HOMEWORK 6

An increase in the money supply tends to increase investment. TrueFalse

True

The Fed's narrowest measure of money supply is A. M1. B. M2. C. credit card balances. D. balances held in money market funds.

A. M1.

What happens when you withdraw cash from a bank? A. The bank's reserves are reduced. B. The bank's reserves are increased. C. The bank's reserves are not affected. D. The bank's total reserves remain unchanged but the composition of required reserves and excess reserves change.

A. The bank's reserves are reduced.

Money is any item that is widely used and freely accepted as payment for goods and services. A. TrueB. False

A. True

Which of the following best illustrates the unit of account function of money? A. You list prices for clothing sold on your Web site, www.nattydresser.com, in dollars. B. You pay for your cruise tickets with dollars. C. You keep $50 in your backpack for emergencies. D. You keep your tips earned from your tour guide job in a separate jar at home.

A. You list prices for clothing sold on your Web site, www.nattydresser.com, in dollars.

An institution that collects funds from lenders and distributes these funds to borrowers is called A. a financial intermediary. B. the Federal Reserve System. C. a mercantile exchange. D. a currency market.

A. a financial intermediary.

The principle of fractional reserve banking makes it possible for a A. bank to make loans. B. bank to print currency. C. bank to avoid reserve requirements. D. bank to sell securities.

A. bank to make loans.

A bank that has no excess reserves A. cannot create loans. B. is not in equilibrium. C. is on the brink of bankruptcy. D. has no required reserves.

A. cannot create loans.

Currency in the United States today is A. fiat money. B. intrinsic money. C. backed by gold. D. quasi- intrinsic.

A. fiat money.

The ease with which an asset can be converted to money is its A. liquidity. B. adaptability. C. accessibility. D. rigidity.

A. liquidity.

Credit cards are A. not money. B. not money, because they can't be used to purchase goods and services. C. considered to be money. D. counted as a part of M2 but not M1.

A. not money.

Money is any item that A. serves as a medium of exchange for goods and services. B. can be converted into silver with relatively little loss in value. C. can be converted into gold with relatively little loss in value. D. facilitates a connecting link between credit instruments and debt instruments.

A. serves as a medium of exchange for goods and services.

The Federal Depository Insurance Corporation (FDIC) has the power to close a bank when A. the bank's net worth falls below a certain level. B. the bank's excess reserves fall below a certain level. C. the bank's total deposits fall below a certain level. D. the bank has inadequate insurance.

A. the bank's net worth falls below a certain level.

When a person makes price comparisons among products, money is being used as a(n) A. unit of account. B. standard of quality. C. medium of exchange. D. checkable deposit.

A. unit of account.

An increase in the money supply will lower the equilibrium rate of interest. A.TRUE.B. FALSE

A.TRUE

Suppose the required reserve ratio is 10%. If a bank has total reserves of $80,000 and checkable deposits of $550,000, what is the amount of the bank's required reserves? A. $25,000 B. $55,000 C. $80,000 D. $135,000

B. $55,000

As a result of an increase in the money supply, the aggregate demand will shift to the left. A. TrueB. False

B. False

Commodity money is paper currency that may be redeemed for a specific commodity at a specified rate on the currency. A. TrueB. False

B. False

Fiat money is money that has a value apart from its use as money. A. TrueB. False

B. False

Higher interest rates tend to increase the demand for money. A. TrueB. False

B. False

The federal funds rate is the interest rate the Fed charges to banks when it lends reserves to them. A. TrueB. False

B. False

When the price of a bond rises, the interest rate paid on the bond also rises. A. TrueB. False

B. False

How did the growth of the shadow banking system (non-bank financial intermediaries) contribute to the financial crisis of 2007-09 in the U.S. ? A. It increased inflation and unemployment - stagflation B. They were less regulated than banks and had no lender of last resort or insurer when problems occurred. C. They engaged in massive fraud D. They reduced the money supply

B. They were less regulated than banks and had no lender of last resort or insurer when problems occurred.

What's a blockchain? A. a block of chains B. a distributed encrypted general ledger C. a crypto currency D. a bank-based encrypted ledger

B. a distributed encrypted general ledger

One disadvantage of commodity money is that A. it cannot be readily converted to gold. B. its quantity can fluctuate erratically. C. its value does not change. D. it has no value apart from its use as money.

B. its quantity can fluctuate erratically.

Which of the following is an example of a bank's assets? A. reserves borrowed from the Fed B. loans made to customers C. checkable deposits D. savings deposits

B. loans made to customers

If banks were required to keep 100% of deposits in reserves, they could A. make more loans. B. make no loans. C. create more deposits. D. only use required reserves for loans.

B. make no loans.

Debit cards are A. counted as money because they perform the medium of exchange function of money. B. not considered money because they merely show that their owners have a relationship to money. C. are counted as a part of M2 but not M1. D. counted as money because they provide access to their owners' checkable deposits.

B. not considered money because they merely show that their owners have a relationship to money.

When a bank receives new deposits, it can make new loans up to the amount of A. the deposits received. B. the excess reserves generated by the deposits C. the reserves generated by the deposits. D. the required reserves generated by the deposits.

