Myeconlab chapter 14 quiz

Which of the following is NOT a function of money?

ACCEPTABILITY

In a fractional reserve banking system, what is the difference between a bank run and a bank panic?

A bank run involves one bank; a bank panic involves many banks.

Which of the following best explains the difference between commodity money and fiat money?

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

Bank 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.

False. Banks must hold a portion of their deposits as vault cash or with the federal reserve.

How would such a large quantity of Confederate dollars have affected the value of the Confederate currency?

It would have generated high inflation and therefore decrease the value of the confederate currency.

The M2 definition of the money supply includes

M1 savings accounts small time deposits and money markets.

In addition to the Federal Reserve Bank, what other economic actors influence the money supply?

households firms and banks

which of the following is true with the respect of hyperinflation

All of the above 1. It is caused by central banks increasing the money supply at a rate much greater than the growth rate of real GDP 2. It can be 100, 1000 of a percentage points per year 3. In the presence of hyperinflation, firms and households avoid holding money.

An initial increase in a banks reserves will increase checkable deposits

By an amount greater than the increase in reserve.

Very high rates of inflation are called Governments sometimes allow hyperinflation to occur because

Hyperflation When the gov wants to spend more than they collect in taxes, central banks increase the money supply at a rate higher than GDP growth, often resulting in hyperinflation.

Under these circumstances, was the Chinese paper currency a commodity money or a fiat money?

It is a commodity money because it has value as RECYCLED PAPER.

Which of the following is not one of the policy tools the Feds uses to control the money supply? Which tool is the most important?

MORAL suasion The Feds conducts monetary policy principally through open market operations.

What actions would you need to take? As your actions and those of other bank managers reduce the amount of loans made, we would expect that the money supply would end up

You would have to reduce loans to make up for the necessary increase in reserves. DECREASING

Credit cards are

included in neither the M1 definition nor in the M2 definition.

Which of the following is a MONETARY POLICY tool uses by the FEDERAL RESERVE BANK?

ALL OF THE ABOVE 1. buying $500 million worth of gov. securities , such as Treasury bills. 2. Increasing the reserve requirement from 10% to 12.5% 3. Decreasing the rate at which banks can borrow money from the Federal Reserve.

The use of money

ALL OF THE ABOVE ALLOWS for grater specialization REDUCECES the transactions cost of exchange. ELIMINATES the double coincidence of wants.

Which of the following is not the formula for the quantity theory of money? How does the quantity theory provide an explanation about the cause of inflation?

MxY=PxV right formulas m=1/v(PxY) MxV=PxY V=PxY/M The quantity equation shows that if the money supply grows at a faster rate than real GDP then there will be inflation

Which of the following is not a function of money: If something is to be considered as money it has to fulfill:

Open market operation All four functions.

During the German hyperinflation of the 1920s many households and firms in Germany were hurt economically; however people with debt actually benefited some from the hyperinflation.

TRUE

According to the quantity theory of money inflation results from which of the following ?

The money supply grows faster than real GDP.