Money
Is more efficient than barter, makes trade easier, and allows greater specialization
Paper money
is valuable because it is generally accepted in trade
Barter
Requires a double-coincidence of wants, is less efficient than money, is the trading of goods for goods
When Arnold use dollars to record his income and expenses, he is using money as a
Unit of account
Which of the following is a store of value?
Currency, U.S. government bonds, fine art (All of the above)
Which of the following best illustrates the unit of account function of money?
You list prices for candy sold on your Web site, www.sweettooth.com, in dollars
Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate?
Store of value
Which of the following best illustrates the medium of exchange function of money?
You pay for your double latte using currency
Economists use the word "money" to refer to
Those assets regularly used to buy goods and services
Liquidity refers to
The ease with which an asset is converted to the medium of exchange
Which list ranks assets from most to least liquid
Currency, stocks, fine art
Current U.S. currency is
Fiat money with no intrinsic value
Fiat currency
has no intrinsic value
Commodity money is
Money with intrinsic value
Fiat money
Has no intrinsic value
Which type of currency has intrinsic value?
Commodity money
The legal tender requirement means that
People are more likely to accept the dollar as a medium of exchange
M1 includes
Currency, demand deposits, travelers' checks
Which of the following is not included in M1?
Savings deposits
Which of the following is included in M2 but not in M1?
Savings deposits
Which of the following is included in M2 but not in M1?
Money market mutual funds
Which of the following is included in the M2 definition of the money supply?
Money market mutual funds
Money market mutual funds are included in
M2 but not M1
Demand deposits are included in
M1 and M2
Credit card balances are included in
Neither M1 nor M2
M1 is
Smaller but more liquid than M2
Savings deposits are included in
M2 but not M1
Credit cards are
A method of deferring payment
Credit cards
Defer payments
Debit cards
Are used as a method of payment
The amount of currency per person in the United States is about
$2,800
Which of the following might explain why the United States has so much currency per person?
Currency may be a preferable store of wealth for criminals
In the United States, per person
Average holdings of currency are about $2,800. One explanation for this relatively large amount is that criminal may prefer currency as a medium of exchange
Given the size of the U.S. money stock, it is puzzling that
There is so much currency per person
The agency responsible for regulating the money supply in the United States is
The Federal Reserve
The Federal Reserve does all except which of the following?
Make loans to individuals (Other answers: Control the supply of money, control the value of money, regulate the banking system)
Members of the Board of Governors
Are appointed by the U.S. president, while presidents of the Federal Reserve regional banks are appointed by the banks' board of directors
Which of the following pairs correctly lists a function of the Fed and the part of the Fed directly responsible for that action?
Conduct open market operations - New York Federal Reserve Bank
Which part of the Fed meets every six weeks to discuss changes in the economy and determine monetary policy?
The FOMC
The New York Federal Reserve Bank
President always gets to vote at the FOMC meetings, conducts open market transactions, is located in the traditional financial center of the United States
The Board of Governors
Are appointed by the president and confirmed by the Senate
Which of the following is correct?
The Federal Reserve has 12 regional banks. The Board of Governors has 7 members who serve 14-year terms.
Which of the following statements about the Federal Reserve is incorrect?
The members of the Board of Governors are also presidents of the Federal Reserve's regional banks
Which of the following has a four-year term?
the Chair of the Board of Governors
The 12 regional Federal Reserve Banks
Regulate banks in their districts
The Fed does all except which of the following?
Convert Federal Reserve Notes into gold (Others: Conduct monetary policy, act as a lender of last resort)
The Federal Open Market Committee is made up of
5 of the 12 presidents of the Federal Reserve Regional banks, and the 7 members of the Board of Governors
Which of the following is not always a voting member of the FOMC?
The president of the Boston Federal Reserve District Bank (Others: the president of the New York Federal Reserve District Bank, the Chairman of the Board of Governors, the newest member of the Board of Governors)
Fed policy decisions have an important influence on
The rate of inflation in the long run and the level of employment in the short run
When the Fed wants to change the money supply, it most frequently
Conducts open market operations
When the Federal Reserve conducts open market transactions, it
Buys or sells government bonds from the public
When the Fed conducts open market purchases,
It buys Treasury securities, which increases the money supply
When the Fed conducts open market sales,
It sells Treasury securities, which decreases the money supply
The Fed can increase the money supply by conducting open market
Purchases and lowering the discount rate
The Fed can influence unemployment in
The short run, but not the long run
There is a
Short-run tradeoff between inflation and unemployment
In a 100-percent-reserve banking system,
Banks hold as many reserves as they hold deposits
On a bank's T-account
Reserves are assets, deposits are liabilities
Suppose that the reserve ratio is 5 percent and that a bank has $1,000 in deposits. Its required reserves are
$50
Suppose that the reserve ratio is 10 percent and that a bank has $2,000 in deposits. Its required reserves are
$200
Suppose a bank has a 10 percent reserve ratio, $5,000 in deposits, and it loans out all it can given the reserve ratio
It has $400 in reserves and $3,600 in loans
Suppose a bank has a $10,000 in deposits and $8,000 in loans. It has a reserve ratio of
20 percent
Suppose a bank has $200,000 in deposits and $190,000 in loans. It has a reserve ratio of
5 percent
If you deposit $100 into a demand deposit at a bank, this action by itself
Does not change the money supply
When a bank loans out $1,000, the money supply
increases
Under a fractional reserve banking system, banks
Generally lend out a majority of the funds deposited
If the reserve ratio is 5 percent and a bank receives a new deposit of $500, this bank
Must increase its required reserves by $25, will initially see its total reserves increase by $500, will be able to make a new loan of $475
If the reserve ratio is 10 percent and a bank receives a new deposit of $10, this bank
Must increase required reserves by $1
