Deck 29: True False

Question 1

Money allows people to specialize in what they do best,thereby raising everyone's standard of living.

Answer 1

True

Question 2

In an economy that relies on barter,trade requires a double-coincidence of wants.

Answer 2

True

Question 3

When you purchase school supplies at the book store using cash,you are using money as a medium of exchange.

Answer 3

True

Question 4

Bottles of very fine wine are less liquid than demand deposits.

Question 5

One plausible explanation for the large amount of U.S.currency outstanding is that many dollars are held abroad.

Question 6

The use of money allows trade to be roundabout.

Question 7

Commodity money cannot be used as a unit of account.

Question 8

M1 includes savings deposits.

Question 9

Demand deposits are balances in bank accounts that depositors can access by writing a check or using a debit card.

Question 10

Sam wants to trade eggs for sausage.Sally wants to trade sausage for eggs.Sam and Sally have a double-coincidence of wants.

Question 11

Sandra routinely uses currency to purchase her groceries.She is using money as a medium of exchange.

Question 12

In order for currency to be widely used as a medium of exchange,it is sufficient for the government to designate it as legal tender.

Question 13

When the Soviet Union began breaking up in the late 1980s,cigarettes began replacing the ruble as the medium of exchange even though the ruble was legal tender.The cigarettes provide an example of commodity money.

Question 14

U.S.dollars are an example of commodity money and hides used to make trades are an example of fiat money.

Question 15

Marc puts prices on surfboards and skateboards at his sporting goods store.He is using money as a unit of account.

Question 16

M2 is both larger and less liquid than M1.

Question 17

According to economists,"money" means the same thing as "wealth".

Question 18

Roundabout trade decreases production.

Question 19

Money is the only asset that functions as a store of value.

Question 20

Gary's wealth is $1 million.Economists would say that Gary has $1 million worth of money.

Question 21

The series of bank failures in 1907 occurred despite the creation of the Federal Reserve many years earlier.

Question 22

The chair of the Board of Governors regularly testifies to Congress about Fed policy.

Question 23

Federal Reserve governors are given long terms to insulate them from politics.

Question 24

Assume that when $100 of new reserves enter the banking system,the money supply ultimately increases by $800.Assume also that no banks hold excess reserves and that the entire money supply consists of bank deposits.If,at a point in time,reserves for all banks amount to $750,then at that same point in time,loans for all banks amount to $6,000.

Question 25

The Federal Reserve is a privately operated commercial bank.

Question 26

The Federal Reserve primarily uses open-market operations to change the money supply.

Question 27

Monetary policy is determined by a committee whose voting members include all the presidents of the regional Federal Reserve Banks.

Question 28

The Federal Reserve was created in 1913 after a series of bank failures in 1907.

Question 29

A debit card is more similar to a credit card than to a check.

Question 30

Assume that when $100 of new reserves enter the banking system,the money supply ultimately increases by $625.Assume also that no banks hold excess reserves and that the entire money supply consists of bank deposits.If,at a point in time,reserves for all banks amount to $500,then at that same point in time,loans for all banks amount to $2,625.

Question 31

Credit cards are a medium of exchange.

Question 32

In the months of November and December,people in the United States hold a larger part of their money in the form of currency because they intend to shop and travel for the holidays.As a result,other things the same,the money supply increases.

Question 33

The money multiplier equals 1/(1 - R),where R represents the reserve ratio.

Question 34

Members of the Board of Governors of the Federal Reserve System are appointed for life.

Question 35

As banks create money,they create wealth.

Question 36

Fractional reserve banking is a system where banks must hold an amount of cash based on a percentage of its loans.

Question 37

Banks cannot influence the money supply if they are required to hold all deposits in reserve.

Question 38

If banks hold any amount of their deposits in reserve,then they do not have the ability to influence the money supply.

Question 39

Other things the same,if banks decide to hold a smaller part of their deposits as excess reserves,the money supply will fall.

Question 40

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

Question 41

Currently,bank runs are a major problem for the U.S.banking system and the Fed.

Question 42

The Federal Reserve can alter the size of the money supply by changing reserves or changing reserve requirements.

Question 43

Bank runs are only a concern under a fractional-reserve banking system.

Question 44

Banks can hold deposits at the Federal Reserve.Balances in these accounts can be used by banks to meet their reserve requirements,but the Fed pays no interest on these deposits.

Question 45

The money supply of Granov is $10,000 in a 100-percent-reserve banking system.If the Central Bank of Granov decreases the reserve requirement ratio to 10 percent,the money supply could increase by no more than $9,000.

Question 46

The money multiplier is higher when bankers are more cautious and hold excess reserves.

Question 47

The discount rate is the rate the Federal Reserve charges banks for loans.By lowering this rate,the Fed provides banks with a greater incentive to borrow from it.

Question 48

Because of the multiple tools at its disposal,the Fed can control the money supply very precisely.

Question 49

In a system of 100-percent-reserve banking,changes in the money supply depend on the decisions of the Fed as well as the behavior of depositors and bankers.

Question 50

If the Fed decreases reserve requirements,the money supply will increase.

Question 51

If the Fed buys bonds in the open market,the money supply decreases.

Question 52

Under a fractional-reserve banking system,the money supply cannot change without any action from the Federal Reserve.

Question 53

Under a 100-percent-reserve banking system,banks do not influence the supply of money.

Question 54

The federal funds rate is a long-term interest rate banks charge one another for loans.

Question 55

Bank runs and the accompanying increase in the money multiplier caused the U.S.money supply to rise by 28 percent from 1929 to 1933.

Question 56

An increase in the reserve requirement increases reserves and decreases the money supply.

Question 57

Just after the terrorist attack on September 11,2001,the Fed stood ready to lend financial institutions funds.When the Fed did this,it was acting in its role of lender of last resort.