Question 1

For anything to be considered money it must be
A)a mystical token, such as whale teeth.
B)a token, such as a green piece of paper.
C)either a commodity or a token, as long as it is generally accepted as a means of payment.
D)a valuable commodity, such as gold.
E)used in barter transactions.

Accepted Answer

Money must be either a commodity or a token that is generally accepted as a means of payment. It does not need to have intrinsic value, like gold, or be used in barter transactions.

Question 2

When the First Bank of Townsville makes a loan, it
A)increases its reserves.
B)prints money.
C)decreases the quantity of money.
D)borrows the money from the Fed.
E)creates a checkable deposit.

Accepted Answer

When a bank makes a loan, it typically creates a checkable deposit in the borrower's account, effectively increasing the money supply.

Question 3

When the Fed sells $100 million of securities to a commercial bank the
A)required reserve ratio decreases.
B)money supply increases.
C)bank's reserves decrease.
D)monetary base increases.
E)bank's reserves do not change.

Accepted Answer

When the Fed sells securities to a commercial bank, the bank pays for these securities by using its reserves, which decreases the bank's reserves.

Question 4

Suppose the Fed sells $100 of government securities. If the desired reserve ratio is 20 percent and there is no currency drain, then the quantity of money
A)decreases by $80.
B)decreases by $400.
C)decreases by $100.
D)increases by $100.
E)decreases by $500.

Accepted Answer

When the Fed sells $100 of government securities, it reduces the reserves in the banking system by $100. With a reserve ratio of 20%, the money multiplier is 1/0.2 = 5. Therefore, the total decrease in the money supply is $100 * 5 = $500.

Question 5

A debit card is
A)not money because it is not officially issued by the government.
B)part of the M2 money supply but not part of the M1 money supply.
C)not money but is used to transfer bank deposits which are money.
D)money because it is generally accepted as a means of payment.
E)money because it is a means of payment.

Accepted Answer

A debit card is not money itself; it is a tool used to access and transfer funds from a bank account, which are considered money.

Question 6

If the Fed increases the discount rate,
A)commercial banks pay a lower interest rate if they borrow from the Fed.
B)commercial banks increase their lending to the Fed.
C)commercial banks pay a higher interest rate if they borrow from the Fed.
D)commercial banks' assets increase.
E)commercial banks find it more profitable to increase their loans to businesses.

Accepted Answer

When the Fed increases the discount rate, commercial banks have to pay a higher interest rate to borrow from the Fed, making borrowing more expensive.

Question 7

A commercial bank's reserves are equal to the amount of
A)currency in the bank's vault plus the balance on its reserve account at a Federal Reserve Bank.
B)the bank's loans.
C)only the currency in its vault.
D)the bank's deposits.
E)the bank's government securities.

Accepted Answer

A commercial bank's reserves consist of the currency in the bank's vault plus the balance on its reserve account at a Federal Reserve Bank.

Question 8

A commercial bank's main goal is to
A)open checking accounts.
B)help the government when it needs money.
C)lend money to the Federal Reserve banks.
D)provide loans to its customers.
E)maximize the wealth of its stockholders.

Accepted Answer

The primary goal of a commercial bank, like any for-profit business, is to maximize the wealth of its stockholders by generating profits through various financial services, including loans and investments.

Question 9

If the Fed sells government securities to a member of the nonbank public, then the resulting effect on the quantity of money is
A)the same as if the securities were sold to a bank.
B)much smaller than if the securities were sold to a bank.
C)much larger than if the securities were sold to a bank.
D)that there is no change in the quantity of money.
E)None of the above answers are correct.

Accepted Answer

The answer of If the Fed sells government securities to...

Question 10

During the 2008 financial crisis, banks restricted_{--------------------}and the M2 money multiplier_{--------------------} A)lending; increased B)lending; decreased C)deposits; decreased D)deposits; increased E)buying securities; increased

Accepted Answer

During the 2008 financial crisis, banks restricted lending due to increased risk and uncertainty, leading to a decrease in the M2 money multiplier as the velocity of money circulation slowed down.

Question 11

The desired reserve ratio is 3 percent. Robert deposits $3,000 in Bank America. Bank America keeps its minimum desired reserves and lends the excess to Fredrica. How much does Bank America lend to Fredrica?
A)$3,000
B)$2,910
C)$2700
D)$900
E)$300

Accepted Answer

The desired reserve ratio is 3 percent, so Bank America must keep $3,000 * 0.03 = $90 as reserves. It can lend the remaining $3,000 - $90 = $2,910 to Fredrica.

Question 12

The Fed buys $100 million U.S. government securities from Bank of America. Bank of America's balance sheet shows this transaction as _{--------------------}in total assets and _{--------------------}in reserves. A)a $100 million increase; no change B)no change; a $100 million decrease C)a $100 million increase; a $100 million increase D)a $100 million decrease; a $100 million decrease E)no change; a $100 million increase

Accepted Answer

When the Fed buys securities, Bank of America's reserves increase by $100 million, but its total assets remain unchanged as the securities are replaced by reserves.

