurchases,raisethereserverequirementratio b. makeopenmarketpurchases,lowerthereserverequirementratio c. makeopenmarketsales,raisethereserverequirementratio d. makeopenmarketsales,lowerthereserverequirementratio ANSWER:b.makeopenmarketpurchases,lowerthereserverequirementratio. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

82
Whichlistcontainsonlyactionsthatdecreasethemoneysupply? a. raisethediscountrate,raisethereserverequirementratio b. raisethediscountrate,lowerthereserverequirementratio c. lowerthediscountrate,raisethereserverequirementratio d. lowerthediscountrate,lowerthereserverequirementratio ANSWER:a.raisethediscountrate,raisethereserverequirementratio TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

83
Whichlistcontainsonlyactionsthatdecreasethemoneysupply? a. raisethediscountrate,makeopenmarketpurchases b. raisethediscountrate,makeopenmarketsales c. lowerthediscountrate,makeopenmarketpurchases d. lowerthediscountrate,makeopenmarketsales ANSWER:b.raisethediscountrate,makeopenmarketsales TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

84
Whichlistcontainsonlyactionsthatdecreasethemoneysupply? a. makeopenmarketpurchases,raisethereserverequirementratio b. makeopenmarketpurchases,lowerthereserverequirementratio c. makeopenmarketsales,raisethereserverequirementratio d. makeopenmarketsales,lowerthereserverequirementratio ANSWER:c.makeopenmarketsales,raisethereserverequirementratio TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

85
WhichofthefollowinglistsrankstheFedsmonetarypolicytoolsfrommosttoleastfrequently used? a. discountratechanges,reserverequirementchanges,openmarkettransactions b. reserverequirementchanges,openmarkettransactions,discountratechanges c. openmarkettransactions,discountratechanges,reserverequirementchanges d. Noneoftheabovelistsranksthetoolscorrectly. ANSWER:c.openmarkettransactions,discountratechanges,reserverequirementchanges. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

86
IftheFedwantedtoincreasethemoneysupply,itwould a. makeopenmarketpurchasesandraisethediscountrate. b. makeopenmarketsalesandraisethediscountrate. c. makeopenmarketpurchasesandlowerthediscountrate. d. makeopenmarketsalesandlowerthediscountrate. ANSWER:c.makeopenmarketpurchasesandlowerthediscountrate. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

87
Whichofthefollowingisfalse? a. TheFedindirectlycontrolsthemoneysupply. b. Banksdeterminethereserverequirement. c. Bankscancreatemoneyinafractionalreservebankingsystem. d. TheFedcancontrolthelevelofreservesinthebankingsystem. ANSWER:b.Banksdeterminethereserverequirement. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

88
Whichofthefollowingisnotatoolofmonetarypolicy? a. openmarketoperations b. reserverequirements c. theprimerate d. thediscountrate ANSWER:c.theprimerate TYPE:MKEY1:CSECTION:3OBJECTIVE:4RANDOM:Y

89
Toincreasethemoneysupply,theFedcould a. sellgovernmentbonds. b. increasethediscountrate. c. decreasethereserverequirement. d. Bothaandcarecorrect. ANSWER:c.decreasethereserverequirement. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

90
Toincreasethemoneysupply,theFedcould a. sellgovernmentbonds. b. decreasethediscountrate. c. increasethereserverequirement. d. Noneoftheaboveiscorrect. ANSWER:a.decreasethediscountrate. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

91
Todecreasethemoneysupply,theFedcould a. sellgovernmentbonds. b. increasethediscountrate. c. increasethereserverequirement. d. Alloftheabovearecorrect. ANSWER:d.Alloftheabovearecorrect. TYPE:MDIFFICULTY:3KEY1:CSECTION:3OBJECTIVE:4RANDOM:Y

92
WhentheFedconductsopenmarketpurchases,bankreserves a. increaseandbankscanincreaselending. b. increaseandbanksmustdecreaselending. c. decreaseandbankscanincreaselending. d. decreaseandbanksmustdecreaselending. ANSWER:a.increaseandbankscanincreaselending. TYPE:MKEY1:CSECTION:3OBJECTIVE:4RANDOM:Y

93
IftheFedsellsgovernmentbondstothepublic,bankreservestendto a. increaseandthemoneysupplyincreases. b. increaseandthemoneysupplydecreases. c. decreaseandthemoneysupplyincreases. d. decreaseandthemoneysupplydecreases. ANSWER:d.decreaseandthemoneysupplydecreases. TYPE:MKEY1:CSECTION:3OBJECTIVE:4RANDOM:Y

94
IftheFedlowersthediscountrate,bankreservestendto a. increaseandthemoneysupplyincreases. b. decreaseandthemoneysupplydecreases. c. increaseandthemoneysupplydecreases. d. decreaseandthemoneysupplyincreases. ANSWER:a.increaseandthemoneysupplyincreases. TYPE:MKEY1:CSECTION:3OBJECTIVE:4RANDOM:Y

95
IftheFedraisesthediscountrate,bankreservestendto a. increaseandbanklendingincreases. b. increaseandbanklendingdecreases. c. decreaseandbanklendingincreases. d. decreaseandbanklendingdecreases. ANSWER:d.decreaseandbanklendingdecreases. TYPE:MKEY1:CSECTION:3OBJECTIVE:4RANDOM:Y

96
Inafractionalreservebankingsystem,anincreaseinreserverequirements a. increasesboththemoneymultiplierandthemoneysupply. b. decreasesboththemoneymultiplierandthemoneysupply. c. increasesthemoneymultiplier,butdecreasesthemoneysupply. d. decreasesthemoneymultiplier,butincreasesthemoneysupply. ANSWER:b.decreasesboththemoneymultiplierandthemoneysupply. TYPE:MKEY1:CSECTION:3OBJECTIVE:4RANDOM:Y

97
Inafractionalreservebankingsystem,adecreaseinreserverequirements a. increasesboththemoneymultiplierandthemoneysupply. b. decreasesboththemoneymultiplierandthemoneysupply. c. increasesthemoneymultiplier,butdecreasesthemoneysupply. d. decreasesthemoneymultiplier,butincreasesthemoneysupply. ANSWER:a.increasesboththemoneymultiplierandthemoneysupply. TYPE:MKEY1:CSECTION:3OBJECTIVE:4RANDOM:Y

98
Reserverequirementsareregulationsconcerning a. theamountofdepositsbanksareallowedtoaccept. b. theamountofreservesbanksmustholdagainstdeposits. c. thetypesofloansbanksareallowedtomake. d. theinterestrateatwhichbankscanborrowfromtheFed. ANSWER:b.theamountofreservesbanksmustholdagainstdeposits. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

99
Ifreserverequirementsareincreased,thereserveratio a. increases,themoneymultiplierincreases,andthemoneysupplyincreases. b. increases,themoneymultiplierdecreases,andthemoneysupplydecreases. c. decreases,themoneymultiplierincreases,andthemoneysupplyincreases. d. decreases,themoneymultiplierdecreases,andthemoneysupplyincreases. ANSWER:b.increases,themoneymultiplierdecreases,andthemoneysupplydecreases. TYPE:MDIFFICULTY:3KEY1:CSECTION:3OBJECTIVE:4RANDOM:Y

100
Ifreserverequirementsaredecreased,thereserveratio a. increases,themoneymultiplierincreases,andthemoneysupplyincreases. b. increases,themoneymultiplierincreases,andthemoneysupplydecreases. c. decreases,themoneymultiplierincreases,andthemoneysupplydecreases. d. decreases,themoneymultiplierincreases,andthemoneysupplyincreases. ANSWER:d.decreases,themoneymultiplierincreases,andthemoneysupplyincreases. TYPE:MDIFFICULTY:3KEY1:CSECTION:3OBJECTIVE:4RANDOM:Y

101
Ifthediscountrateislowered,bankschoosetoborrow a. morefromtheFedsoreservesincrease. b. morefromtheFedsoreservesdecrease. c. lessfromtheFedsoreservesincrease. d. lessfromtheFedsoreservesdecrease. ANSWER:a.morefromtheFedsoreservesincrease. TYPE:MKEY1:CSECTION:3OBJECTIVE:4RANDOM:Y

102
Ifthediscountrateisraised,bankschoosetoborrow a. morefromtheFedsoreservesincrease. b. morefromtheFedsoreservesdecrease. c. lessfromtheFedsoreservesincrease. d. lessfromtheFedsoreservesdecrease. ANSWER:d.lessfromtheFedsoreservesdecrease. TYPE:MKEY1:CSECTION:3OBJECTIVE:1RANDOM:Y

103
WhentheFedincreasesthediscountrate,bankswillborrow a. more,bankswilllendmore,andthemoneysupplywillincrease. b. more,bankswilllendless,andthemoneysupplywilldecrease. c. less,bankswilllendmore,andthemoneysupplywilldecrease. d. less,bankswilllendless,andthemoneysupplywilldecrease. ANSWER:d.less,bankswilllendless,andthemoneysupplywilldecrease. TYPE:MKEY1:CSECTION:3OBJECTIVE:4RANDOM:Y

104
Thediscountrateis a. theinterestratetheFedchargesbanks. b. onedividedbythereserveratio. c. theinterestratebanksreceiveonreservedepositswiththeFed. d. theinterestratethatbankschargeonloanstotheirbestcustomers. ANSWER:a.theinterestratetheFedchargesbanks. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

105
TheinterestratetheFedchargesonloansitmakestobanksiscalled a. theprimerate. b. thefederalfundsrate. c. thereserveratio. d. thediscountrate. ANSWER:d.thediscountrate. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

106
DuringthestockmarketcrashofOctober1987,theFed a. nearlycreatedafinancialpanicbynotactingasalenderoflastresort. b. nearlycreatedafinancialpanicbyraisingthediscountrate. c. preventedafinancialpanicbyraisingreserverequirements. d. preventedafinancialpanicbyprovidingliquiditytothefinancialsystem. ANSWER:d.preventedafinancialpanicbyprovidingliquiditytothefinancialsystem. TYPE:MKEY1:CSECTION:3OBJECTIVE:4RANDOM:Y

