econ ch 16

Which of the following statements is correct? a) all items that are included in M1 are included in M2 b) all items that are included in M2 are included in M1 c) credit cards are included in both M1 and M2 d) savings deposits are included in both M1 and M2

a) all items that are included in M1 are included in M2

As the reserve ratio increases, the money multiplier a) increases b) does not change c) decreases d) could do any of the above

a) increases

Liquidity refers to: a) the ease with which an asset is converted to the medium of exchange b) the measurement of the intrinsic value of commodity money c) the measurement of the durability of the good d) how many times a dollar circulates in a given year

a) the ease with which an asset is converted to the medium of exchange

In the special case of the 100% reserve banking, the money multiplier is: a) 1 and banks create money b) 1 and banks do not create money c) 2 and banks create money d) 2 and banks do not create money

b) 1 and banks do not create money

To increase the money supply, the Fed can a) buy government bonds or increase the discount rate b) buy government bonds or decrease the discount rate c) sell government bonds or increase the discount rate d) sell government bonds or decrease the discount rate

b) buy government bonds or decrease the discount rate

If people decide to hold more currency relative to deposits, the money supply a) falls. the larger the reserve ratio is, the more the money supply falls b) falls. the larger the reserve ratio is, the less the money supply falls c) rises. the larger the reserve ratio is, the more the money supply rises d) rises. the larger the reserve ratio is, the less the money supply rises

b) falls. the larger the reserve ratio is, the less the money supply falls

The discount rate is: a) the rate at which public banks lend to other public banks b) the rate at which the Fed lends to banks c) the percentage difference between the face value of a treasury bond and what the Fed pays for it d) the percentage of deposits banks hold as excess reserves

b) the rate at which the Fed lends to banks

If the reserve ratio is 20%, then $100 of new reserves can generate a) $60 of new money in the economy b) $250 of new money in the economy c) $500 of new money in the economy d) $2,000 of new money in the economy

c) $500 of new money in the economy

A central bank's setting (or altering) of the money supply is known as a) open market operation b) interest rate policy c) monetary policy d) employment policy

c) monetary policy

Commodity money is: a) backed by gold b) the principal type of money in use today c) money with intrinsic value d) receipts created in international trade that are used as a medium of exchange

c) money with intrinsic value

The interest rate the Fed charges on loans makes to banks is called a) the prime rate b) the federal funds rate c) the discount rate d) the LIBOR

c) the discount rate

Which of the following best illustrates the medium of exchange function of money? a) you keep some money hidden in your shoe b) you keep track of the value of your assets in terms of currency c) you pay for your oil change using currency d) none of the above

c) you pay for your oil change using currency

Which of the following is not a function of money a) unit of account b) a store of value c) medium of exchange d) all are functions of money

d) all are functions of money

Which of the following is not a tool of monetary policy? a) open market operations b) reserve requirements c) changing the discount rate d) increasing the government deficit budget

d) increasing the government deficit budget