Chapter 16: The Monetary System

Question 1

As opposed to a payments system
based on barter, a payments system
based on money:
a. requires a double coincidence of wants.
b. leads to less specialization.
c. makes trades less costly.
d. None of the above is correct.

Answer 1

c

Question 2

Money is the most liquid asset available because

a. it is a store of value.
b. it is a medium of exchange.
c. it is a unit of account.
d. it has intrinsic value.

Answer 2

b

Question 3

Which of the following is a function of money?

a. a unit of account
b. a store of value
c. medium of exchange
d. All of the above are correct.

Answer 3

d

Question 4

Which list ranks assets from most to least liquid?

a. money, bonds, cars, houses
b. money, cars, houses, bonds
c. bonds, money, cars, houses
d. bonds, cars, money, houses

Answer 4

a

Question 5

M1 includes

a. currency.
b. demand deposits.
c. traveler’s checks.
d. All of the above are correct.

Answer 5

d

Question 6

Which of the following is not included in
M1?
a. currency
b. demand deposits
c. traveler’s checks
d. credit cards

Answer 6

d

Question 7

Which of the following items is included in M2?

a. credit cards
b. money market mutual funds
c. corporate bonds
d. large time deposits

Answer 7

b

Question 8

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.

Answer 8

c

Question 9

On a bank’s T-account, which are part of the banks liabilities?

a. both deposits made by its customers and reserves
b. deposits made by its customers but not reserves
c. reserves but not deposits made by its customers
d. neither deposits made by its customers nor reserves

reserve (v) dự trữ

Answer 9

b

Question 10

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.

Answer 10

a

Question 11

A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of $100. If customers deposit $50 into the bank, what is the value of the money supply?

a. $50
b. $100
c. $150
d. $200

Answer 11

b

Question 12

If $300 of new reserves generates $800 of new money in the economy, then the reserve ratio is

a. 2.7 percent.
b. 12.5 percent.
c. 37.5 percent.
d. 40 percent.

Answer 12

c

deposit (liabilities) / reserves (assets) = reserve ratio

Question 13

If the reserve ratio is 10 percent, the money multiplier is

a. 100.
b. 10.
c. 9/10.
d. 1/10.

Answer 13

b

Money multiplier = 1/R = 1/0.1 = 10

Question 14

If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 10 percent receives a deposit of $400 it has a

a. $400 increase in excess reserves and no increase in required reserves.
b. $400 increase in required reserves and no increase in excess reserves.
c. $360 increase in excess reserves and a $40 increase in required reserves.
d. $40 increase in excess reserves and a $360 increase in required reserves.

Answer 14

c

Question 15

A bank has $10,000 in deposits and $8,000 in loans. It has loaned out all it can given the reserve requirement. It follows that the reserve requirement is

a. 2 percent.
b. 12.5 percent.
c. 20 percent.
d. 80 percent.

Answer 15

c

Question 16

When the Fed conducts open-market purchases,

a. it buys Treasury securities, which increases the money supply.
b. it buys Treasury securities, which decreases the money supply.
c. it borrows money from member banks, which increases the money supply.
d. it lends money to member banks, which decreases the money supply.

Answer 16

a

Question 17

The interest rate that the Fed charges
banks that borrow reserves from it is the
a. federal funds rate.
b. discount rate.
c. reserve requirement.
d. prime rate.

Answer 17

b