week 11

QUESTION 18 If the reserve ratio is 2.5 percent, the money multiplier is a. 40. b. 25. c. 2.5. d. 1.25.

40

QUESTION 19 If the reserve ratio is 5 percent, then $2,500 of additional reserves can create up to a. $62,500 of new money. b. $50,000 of new money. c. $45,600 of new money. d. $37,500 of new money.

50,000

You receive money as payment for babysitting your neighbors' children. This best illustrates which function of money? a. medium of exchange b. unit of account c. store of value d. liquidity

A

If the reserve ratio is 5 percent, then $1,000 of additional reserves can create up to a. $200 of new money. b. $2,000 of new money. c. $20,000 of new money. d. None of the above is correct.

C

The agency responsible for regulating the money supply in the United States is a. the Comptroller of the Currency. b. the U.S. Treasury. c. the Federal Reserve. d. the U.S. Bank.

C.

A double coincidence of wants a. is required when there is no item in an economy that is widely accepted in exchange for goods and services. b. is required in an economy that relies on barter. c. is a hindrance to the allocation of resources when it is required for trade. d. All of the above are correct.

D

Economists use the term "money" to refer to a. all wealth. b. all assets, including real assets and financial assets. c. all financial assets, but not real assets. d. those types of wealth that are regularly accepted by sellers in exchange for goods and services.

D.

If the reserve ratio is 8 percent, then an additional $1,000 of reserves can increase the money supply by as much as a. $6,400. b. $8,000. c. $12,500. d. $20,000.d

WRONG

In 1991, the Federal Reserve lowered the reserve requirement from 12 percent to 10 percent. Other things the same this should have a. increased both the money multiplier and the money supply. b. decreased both the money multiplier and the money supply. c. increased the money multiplier and decreased the money supply. d. decreased the money multiplier and increased the money supply.

a

Liquidity refers to a. the ease with which an asset is converted to the medium of exchange. b. the measurement of the intrinsic value of commodity money. c. the measurment of the durability of a good. d. how many time a dollar circulates in a given year.

a

People can write checks against a. demand deposits and money market mutual funds b. demand deposits but not money market mutual funds c. money market mutual funds but not demand deposits d. neither demand deposits nor money market mutual funds

a

QUESTION 16 In a system of 100-percent-reserve banking, a. banks do not make loans. b. currency is the only form of money. c. deposits are banks' only assets. d. All of the above are correct

a

Credit cards a. defer payments. b. are a store of value. c. have led to wider use of currency. d. are part of the money supply.

a this is #12

Currently, U.S. currency is a. fiat money with intrinsic value. b. fiat money with no intrinsic value. c. commodity money with intrinsic value. d. commodity money with no intrinsic value.

b

During recessions, banks typically choose to hold more excess reserves relative to their deposits. This action a. increases the money multiplier and increases the money supply. b. decreases the money multiplier and decreases the money supply. c. does not change the money multiplier, but increases the money supply. d. does not change the money multiplier, but decreases the money supply.

b

Suppose banks decide to hold more excess reserves relative to deposits. Other things the same, this action will cause the a. money supply to fall. To reduce the impact of this the Fed could sell Treasury bonds. b. money supply to fall. To reduce the impact of this the Fed could buy Treasury bonds. c. money supply to rise. To reduce the impact of this the Fed could sell Treasury bonds. d. money supply to rise. To reduce the impact of this the Fed could buy Treasury bonds.

b

Which list ranks assets from most to least liquid? a. currency, fine art, stocks b. currency, stocks, fine art c. fine art, currency, stocks d. fine art, stocks, currency

b

Which of the following functions of money is also a common function of most other financial assets? a. a unit of account b. a store of value c. medium of exchange d. None of the above is correct.

b.

In a fractional-reserve banking system, a bank a. does not make loans. b. does not accept deposits. c. keeps only a fraction of its deposits in reserve. d. None of the above is correct.

c

In the United States, currency holdings per person average about a. $125; one explanation for this relatively small average is that many people use credit and debit cards to make transactions. b. $125; one explanation for this relatively small average is that U.S. citizens hold a lot of foreign currency. c. $3,700; one explanation for this relatively large amount is that criminals probably prefer currency as a medium of exchange. d. $3,700; one explanation for this relatively large average is that U.S. citizens hold a lot of foreign currency.

c.

The primary difference between commodity money and fiat money is that a. commodity money is a medium of exchange but fiat money is not. b. fiat money is a medium of exchange but commodity money is not. c. commodity money has intrinsic value but fiat money does not. d. fiat money has intrinsic value but commodity money does not.

c.

M1 equals currency plus demand deposits plus a. nothing else. b. other checkable deposits. c. traveler's checks plus other checkable deposits. d. traveler's checks plus other checkable deposits plus savings deposits.

c. m2

Bank runs a. will affect neither the money supply nor the money multiplier. b. are only a problem for insolvent banks. c. impact can not be mitigated by the banks. d. are a problem because banks only hold a fraction of deposits as reserves.

d

Consider five individuals with different occupations. Allen - prepares taxes, wants ribsBetty - does dry cleaning, wants computer fixedCalvin - fixes computers, wants breadDiedre - bakes bread, wants taxes preparedEric - barbecues ribs, wants dry cleaning In a barter system which of the following pairs has a double coincidence of wants? a. Allen and Eric b. Diedre and Calvin c. Both A and B are correct. d. None of the above are correct.

none