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Chapter 27 The Monetary System

Test A
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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. ANSWE ! d. None of the above is correct. "#$E! % &E#1! ' (B)E*"+,E! 1 AN'(%! #
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Which of the following best ill.strates the .nit of acco.nt f.nction of money/ a. #o. list prices for candy sold on yo.r Web site0 sweet1treats.com0 in dollars. b. #o. pay for tickets to a WNBA game with dollars. c. #o. keep 213 in yo.r backpack for emergencies. d. None of the above is correct. ANSWE ! a. #o. list prices for candy sold on yo.r Web site0 sweet1treats.com0 in dollars. "#$E! % &E#1! * SE*"+(N! 1 (B)E*"+,E! 1 AN'(%! #
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5.S. c.rrency is c.rrently a. commodity money with no intrinsic val.e. b. fiat money with no intrinsic val.e. c. commodity money with intrinsic val.e. d. fiat money with intrinsic val.e. ANSWE ! b. fiat money with no intrinsic val.e. "#$E! % &E#1! ' SE*"+(N! 1 (B)E*"+,E! 1 AN'(%! #
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Since the 5.S. government has decreed that 5.S. c.rrency is legal tender0 a. people may not legally make trades with anything else. b. people are more likely to accept the dollar as a medi.m of e7change. c. the government m.st hold eno.gh gold to redeem all c.rrency. d. All of the above are correct. ANSWE ! b. people are more likely to accept the dollar as a medi.m of e7change. "#$E! % &E#1! ' SE*"+(N! 1 (B)E*"+,E! 1 AN'(%! #
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%1 incl.des a. savings deposits. b. money market deposit acco.nts. c. c.rrency. d. All of the above are correct. ANSWE ! c. c.rrency. "#$E! % &E#1! ' SE*"+(N! 1 (B)E*"+,E! 1 AN'(%! #

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6< *hapter -;="he %onetary System


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*redit cards are a. a method of deferring payment. b. .sed as a medi.m of e7change. c. part of the %- money s.pply. d. e?.ivalent to debit cards. ANSWE ! a. a method of deferring payment. "#$E! % &E#1! ' SE*"+(N! 1 (B)E*"+,E! 1 AN'(%! #
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Which of the following might e7plain why the 5nited States has so m.ch c.rrency per person/ a. *.rrency may be a preferable store of wealth for criminals. b. 5.S. citizens are holding a lot of foreign c.rrency. c. $eople .se credit and debit cards more fre?.ently. d. All of the above help e7plain the ab.ndance of c.rrency. ANSWE ! a. *.rrency may be a preferable store of wealth for criminals. "#$E! % &E#1! ' SE*"+(N! 1 (B)E*"+,E! 1 AN'(%! #
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Which @ederal eserve Bank president is always a voting member of the @(%*/ a. Boston b. New #ork c. *hicago d. All of the above are correct. ANSWE ! b. New #ork "#$E! % &E#1! ' SE*"+(N! - (B)E*"+,E! - AN'(%! #
A

"he @ederal (pen1market *ommittee is made .p of a. 8 of the 1- presidents of the @ederal eserve egional banks0 and the ; members of the Board of Bovernors. b. the 1- presidents of the @ederal eserve egional banks0 and the *hair of the Board of Bovernors. c. the 1- presidents of the @ederal eserve egional banks0 and the ; members of the Board of Bovernors. d. ; of the 1- presidents of the @ederal eserve egional banks0 and the 8 members of the Board of Bovernors. ANSWE ! a. 8 of the 1- presidents of the @ederal eserve egional banks0 and the ; members of the Board of Bovernors. "#$E! % '+@@+*5C"#! 4 &E#1! ' SE*"+(N! - (B)E*"+,E! - AN'(%! #
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"he @ed can infl.ence .nemployment in a. the short r.n0 b.t not the long r.n. b. the short and long r.n. c. the long r.n0 b.t not the short r.n. d. neither the short nor long r.n. ANSWE ! a. the short r.n0 b.t not the long r.n. "#$E! % &E#1! ' SE*"+(N! - (B)E*"+,E! - AN'(%! #
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(n a bankDs "1acco.nt0 a. deposits are assets0 reserves are liabilities. b. reserves are assets0 deposits are liabilities. c. both deposits and reserves are assets. d. both deposits and reserves are liabilities. ANSWE ! b. reserves are assets0 deposits are liabilities. "#$E! % &E#1! ' SE*"+(N! 4 (B)E*"+,E! 4 AN'(%! #

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*hapter -;="he %onetary System 6A