If the reserve ratio is 5 percent and a bank receives a new deposit $200, it
will be able to make new loans up to a maximum of $190
If you deposit $3,000 into First Hawkeye Bank, the
Banks required reserves increase by the reserve ratio times $3,000
In 1991 the Federal Reserve lowered the reserve requirement ratio from 12 percent to 10 percent. Other things the same this should have
Increased both the money multiplier and the money supply
The Last Bank of Cedar Bend is holding $10,000 in excess reserves, the reserve requirement is
10 percent
If a bank uses $80 of reserves to make a new loan when the reserve ratio is 25 percent
The level of wealth in the economy will not change
If a bank uses $100 of reserves to make a new loan when the reserve ratio is 20 perfect, this action by itself makes the money supply
Increase by $100 while wealth does not change
As the reserve ratio increases, the money multiplier
Decreases
If the central bank in some country lowered the reserve ratio, the money multiplier
Would increase
If the reserve ratio is 10 percent, the money multiplier is
10
If the reserve ratio is 20 percent, the money multiplier is
5
If the reserve ratio increased from 10 percent to 20 percent, the money multiplier
Would fall from 10 to 5
If the reserve ratio is 10 percent, $1,000 of excess reserves can create
$10,000 of new money
If the reserve ratio is 15 percent, an additional $1,000 of reserves will increase the money supply, to the nearest dollar, by
$6,667
In Wellville, the money supply is $80,000 and reserves are $18,000. Assuming that people hold only deposits and no currency and that banks hold only required reserves, the required reserve ratio is
22.5 percent
If the reserve ratio is 100 percent, deposits $500 of paper money in a bank will eventually increase the money supply by
$0
Which list contains only actions that increase the money supply?
Lower the discount rate, lower the reserve requirement ratio
Which list contains only actions that increase the money supply?
Lower the discount rate, make open market purchases
Which list contains only actions that increase the money supply?
Make open market purchases, lower the reserve requirement ratio
Which list contains actions that decrease the money supply?
Raise the discount rate, make open market sales, raise the reserve requirement ratio
Which of the following lists ranks the Fed's monetary policy tools from most to least frequently used?
Open market transactions, discount rate changes, reserve requirement changes
If the Fed wanted to increase the money supply, it would make open market
purchases and lower the discount rate
Which of the following is false
Banks determine the reserve requirement
Which of the following is not a tool of monetary policy?
Increasing the deficit
To increase the money supply, the Fed could
Decrease the reserve requirement, decrease the discount rate
To decrease the money supply, the Fed could
Sell government bonds, increase the discount rate, increase the reserve requirement
When the Fed conducts open market purchases, bank reserves
Increase and banks can increase lending
If the Fed sells government bond to the public, bank reserves tend to
Decrease and the money supply decreases
In a fractional reserve banking system, an increase in reserve requirements
Decreases both the money multiplier and the money supply
In a fractional reserve banking system, a decrease in reserve requirements
Increases both the money multiplier and the money supply
Reserve requirements are regulations concerning
The amount of reserves banks must hold against deposits
If reserve requirements are increased, the reserve ratio
Increases, the money multiplier decreases, and the money supply decreases
If the reserve requirements are decreased, the reserve ratio
Decreases, the money multiplier increases, and the money supply increases
If the discount rate is lowered, banks choose to borrow
More from the Fed so reserves increase
If the discount rate is raised, banks choose to borrow
Less from the Fed so reserves decrease
When the Fed decreases the discount rate, banks will more from the Fed, lend
More to the public, and so the money supply will increase
The discount rate is
The interest rate the Fed charges banks
The interest rate the Fed charges on loans it makes to banks is called
The discount rate
During the stock market crash of October 1987, the Fed
Prevented a financial panic by providing liquidity to the financial system
In a fractional reserve banking system with no excess reserves and no currency holdings, if the central bank buys $100 million of bonds
Reserves increase by $100 million and the money supply increases by more than $100 million
If the reserve ratio is 10 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed purchases $20 million of government bonds, bank reserves
Increase by $20 million and the money supply eventually increases by $200 million
If the reserve ratio is 20 percent and banks do not hold excess reserves, when the Fed sells $40 million of bonds to the public, bank reserves
Decrease by $40 million and the money supply eventually decreases by $200 million
If the reserve ratio is 10 percent and banks do not hold excess reserves, when the Fed sells $10 million dollars of bonds to the public, bank reserves
Decrease by $10 million and the money supply eventually decreases by $100 million
If the public decides to hold more currency and fewer deposits in banks, bank reserves
Decrease and the money supply eventually decreases
During recessions, banks typically choose to hold more excess reserves relative to their deposits. This action
Decreases the money multiplier and decreases the money supply
Which of the following is correct?
The amount of money in economy depends in part on the behavior of banks
During wars the public tends to hold relatively more currency and relatively fewer deposits. This decision makes reserves
And the money supply decrease
In the nineteenth century when there often bank runs caused by crop failures, 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
Currency held by the public
Is part of the money supply, but currency held by banks is not
At one time, the country Aquilonia had no banks, but had currency of $10 million. Then a banking system was established with a reserve requirement of 20 percent. The people of Aquilonia deposited half of their currency into the banking system. If banks do
$30 million
At one time, the country of Freedonia had no banks, but had currency of $40 million. Then a banking system was established with a reserve requirement of one-third. The people of Freedonia now keep half their money in the form of currency and half in the f
$30 million
At one time the country of Sylvania had no banks but had currency of $10 million. Then a banking system was stablished with a reserve requirement of 20 percent. The people of Sylvania now keep half their money in the form of currency and half in the form
$8.33 million