The Monetary System Quiz
- 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.
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