The Monetary System Quiz

25 Questions | Total Attempts: 12

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The Monetary System Quiz


Questions and Answers
  • 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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