ECON-302 Chapter 4 Learning Exercise

In a fractional reserve banking system, if a customer deposits $100 into his checking account in Bank A, Bank A's reserves will ultimately ___________________ because __________.

increase by less than $100, because Bank A may choose to lend out excess reserves

One function of money is to transfer purchasing power from the present into the future. This function of money is called:

store of value.

Consider the table that accompaies this question, and assume the money supply is governed by the money-multiplier mechanism. How has the money supply changed between 2000 and 2005?

It has decreased by 250.

Which of the following is not a function of money?

It is a means of production.

Suppose Bob moves money from his checking account into his savings account. This will cause:

M1 to decrease and M2 to stay the same.

Which of the following is an example of an open-market operation?

The Fed sells Treasury bills to the public.

Of all of the following that could be used as money, which would be most likely to be characterized as fiat money?

discarded chewing-gum wrappers

If the Fed increases the discount rate it charges when it lends to banks, then the monetary base will:

fall and the money supply will fall.

One function of money is to be the item we use to buy and sell things. This function of money is called:

medium of exchange.

Rank the following assets according to total dollar amount, from smallest to largest: M2, M1, Paper bills, Currency.

paper bills, currency, M1, M2