Econ chapter 29 quiz #7

22. What is meant by the term "lender of last resort?" In what circumstances might the Fed be a lender of last resort?

A "lender of last resort" is a lender to those who cannot burrow anywhere else. The FED might loan funds to a solvent bank that is experiencing a bank run and so doesn't currently have enough cash on hand to meet depositors' demands.

21. What is the difference between commodity money and fiat money? Why do people accept fiat currency in trade for goods and services?

Commodity money has "intrinsic value," or value in uses other than as money. Fiat money is established as money by the government. It has very little, if any, intrinsic value. Although fiat money has no intrinsic value, people accept it in trade when they are confident that others will also accept it. The government's decree that fiat currency serves as legal tender increases this confidence

20. Teenage unemployment is higher than unemployment of people ages 20 and over. Explain why economists would attribute at least part of this difference to minimum-wage laws. (Hint: who is likely to get paid more?)

People who are experienced and educated are likely to find jobs where the equilibrium wage is above the minimum wage. In labor markets where the equilibrium wage is above the minimum wage, the minimum wage does not create unemployment. Since people ages 20 and over tend to have more experience and education than younger persons, the minimum wage matters less and so creates less unemployment.

19. Refer to Table 29-2. If $400 is deposited into the First Bank of Mason City,

d. All of the above are true.

5. The natural unemployment rate includes

a. both frictional and structural unemployment.

2. The unemployment rate is computed as the number of unemployed

a. divided by the labor force times 100.

8. The legal tender requirement means that

a. people are more likely to accept the dollar as a medium of exchange.

17. Refer to Table 29-2. The reserve ratio is

b. 20 percent.

4. Discouraged workers

b. are counted as part of the adult population, but not as part of the labor force.

12. When the Federal Reserve conducts open market transactions, it

b. buys or sells government bonds from the public.

13. Under a fractional reserve banking system, banks

b. generally lend out a majority of the funds deposited.

7. Fiat money

b. has no intrinsic value.

11. The 12 regional Federal Reserve Banks

b. regulate banks in their districts.

18. Refer to Table 29-2. If $1,000 is deposited into the First Bank of Mason City,

c. assets will increase by $1,000.

3. Among teenagers, which group has the highest unemployment rate?

c. black males

14. To increase the money supply, the Fed could

c. decrease the reserve requirement.

6. People who are unemployed because of job search are best classified as

c. frictionally unemployed.

10. The Federal Reserve does all except which of the following?

c. make loans to individuals

1. The labor force equals the

c. number of people employed plus the number of people unemployed.

9. The agency responsible for regulating the money supply in the United States is

c. the Federal Reserve.

16. The interest rate the Fed charges on loans it makes to banks is called

c. the discount rate.

15. To decrease the money supply, the Fed could

d. all of the above are correct