Chapter 16: Quick Check

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Suppose the Fed purchases a $10,00 government bond from you and you deposit the entire $10,000 in your bank. Also, suppose that the reserve requirements are 20% At this point, how much is the total money supply? a. $10,000 b. $40,000 c. $18,000 d. $50,000

c. $18,000

If the value of the money multiplier is 4, then the reserve ratio is a. 0.25 b. 5 c. 4% d. none of the above

a. 0.25

Commodity money has value independent of its use as money a. true b. false

a. true

When you are willing to go to sleep tonight with $100 in your wallet and you have complete confidence that you can spend it tomorrow and received the same amount of goods as you would have received had you spent it today, money has demonstrated its function as a medium of exchange a. true b. false

b. false - money demonstrated its function as a store of value

An increase in the reserve requirement increases the money multiplier and increases the money supply a. true b. false

b. false- an increase in the reserve requirement decreases the money multiplier, which decreases the money supply

For our purpose money stock is composed of a. currency and demand deposits b. currency, demand deposits, savings deposits, money market mutual funds, and small time deposits c. currency, government bonds, gold certificates, and coins d. currency, stocks, savings accounts, and government bonds

a. currency and demand deposits

A decrease in the reserve requirement causes a. the money multiplier to rise b. the money multiplier to fall c. money supply to fall d. loans to fall

a. the money multiplier to rise

If banks choose to hold excess reserves, lending decreases and the money supply decreases a. true b. false

a. true

If the Fed desires to contract the money supply, it could do any of the following: sell government bonds, increase the discount rate, increase the reserve requirement, and increase the interest rate paid on reserves a. true b. false

a. true

If the Fed sells $1,000 of government bonds, and the reserve requirement is 10 percent, deposits could fall by as much as $10,000 a. true b. false

a. true

If there is 100% reserve banking, the money supply is unaffected by the proportion of the dollars that the public chooses to hold as currency vs. deposits a. true b. false

a. true

The Federal Open Market Committee (FOMC) meets about every six weeks and discusses the condition of the economy and votes on changes in monetary policy a. true b. false

a. true

The Federal Reserve is the central bank of the United States and is run by the members of the Board of Governors a. true b. false

a. true

The M1 money supply is composed of currency, demand deposits, traveler's checks, and other checkable deposits a. true b. false

a. true

Suppose the Fed purchases a $10,00 government bond from you and you deposit the entire $10,000 in your bank. Also, suppose that the reserve requirements are 20% How much new money is created in the process? a. $10,000 b. $40,000 c. $18,000 d. $50,000

b. $40,000

If the Fed purchases $100,000 of government bonds, and the reserve requirements is 10%, the maximum increase in the money supply is $10,000 a. true b. false

b. false - the maximum increase in the money supply is $100,000 (1/0.10)=$1,000,000

Credit cards are part of the M2 money supply and are valued at the maximum credit limit of the cardholder a. true b. false

b. false- credit cards are not included in the money supply

Fiat money is money that is used in Italy a. true b. false

b. false- fiat money is money without intrinsic value

Money and wealth are the same thing. a. true b. false

b. false- money is the spendable portion of one's wealth

Money has three functions: it acts as a medium of exchange, a unit of accord, and a protection against inflation a. true b. false

b. false- store of value, not a hedge against inflation

For banks, a fixed percentage of ____ is called a _____ a. loans, government bonds b. assets, reserve ratio c. deposits, reserve ratio d. government bonds, loans

c. deposits, reserve ratio

Suppose the Fed purchases a $10,00 government bond from you and you deposit the entire $10,000 in your bank. Also, suppose that the reserve requirements are 20% How much is the total money supply after infinite rounds? a. $10,000 b. $40,000 c. $18,000 d. $50,000

d. $50,000

The functions of money include? a. unit of account b. store of value c. medium of exchange d. all of the above

d. all of the above

What causes money supply to rise? a. increase in reserve ratio b. decrease in loans c. decrease in money multiplier d. increase in money multiplier

d. increase in money multiplier

What are the monetary policy tools of the Fed? a. Open Market Operations b. Fed lending to banks c. Reserve Requirements d. the Fed paying interest on bank reserves e. All of the above

e. all of the above


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