107
Ifthereserveratiois10percent,andbanksdonotholdexcessreserves,whentheFedpurchases$10 millionofgovernmentbonds,bankreserves a. increaseby$10millionandthemoneysupplyeventuallyincreasesby$100million. b. decreaseby$10millionandthemoneysupplyeventuallyincreasesby$100million. c. increaseby$10millionandthemoneysupplyeventuallydecreasesby$100million. d. decreaseby$10millionandthemoneysupplyeventuallydecreasesby$100million. ANSWER:a.increaseby$10millionandthemoneysupplyeventuallyincreasesby$100million. TYPE:MDIFFICULTY:3KEY1:ESECTION:3OBJECTIVE:4RANDOM:Y

108
Ifthereserveratiois25percent,andbanksdonotholdexcessreserves,whentheFedsells$40 millionofbondstothepublic,bankreserves a. increaseby$40millionandthemoneysupplyeventuallyincreasesby$100million. b. increaseby$40millionandthemoneysupplyeventuallyincreasesby$160million. c. decreaseby$40millionandthemoneysupplyeventuallydecreasesby$100million. d. decreaseby$40millionandthemoneysupplyeventuallydecreasesby$160million. ANSWER:d.decreaseby$40millionandthemoneysupplyeventuallydecreasesby$160million. TYPE:MDIFFICULTY:3KEY1:ESECTION:3OBJECTIVE:4RANDOM:Y

109
Ifthepublicdecidestoholdmorecurrencyandlessmoneyasdepositsinbanks,bankreserves a. increaseandthemoneysupplyeventuallyincreases. b. increasebutthemoneysupplydoesnotchange. c. decreaseandthemoneysupplyeventuallydecreases. d. decreasebutthemoneysupplydoesnotchange. ANSWER:c.decreaseandthemoneysupplyeventuallydecreases. TYPE:MKEY1:CSECTION:3OBJECTIVE:4RANDOM:Y

110
Ifbankschoosetoholdfewerexcessreserves, a. themoneysupplyrises. b. totalreservesinthebankingsystemdecrease. c. themoneymultiplierwillincrease. d. thediscountratewilldecrease. ANSWER:a.themoneysupplyrises. TYPE:MKEY1:CDIFFICULTLY:3SECTION:3OBJECTIVE:4RANDOM:Y

111
Duringrecessions,bankstypicallychoosetoholdmoreexcessreservesrelativetotheirdeposits. Thisaction a. increasesthemoneymultiplierandincreasesthemoneysupply. b. decreasesthemoneymultiplieranddecreasesthemoneysupply. c. doesnotchangethemoneymultiplier,butincreasesthemoneysupply. d. doesnotchangethemoneymultiplier,butdecreasesthemoneysupply. ANSWER:b.decreasesthemoneymultiplieranddecreasesthemoneysupply. TYPE:MKEY1:CSECTION:3OBJECTIVE:4RANDOM:Y

112
Whichofthefollowingiscorrect? a. TheFedcancontrolthemoneysupplyprecisely. b. Theamountofmoneyintheeconomydoesnotdependonthebehaviorofdepositors. c. Theamountofmoneyintheeconomydependsinpartonthebehaviorofbanks. d. Bothbandcarecorrect. ANSWER:c.theamountofmoneyintheeconomydependsinpartonthebehaviorofbanks. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

113
Duringwarsthepublictendstoholdrelativelymorecurrencyandrelativelyfewerdeposits.This decisionmakesthemoneymultiplier a. andthemoneysupplyincrease. b. andthemoneysupplydecrease. c. increase,butleavesthemoneysupplyunchanged. d. decrease,butleavesthemoneysupplyunchanged. ANSWER:b.andthemoneysupplydecrease. TYPE:MDIFFICULTY:3KEY1:CSECTION:3OBJECTIVE:4RANDOM:Y

114
Currencyheldbythepublic a. andbybanksispartofthemoneysupply. b. ispartofthemoneysupply,butcurrencyheldbybanksisnot. c. isnotpartofthemoneysupply,butcurrencyheldbybanksis. d. orbanksisnotpartofthemoneysupplysinceitisnotincludedinM1. ANSWER:b.ispartofthemoneysupply,butcurrencyheldbybanksisnot. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

115
Inthe1930sGermanbankersfearedbankrunsandsoincreasedtheirreserveratios.Inresponse a. themoneysupplyandunemploymentrose. b. themoneysupplyandunemploymentfell. c. themoneysupplyroseandunemploymentfell. d. themoneysupplyfellandunemploymentrose. ANSWER:d.themoneysupplyfellandunemploymentrose. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

116
Bankruns a. willaffectneitherthemoneysupplynorthemoneymultiplier. b. areonlyaproblemforinsolventbanks. c. areaproblembecausebanksonlyholdafractionofdepositsasreserves. d. canbeneitherpreventednorstoppedbytheFederalReserve. ANSWER:c.areaproblembecausebanksonlyholdafractionofdepositsasreserves. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

117
TheFedcandirectlyprotectabankduringabankrunby a. increasingreserverequirements. b. lendingreservestothebank. c. sellinggovernmentbondstothebank. d. doinganyoftheabove. ANSWER:b.lendingreservestothebank. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

118
DuringtheGreatDepressionintheearly1930s, a. bankrunsclosedmanybanks. b. theFeddecreasedreserverequirements. c. themoneysupplyrosesharply. d. Bothaandcarecorrect. ANSWER:a.bankrunsclosedmanybanks. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

119
Today,bankrunsare a. uncommonbecauseofthehighrequiredreserveratio. b. commonbecauseofthelowrequiredreserveratio. c. uncommonbecauseofFDICdepositinsurance. d. commonbecausetheFDICisnearlybankrupt. ANSWER:c.uncommonbecauseofFDICdepositinsurance. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

120
TheFederalDepositInsuranceCorporation a. protectsdepositorsintheeventofbankfailures. b. hasbecomeinsolventinrecentyearsduetoalargenumberofbankfailures. c. ispartoftheFederalReserveSystem. d. Bothbandcarecorrect. ANSWER:a.protectsdepositorsintheeventofbankfailures. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y TRUE/FALSE

121
. Moneyisusefulbecauseitiswidelyacceptedinexchangeforgoodsandservices. ANSWER:T TYPE:TKEY1:DOBJECTIVE:1RANDOM:Y

122
. Inaneconomythatreliesonbarter,traderequiresadoublecoincidenceofwants. ANSWER:T TYPE:TKEY1:DOBJECTIVE:1RANDOM:Y

123
. Theuseofmoneyallowstradetoberoundabout. ANSWER:T TYPE:TKEY1:DOBJECTIVE:1RANDOM:Y

124
Joewantstotradeeggsforsausage.Lashondawantstotradesausageforeggs.JoeandLashonda haveadoublecoincidenceofwants. ANSWER:T TYPE:TKEY1:DOBJECTIVE:1RANDOM:Y

125
. Economistsusethetermmoneytomeanincome. ANSWER:F TYPE:TKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

126
. Moneyisthesetofassetsintheeconomythatpeopleregularlyusetobuygoodsandservices. ANSWER:T TYPE:TKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

127
Brendaowns$1millionincorporatestocksandbonds.EconomistswouldsaythatBrendahas$1 millionofmoney. ANSWER:F TYPE:TKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

128
. Astoreofvaluetransferspurchasingpowertothefuture. ANSWER:T TYPE:TKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

129
Ifpricesandothervalueswerecommonlyexpressedintermsofouncesofgold,goldwouldbethe unitofaccount. ANSWER:T TYPE:TKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

130
Aunitofaccountisdefinedasanitemthatbuyersgivesellerswhentheywanttopurchasegoods andservices. ANSWER:F TYPE:TKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

131
Rupertbuyssomegingeraleandpaysforitwithcurrency.Inthistransactionheusescurrencyasa storeofvalue. ANSWER:F TYPE:TKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

132
. Marcputspricesoncomputerpartsattheofficestore.Heisusingmoneyasaunitofaccount. ANSWER:T TYPE:TKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

133
Garydepositshalfofhispaycheckintoasavingsaccount.Indoingso,Garyhasusedmoneyasa mediumofexchange. ANSWER:F TYPE:TKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

134
. Thetermwealthisusedtorefertothetotalofallnonmonetaryassets. ANSWER:F TYPE:TKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

135
. Anassetthatiscostlytoconvertintocurrencyisliquid. ANSWER:F TYPE:TKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

136
. Antiquedishesarelessliquidthandemanddeposits. ANSWER:T TYPE:TKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

137
. Currencyisthemostliquidassetandgenerallythebestmediumofexchange. ANSWER:T TYPE:TKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

138
Moneywithoutintrinsicvalueiscalledfiatmoney,andmoneywithintrinsicvalueiscalled commoditymoney. ANSWER:T TYPE:TKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

139
. Whenpeopleuseacommodityasamediumofexchange,ithasnointrinsicvalue. ANSWER:F TYPE:TKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

140
WhentheSovietUnionbeganbreakingupinthelate1980s,cigarettesbeganreplacingtherubleas themediumofexchangeeventhoughtherublewaslegaltender. ANSWER:T TYPE:TKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

141
Inorderforcurrencytobewidelyusedasamediumofexchange,itissufficientforthegovernment todesignateitaslegaltender. ANSWER:F TYPE:TKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

142
. M1isthenameofthemoneystockthatincludesonlycurrency. ANSWER:F TYPE:TKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

143
Creditcardsarenotamediumofexchangeandsoarenotimportantforanalyzingthemonetary system. ANSWER:F TYPE:TKEY1:DDIFFICULTY:3SECTION:1OBJECTIVE:1RANDOM:Y

144
. Theuseofcreditcardshasallowedpeopletoholdlessmoney. ANSWER:T TYPE:TKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

145
. TheFederalReserveisaprivatelyoperatedcommercialbank. ANSWER:F TYPE:TKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

146
. TheFederalReserveistheU.S.CentralBank. ANSWER:T TYPE:TKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

147
. TheFederalOpenMarketCommitteerunstheFederalReserve. ANSWER:F TYPE:TKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

148
. TheFederalReserveprimarilyusesopenmarketoperationstochangethemoneysupply. ANSWER:T TYPE:TKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

149
. IftheFedbuysbondsintheopenmarket,themoneysupplydecreases. ANSWER:F TYPE:TKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

150
. Becausedemanddepositsareheldinbanks,thebehaviorofbanksaffectsthemoneysupply. ANSWER:T TYPE:TKEY1:DSECTION:3OBJECTIVE:3RANDOM:Y

