Econ 211 Chapter 29 Questions

Which of the following is an example of barter?

A barber gives a plumber a haircut in exchange for the plumber fixing the barber's leaky faucet.

Many societies used gold as money, because

All of the above are correct.

Money

All of the above are correct.

Which of the following is NOT required for paper dollars to work as a medium of exchange?

Intrinsic value backed by gold

All U.S. paper dollars read "This note is legal tender for all debts, public and private." This statement represents which characteristic of US currency?

U.S. paper money is fiat money.

The members of the Federal Reserve's Board of Governors

are appointed by the president of the U.S. and confirmed by the U.S. Senate.

Which of the following lists is included in what economists call "money"?

cash

An important function of the U.S. Federal Reserve is to

control the supply of money.

Which of the following does the Federal Reserve not do?

convert Federal Reserve Notes into gold

Which list ranks assets from most to least liquid?

currency, stocks, fine art

The set of items that serve as media of exchange clearly includes

demand deposits.

Reserves are

deposits that banks have received but have not yet loaned out.

Currently, U.S. currency is

fiat money with no intrinsic value.

If the discount rate is lowered, banks borrow

more from the Fed so reserves increase.

Banks are able to create money only when

only a fraction of deposits are held in reserve.

Which group within the Federal Reserve System meets to discuss changes in the economy and determine monetary policy?

the FOMC

The Fed has the power to increase or decrease the number of dollars in the economy through the decisions of

the FOMC.

The discount rate is the interest rate that

the Fed charges banks for loans.

Liquidity refers to

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

Today, bank runs are not a major problem for the U.S. banking system because

the federal government now guarantees the safety of deposits at most banks.

Economists use the word "money" to refer to

those assets regularly used to buy goods and services.

If the reserve ratio is 8 percent, then an additional $800 of reserves can increase the money supply by as much as

$10,000.

A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of $150. If customers deposit $50 into the bank, what is the value of the money supply?

$150

A bank's reserve ratio is 8 percent and the bank has $1,000 in deposits. Its reserves amount to

$80.

Economists call an institution designed to oversee the banking system and regulate the quantity of money in the economy

a central bank.

During the Great Depression in the early 1930s,

bank runs closed many banks.

In a system of 100-percent-reserve banking,

banks do not make loans.

When the Fed decreases the discount rate, banks will

borrow more from the Fed and lend more to the public. The money supply increases.

When conducting an open-market purchase, the Fed

buys government bonds, and in so doing increases the money supply.

To increase the money supply, the Fed could

decrease the reserve requirement.

In the 19th century, when crop failures often led to bank runs, banks would make relatively fewer loans and hold relatively more excess reserves. By itself, these actions by the banks should have

decreased both the money multiplier and the money supply.

Under a fractional-reserve banking system, banks

generally lend out a majority of the funds deposited.

In a system of 100-percent-reserve banking, the purpose of a bank is to

give depositors a safe place to keep their money.

Fiat money

has no intrinsic value.

When a bank loans out $1,000, the money supply

increases.

Over one time horizon or another, Fed policy decisions influence

inflation and employment.

The Federal Reserve

is responsible for conducting the nation's monetary policy, and it plays a role in regulating banks.

In a fractional-reserve banking system, a bank

keeps only a fraction of its deposits in reserve.

When conducting an open-market sale, the Fed

sells government bonds, and in so doing decreases the money supply.

According to the article "Why Gold?', silver may be used as money. One problem with using silver as money is that

silver tarnishes over time.

If the central bank in some country raised the reserve requirement, then the money multiplier for that country

would decrease.