B. the excess reserves generated by the deposits

The opportunity cost of holding money is A. the liquidity foregone. B. the higher interest rates that can be earned by holding a bond fund. C. the decrease in risk from holding money rather than a bond fund. D. the liquidity gained by holding ready cash.

B. the higher interest rates that can be earned by holding a bond fund

The financial system's role in the economic system is to A. transfer funds between the Fed and economic agents. B. transfers resources (funds) from savers to borrowers C. transfer reserves between banks D. transfer income from households to Wall Street

B. transfers resources (funds) from savers to borrowers

The monetary aggregate, M1, increases when A. an individual cashes a check written by a business. B. an individual purchases clothes with a debit card. C. an individual switches funds from a savings account to a checking account. D. an individual buys groceries with a credit card.

C. an individual switches funds from a savings account to a checking account.

Rank the following items in terms of most liquid to least liquid. A. checkable deposits, cash, an office building your father owns B. cash, credit card, money market mutual funds, checkable deposits, C. cash, checkable deposits, savings deposits, an office building your father owns D. cash, Microsoft stock certificates you own, checkable deposits

C. cash, checkable deposits, savings deposits, an office building your father owns

Which of the following is an example of a bank's liabilities? A. its reserves B. its loans C. checkable deposits D. its holdings of U.S. government bonds

C. checkable deposits

Which of the following is a store of value and a common medium of exchange? A. corporate bonds B. stocks C. checking account balances D. Debit cards

C. checking account balances

When banks hold more reserves than are required, such reserves are called A. total reserves. B. required reserves. C. excess reserves. D. loan reserves.

C. excess reserves.

A system in which banks hold reserves whose value is less than the sum of claims on those reserves is called A. speculative banking. B. leveraged banking. C. fractional reserve banking. D. international banking.

C. fractional reserve banking

Gresham's Law A. deals with the theory of regulatory forces in the economy. B. is the tendency for good money to drive bad money out of circulation. C. is the tendency for bad money to drive good money out of circulation. D. was passed in 1913, as part of the Federal Reserve Act.

C. is the tendency for bad money to drive good money out of circulation.

Which of the following describes the medium-of-exchange function of money? A. noting that Audible.com sells downloadable audio books for $10 per book B. making a monthly payment toward your car loan C. paying $30 for a haircut D. putting away $50 each month into your savings account

C. paying $30 for a haircut

The supply curve of money shows, all other things unchanged, the A. quantity of money supplied at each price of bonds. B. quantity of money supplied at each bond rate. C. quantity of money supplied at each interest rate. D. amount of money people supply at a specific interest rate.

C. quantity of money supplied at each interest rate.

Which of the following is included in M2 but not in M1? A. currency B. demand deposits C. small-denomination time deposits D. debit cards

C. small-denomination time deposits

Which of the following is an advantage of using money as a medium of exchange? A. It simplifies purchases because all prices are specified in money values. B. There is no interest charged on using money for purchases. C. It is easy to mass produce money. D. It avoids having to rely on barter, the exchange of one good or service for another.

D. It avoids having to rely on barter, the exchange of one good or service for another.

A financial institution that accepts deposits, makes loans, and offers checking accounts is A. an insurance company. B. the Federal Deposit Insurance Corporation. C. the Federal Reserve System. D. a commercial bank.

D. a commercial bank.

The functions of money are A. a conductor of economic activity, a medium of exchange, and a store of value. B. a medium of exchange, a store of value, and a factor of production. C. a store of value, a medium of exchange, and a determinant of investment. D. a store of value, a unit of account, and a medium of exchange.

D. a store of value, a unit of account, and a medium of exchange.

Money that has value apart from its use as money is called A. fiat money. B. currency. C. convertible paper money. D. commodity money.

D. commodity money.

A bank's reserves are A. the minimum value of assets it must have. B. the amount of gold it is required to have as reserves against loans. C. the value of federal securities it is required to have as reserves against loans. D. deposits that banks have accepted from customers but have not loaned out.

D. deposits that banks have accepted from customers but have not loaned out.

A bank is _______ when its _______ become(s) _______ . A. solvent; net worth; negative B. insolvent; reserves; negative C. solvent; excess reserves; positive D. insolvent; net worth; negative

D. insolvent; net worth; negative

Which of the following describes the store of value function of money? A. noting that Audible.com sells downloadable audio books for $10 per book B. making a monthly payment toward your car loan C. paying $30 for a haircut D. putting away $50 each month into your savings account

D. putting away $50 each month into your savings account

Which of the following is not an example of a financial intermediary? A. a pension fund B. an insurance company C. a commercial bank D. the New York Stock Exchange

D. the New York Stock Exchange

What are the three motives for holding money? A. the medium of exchange motive, the store of value motive, and the unit of account motive B. the transaction motive, the speculative motive, and the liquidity motive C. the transaction motive, the investment motive, and the liquidity motive D. the transaction motive, the speculative motive, and the precautionary motive

D. the transaction motive, the speculative motive, and the precautionary motive

Bitcoin is money TrueFalse

False