151
. Bankswouldnotchangethemoneysupplyiftheywererequiredtoholdalldepositsinreserve. ANSWER:T TYPE:TKEY1:DSECTION:3OBJECTIVE:3RANDOM:Y

152
. Themoneymultiplierequals1dividedby(1thereserveratio). ANSWER:F TYPE:TKEY1:DSECTION:3OBJECTIVE:3RANDOM:Y

153
. Themoneymultiplieris1dividedbythereserveratio. ANSWER:T TYPE:TKEY1:DSECTION:3OBJECTIVE:3RANDOM:Y

154
IfBridgetdeposits$100ofhercurrencyintoabank,andthereserveratiois20percent,thenthe bankingsystemcouldcreateasmuchas$900inadditionalmoney. ANSWER:F TYPE:TDIFFICULTY:3KEY1:ESECTION:3OBJECTIVE:3RANDOM:Y

155
. Asbankscreatemoney,theycreatewealth. ANSWER:F TYPE:TKEY1:DSECTION:3OBJECTIVE:3RANDOM:Y

156
ThemoneysupplyofFreedonyais$1,000undera100percentreservebankingsystem.If Freedonyadecreasesthereserverequirementto10percent,themoneysupplycouldincreasebyno morethan$9,000. ANSWER:T TYPE:TDIFFICULTY:3KEY1:ESECTION:3OBJECTIVE:3RANDOM:Y

157
ChangesinthereserverequirementareappropriatewhentheFedwantstocreatealargechangein themoneysupply. ANSWER:T TYPE:TKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

158
. IftheFeddecreasesreserverequirements,themoneysupplywillincrease. ANSWER:T TYPE:TKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

159
Anincreaseinreserverequirementsraisesthereserveratio,decreasesthemoneymultiplier,and decreasesthemoneysupply. ANSWER:T TYPE:TKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

160
. ThediscountrateistheinterestrateontheloansthatbanksmaketotheFed. ANSWER:F TYPE:TKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

161
IftheFedlowersthediscountrate,banksborrowmorefromtheFed,whichmakesreservesandthe moneysupplyincrease. ANSWER:T TYPE:TKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

162
Onoccasion,theFedusesdiscountlendingtohelpbanksthatareintrouble,forexample,when theyfaceabankrun.WhentheFeddoesthis,itisactinginitsroleoflenderoflastresort. ANSWER:T TYPE:TKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

163
OneofthereasonsthatthestockmarketcrashofOctober19,1987wassoseriousisthattheFedwas unabletoprovidesufficientliquiditytothefinancialmarkets. ANSWER:F TYPE:TKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

164
. Becauseofthemultipletoolsatitsdisposal,theFedispreciseinitscontrolofthemoneysupply. ANSWER:F TYPE:TKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

165
InthemonthsofNovemberandDecember,peopleintheUnitedStatesholdalargerpartoftheir moneyintheformofcurrencybecausetheyintendtoshopfortheholidays.Asaresult,themoney supplyincreases,ceterisparibus. ANSWER:F TYPE:TDIFFICULTY:3KEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

166
Ifbanksdecidetoholdasmallerpartoftheirdepositsasexcessreserves,themoneysupplywill fall,ceterisparibus. ANSWER:F TYPE:TKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

167
. BylawtheFedcannotholdgovernmentbonds. ANSWER:F TYPE:TKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

168
BankrunsandtheaccompanyingincreaseinthemoneymultipliercausedtheU.S.moneysupplyto riseby28percentfrom1929to1933. ANSWER:F TYPE:TKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

169
BankrunsarenotcommontodaybecauseoftheFDICandothergovernmentguaranteesofthe safetyofbankdeposits. ANSWER:T TYPE:TKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

170
. Despitebankrunsandinflation,moneyhasproventobeaveryusefulsocialconvention. ANSWER:T TYPE:TKEY1:DSECTION:4OBJECTIVE:4RANDOM:Y SHORTANSWER

171
Iftherewerenoitemintheeconomywidelyacceptedinreturnforgoodsandservices,howwould transactionsbemade?Howefficientwouldsuchasystembe? ANSWER:Withoutsomekindofmoneytofacilitatetransactions,societywouldhavetoresorttobarter exchanginggoodsorservicesforothergoodsandservices.Thiswouldbeaveryinefficientsystem, becauseinorderfortradetotakeplace,therewouldneedtobeadoublecoincidenceofwants,the unlikelyoccurrencethattwopeopleeachhaveagoodorservicethattheotherwants.Inaddition, thetwoindividualswouldneedtoagreeonabarterratio,orprice,forthetwogoods. TYPE:SKEY1:COBJECTIVE:1RANDOM:Y

172
. Howdoestheexistenceofmoneymaketradeeasier? ANSWER:Theuseofmoneyavoidsthenecessityofadoublecoincidenceofwants,andallowstradeto beroundabout. TYPE:SKEY1:COBJECTIVE:1RANDOM:Y

173
Economistsarguethatthemovefrombartertomoneyincreasedtradeandproduction.Howisthis possible? ANSWER:Theuseofmoneyallowspeopletotrademoreeasily.Whenitiseasiertotradewhatone produces,peoplespecialize.Thespecializationcreatesgreaterproduction. TYPE:SKEY1:COBJECTIVE:1RANDOM:Y

174
. Whatisthedifferencebetweenmoneyandwealth? ANSWER:Moneyisdefinedasthesetofassetsintheeconomythatpeopleregularlyusetobuygoods andservicesfromotherpeople.Wealthincludesallassets,bothmonetaryandnonmonetary. TYPE:SKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

175
WhichofthethreefunctionsofmoneyaremetbyeachofthefollowingassetsintheU.S.economy? a. paperdollar b. preciousmetals c. commoditymoney d. collectibles ANSWER:a. mediumofexchange,storeofvalue,unitofaccount b. storeofvalue c. mediumofexchange,storeofvalue,unitofaccount d. storeofvalue TYPE:SKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.

176
Therearemanyexampleswherethelegaltenderofacountrywasnotwidelyacceptedasthe mediumofexchange.Howisthispossible? ANSWER:Fiatcurrencyhasvaluebecausepeoplegenerallyacceptitasamediumofexchange. Declaringacurrencylegaltendermakesitmorelikelythatpeoplewilluseitasamediumof exchange.However,ifpeoplelackconfidencethatotherswillacceptthatcurrencyinthefuture, theyareunlikelytoacceptitinexchangeforgoodsnow. TYPE:SKEY1:DDIFFICULTY:3SECTION:1OBJECTIVE:1RANDOM:Y

177
. Arecreditcardsanddebitcardsmoney?Whatsthedifferencebetweencreditanddebitcards? ANSWER:Neithercreditcardsnordebitcardsaremoney,butcreditcardsareverydifferentfromdebit cards.Creditcardsarenotamediumofexchange,butareameansofdeferringpayment.Debit cardsallowtheuserimmediateaccesstodepositsinabankaccountwhicharepartofthemoney supply. TYPE:SKEY1:CSECTION:1OBJECTIVE:1RANDOM:Y

178
. Whydoyousupposethatpeoplefindpapermoneymoreconvenientthancommoditymoney? ANSWER:Papermoneyislikelytobeeasiertocarryaroundandmakechangewith.Itmaylastlonger andhaveamoreeasilyestablishedvalue. TYPE:SKEY1:CSECTION:1OBJECTIVE:1RANDOM:Y

179
. Whatarethefunctionsofmoneyintheeconomy? ANSWER:Moneyservesthreefunctions:Itisamediumofexchange,aunitofaccount,andastoreof value. TYPE:SKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

180
. Whatisthedifferencebetweenthemediumofexchangeandunitofaccountfunctionsofmoney? ANSWER:Amediumofexchangeisanassetthatisgenerallyacceptableaspaymentforgoodsand services.Theunitofaccountisanassetusedtoexpressandrecordvalues.Generally,moneyserves bothastheunitofaccountandtheprimarymediumofexchange. TYPE:SKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

181
Moneyfunctionsasastoreofvalue,butthisdoesntmakemoneyunique.Definestoreofvalueand thenexplainwhyitdoesntmakemoneyunique. ANSWER:Astoreofvalueisawayoftransferringpurchasingpowerfromthepresenttothefuture. Moneydoesthis,butsodootherassetsincludingdurablegoods,stocks,andbonds.Moneyis differentfromtheseotherassetsbecauseitisamediumofexchange. TYPE:SKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

182
. Whatisaunitofaccount?Whyisitusefulforaneconomytohaveaunitofaccount? ANSWER:Aunitofaccountistheyardstickbywhichpeoplepostpricesandrecorddebts.Itisusefulfor aneconomytohaveaunitofaccountsothattheeconomicvalueofallkindsofgoods,services,and assetscanbestatedintermsofacommonmeasurement. TYPE:SKEY1:CSECTION:1OBJECTIVE:1RANDOM:Y

183
. Whatismeantineconomicsbythetermliquidity? ANSWER:Thetermliquidityisusedtodescribetheeasewithwhichanassetisconvertedintothe economy'smediumofexchange. TYPE:SKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

184
. Whatisthedifferencebetweencommoditymoneyandfiatmoney? ANSWER:Commoditymoneyhas"intrinsicvalue,"orvalueinusesotherthanasmoney.Fiatmoneyis establishedasmoneybygovernmentdecree,andhasverylittle,ifany,intrinsicvalue. TYPE:SDIFFICULTY:3KEY1:CSECTION:3OBJECTIVE:3RANDOM:Y

185
. Whydopeopleacceptfiatcurrencyintradeforgoodsandservices? ANSWER:Fiatcurrencyhasnointrinsicvalue.However,peopleacceptfiatcurrencyintradewhen theyareconfidentthatotherswillalsoacceptit.Thegovernmentsdecreethatfiatcurrencyserves aslegaltenderincreasesthisconfidence. TYPE:SDIFFICULTY:3KEY1:CSECTION:3OBJECTIVE:3RANDOM:Y

186
. WhatarethetwomostimportantcomponentsoftheU.S.moneystock? ANSWER:ThetwomostimportantcomponentsoftheU.S.moneystockarecurrencyandcheckable deposits. TYPE:SKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

187
. Domeasuresofthemoneystockincludemorethancurrency?Why? ANSWER:M1alsoincludescheckabledepositsandM2includessavingsaccounts.Theseareincluded becausethebalancesintheseaccountsarefrequentlyusedtomakepayments. TYPE:SKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

