Principles of Econ - ASSESS Ch. 16 Questions

In​ 2008, the required reserve ratio for a​ bank's first​ $9.3 million in checking account deposits was zero. It was 3 percent on deposits between​ $9.3 million and​ $43.9 million, and 10 percent on deposits above​ $43.9 million. In most​ cases, and for​ simplicity, we assume that the required reserve ratio is 10 percent on all deposits.​Therefore, the simple deposit multiplier is 10. Is the​ real-world deposit multiplier greater​ than, less​ than, or equal to the simple deposit​ multiplier? A. Less. The simple deposit multiplier is a model with assumptions that keep it higher than the​ real-world multiplier. B. Equal. There is no difference between the two. C. Greater. Inflation plays a large role in the increase in checkable deposits. D. None of the above. They are very different concepts.

A. Less. The simple deposit multiplier is a model with assumptions that keep it higher than the​ real-world multiplier.

Evaluate the following​ statement: Banks 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. A. True. Any money that is left over after a bank loans money to businesses and households will be loaned to other banks. B. False. Banks must hold a fraction of their deposits as vault cash or with the Federal Reserve. C. False. In​ reality, banks are rarely able to find borrowers for all of their deposits. D. True. Deposits that sit in a bank as vault cash earn no interest.

B. False. Banks must hold a fraction of their deposits as vault cash or with the Federal Reserve.

According to the quantity theory of moneyLOADING...​, inflation results from which of the​ following? A. The money supply grows slower than real GDP. B. The money supply grows faster than real GDP. C. The money supply grows at the same rate as GDP.

B. The money supply grows faster than real GDP.

In addition to the Federal Reserve​ Bank, what other economic actors influence the money​ supply? A. The U.S. Mint and the U.S. Treasury. B. ​Households, firms, and banks. C. The U.S. Senate and the U.S. House of Representatives. D. The U.S. President and Vice President.

B. ​Households, firms, and banks.

In a fractional reserve banking system​, what is the difference between a​ "bank run" and a​ "bank panic?" A. A bank run involves many​ banks; a bank panic involves one bank. B. A bank run is a local​ issue; a bank panic is a national issue. C. A bank run involves one​ bank; a bank panic involves many banks. D. A bank run is a U.S.​ issue; a bank panic is an international issue.

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

Which of the following is NOT a function of​ money? A. Medium of exchange B. Unit of account C. Acceptability D. Store of value

C. Acceptability

An initial increase in a​ bank's reserves will increase checkable deposits A. by an amount equal to the increase in reserves. B. by an amount less than the increase in reserves. C. by an amount greater than the increase in reserves. D. An initial increase in reserves will decrease checkable deposits.

C. by an amount greater than the increase in reserves.

Credit cards are A. included in the M1 definition of the money​ supply, but not in the M2 definition. B. included in the M2 definition of the money​ supply, but not in the M1 definition. C. included in neither the M1 definition of the money supply nor in the M2 definition. D. included in both the M1 and the M2 definitions of the money supply.

C. included in neither the M1 definition of the money supply nor in the M2 definition.

Suppose the reserve requirement is 15​%. What is the effect on total checkable deposits in the economy if bank reserves increase by ​$50 ​billion? A. ​$50 billion increase B. ​$750 billion increase C. ​$333 billion increase D. ​$3 billion increase

C. ​$333 billion increase

Which of the following is a monetary policy tool used by the Federal Reserve​ Bank? A. Buying​ $500 million worth of government​ securities, such as Treasury bills. B. Decreasing the rate at which banks can borrow money from the Federal Reserve. C. Increasing the reserve requirement from 10 percent to 12.5 percent. D. All of the above.

D. All of the above.

Which of the following is true with respect to ​hyperinflation? A. In the presence of​ hyperinflation, firms and households avoid holding money. B. It is caused by central banks increasing the money supply at a rate much greater than the growth rate of real GDP. C. It can be hundreds—even thousands—of percentage points per year. D. All of the above.

D. All of the above.

The use of money A. eliminates the double coincidence of wants. B. allows for greater specialization. C. reduces the transaction costs of exchange. D. all of the above.

D. all of the above.

The U.S. dollar can best be described as A. commodity money. B. reserve money. C. ​commodity-backed money. D. fiat money.

D. fiat money.

The M2 definition of the money supply includes A. savings​ accounts, mutual​ funds, small time​ deposits, and credit cards. B. ​M1, savings​ accounts, mutual​ funds, and credit cards. C. ​M1, savings​ accounts, small time​ deposits, money​ markets, and credit cards. D. ​M1, savings​ accounts, small time​ deposits, and money markets.

D. ​M1, savings​ accounts, small time​ deposits, and money markets.

Which of the following is true with respect to Irving​ Fisher's quantity​ equation, Upper M times Upper V equals Upper P times Upper YM×V=P×Y​? A. P​ = the GDP deflator B. V​ = Average number of times a dollar is spent on goods and services C. V = ( P × Y ) ÷ M D. M​ = M1 definition of the money supply E. All of the above

E. All of the above