Chapter 9

Question 1

Hassan and Kevin buy the same pair of sneakers, but each in the wrong size. Hassan proposes a size swap with Kevin. This is an example of

Answer 1

barter, since the sneakers in the correct size have intrinsic value to both Hassan and Kevin.

Question 2

When you list prices for necklaces sold on your website, www.sparklingjewels.com, in dollars, this best illustrates money’s function as

Answer 2

a unit of account.

Question 3

Which of the following is included in M2 but not in M1?

Answer 3

Small time deposits

Question 4

Hideo and Hannah decide to go on a vacation. As a result, they withdraw $5,000 from their savings account to purchase $5,000 worth of traveler’s checks. As a result of these changes,

Answer 4

M1 increases by $5,000 and M2 stays the same.

Question 5

When conducting an open-market sale, the Fed

Answer 5

sells government bonds, and in so doing decreases the money supply.

Question 6

In a system of 100-percent-reserve banking,

Answer 6

banks do not influence the supply of money.

Question 7

If a bank with a required reserve ratio of 15 percent receives a deposit of $600, it now has a

Answer 7

$510 increase in excess reserves and a $90 increase in required reserves.

Question 8

If the reserve ratio is 5 percent, then $500 of additional reserves would ultimately generate

Answer 8

$10,000 of money.

Question 9

Which of the following policies can the Fed follow to increase the money supply?

Answer 9

Reduce the interest rate on reserves

Question 10

If the public decides to hold more currency and fewer deposits in banks, bank reserves

Answer 10

decrease and the money supply eventually decreases.