lesson 3

Question 1

is the holdings of currencies, precious metals, and other highly liquid assets used to redeem
national currencies

Answer 1

monetary reserve

Question 2

are the various measurements of the money supply in an economy.

Answer 2

Monetary aggregates

Question 3

Paper money and coin currency in circulation, plus bank reserves held by the central bank; it’s also known as

Answer 3

monetary base

Question 4

are the cash minimums that financial institutions must have on hand to meet central
bank requirements.

Answer 4

Bank reserves

Question 5

is a financial institution whose main source of funds is deposits from customers.

Answer 5

depository institution

Question 6

After World War 2 a new gold exchange standard known as the ______ was negotiated among the
major Western economies.

Answer 6

Bretton Woods Agreement

Question 7

was negotiated in July 1944 by delegates from 44 countries at the United Nations Monetary and Financial Conference held in Bretton Woods, New Hampshire.1

Answer 7

Bretton Woods agreement

Question 8

refer to the two most widely recognized tools used to influence a nation’s economic activity.

Answer 8

Monetary policy and fiscal policy

Question 9

primarily concerned with the management of interest rates and the total supply of money in
circulation.

Answer 9

Monetary policy

Question 10

refers to the steps that governments take in order to influence the direction of the economy.

Answer 10

Fiscal policy

Question 11

The two most widely used means of affecting fiscal policy are:

Answer 11

1. Government Spending Policies:
2. Government Tax Policies:

Question 12

is action by the government to encourage private-sector economic activity.

Answer 12

Economic stimulus

Question 13

Governments can increase the amount of money they spend if they believe there is not enough business activity in an
economy. This is often referred to as…

Answer 13

stimulus spending.

Question 14

They can borrow money by issuing debt securities (like
government bonds) if there are not enough tax receipts to pay for the spending increases, allowing them to
accumulate debt. This is referred to as…

Answer 14

deficit spending

Question 15

is action by the government to encourage private sector economic activity.

Answer 15

Economic stimulus

Question 16

is a form of monetary policy in which a central bank, like the U.S. Federal Reserve,

Answer 16

Quantitative easing (QE)

Question 17

By increasing taxes, governments pull money out of the economy and slow business
activity.

Answer 17

Government Tax Policies:

Question 18

is the mistaken belief that there is a fixed amount of work available in the economy,

Answer 18

lump of labor fallacy