Ch 14 Money

Scenario: Money Creation The reserve requirement is 20%, and Leroy deposits the $1,000 check he received as a graduation gift in his checking account. The bank does NOT want to hold excess reserves. Which of the following is an accurate description of the bank's balance sheet immediately after the deposit? A) Reserves increase by $1,000, and demand deposits increase by $1,000. B) Reserves increase by $1,000, and demand deposits decrease by $1,000. C) Reserves decrease by $1,000, and demand deposits decrease by $1,000. D) Reserves decrease by $200, and demand deposits increase by $1,000.

A) Reserves increase by $1,000, and demand deposits increase by $1,000.

Which of the following assets is an example of money? A) a $20 bill in your pocket B) a valuable work of art C) a baseball signed by a famous player D) shares of stock in a profitable company

A) a $20 bill in your pocket

All of the following are roles of money EXCEPT: A) a measure of wealth. B) a medium of exchange. C) a unit of account. D) a store of value.

A) a measure of wealth.

The Federal Reserve System is the _______ for the United States. A) central bank B) government-owned bank C) U.S. Treasury bank D) social insurance system

A) central bank

A trade-off between unemployment and inflation is depicted by: A) the Phillips curve. B) Keynes's law. C) the multiplier. D) the Friedman curve.

A) the Phillips curve.

Scenario: Money Creation The reserve requirement is 20%, and Leroy deposits the $1,000 check he received as a graduation gift in his checking account. The bank does NOT want to hold excess reserves. How much money can the bank lend based on the $1,000 deposit? A) $200 B) $800 C) $0

B) $800

Each point on a Phillips curve is a different combination of: A) price and quantity. B) the inflation rate and the unemployment rate. C) the interest rate and investment. D) saving and disposable income.

B) the inflation rate and the unemployment rate.

Suppose the banking system does NOT hold excess reserves and the reserve ratio is 25%. If Molly deposits $1,000 cash into her checking account, the banking system can increase the money supply by: A) $5,000. B) $1,000. C) $3,000. D) $4.000.

C) $3,000.

Scenario: Money Creation The reserve requirement is 20%, and Leroy deposits the $1,000 check he received as a graduation gift in his checking account. The bank does NOT want to hold excess reserves. What is the maximum expansion in the money supply possible? A) $1,000 B) $1,800 C) $4,000 D) $5,000

C) $4,000

Suppose the reserve ratio is 25%; the money multiplier is: A) 5. B) 0.25. C) 4. D) 0.04.

C) 4.

Which of the following is NOT true about bank runs? A) They may start as a result of a rumor that a bank is in financial trouble. B) Many banks' depositors try to withdraw their funds due to fears of a bank failure. C) Bank runs only happen to small banks with few financial assets. D) Bank runs often lead to a loss of faith in other banks, causing additional bank runs.

C) Bank runs only happen to small banks with few financial assets.

The reserve ratio is the: A) bank's holdings of gold. B) government's holdings of gold at Fort Knox. C) fraction of deposits that banks hold in their vaults plus their deposits at the Federal Reserve. D) ratio of gold to the paper money in the economy.

C) fraction of deposits that banks hold in their vaults plus their deposits at the Federal Reserve.

The double coincidence of wants problem can be solved by: A) more resources. B) more production. C) money. D) economic growth.

C) money.

The _______ multiplier is equal to _______ . A) reserve; the required reserve ratio B) bank loan; the required reserve ratio divided by 1 C) money; 1 divided by the required reserve ratio D) excess reserve; change in reserves divided by the change in deposits

C) money; 1 divided by the required reserve ratio

The current Chairman of the Board of Governors of the Federal Reserve is: A) Ben Bernanke B) Janet Yellen C) Donald Trump D) Jerome Powell

D) Jerome Powell

If you transfer $1,000 from your savings account to your checking account: A) M1 decreases by $1,000, and M2 increases by $1,000. B) M1 increases by $1,000, and M2 decreases by $1,000. C) M1 and M2 don't change. D) M1 increases by $1,000, but M2 doesn't change.

D) M1 increases by $1,000, but M2 doesn't change.

According to the short-run Phillips curve, when actual real GDP is _________ potential output, the price level _________ and the unemployment rate falls. A) below; increases B) above; decreases C) below; decreases D) above; increases

D) above; increases

Money that has value apart from its use as money is: A) fiat money. B) currency. C) convertible paper money. D) commodity money.

D) commodity money.

Which of the following is NOT one of the main features designed to protect depositors and the economy against bank runs? A) deposit insurance B) capital requirements C) reserve requirements D) interest rate ceilings

D) interest rate ceilings