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+f the reserve ratio is 8 percent and a bank receives a new deposit of 28330 this bank a. m.st increase its re?.ired reserves by 2833. b. will initially see its total reserves increase by 2-8. c. will be able to make a new loan of 26;8. d. All of the above are correct. ANSWE ! c. will be able to make a new loan of 26;8. "#$E! % '+@@+*5C"#! 4 &E#1! E SE*"+(N! 4 (B)E*"+,E! 4 AN'(%! # Cast Bank of :ope Assets Ciabilities eserves 2-0333 'eposits 2130333 Coans 2<0333
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+f the reserve re?.irement is 13 percent0 the Cast Bank of :ope a. is holding e7cess reserves of 210333. b. is in a position to make a new loan of 2-333. c. has re?.ired reserves of 2-0333. d. has less reserves than re?.ired. ANSWE ! a. is holding e7cess reserves of 210333 "#$E! % '+@@+*5C"#! 4 &E#1! E SE*"+(N! 4 (B)E*"+,E! 4 +NS" 5*"+(N! - AN'(%! N
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+f the Cast Bank of :ope is holding only the amo.nt of reserves re?.ired0 the reserve re?.irement is a. 133 percent. b. <3 percent. c. -3 percent. d. 1-.8 percent. ANSWE ! c. -3 percent. "#$E! % &E#1! E SE*"+(N! 4 (B)E*"+,E! 4 +NS" 5*"+(N! - AN'(%! N
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+f the reserve ratio is -8 percent0 the money m.ltiplier is a. -. b. 6. c. 8. d. <. ANSWE ! b. 6. "#$E! % &E#1! E SE*"+(N! 4 (B)E*"+,E! 4 AN'(%! #
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+f the reserve ratio is 18 percent0 an additional 2-0333 of reserves will increase the money s.pply by a. 210833. b. 240333. c. 2140183. d. 2140444. ANSWE ! d. 2140444. "#$E! % &E#1! E SE*"+(N! 4 (B)E*"+,E! 6 AN'(%! #
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Which list contains only actions that decrease the money s.pply/ a. lower the disco.nt rate0 make open1market p.rchases b. lower the disco.nt rate0 make open1market sales c. raise the disco.nt rate0 make open1market p.rchases d. raise the disco.nt rate0 make open1market sales ANSWE ! d. raise the disco.nt rate0 make open1market sales "#$E! % &E#1! ' SE*"+(N! 4 (B)E*"+,E! 6 AN'(%! #

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83 *hapter -;="he %onetary System


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"o increase the money s.pply0 the @ed co.ld a. sell government bonds. b. decrease the disco.nt rate. c. increase the reserve re?.irement. d. None of the above is correct. ANSWE ! b. decrease the disco.nt rate. "#$E! % &E#1! ' SE*"+(N! 4 (B)E*"+,E! 6 AN'(%! #
1A

+n a fractional reserve banking system0 an increase in reserve re?.irements a. increases both the money m.ltiplier and the money s.pply. b. increases the money m.ltiplier0 b.t decreases the money s.pply. c. decreases both the money m.ltiplier and the money s.pply. d. decreases the money m.ltiplier0 b.t increases the money s.pply. ANSWE ! c. decreases both the money m.ltiplier and the money s.pply. "#$E! % &E#1! * SE*"+(N! 4 (B)E*"+,E! 6 AN'(%! #
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When the @ed increases the disco.nt rate0 banks will borrow a. less0 banks will lend more0 and the money s.pply will decrease. b. less0 banks will lend less0 and the money s.pply will decrease. c. more0 banks will lend more0 and the money s.pply will increase. d. more0 banks will lend less0 and the money s.pply will decrease. ANSWE ! b. less0 banks will lend less0 and the money s.pply will decrease. "#$E! % &E#1! * SE*"+(N! 4 (B)E*"+,E! 6 AN'(%! #
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"he interest rate the @ed charges on loans it makes to banks is called the a. disco.nt rate. b. federal f.nds rate. c. prime rate. d. @(%* rate. ANSWE ! a. disco.nt rate. "#$E! % &E#1! ' SE*"+(N! 4 (B)E*"+,E! 6 AN'(%! #
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'.ring the stock market crash of (ctober 1A<;0 the @ed a. nearly created a financial panic by not acting as a lender of last resort. b. nearly created a financial panic by raising the disco.nt rate. c. prevented a financial panic by providing li?.idity to the financial system. d. prevented a financial panic by raising reserve re?.irements. ANSWE ! c. prevented a financial panic by providing li?.idity to the financial system. "#$E! % &E#1! * SE*"+(N! 4 (B)E*"+,E! 6 AN'(%! #
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+f the reserve ratio is 13 percent0 and banks do not hold e7cess reserves0 when the @ed p.rchases 213 million of government bonds0 bank reserves a. decrease by 213 million and the money s.pply event.ally decreases by 2133 million. b. decrease by 213 million and the money s.pply event.ally increases by 2133 million. c. increase by 213 million and the money s.pply event.ally decreases by 2133 million. d. increase by 213 million and the money s.pply event.ally increases by 2133 million. ANSWE ! d. increase by 213 million and the money s.pply event.ally increases by 2133 million. "#$E! % '+@@+*5C"#! 4 &E#1! E SE*"+(N! 4 (B)E*"+,E! 6 AN'(%! #

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*hapter -;="he %onetary System 81