188
. WhatdoesthetextmeanbyandhowdoesitanswerthequestionWhereisAlltheCurrency? ANSWER:Theamountofcurrencyperpersonisover$2,000.Mostpeoplecarryfarlessthanthiswith them.Thequestionis,whereistherestofthecurrency?Foreignersandcriminalsholdsome.In someforeigncountriespeoplehavemoreconfidenceintheU.S.dollarthanintheirowncurrency. Criminalsusecurrencybecauseitmakesitharderforthegovernmenttotracetheiractivitiesthanif theyusedbankaccounts.So,theymayholdaboveaverageamountsofcurrency. TYPE:SKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

189
. WhatistheFederalReserve,andwhatareitstwomajorfunctions? ANSWER:TheFederalReserveistheU.S.centralbank.Itstwomajorfunctionsaretooverseethe bankingsystem,andtoregulatethequantityofmoneyintheeconomy. TYPE:SKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

190
Whatismeantbytheterm"lenderoflastresort?"InwhatcircumstancesmighttheFedbealender oflastresort? ANSWER:Alenderoflastresortisalendertothosewhocannotborrowanywhereelse. TheFedmightloanfundstoasolventbankthatisexperiencingabankrunandsodoesnthaveenough cashonhandtomeetdepositorsdemands. TYPE:SKEY1:CSECTION:2OBJECTIVE:2RANDOM:Y

191
. ComparetheBoardofGovernorsandtheFederalOpenMarketCommittee. ANSWER:TheBoardofGovernorsrunstheFederalReserve.Ithassevenmemberswhoareappointed bytheU.S.presidentwiththeadviceandconsentoftheSenate.TheFederalOpenMarket Committeeismadeupofthe7membersoftheBoardofGovernorsand5ofthe12regionalbank presidents,rotatedamongthe12regionalpresidents,butalwaysincludingthepresidentofthe NewYorkFed.TheFOMCmeetsabouteverysixweeksinWashington,D.C.todiscussthe conditionoftheeconomyandtoconsiderchangesinmonetarypolicy. TYPE:SKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

192
. WhatmakestheNewYorkFederalReserveregionalbanksoimportant? ANSWER:ThePresidentoftheNewYorkFederalReserveregionalbankistheonlyregionalbank presidentwhoisalwaysavotingmemberoftheFOMC,thecommitteethatdeterminesmonetary policy.NewYorkisthetraditionalfinancialcenteroftheU.S.economyandtheNewYorkFederal ReserveBankconductsallopenmarkettransactions. TYPE:SKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

193
FoundersoftheFederalReservewereconcernedthattheFedmightformpolicyfavorabletoone partofthecountryortoaparticularparty.WhataresomewaysthattheorganizationoftheFed reflectssuchconcerns? ANSWER:1. ThepresidentappointstheBoardofGovernors,buttheSenatemustapprovethem. 2. ThesevenmembersoftheBoardofGovernorsserve14yearterms,soitisunlikelythata singlepresidentwillhaveappointedmostofthem. 3. TheFederalReservehas12regionalbanks. 4. ThepresidentsoftheregionalbanksserveontheFOMConarotatingbasis. TYPE:SKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y
194
WhichtwooftheTenPrinciplesofEconomicsimplythattheFedcanprofoundlyaffectthe economy? ANSWER:1. Pricesrisewhenthegovernmentprintstoomuchmoney. 2.Thereisashortruntradeoffbetweeninflationandunemployment. TYPE:SKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

195
. HowwouldthejobofabankerbedifferentiftheUnitedStateshad100percentreservebanking? ANSWER:Bankswouldstillofferdepositservices,buttheywouldnotmakeanyloans. TYPE:SKEY1:CSECTION:2OBJECTIVE:2RANDOM:Y

196
Explainwhybankscaninfluencethemoneysupplyiftherequiredreserveratioislessthan100 percent. ANSWER:Whenthereserverequirementislessthan100percent,bankscanlendoutdeposits.The moneytheylendoutisredeposited.Inthisway,depositscanbegreaterthanreserves.Since depositsaregreaterunderfractionalreservebankingandsincedepositsarepartofthemoney supply,themoneysupplywillbegreaterunderfractionalreservebanking. TYPE:SKEY1:CSECTION:3OBJECTIVE:3RANDOM:Y

197
Ifthereserveratiois10percent,howmuchmoneycanbecreatedfrom$100ofreserves?Show yourwork. ANSWER:(1/.10)x$100=$1,000. TYPE:SKEY1:ESECTION:3OBJECTIVE:3RANDOM:Y

198
Whatisthedifferencebetweenthereserveratioandthereserverequirement?Whichisgenerally larger? ANSWER:Thereserveratioisthepercentofdepositsthatbanksholdasreserves.Thereserve requirementistheminimumpercentofdepositsthatbanksmustholdinreservebylawas establishedbytheFederalReserve.Tomaintainsomeliquidity,banksgenerallyholdmorereserves thanrequiredsothatthereserveratioislargerthanthereserverequirement.

199
DrawasimpleTaccountforFirstNationalBankofMe,whichhas$4,000ofdepositsandareserve ratioof10percent. ANSWER: FirstNationalBankofMe Assets Liabilities Reserves $400 Deposits $4,000 Loans$3,600 TYPE:SDIFFICULTY:3KEY1:CSECTION:3OBJECTIVE:3RANDOM:Y
200
Banksintwocountrieshavethesamequantityofreserves,yetcountryAhasalargermoneysupply thancountryB.Howcanthisbe?Explain. ANSWER:CountryAmayhaveasmallerreserverequirementthancountryB.So,thebanksincountry Acanlendmoreandcreatemoredepositswithagivenlevelofreservesthanthebanksincountry B.Acountrywithasmallerreserverequirementhasalargermoneymultiplier. TYPE:SDIFFICULTY:3KEY1:CSECTION:3OBJECTIVE:3RANDOM:Y

201
. Afractionalreservebankingsystemcancreatemoneybutnotwealth.Explain. ANSWER:Whenthebanklendsreservesandcreatestheassetofmoney,italsocreatesanequalliability fortheborrower.Hence,theeconomyismoreliquid,butnotwealthierthanbeforethemoneywas created. TYPE:SDIFFICULTY:3KEY1:CSECTION:3OBJECTIVE:3RANDOM:Y

202
If$5,000ofnewreservesaredepositedinthebankingsystem,whatisthemaximumamountof moneythatcanbegeneratedbythebankingsystemifthereserveratiois
Chapter 27/The Monetary System35 a. 100percent? b. 50percent? c. 40percent? d. 25percent? e. 10percent? f. 1percent? ANSWER:a. $5,000 b. $10,000 c. $12,500 d. $20,000 e. $50,000 f. $500,000 TYPE:SKEY1:ESECTION:3OBJECTIVE:3RANDOM:Y
203
. WhatarethethreewaystheFedcanincreasethemoneysupply? ANSWER:Toincreasethemoneysupply,theFedcanbuygovernmentbonds,decreasethediscountrate, ordecreasethereserverequirementratio. TYPE:SKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

204
TheFederalReservewascreatedinresponsetoaseriesofbankfailures.HowistheFedableto preventorlimitbankfailuresandbankruns? ANSWER:Bankrunsandfailuresaresometimestheresultofbankshavinginsufficientliquidassetsto meetthedemandsoftheirdepositors.TheFed,asalenderoflastresort,standsreadytoextend loanstobankstoprovidethemliquidity. TYPE:SKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

205
Statewhichdirectionandexplainwhyeachofthefollowingchangesthemoneysupply. a. theFedbuysbonds b. theFedraisesthediscountrate c. theFedraisesthereserverequirement ANSWER:a. IftheFedbuysbonds,itpaysforthemwithmoney.So,thereismoremoney. b. IftheFedraisesthediscountratebankswillborrowlessfromtheFed,andsohavefewer reserveswhichdecreasesthemoneysupply. c. IftheFedraisesthereserverequirement,bankswillhavetoholdmoreoftheirdepositsas reservesandsowillhavelesstolendout.Withlesstolendout,depositsandthemoney supplydecrease. TYPE:SKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y

206
Toincreasethemoneysupply,doestheFedbuyorsellgovernmentbonds?Howdoesthereserve ratioaffectthesizeoftheopenmarketoperationnecessarytochangethemoneysupplybyagiven amount? ANSWER:ToincreasethemoneysupplytheFedshouldbuybonds.TheFedpaysforthesebondswith reserves,sothatbankshavemoretolendandthemoneysupplyincreases.Thesmallerthereserve ratio,themorebankscanlendout.So,whenthereserveratioissmall,theFeddoesntneedtobuy asmanybondstochangethemoneysupplyagivenamount. TYPE:SKEY1:CSECTION:3OBJECTIVE:4RANDOM:Y

207
DescribethetwothingsthatlimittheprecisionoftheFedscontrolofthemoneysupplyandexplain howeachlimitsthatcontrol. ANSWER:First,theFeddoesnotcontroltheamountofcurrencythathouseholdschoosetoholdrelative todeposits.Ifhouseholdsdecidetoholdrelativelymorecurrency,bankshavefewerreservesand themoneysupplydecreases.Second,theFedcannotcontroltheamountbankschoosetoholdas excessreserves.Ifbankersdecidetolendoutlessoftheirdeposits,themoneysupplywilldecrease. TYPE:SKEY1:CSECTION:3OBJECTIVE:4RANDOM:Y

