Money HW Econ 252

Which of the following best explains the difference between commodity money and fiat​ money? 1. Fiat money has no value except as​ money, whereas commodity money has value independent of its use as money. 2. Commodity money has no value except as​ money, whereas fiat money has value independent of its use as money. 3. Commodity money is usually authorized by the central​ bank, whereas fiat money has to be exchanged for gold by the central bank. 4. All money is commodity​ money, as it has to be exchanged for gold by the central bank.

1. Fiat money has no value except as money, whereas commodity money has value independent of its use as money

Jill makes a deposit into her savings account at the local bank with​ $100 in cash. As a result of this​ transaction, 1. M1 will decrease by​ $100. 2. Both B and C are correct. 3. M2 will increase by​ $100. 4. both M1 and M2 will increase by​ $100.

1. M1 will decrease by​ $100.

Georgina​ Paul, a student of​ economics, was studying the last​ decade's money supply data for her country X. Georgina noticed that M2 has consistently been higher than M1 and the ratio of M1 to M2 was more or less stable at around 0.3 for most of the years.​ However, although the central bank of X did not conduct any expansionary monetary policy in recent​ times, the ratio​ M1:M2 increased considerably to 0.7 in the last two years. Which of the​ following, had it happened in the last two​ years, would explain this​ outcome? 1. The central bank introduced interest rates on checking accounts which induced people to move funds from savings to checking accounts. 2. Foreign investment in domestic money market mutual funds increased significantly. 3. The widespread use of credit cards reduced the usage of​ traveler's checks. 4. A neighboring​ country, that was earlier using​ X's currency, introduced its own currency. 5. With people becoming more​ risk-averse, investment in time deposits increased significantly.

1. The central bank introduced interest rates on checking accounts which induced people to move funds from savings to checking accounts.

The Federal Reserve uses two definition to the money supply, M1 and M2, because 1. M2 satisfies the medium of exchange function of​ money, whereas M1 satisfies the store of value function. 2. M1 is a narrow definition focusing more on​ liquidity, whereas M2 is a broader definition of the money supply. 3. M2 is a narrow definition focusing more on​ liquidity, whereas M1 is a broader definition of the money supply. 4. M2 is also known as cash and cash​ equivalent, whereas M1 represents the standard of deferred payment function.

2. M1 is a narrow definition focusing more on​ liquidity, whereas M2 is a broader definition of the money supply.

What are the largest asset and the largest liability of a typical​ bank? A. Reserves are the largest asset and deposits are the largest liability of a typical bank. B. Cash in its vault is the largest asset and bonds are the largest liability of a typical bank. C. Loans are the largest asset and deposits are the largest liability of a typical bank. D. Loans are the largest liability and deposits are the largest asset of a typical bank.

3. Loans are the largest asset and deposits are the largest liability of a typical bank.

Suppose you decide to withdraw​ $100 in currency from your checking account. What is the effect on M1? Ignore any actions the bank may take as a result of your having withdrawn the​ $100. 1. None of the above occur. 2. M1 decreases by​ $100 as a result of lower checking deposits. 3. M1 remains unchanged. 4. M1 increases by​ $100 as a result of additional currency in circulation

3. M1 remains unchanged

Compared to the narrow definition of the money​ supply, M1, the broader definition of the money​ supply, M2, also contains 1. savings account deposits and certificates of​ deposit, but not​ traveler's checks. 2. savings account deposits and certificates of​ deposit, but not balances individual investors hold in money market mutual funds. 3. savings account​ deposits, small-denomination time​ deposits, and balances individual investors hold in money market mutual funds. 4. savings account deposits and certificates of​ deposit, but not checking account deposits in banks.

3. savings account​ deposits, small-denomination time​ deposits, and balances individual investors hold in money market mutual funds.

According to Peter​ Heather, a historian at​ King's College​ London, during the Roman​ Empire, the German tribes east of the Rhine River produced no coins of their own but used Roman coins​ instead: ​"Although no coinage was produced in​ Germania, Roman coins were in plentiful circulation and could easily have provided a medium of exchange​ (already in the first​ century, Tacitus tells​ us, Germani of the Rhine region were using​ good-quality Roman silver coins for this​ purpose)." When sellers are willing to accept money in exchange for goods and​ services, money is acting as a 1. Unit of account 2. Store of value 3. standard of deferred payments 4. Medium of exchange

4. medium of exchange

Which of the following is not a function of money? 1. Unit of account 2. Standard of deferred payment 3. Medium of exchange 4. Store of value 5. Commodity

5. Commodity

Evaluate the following​ statement: Banks use deposits to make consumer loans to households and commercial loans to businesses. Banks will loan out every penny of their deposits in order to make a profit. A. False. Banks must hold a fraction of their deposits as vault cash or with the Federal Reserve. B. False. In​ reality, banks are rarely able to find borrowers for all of their deposits. C. True. Any money that is left over after a bank loans money to businesses and households will be loaned to other banks. D. True. Deposits that sit in a bank as vault cash earn no interest.

A. False. Banks must hold a fraction of their deposits as vault cash or with the Federal Reserve.

How do the banks​ "create money"? A. When there is an increase in checking account​ deposits, banks gain reserves and make new​ loans, and the money supply expands. B. Banks buy bonds in the open market and gain​ reserves; this excess reserve holding increases the money supply. C. When there is a decrease in checking account​ deposits, banks lose reserves and reduce their​ loans, and the money supply expands. D. Banks sell bonds in the open market and lose​ reserves; the excess cash holding by households increases the money supply

A. When there is an increase in checking account​ deposits, banks gain reserves and make new​ loans, and the money supply expands.

In​ 2008, the required reserve ratio for a​ bank's first​ $9.3 million in checking account deposits was zero. It was 3 percent on deposits between​ $9.3 million and​ $43.9 million, and 10 percent on deposits above​ $43.9 million. In most​ cases, and for​ simplicity, we assume that the required reserve ratio is 10 percent on all deposits.​ Therefore, the simple deposit multiplier is 10. Is the​ real-world deposit multiplier greater​ than, less​ than, or equal to the simple deposit​ multiplier? A. Greater. Inflation plays a large role in the increase in checkable deposits. B. Less. The simple deposit multiplier is a model with assumptions that keep it higher than the​ real-world multiplier. C. Equal. There is no difference between the two. D. None of the above. They are very different concepts.

B. Less. The simple deposit multiplier is a model with assumptions that keep it higher than the​ real-world multiplier.

Suppose you deposit ​$1,700 cash into your checking account. By how much will checking deposits in the banking system increase as a result when the required reserve ratio is 0.1​0? A. $3,400 B. $1,700 C. $30,000 D. $17,000

D. $17,000