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+f banks choose to hold more e7cess reserves0 a. re?.ired reserves in the banking system increase. b. the money m.ltiplier will increase. c. the disco.nt rate will increase. d. the money s.pply falls. ANSWE ! d. the money s.pply falls. "#$E! % &E#1! * '+@@+*5C"C#! 4 SE*"+(N! 4 (B)E*"+,E! 6 AN'(%! #
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"he @ed can directly protect a bank d.ring a bank r.n by a. increasing reserve re?.irements. b. selling government bonds to the bank. c. lending reserves to the bank. d. doing any of the above. ANSWE ! c. lending reserves to the bank. "#$E! % &E#1! ' SE*"+(N! 4 (B)E*"+,E! 6 AN'(%! #

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ANSWE ! d. None of the above is correct. "#$E! % &E#1! ' (B)E*"+,E! 1 AN'(%! #
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ANSWE ! a. #o. list prices for candy sold on yo.r Web site0 sweet1treats.com0 in dollars. "#$E! % &E#1! * SE*"+(N! 1 (B)E*"+,E! 1 AN'(%! #
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ANSWE ! b. fiat money with no intrinsic val.e. "#$E! % &E#1! ' SE*"+(N! 1 (B)E*"+,E! 1 AN'(%! #
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ANSWE ! b. people are more likely to accept the dollar as a medi.m of e7change. "#$E! % &E#1! ' SE*"+(N! 1 (B)E*"+,E! 1 AN'(%! #
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ANSWE ! c. c.rrency. "#$E! % &E#1! ' SE*"+(N! 1 (B)E*"+,E! 1 AN'(%! #


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ANSWE ! a. a method of deferring payment. "#$E! % &E#1! ' SE*"+(N! 1 (B)E*"+,E! 1 AN'(%! #
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ANSWE ! a. *.rrency may be a preferable store of wealth for criminals. "#$E! % &E#1! ' SE*"+(N! 1 (B)E*"+,E! 1 AN'(%! #
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ANSWE ! b. New #ork "#$E! % &E#1! ' SE*"+(N! - (B)E*"+,E! - AN'(%! #


A

ANSWE ! a. 8 of the 1- presidents of the @ederal eserve egional banks0 and the ; members of the Board of Bovernors. "#$E! % '+@@+*5C"#! 4 &E#1! ' SE*"+(N! - (B)E*"+,E! - AN'(%! #
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ANSWE ! a. the short r.n0 b.t not the long r.n. "#$E! % &E#1! ' SE*"+(N! - (B)E*"+,E! - AN'(%! #
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ANSWE ! b. reserves are assets0 deposits are liabilities. "#$E! % &E#1! ' SE*"+(N! 4 (B)E*"+,E! 4 AN'(%! #
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ANSWE ! c. will be able to make a new loan of 26;8. "#$E! % '+@@+*5C"#! 4 &E#1! E SE*"+(N! 4 (B)E*"+,E! 4 AN'(%! #
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ANSWE ! a. is holding e7cess reserves of 210333 "#$E! % '+@@+*5C"#! 4 &E#1! E SE*"+(N! 4 (B)E*"+,E! 4 +NS" 5*"+(N! - AN'(%! N
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ANSWE ! c. -3 percent. "#$E! % &E#1! E SE*"+(N! 4 (B)E*"+,E! 4 +NS" 5*"+(N! - AN'(%! N

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ANSWE ! b. 6. "#$E! % &E#1! E SE*"+(N! 4 (B)E*"+,E! 4 AN'(%! #


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ANSWE ! d. 2140444. "#$E! % &E#1! E SE*"+(N! 4 (B)E*"+,E! 6 AN'(%! #


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ANSWE ! d. raise the disco.nt rate0 make open1market sales "#$E! % &E#1! ' SE*"+(N! 4 (B)E*"+,E! 6 AN'(%! #
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ANSWE ! b. decrease the disco.nt rate. "#$E! % &E#1! ' SE*"+(N! 4 (B)E*"+,E! 6 AN'(%! #
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ANSWE ! c. decreases both the money m.ltiplier and the money s.pply. "#$E! % &E#1! * SE*"+(N! 4 (B)E*"+,E! 6 AN'(%! #
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ANSWE ! b. less0 banks will lend less0 and the money s.pply will decrease. "#$E! % &E#1! * SE*"+(N! 4 (B)E*"+,E! 6 AN'(%! #
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ANSWE ! a. disco.nt rate. "#$E! % &E#1! ' SE*"+(N! 4 (B)E*"+,E! 6 AN'(%! #


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ANSWE ! c. prevented a financial panic by providing li?.idity to the financial system. "#$E! % &E#1! * SE*"+(N! 4 (B)E*"+,E! 6 AN'(%! #
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ANSWE ! d. increase by 213 million and the money s.pply event.ally increases by 2133 million. "#$E! % '+@@+*5C"#! 4 &E#1! E SE*"+(N! 4 (B)E*"+,E! 6 AN'(%! #
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ANSWE ! d. the money s.pply falls. "#$E! % &E#1! * '+@@+*5C"C#! 4 SE*"+(N! 4 (B)E*"+,E! 6 AN'(%! #
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ANSWE ! c. lending reserves to the bank. "#$E! % &E#1! ' SE*"+(N! 4 (B)E*"+,E! 6 AN'(%! #