The Monetary System Quiz

25 Questions | By Bogyaroland | Last updated: Mar 20, 2022 | Total Attempts: 36

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1.

Barter
- A.
  
  Is more efficient than money
- B.
  
  Makes trading easier than money.
- C.
  
  Allows greater specialization than money
- D.
  
  None of the above is correct.
2.

Which of the following best illustrates the unit of account function of money?
- A.
  
  You list prices for candy sold on your Web site, sweet-treats.com, in dollars.
- B.
  
  You pay for tickets to a WNBA game with dollars.
- C.
  
  You keep $10 in your backpack for emergencies.
- D.
  
  None of the above is correct.
3.

U.S. currency is currently
- A.
  
  Commodity money with no intrinsic value.
- B.
  
  Fiat money with no intrinsic value.
- C.
  
  Commodity money with intrinsic value.
- D.
  
  Fiat money with intrinsic value.
4.

Since the U.S. government has decreed that U.S. currency is legal tender,
- A.
  
  People may not legally make trades with anything else.
- B.
  
  People are more likely to accept the dollar as a medium of exchange.
- C.
  
  The government must hold enough gold to redeem all currency.
- D.
  
  All of the above are correct.
5.

M1 includes
- A.
  
  Savings deposits
- B.
  
  Money market deposit accounts
- C.
  
  Currency
- D.
  
  All of the above are correct.
6.

Credit cards are
- A.
  
  A method of deferring payment.
- B.
  
  Used as a medium of exchange.
- C.
  
  Part of the M2 money supply.
- D.
  
  Equivalent to debit cards
7.

Which of the following might explain why the United States has so much currency per person?
- A.
  
  Currency may be a preferable store of wealth for criminals.
- B.
  
  U.S. citizens are holding a lot of foreign currency.
- C.
  
  People use credit and debit cards more frequently.
- D.
  
  All of the above help explain the abundance of currency
8.

Which Federal Reserve Bank president is always a voting member of the FOMC?
- A.
  
  Boston
- B.
  
  New York
- C.
  
  Chicago
- D.
  
  All of the above are correct
9.

The Federal Open-market Committee is made up of
- A.
  
  5 of the 12 presidents of the Federal Reserve Regional banks, and the 7 members of the Board of Governors.
- B.
  
  The 12 presidents of the Federal Reserve Regional banks, and the Chair of the Board of Governors
- C.
  
  The 12 presidents of the Federal Reserve Regional banks, and the 7 members of the Board of Governors.
- D.
  
  7 of the 12 presidents of the Federal Reserve Regional banks, and the 5 members of the Board of Governors.
10.

The Fed can influence unemployment in
- A.
  
  The short run, but not the long run
- B.
  
  The short and long run.
- C.
  
  The long run, but not the short run.
- D.
  
  Neither the short nor long run.
11.

On a bank’s T-account,
- A.
  
  Deposits are assets, reserves are liabilities.
- B.
  
  Reserves are assets, deposits are liabilities.
- C.
  
  Both deposits and reserves are assets.
- D.
  
  Both deposits and reserves are liabilities.
12.

If the reserve ratio is 5 percent and a bank receives a new deposit of $500, this bank
- A.
  
  Must increase its required reserves by $500.
- B.
  
  Will initially see its total reserves increase by $25.
- C.
  
  Will be able to make a new loan of $475.
- D.
  
  All of the above are correct.
13.

If the reserve requirement is 10 percent, the Last Bank of Hope
- A.
  
  Is holding excess reserves of $1,000.
- B.
  
  Is in a position to make a new loan of $2000.
- C.
  
  Has required reserves of $2,000.
- D.
  
  Has less reserves than required
14.

If the Last Bank of Hope is holding only the amount of reserves required, the reserve requirement is
- A.
  
  100 percent.
- B.
  
  80 percent.
- C.
  
  20 percent
- D.
  
  12.5 percent.
15.

If the reserve ratio is 25 percent, the money multiplier is
- A.
  
  2
- B.
  
  4
- C.
  
  5
- D.
  
  8
16.

If the reserve ratio is 15 percent, an additional $2,000 of reserves will increase the money supply by
- A.
  
  1,500
- B.
  
  3,000
- C.
  
  13,150
- D.
  
  13,333
17.

Which list contains only actions that decrease the money supply?
- A.
  
  Lower the discount rate, make open-market purchases
- B.
  
  Lower the discount rate, make open-market sales
- C.
  
  Raise the discount rate, make open-market purchases
- D.
  
  Raise the discount rate, make open-market sales
18.

To increase the money supply, the Fed could
- A.
  
  Sell government bonds.
- B.
  
  Decrease the discount rate
- C.
  
  Increase the reserve requirement.
- D.
  
  None of the above is correct.
19.

. In a fractional reserve banking system, an increase in reserve requirements
- A.
  
  Increases both the money multiplier and the money supply
- B.
  
  Increases the money multiplier, but decreases the money supply.
- C.
  
  Decreases both the money multiplier and the money supply
- D.
  
  Decreases the money multiplier, but increases the money supply.
20.

. When the Fed increases the discount rate, banks will borrow
- A.
  
  Less, banks will lend more, and the money supply will decrease
- B.
  
  Less, banks will lend less, and the money supply will decrease
- C.
  
  More, banks will lend more, and the money supply will increase.
- D.
  
  More, banks will lend less, and the money supply will decrease.
21.

The interest rate the Fed charges on loans it makes to banks is called the
- A.
  
  Discount rate.
- B.
  
  Federal funds rate.
- C.
  
  Prime rate.
- D.
  
  FOMC rate.
22.

During the stock market crash of October 1987, the Fed
- A.
  
  Nearly created a financial panic by not acting as a lender of last resort.
- B.
  
  Nearly created a financial panic by raising the discount rate.
- C.
  
  Prevented a financial panic by providing liquidity to the financial system
- D.
  
  Prevented a financial panic by raising reserve requirements.
23.

If the reserve ratio is 10 percent, and banks do not hold excess reserves, when the Fed purchases $10 million of government bonds, bank reserves
- A.
  
  Decrease by $10 million and the money supply eventually decreases by $100 million.
- B.
  
  Decrease by $10 million and the money supply eventually increases by $100 million.
- C.
  
  Increase by $10 million and the money supply eventually decreases by $100 million
- D.
  
  Increase by $10 million and the money supply eventually increases by $100 million.
24.

If banks choose to hold more excess reserves,
- A.
  
  Required reserves in the banking system increase.
- B.
  
  The money multiplier will increase.
- C.
  
  The discount rate will increase
- D.
  
  The money supply falls.
25.

The Fed can directly protect a bank during a bank run by
- A.
  
  Increasing reserve requirements.
- B.
  
  Selling government bonds to the bank.
- C.
  
  Lending reserves to the bank.
- D.
  
  Doing any of the above.