208
Duringtheearly1930stherewereanumberofbankfailuresintheUnitedStates.Whatshouldthis havedonetothemoneysupply?TheNewYorkFederalReserveBankadvocatedopenmarket purchases.Wouldthesepurchaseshavereversedthechangeinthemoneysupplyandhelped banks?Explain. ANSWER:Bankfailurescausepeopletoloseconfidenceinthebankingsystemsothatdepositsfalland bankshavelesstolend.Further,underthesecircumstancesbanksareprobablymorecautious aboutlending.Bothofthesereactionswouldtendtodecreasethemoneysupply.Openmarket purchasesincreasebankreservesandsomayoffsetthedecreaseinthemoneysupply.Theincrease inreserveswouldalsohaveprovidedbankswithgreaterliquiditytomeetthedemandsof customerswhowantedtomakewithdrawals. TYPE:SKEY1:CDIFFICULTY:3SECTION:3OBJECTIVE:4RANDOM:Y
1 1 ~ANSWER: d.Alloftheabovearecorrect. TYPE:MKEY1:DOBJECTIVE:1RANDOM:Y
2 2 ~ANSWER: d.BothAandCarecorrect. TYPE:MKEY1:DOBJECTIVE:1RANDOM:Y
3 3 ~ANSWER: d.Alloftheabovearecorrect. TYPE:MKEY1:DOBJECTIVE:1RANDOM:Y
4 4 ~ANSWER: b.isanasset. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
5 5 ~ANSWER: a.unitofaccount.
TYPE:MKEY1:CSECTION:1OBJECTIVE:1RANDOM:Y
6 6 ~ANSWER: d.Alloftheabovearecorrect TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
7 7 ~ANSWER: a.storeofvalue TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
8 8 ~ANSWER: a.youpayforyourtextbookswithcurrency TYPE:MKEY1:CSECTION:1OBJECTIVE:1RANDOM:Y
9 9 ~ANSWER: d.thoseassetsregularlyusedtobuygoodsandservices. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
1 10
~ANSWER: c.theeasewithwhichanassetisconvertedtothemediumofexchange. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
1 11 ~ANSWER: b.currency,stocks,fineart TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
1 12 ~ANSWER: d.fiatmoneywithnointrinsicvalue. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
1 13 ~ANSWER: a.isusedasamediumofexchange. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
1 14 ~ANSWER: c.moneywithintrinsicvalue. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y ANSWER:b.servedasamediumofexchange.
15
TYPE:MKEY1:CSECTION:1OBJECTIVE:1RANDOM:Y 1 16 ~ANSWER: c.hasnointrinsicvalue. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y ANSWER:d.Bothbandcarecorrect. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

17
1 18 ~ANSWER: a.peoplearemorelikelytoacceptthedollarasamediumofexchange. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
1 19 ~ANSWER: d.Bothbandcarecorrect. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
2 20 ~ANSWER: d.Alloftheabovearecorrect. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
21
~ANSWER: d.Noneoftheabovearecorrect. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
2 22 ~ANSWER: c.savingsdeposits TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
2 23 ~ANSWER: c.savingsdeposits. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
2 24 ~ANSWER: b.checkingaccounts. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
2 25 ~ANSWER: 2 b.moneymarketmutualfunds TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
2 26 ~ANSWER: d.amethodofdeferringpayment. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
2 27 ~ANSWER: b.deferpayments. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
2 28 ~ANSWER: a.areusedasamethodofpayment. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
2 29 ~ANSWER: d.$2,000. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
3 30 ~ANSWER:
b.Currencymaybeapreferablestoreofwealthforcriminals. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
3 31 ~ANSWER: d.thereissomuchcurrencyperperson. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y ANSWER:c.theFederalReserve. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

32
3 33 ~ANSWER: a.makeloanstoindividuals. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y
3 34 ~ANSWER: c.areappointedbytheUSpresidentwhilepresidentsoftheFederalReserveregionalbanksareappointedby thebanksboardofdirectors. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y
3 37 ~ANSWER: b.TheFederalReservehas12regionalbanks.TheBoardofGovernorshas7memberswhoserve14year terms. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y
3 38 ~ANSWER: c.ThemembersoftheBoardofGovernorsarealsopresidentsoftheFederalReservesregionalbanks. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y
3 39 ~ANSWER: c.BoardofGovernors. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y
4 40
~ANSWER: b.theChairoftheboardofGovernors TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y
4 41 ~ANSWER: b.regulatebanksintheirdistricts. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y ANSWER:b.convertFederalReserveNotesintogold TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

42
4 43 ~ANSWER: d.5ofthe12presidentsoftheFederalReserveRegionalbanks,andthe7membersoftheBoardofGovernors. TYPE:MDIFFICULTY:3KEY1:DSECTION:2OBJECTIVE:2RANDOM:Y
4 44 ~ANSWER: d.Alloftheabovearevotingmembers. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y
4 45 ~ANSWER: a.conductsopenmarketoperations. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y
4 46 ~ANSWER: b.buysorsellsgovernmentbondsfromthepublic. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y
4 47 ~ANSWER: c.decreasesthemoneysupply. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y
4 48 ~ANSWER: a.increasesthemoneysupply. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y
4 49 ~ANSWER: d.Alloftheabovearetrue. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y
5 50 ~ANSWER:
d.conductingopenmarketpurchasesandloweringthediscountrate. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y
5 51 ~ANSWER: b.intheshortrun,butnotthelongrun. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y
5 52 ~ANSWER: a.shortruntradeoffbetweeninflationandunemployment. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y
5 53 ~ANSWER: a.bankscancreatemoneybylendingoutreserves. TYPE:MKEY1:DSECTION:3OBJECTIVE:3RANDOM:Y
5 54 ~ANSWER: d.reservesareassets,depositsareliabilities. TYPE:MKEY1:DSECTION:3OBJECTIVE:3RANDOM:Y
55
~ANSWER: c.$100. TYPE:MKEY1:ESECTION:3OBJECTIVE:3RANDOM:Y
5 56 ~ANSWER: b.ithas$500inreservesand$4,500inloans. TYPE:MKEY1:ESECTION:3OBJECTIVE:3RANDOM:Y
5 57 ~ANSWER: b.20percent. TYPE:MDIFFICULTLY:3KEY1:ESECTION:3OBJECTIVE:3RANDOM:Y
5 58 ~ANSWER: a.doesnotchangethemoneysupply. TYPE:MKEY1:DSECTION:3OBJECTIVE:3RANDOM:Y
5 59 ~ANSWER: b.increases. 5 TYPE:MKEY1:DSECTION:3OBJECTIVE:3RANDOM:Y
6 60 ~ANSWER: b.generallylendoutamajorityoftheirdeposits. TYPE:MKEY1:DSECTION:3OBJECTIVE:3RANDOM:Y
6 61 ~ANSWER: d.Alloftheabovearetrue. TYPE:MDIFFICULTY:3KEY1:ESECTION:3OBJECTIVE:3RANDOM:Y
6 62 ~ANSWER: a.mustincreaserequiredreservesby$1. TYPE:MDIFFICULTY:3KEY1:ESECTION:3OBJECTIVE:3RANDOM:Y
6 63 ~ANSWER: b.20percent. TYPE:MKEY1:ESECTION:3OBJECTIVE:3INSTRUCTION:1RANDOM:N
6 64 ~ANSWER:
b.assetswillincreaseby$1,000. TYPE:MKEY1:ESECTION:3OBJECTIVE:3INSTRUCTION:1RANDOM:N
6 65 ~ANSWER: d.Alloftheabovearetrue. TYPE:MDIFFICULTY:3KEY1:ESECTION:3OBJECTIVE:3INSTRUCTION:1RANDOM:N ANSWER:b.isinapositiontomakeanewloanof$1,500. TYPE:MDIFFICULTY:3KEY1:ESECTION:3OBJECTIVE:3INSTRUCTION:2RANDOM:N

66
6 67 ~ANSWER: b.canmakenofurtherloans. TYPE:MDIFFICULTY:3KEY1:ESECTION:3OBJECTIVE:3INSTRUCTION:2RANDOM:N
6 68 ~ANSWER: b.thereserverequirementis25percent. TYPE:MKEY1:ESECTION:3OBJECTIVE:3INSTRUCTION:2RANDOM:N
6 69 ~ANSWER: d.thelevelofwealthintheeconomywillnotchange. TYPE:MDIFFICULTY:3KEY1:ESECTION:3OBJECTIVE:3RANDOM:Y
7 70 ~ANSWER: b.increaseby$100whilewealthdoesnotchange. TYPE:KEY1:DSECTION:3OBJECTIVE:3RANDOM:Y
7 71 ~ANSWER: c.decreases. TYPE:MKEY1:ESECTION:3OBJECTIVE:3RANDOM:Y
7 72 ~ANSWER: b.10. TYPE:MKEY1:ESECTION:3OBJECTIVE:3RANDOM:Y
7 73 ~ANSWER: b.4. TYPE:MKEY1:ESECTION:3OBJECTIVE:3RANDOM:Y
7 74 ~ANSWER: d.Alloftheabovearecorrect.
TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y
7 75 ~ANSWER: b.$5,000ofnewmoney. TYPE:MKEY1:ESECTION:3OBJECTIVE:4RANDOM:Y
7 76 ~ANSWER: c.$6,667. TYPE:MKEY1:ESECTION:3OBJECTIVE:4RANDOM:Y
7 77 ~ANSWER: b.25percent. TYPE:MKEY1:ESECTION:3OBJECTIVE:4RANDOM:Y
7 78 ~ANSWER: d.Noneoftheaboveiscorrect. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y
7 79
~ANSWER: d.lowerthediscountrate,lowerthereserverequirementratio TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y
8 80 ~ANSWER: c.lowerthediscountrate,makeopenmarketpurchases TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y
8 81 ~ANSWER: b.makeopenmarketpurchases,lowerthereserverequirementratio. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y
8 82 ~ANSWER: a.raisethediscountrate,raisethereserverequirementratio TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y
8 83 ~ANSWER: b.raisethediscountrate,makeopenmarketsales TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y
8 84 ~ANSWER: c.makeopenmarketsales,raisethereserverequirementratio TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y
8 85 ~ANSWER: c.openmarkettransactions,discountratechanges,reserverequirementchanges. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y
8 86 ~ANSWER: c.makeopenmarketpurchasesandlowerthediscountrate. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y
8 87 ~ANSWER: b.Banksdeterminethereserverequirement. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y
8 88 ~ANSWER: c.theprimerate
TYPE:MKEY1:CSECTION:3OBJECTIVE:4RANDOM:Y
8 89 ~ANSWER: c.decreasethereserverequirement. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y
9 90 ~ANSWER: a.decreasethediscountrate. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y
9 91 ~ANSWER: d.Alloftheabovearecorrect. TYPE:MDIFFICULTY:3KEY1:CSECTION:3OBJECTIVE:4RANDOM:Y
9 92 ~ANSWER: a.increaseandbankscanincreaselending. TYPE:MKEY1:CSECTION:3OBJECTIVE:4RANDOM:Y
9 93
~ANSWER: d.decreaseandthemoneysupplydecreases. TYPE:MKEY1:CSECTION:3OBJECTIVE:4RANDOM:Y
9 94 ~ANSWER: a.increaseandthemoneysupplyincreases. TYPE:MKEY1:CSECTION:3OBJECTIVE:4RANDOM:Y
9 95 ~ANSWER: d.decreaseandbanklendingdecreases. TYPE:MKEY1:CSECTION:3OBJECTIVE:4RANDOM:Y
9 96 ~ANSWER: b.decreasesboththemoneymultiplierandthemoneysupply. TYPE:MKEY1:CSECTION:3OBJECTIVE:4RANDOM:Y
9 97 ~ANSWER: a.increasesboththemoneymultiplierandthemoneysupply. TYPE:MKEY1:CSECTION:3OBJECTIVE:4RANDOM:Y
9 98 ~ANSWER: b.theamountofreservesbanksmustholdagainstdeposits. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y
9 99 ~ANSWER: b.increases,themoneymultiplierdecreases,andthemoneysupplydecreases. TYPE:MDIFFICULTY:3KEY1:CSECTION:3OBJECTIVE:4RANDOM:Y
1 100 ~ANSWER: d.decreases,themoneymultiplierincreases,andthemoneysupplyincreases. TYPE:MDIFFICULTY:3KEY1:CSECTION:3OBJECTIVE:4RANDOM:Y
1 101 ~ANSWER: a.morefromtheFedsoreservesincrease. TYPE:MKEY1:CSECTION:3OBJECTIVE:4RANDOM:Y ANSWER:d.lessfromtheFedsoreservesdecrease. TYPE:MKEY1:CSECTION:3OBJECTIVE:1RANDOM:Y