Question 13

Checkable deposits are money because
A)only banks and other financial institutions can offer them.
B)they are protected by the Federal Reserve.
C)they are guaranteed by banks.
D)they can be converted into currency on demand and are used directly as a means of payment.
E)checks bounce when there are not enough funds to cash them.

Accepted Answer

Checkable deposits are considered money because they can be converted into currency on demand and are used directly as a means of payment, functioning as a medium of exchange.

Question 14

Actual reserves are equal to
A)required reserves plus fractional deposits.
B)minimum balances plus desired reserves.
C)excess reserves plus liabilities.
D)desired reserves plus excess reserves.
E)government securities plus cash in the bank's vault.

Accepted Answer

Actual reserves are the sum of desired reserves (required reserves) and excess reserves that a bank holds.

Question 15

Money market mutual funds
A)are included in M1 and M2.
B)are included in M2 but not M1.
C)are included in M1 but not M2.
D)are the largest part of the monetary base.
E)None of the above are correct.

Accepted Answer

Money market mutual funds are included in M2, which encompasses savings deposits, money market mutual funds, and other near money, but not in M1, which includes only the most liquid forms of money like cash and checking deposits.

Question 16

_{--------------------}like a check and_{--------------------}considered money. A)E-checks work; are B)E-cash works; is C)Debit cards work; are D)E-cash works; is not E)Debit cards work; are not

Accepted Answer

The answer of _{--------------------}like a check and_{--------------------}considered money. A)E-checks work;...

Question 17

Suppose the currency drain ratio is 33.33 percent and the desired reserve ratio is 10 percent. The money multiplier equals
A)3.08.
B)6.67.
C)3.00.
D)4.27.
E)2.50.

Accepted Answer

The money multiplier is calculated as 1/(currency drain ratio + desired reserve ratio). In this case, the money multiplier is 1/(0.3333 + 0.10) = 3.08.

Question 18

Excess reserves are the
A)same as the required reserves.
B)amount of reserves the Fed requires banks to hold.
C)amount of reserves a bank holds at the Fed.
D)amount of reserves banks keep in their vaults.
E)amount of reserves held over what is desired.

Accepted Answer

Excess reserves are the reserves that banks hold over and above the required reserves set by the central bank.

Question 19

If the Fed purchases securities in the amount of $100,000 from First Union Bank, then the
A)assets of First Union Bank decrease by $100,000.
B)assets of the Fed decrease by $100,000.
C)liabilities of the Fed change in composition but not in amount.
D)assets of First Union Bank change in composition but not in the amount.
E)liabilities of First Union decrease by $100,000.

Accepted Answer

When the Fed purchases securities from First Union Bank, the bank's assets change in composition (from securities to reserves or cash) but not in the total amount.

Question 20

When we put a price tag on goods and services, we are using money as a
A)store of value.
B)unit of account.
C)barter token.
D)medium of exchange.
E)means of payment.

Accepted Answer

Money serves as a unit of account when it is used to assign a price to goods and services, allowing for a standard measure of value.

Quiz 11: The Monetary System

For anything to be considered money it must be

When the First Bank of Townsville makes a loan, it

When the Fed sells $100 million of securities to a commercial bank the

Suppose the Fed sells $100 of government securities. If the desired reserve ratio is 20 percent and there is no currency drain, then the quantity of money

A debit card is

If the Fed increases the discount rate,

A commercial bank's reserves are equal to the amount of

A commercial bank's main goal is to

If the Fed sells government securities to a member of the nonbank public, then the resulting effect on the quantity of money is

During the 2008 financial crisis, banks restricted--------------------and the M2 money multiplier--------------------

The desired reserve ratio is 3 percent. Robert deposits $3,000 in Bank America. Bank America keeps its minimum desired reserves and lends the excess to Fredrica. How much does Bank America lend to Fredrica?

The Fed buys $100 million U.S. government securities from Bank of America. Bank of America's balance sheet shows this transaction as --------------------in total assets and --------------------in reserves.

Checkable deposits are money because

Actual reserves are equal to

Money market mutual funds

--------------------like a check and--------------------considered money.

Suppose the currency drain ratio is 33.33 percent and the desired reserve ratio is 10 percent. The money multiplier equals

Excess reserves are the

If the Fed purchases securities in the amount of $100,000 from First Union Bank, then the

When we put a price tag on goods and services, we are using money as a

During the 2008 financial crisis, banks restricted_{--------------------}and the M2 money multiplier_{--------------------}

The Fed buys $100 million U.S. government securities from Bank of America. Bank of America's balance sheet shows this transaction as _{--------------------}in total assets and _{--------------------}in reserves.

_{--------------------}like a check and_{--------------------}considered money.