102
1 103
~ANSWER: d.less,bankswilllendless,andthemoneysupplywilldecrease. TYPE:MKEY1:CSECTION:3OBJECTIVE:4RANDOM:Y
1 104 ~ANSWER: a.theinterestratetheFedchargesbanks. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y
1 105 ~ANSWER: d.thediscountrate. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y
1 106 ~ANSWER: d.preventedafinancialpanicbyprovidingliquiditytothefinancialsystem. TYPE:MKEY1:CSECTION:3OBJECTIVE:4RANDOM:Y
1 107 ~ANSWER: a.increaseby$10millionandthemoneysupplyeventuallyincreasesby$100million. TYPE:MDIFFICULTY:3KEY1:ESECTION:3OBJECTIVE:4RANDOM:Y
1 108 ~ANSWER: d.decreaseby$40millionandthemoneysupplyeventuallydecreasesby$160million. TYPE:MDIFFICULTY:3KEY1:ESECTION:3OBJECTIVE:4RANDOM:Y
1 109 ~ANSWER: c.decreaseandthemoneysupplyeventuallydecreases. TYPE:MKEY1:CSECTION:3OBJECTIVE:4RANDOM:Y
1 110 ~ANSWER: a.themoneysupplyrises. TYPE:MKEY1:CDIFFICULTLY:3SECTION:3OBJECTIVE:4RANDOM:Y
1 111 ~ANSWER: b.decreasesthemoneymultiplieranddecreasesthemoneysupply. TYPE:MKEY1:CSECTION:3OBJECTIVE:4RANDOM:Y
1 112 ~ANSWER: c.theamountofmoneyintheeconomydependsinpartonthebehaviorofbanks.
TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y
1 113 ~ANSWER: b.andthemoneysupplydecrease. TYPE:MDIFFICULTY:3KEY1:CSECTION:3OBJECTIVE:4RANDOM:Y
1 114 ~ANSWER: b.ispartofthemoneysupply,butcurrencyheldbybanksisnot. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y
1 115 ~ANSWER: d.themoneysupplyfellandunemploymentrose. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y
1 116 ~ANSWER: c.areaproblembecausebanksonlyholdafractionofdepositsasreserves. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y
1 117
~ANSWER: b.lendingreservestothebank. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y
1 118 ~ANSWER: a.bankrunsclosedmanybanks. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y
1 119 ~ANSWER: c.uncommonbecauseofFDICdepositinsurance. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y
1 120 ~ANSWER: a.protectsdepositorsintheeventofbankfailures. TYPE:MKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y
1 121 ~ANSWER: T TYPE:TKEY1:DOBJECTIVE:1RANDOM:Y
1 125 ~ANSWER: F TYPE:TKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
1 126 ~ANSWER: T
TYPE:TKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
1 128 ~ANSWER: T TYPE:TKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
1 131
~ANSWER: F TYPE:TKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
1 140 ~ANSWER: T
1 143 ~ANSWER: F TYPE:TKEY1:DDIFFICULTY:3SECTION:1OBJECTIVE:1RANDOM:Y
1 145
~ANSWER: F TYPE:TKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y
1 154 ~ANSWER: F
TYPE:TDIFFICULTY:3KEY1:ESECTION:3OBJECTIVE:3RANDOM:Y
1 156 ~ANSWER: T TYPE:TDIFFICULTY:3KEY1:ESECTION:3OBJECTIVE:3RANDOM:Y
1 159
~ANSWER: T TYPE:TKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y
1 165 ~ANSWER: F TYPE:TDIFFICULTY:3KEY1:DSECTION:3OBJECTIVE:4RANDOM:Y
1 168 ~ANSWER: F
1 171 ~ANSWER: Withoutsomekindofmoneytofacilitatetransactions,societywouldhavetoresorttobarterexchanginggoods orservicesforothergoodsandservices.Thiswouldbeaveryinefficientsystem,becauseinorderfortradeto takeplace,therewouldneedtobeadoublecoincidenceofwants,theunlikelyoccurrencethattwopeopleeach haveagoodorservicethattheotherwants.Inaddition,thetwoindividualswouldneedtoagreeonabarter ratio,orprice,forthetwogoods. TYPE:SKEY1:COBJECTIVE:1RANDOM:Y
1 172 ~ANSWER: Theuseofmoneyavoidsthenecessityofadoublecoincidenceofwants,andallowstradetoberoundabout. TYPE:SKEY1:COBJECTIVE:1RANDOM:Y
1 173 ~ANSWER: Theuseofmoneyallowspeopletotrademoreeasily.Whenitiseasiertotradewhatoneproduces,people specialize.Thespecializationcreatesgreaterproduction. TYPE:SKEY1:COBJECTIVE:1RANDOM:Y
1 174 ~ANSWER: Moneyisdefinedasthesetofassetsintheeconomythatpeopleregularlyusetobuygoodsandservicesfrom otherpeople.Wealthincludesallassets,bothmonetaryandnonmonetary. TYPE:SKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
1 175 ~ANSWER: a. mediumofexchange,storeofvalue,unitofaccount b. storeofvalue
1 176 ~ANSWER: Fiatcurrencyhasvaluebecausepeoplegenerallyacceptitasamediumofexchange.Declaringacurrencylegal tendermakesitmorelikelythatpeoplewilluseitasamediumofexchange.However,ifpeoplelackconfidence thatotherswillacceptthatcurrencyinthefuture,theyareunlikelytoacceptitinexchangeforgoodsnow. TYPE:SKEY1:DDIFFICULTY:3SECTION:1OBJECTIVE:1RANDOM:Y
177
~ANSWER: Neithercreditcardsnordebitcardsaremoney,butcreditcardsareverydifferentfromdebitcards.Creditcards arenotamediumofexchange,butareameansofdeferringpayment.Debitcardsallowtheuserimmediate accesstodepositsinabankaccountwhicharepartofthemoneysupply. TYPE:SKEY1:CSECTION:1OBJECTIVE:1RANDOM:Y
1 178 ~ANSWER: Papermoneyislikelytobeeasiertocarryaroundandmakechangewith.Itmaylastlongerandhaveamore easilyestablishedvalue. TYPE:SKEY1:CSECTION:1OBJECTIVE:1RANDOM:Y
1 179 ~ANSWER: Moneyservesthreefunctions:Itisamediumofexchange,aunitofaccount,andastoreofvalue. TYPE:SKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
1 180 ~ANSWER: Amediumofexchangeisanassetthatisgenerallyacceptableaspaymentforgoodsandservices.Theunitof accountisanassetusedtoexpressandrecordvalues.Generally,moneyservesbothastheunitofaccountand theprimarymediumofexchange. TYPE:SKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
1 181 1
~ANSWER: Astoreofvalueisawayoftransferringpurchasingpowerfromthepresenttothefuture.Moneydoesthis,but sodootherassetsincludingdurablegoods,stocks,andbonds.Moneyisdifferentfromtheseotherassets becauseitisamediumofexchange. TYPE:SKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
1 182 ~ANSWER: Aunitofaccountistheyardstickbywhichpeoplepostpricesandrecorddebts.Itisusefulforaneconomyto haveaunitofaccountsothattheeconomicvalueofallkindsofgoods,services,andassetscanbestatedinterms ofacommonmeasurement. TYPE:SKEY1:CSECTION:1OBJECTIVE:1RANDOM:Y
1 183 ~ANSWER: Thetermliquidityisusedtodescribetheeasewithwhichanassetisconvertedintotheeconomy'smediumof exchange. TYPE:SKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
1 184 ~ANSWER: Commoditymoneyhas"intrinsicvalue,"orvalueinusesotherthanasmoney.Fiatmoneyisestablishedas moneybygovernmentdecree,andhasverylittle,ifany,intrinsicvalue. TYPE:SDIFFICULTY:3KEY1:CSECTION:3OBJECTIVE:3RANDOM:Y
1 185
~ANSWER: Fiatcurrencyhasnointrinsicvalue.However,peopleacceptfiatcurrencyintradewhentheyareconfident thatotherswillalsoacceptit.Thegovernmentsdecreethatfiatcurrencyservesaslegaltenderincreasesthis confidence. TYPE:SDIFFICULTY:3KEY1:CSECTION:3OBJECTIVE:3RANDOM:Y
1 186 ~ANSWER: ThetwomostimportantcomponentsoftheUSmoneystockarecurrencyandcheckabledeposits. TYPE:SKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
1 187 ~ANSWER: M1alsoincludescheckabledepositsandM2includessavingsaccounts.Theseareincludedbecausethebalances intheseaccountsarefrequentlyusedtomakepayments. TYPE:SKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
1 188 ~ANSWER: Theamountofcurrencyperpersonisover$2,000.Mostpeoplecarryfarlessthanthiswiththem.Thequestion is,whereistherestofthecurrency?Foreignersandcriminalsholdsome.Insomeforeigncountriespeople havemoreconfidenceintheUSdollarthanintheirowncurrency.Criminalsusecurrencybecauseitmakesit harderforthegovernmenttotracetheiractivitiesthaniftheyusedbankaccounts.So,theymayholdabove averageamountsofcurrency. TYPE:SKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y
1 189
~ANSWER: TheFederalReserveistheUScentralbank.Itstwomajorfunctionsaretooverseethebankingsystem,andto regulatethequantityofmoneyintheeconomy. TYPE:SKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y
1 190 ~ANSWER: Alenderoflastresortisalendertothosewhocannotborrowanywhereelse. TheFedmightloanfundstoasolventbankthatisexperiencingabankrunandsodoesnthaveenoughcashon handtomeetdepositorsdemands.
1 191 ~ANSWER: TheBoardofGovernorsrunstheFederalReserve.IthassevenmemberswhoareappointedbytheUSPresident withtheadviceandconsentoftheSenate.TheFederalOpenMarketCommitteeismadeupofthe7membersof theBoardofGovernorsand5ofthe12regionalbankpresidents,rotatedamongthe12regionalpresidents,but alwaysincludingthepresidentoftheNewYorkFed.TheFOMCmeetsabouteverysixweeksinWashington, D.C.todiscusstheconditionoftheeconomyandtoconsiderchangesinmonetarypolicy. TYPE:SKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y
1 192 ~ANSWER: ThePresidentoftheNewYorkFederalReserveregionalbankistheonlyregionalbankpresidentwhoisalways avotingmemberoftheFOMC,thecommitteethatdeterminesmonetarypolicy.NewYorkisthetraditional financialcenteroftheUSeconomyandtheNewYorkFederalReserveBankconductsallopenmarket transactions. TYPE:SKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y ANSWER:1. ThePresidentappointstheBoardofGovernors,buttheSenatemustapprovethem.
193
2.
ThesevenmembersoftheBoardofGovernorsserve14yearterms,soitisunlikelythatasinglePresident willhaveappointedmostofthem. 3. TheFederalReservehas12regionalbanks. 4. ThepresidentsoftheregionalbanksserveontheFOMConarotatingbasis. TYPE:SKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y
1 194 ~ANSWER:1. Pricesrisewhenthegovernmentprintstoomuchmoney. 2,Thereisashortruntradeoffbetweeninflationandunemployment. TYPE:SKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y
1 195 ~ANSWER: Bankswouldstillofferdepositservices,buttheywouldnotmakeanyloans. TYPE:SKEY1:CSECTION:2OBJECTIVE:2RANDOM:Y
1 196 ~ANSWER: Whenthereserverequirementislessthan100percent,bankscanlendoutdeposits.Themoneytheylendoutis redeposited.Inthisway,depositscanbegreaterthanreserves.Sincedepositsaregreaterunderfractional reservebankingandsincedepositsarepartofthemoneysupply,themoneysupplywillbegreaterunder fractionalreservebanking. TYPE:SKEY1:CSECTION:3OBJECTIVE:3RANDOM:Y
1 197 ~ANSWER: (1/.10)x$100=$1,000. TYPE:SKEY1:ESECTION:3OBJECTIVE:3RANDOM:Y
1 198 ~ANSWER: Thereserveratioisthepercentofdepositsthatbanksholdasreserves.Thereserverequirementistheminimum percentofdepositsthatbanksmustholdinreservebylawasestablishedbytheFederalReserve.Tomaintain someliquidity,banksgenerallyholdmorereservesthanrequiredsothatthereserveratioislargerthanthe reserverequirement. 199. DrawasimpleTaccountforFirstNationalBankofMe,whichhas$4,000ofdepositsandareserveratio of10percent. ANSWER:
199
FirstNationalBankofMe Assets Liabilities Reserves $400 Deposits $4,000 Loans$3,600 TYPE:SDIFFICULTY:3KEY1:CSECTION:3OBJECTIVE:3RANDOM:Y 2 200 ~ANSWER: CountryAmayhaveasmallerreserverequirementthancountryB.So,thebanksincountryAcanlendmore andcreatemoredepositswithagivenlevelofreservesthanthebanksincountryB.Acountrywithasmaller reserverequirementhasalargermoneymultiplier. TYPE:SDIFFICULTY:3KEY1:CSECTION:3OBJECTIVE:3RANDOM:Y
2 201 ~ANSWER: Whenthebanklendsreservesandcreatestheassetofmoney,italsocreatesanequalliabilityfortheborrower. Hence,theeconomyismoreliquid,butnotwealthierthanbeforethemoneywascreated. TYPE:SDIFFICULTY:3KEY1:CSECTION:3OBJECTIVE:3RANDOM:Y ANSWER:a. $5,000 $10,000
202
b.
c. $12,500 d. $20,000 e. $50,000 f. $500,000 TYPE:SKEY1:ESECTION:3OBJECTIVE:3RANDOM:Y
2 203 ~ANSWER: Toincreasethemoneysupply,theFedcanbuygovernmentbonds,decreasethediscountrate,ordecreasethe reserverequirementratio. TYPE:SKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y
2 204 ~ANSWER: Bankrunsandfailuresaresometimestheresultofbankshavinginsufficientliquidassetstomeetthedemands oftheirdepositors.TheFed,asalenderoflastresort,standsreadytoextendloanstobankstoprovidethem liquidity. TYPE:SKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y ANSWER:a. IftheFedbuysbonds,itpaysforthemwithmoney.So,thereismoremoney. b. IftheFedraisesthediscountratebankswillborrowlessfromtheFed,andsohavefewerreserves whichdecreasesthemoneysupply. c. IftheFedraisesthereserverequirement,bankswillhavetoholdmoreoftheirdepositsasreserves andsowillhavelesstolendout.Withlesstolendout,depositsandthemoneysupplydecrease. TYPE:SKEY1:DSECTION:3OBJECTIVE:4RANDOM:Y
205
2 206 ~ANSWER: ToincreasethemoneysupplytheFedshouldbuybonds.TheFedpaysforthesebondswithreserves,sothat bankshavemoretolendandthemoneysupplyincreases.Thesmallerthereserveratio,themorebankscan lendout.So,whenthereserveratioissmall,theFeddoesntneedtobuyasmanybondstochangethemoney supplyagivenamount. TYPE:SKEY1:CSECTION:3OBJECTIVE:4RANDOM:Y
2 207 ~ANSWER: First,theFeddoesnotcontroltheamountofcurrencythathouseholdschoosetoholdrelativetodeposits.If householdsdecidetoholdrelativelymorecurrency,bankshavefewerreservesandthemoneysupply decreases.Second,theFedcannotcontroltheamountbankschoosetoholdasexcessreserves.Ifbankersdecide tolendoutlessoftheirdeposits,themoneysupplywilldecrease. TYPE:SKEY1:CSECTION:3OBJECTIVE:4RANDOM:Y
2 208 ~ANSWER: Bankfailurescausepeopletoloseconfidenceinthebankingsystemsothatdepositsfallandbankshavelessto lend.Further,underthesecircumstancesbanksareprobablymorecautiousaboutlending.Bothofthese reactionswouldtendtodecreasethemoneysupply.Openmarketpurchasesincreasebankreservesandsomay offsetthedecreaseinthemoneysupply.Theincreaseinreserveswouldalsohaveprovidedbankswithgreater liquiditytomeetthedemandsofcustomerswhowantedtomakewithdrawals. TYPE:SKEY1:CDIFFICULTY:3SECTION:3OBJECTIVE:4RANDOM:Y

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Chapter27 TheMonetarySystem

Money a. ismoreefficientthanbarter. b. makestradeseasier. c. allowsgreaterspecialization. d. Alloftheabovearecorrect. ANSWER:d.Alloftheabovearecorrect. TYPE:MKEY1:DOBJECTIVE:1RANDOM:Y

Papermoney a. hasnointrinsicvalue. b. isusedinabartereconomy. c. isvaluablebecauseitisgenerallyacceptedintrade. d. BothAandCarecorrect. ANSWER:d.BothAandCarecorrect. TYPE:MKEY1:DOBJECTIVE:1RANDOM:Y

Barter a. requiresadoublecoincidenceofwants. b. islessefficientthanmoney. c. isthetradingofgoodsforgoods. d. Alloftheabovearecorrect. ANSWER:d.Alloftheabovearecorrect. TYPE:MKEY1:DOBJECTIVE:1RANDOM:Y

Foranindividual,money a. isaliability. b. isanasset. c. isnotaformofwealth. d. Noneoftheaboveiscorrect. ANSWER:b.isanasset. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

2Chapter 27/The Monetary System

Whenbookkeepersusedollarstorecordincomeandexpenses,theyareusingmoneyasa a. unitofaccount. b. meansofpayment. c. storeofvalue. d. mediumofexchange. ANSWER:a.unitofaccount. TYPE:MKEY1:CSECTION:1OBJECTIVE:1RANDOM:Y

Whichofthefollowingisastoreofvalue? a. currency b. U.S.governmentbonds c. fineart d. Alloftheabovearecorrect. ANSWER:d.Alloftheabovearecorrect TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

Whenyouputmoneyinacookiejar,whichfunctionofmoneyareyouusing? a. storeofvalue b. mediumofexchange c. unitofaccount d. Noneoftheaboveiscorrect. ANSWER:a.storeofvalue TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

Whichofthefollowingbestillustratesthemediumofexchangefunctionofmoney? a. youpayforyourtextbookswithcurrency b. youmarkpricesofCDsatyourmusicstoreindollars c. youkeepajarofpennies d. Noneoftheaboveiscorrect. ANSWER:a.youpayforyourtextbookswithcurrency TYPE:MKEY1:CSECTION:1OBJECTIVE:1RANDOM:Y

Economistsusethewordmoneytoreferto a. incomegeneratedbytheproductionofgoodsandservices. b. thevalueofallassets. c. thevalueofstocksandbonds. d. thoseassetsregularlyusedtobuygoodsandservices. ANSWER:d.thoseassetsregularlyusedtobuygoodsandservices. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

Chapter 27/The Monetary System3

Whichlistranksassetsfrommosttoleastliquid? a. currency,fineart,stocks b. currency,stocks,fineart c. fineart,currency,stocks d. fineart,stocks,currency ANSWER:b.currency,stocks,fineart TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

CurrentU.S.currencyis a. commoditymoneywithintrinsicvalue. b. commoditymoneywithnointrinsicvalue. c. fiatmoneywithintrinsicvalue. d. fiatmoneywithnointrinsicvalue. ANSWER:d.fiatmoneywithnointrinsicvalue. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

Fiatcurrency a. isusedasamediumofexchange. b. isequivalenttowealth. c. isbackedbygold. d. Bothbandcarecorrect. ANSWER:a.isusedasamediumofexchange. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

Commoditymoneyis a. backedbygold. b. morecommonlyusedthanfiatmoney. c. moneywithintrinsicvalue. d. Alloftheabovearecorrect. ANSWER:c.moneywithintrinsicvalue. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

4Chapter 27/The Monetary System

Fiatmoney a. performsallthefunctionsofmoneyexceptprovidingamediumofexchange. b. isworthless. c. hasnointrinsicvalue. d. maynotbeusedaslegaltender. ANSWER:c.hasnointrinsicvalue. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

U.S.dollars a. arecommoditymoney. b. arefiatmoney. c. havenointrinsicvalue. d. Bothbandcarecorrect. ANSWER:d.Bothbandcarecorrect. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

Money a. refersonlytocurrency. b. hasapowerfulinfluenceoneconomicvariables. c. iscontrolledbytheFederalReserve. d. Bothbandcarecorrect. ANSWER:d.Bothbandcarecorrect. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

Chapter 27/The Monetary System5

M1includes a. currency. b. demanddeposits. c. travelerschecks. d. Alloftheabovearecorrect. ANSWER:d.Alloftheabovearecorrect. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

M2 a. issmallerthanM1. b. ismoreliquidthanM1. c. excludessomeassetsincludedinM1. d. Noneoftheabovearecorrect. ANSWER:d.Noneoftheabovearecorrect. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

WhichofthefollowingisnotincludedinM1? a. currency b. demanddeposits c. savingsdeposits d. NoneoftheaboveisincludedinM1. ANSWER:c.savingsdeposits TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

WhichofthefollowingisincludedinM2butnotinM1? a. currency b. demanddeposits c. savingsdeposits d. AlloftheaboveareincludedinM2butnotinM1. ANSWER:c.savingsdeposits. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

Checkingaccountsinclude a. currency. b. demanddeposits. c. savingsaccounts. d. Noneoftheaboveisacheckingaccount. ANSWER:b.checkingaccounts. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

6Chapter 27/The Monetary System

WhichofthefollowingisincludedintheM2definitionofthemoneysupply? a. creditcards b. moneymarketmutualfunds c. corporatebonds d. largetimedeposits ANSWER:b.moneymarketmutualfunds TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

Creditcardsare a. usedasamethodofpayment. b. partoftheM1moneysupply. c. equivalenttodebitcards. d. amethodofdeferringpayment. ANSWER:d.amethodofdeferringpayment. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

Creditcards a. arepartofthemoneysupply. b. deferpayments. c. areastoreofvalue. d. haveleadtowideruseofcurrency. ANSWER:b.deferpayments. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

Debitcards a. areusedasamethodofpayment. b. allowtheusertopostponepayment. c. areequivalenttocreditcards. d. Noneoftheaboveiscorrect. ANSWER:a.areusedasamethodofpayment. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

TheamountofcurrencyperpersonintheUnitedStatesisabout a. $200. b. $500. c. $1,300. d. $2,000. ANSWER:d.$2,000. TYPE:MKEY1:DSECTION:1OBJECTIVE:1RANDOM:Y

Chapter 27/The Monetary System7

TheFederalReservedoesallexceptwhichofthefollowing? a. makeloanstoindividuals b. controlthesupplyofmoney c. controlthevalueofmoney d. regulatethebankingsystem ANSWER:a.makeloanstoindividuals. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

8Chapter 27/The Monetary System

TheNewYorkFederalReserveBank a. PresidentalwaysgetstovoteattheFOMCmeetings. b. conductsopenmarkettransactions. c. islocatedinthetraditionalfinancialcenteroftheUnitedStates. d. Alloftheabovearecorrect. ANSWER:d.Alloftheabovearecorrect. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

TheBoardofGovernors a. iscurrentlychairedbyAlanGreenspan. b. areappointedbythepresidentandconfirmedbytheSenate. c. hassevenmembers. d. Alloftheabovearecorrect. ANSWER:d.Alloftheabovearecorrect. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

TheFedisrunbythe a. PresidentoftheUnitedStates. b. FederalOpenMarketCommittee. c. BoardofGovernors. d. HouseBankingCommittee. ANSWER:c.BoardofGovernors. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

Chapter 27/The Monetary System9

Whichofthefollowinghasafouryearterm? a. themembersoftheBoardofGovernors b. theChairoftheBoardofGovernors c. themembersoftheFOMC d. Bothaandbarecorrect. ANSWER:b.theChairoftheboardofGovernors TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

WhichofthefollowingisnotalwaysavotingmemberoftheFOMC? a. thePresidentoftheNewYorkFed b. theChairmanoftheBoardofGovernors c. thenewestmemberoftheBoardofGovernors d. Alloftheabovearevotingmembers. ANSWER:d.Alloftheabovearevotingmembers. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

10Chapter 27/The Monetary System

WhentheFedwantstochangethemoneysupply,itmostfrequently a. conductsopenmarketoperations. b. changesthediscountrate. c. changesthereserverequirement. d. issuesFederalReservenotes. ANSWER:a.conductsopenmarketoperations. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

WhentheFederalReserveconductsopenmarkettransactions,it a. issuesFederalReservenotes. b. buysorsellsgovernmentbondsfromthepublic. c. lowersthediscountrate. d. Bothbandcareopenmarketoperations. ANSWER:b.buysorsellsgovernmentbondsfromthepublic. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

Anopenmarketsale a. increasesthemoneysupply. b. doesn'tchangethemoneysupply. c. decreasesthemoneysupply. d. hasanindeterminateeffectonthemoneysupply. ANSWER:c.decreasesthemoneysupply. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

Anopenmarketpurchase a. increasesthemoneysupply. b. doesn'tchangethemoneysupply. c. decreasesthemoneysupply. d. hasanindeterminateeffectonthemoneysupply. ANSWER:a.increasesthemoneysupply. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

TheFedconductsopenmarketoperations a. tochangethemoneysupply. b. bybuyingandsellinggovernmentbonds. c. toaffecttheeconomy. d. Alloftheabovearetrue. ANSWER:d.Alloftheabovearetrue. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

Chapter 27/The Monetary System11

TheFedcaninfluenceunemployment a. intheshortandlongrun. b. intheshortrun,butnotthelongrun. c. inthelongrun,butnottheshortrun. d. inneithertheshortnorlongrun. ANSWER:b.intheshortrun,butnotthelongrun. TYPE:MKEY1:DSECTION:2OBJECTIVE:2RANDOM:Y

OnabanksTaccount, a. bothdepositsandreservesareassets. b. bothdepositsandreservesareliabilities. c. depositsareassets,reservesareliabilities. d. reservesareassets,depositsareliabilities. ANSWER:d.reservesareassets,depositsareliabilities. TYPE:MKEY1:DSECTION:3OBJECTIVE:3RANDOM:Y

12Chapter 27/The Monetary System

Supposethatthereserveratiois10percentandthatabankhas$1,000indeposits.Itsreservesare a. $10. b. $90. c. $100. d. $1,000. ANSWER:c.$100. TYPE:MKEY1:ESECTION:3OBJECTIVE:3RANDOM:Y

Supposeabankhas$10,000indepositsand$8,000inloans.Ithasareserveratioof a. 8percent. b. 20percent. c. 25percent. d. 80percent. ANSWER:b.20percent. TYPE:MDIFFICULTLY:3KEY1:ESECTION:3OBJECTIVE:3RANDOM:Y

Ifyoudeposit$100intoademanddepositatabank,thisactionbyitself a. doesnotchangethemoneysupply. b. increasesthemoneysupply. c. decreasesthemoneysupply. d. hasanindeterminateeffectonthemoneysupply. ANSWER:a.doesnotchangethemoneysupply. TYPE:MKEY1:DSECTION:3OBJECTIVE:3RANDOM:Y

Whenabankloansout$100,themoneysupply a. doesnotchange. b. increases. c. decreases. d. maydoanyoftheabove. ANSWER:b.increases. TYPE:MKEY1:DSECTION:3OBJECTIVE:3RANDOM:Y

Chapter 27/The Monetary System13

Underafractionalreservebankingsystem,banks a. holdmorereservesthandeposits. b. generallylendoutamajorityofthefundsdeposited. c. causethemoneysupplytofallbylendingoutreserves. d. Alloftheabovearecorrect. ANSWER:b.generallylendoutamajorityoftheirdeposits. TYPE:MKEY1:DSECTION:3OBJECTIVE:3RANDOM:Y

Thereserveratiois a. zeropercent. b. 20percent. c. 80percent. d. 100percent. ANSWER:b.20percent. TYPE:MKEY1:ESECTION:3OBJECTIVE:3INSTRUCTION:1RANDOM:N

If$1,000isdepositedintotheFirstBankofErehwon, a. liabilitieswilldecreaseby$1,000. b. assetswillincreaseby$1,000. c. totalreserveswillinitiallyincreaseby$200. d. requiredreserveswillincreaseby$800. ANSWER:b.assetswillincreaseby$1,000. TYPE:MKEY1:ESECTION:3OBJECTIVE:3INSTRUCTION:1RANDOM:N

14Chapter 27/The Monetary System

Ifthereserverequirementis10percent,thisbank a. isholdingexcessreservesof$1,000. b. isinapositiontomakeanewloanof$1,500. c. hastotalreservesof$10,000. d. haslessreservesthanrequired. ANSWER:b.isinapositiontomakeanewloanof$1,500. TYPE:MDIFFICULTY:3KEY1:ESECTION:3OBJECTIVE:3INSTRUCTION:2RANDOM:N

Ifthereserverequirementis25percent,thisbank a. hasfewerreservesthanrequired. b. canmakenofurtherloans. c. canmakefurtherloans. d. Bothaandbarecorrect. ANSWER:b.canmakenofurtherloans. TYPE:MDIFFICULTY:3KEY1:ESECTION:3OBJECTIVE:3INSTRUCTION:2RANDOM:N