Question 1

The money multiplier is approximated as being equal to:

Accepted Answer

A)   one divided by the reserve ratio.
B)   one divided by the federal funds.
C)   demand deposits multiplied by the interest rate.
D)   demand deposits multiplied by the reserve ratio.E) B) and D)
F) None of the above

Question 2

If people decide to hold some of their cash and not deposit it, then the:

Accepted Answer

A)   money multiplier overestimates how much money will be created in the economy.
B)   money multiplier underestimates how much money will be created in the economy.
C)   reserve ratio is not fully functioning, and should be raised.
D)   reserve ratio is not fully functioning, and should be lowered.E) C) and D)
F) B) and D)

Question 3

Which measure of money would we most likely use if we were interested in looking at spending in the economy?

Accepted Answer

A)   Hard money
B)   M1
C)   M2
D)   Reserves.E) C) and D)
F) None of the above

Question 4

An essential function of a central bank is to:

Accepted Answer

A)   manage the money supply.
B)   collect taxes.
C)   issue debt.
D)   control and monitor government budgets.E) A) and D)
F) B) and C)

Question 5

We know how many dollars banks create using the:

Accepted Answer

A)   money multiplier.
B)   federal funds.
C)   demand deposits.
D)   interest rate.E) B) and C)
F) A) and C)

Question 6

When contractionary monetary policy increases the interest rate, it causes the price level to:

Accepted Answer

A)   decrease, and output to decrease.
B)   rise, and output to increase.
C)   decrease, and output to increase.
D)   rise, and output to decrease.E) A) and D)
F) None of the above

Question 7

The discount rate is typically:

Accepted Answer

A)   higher than federal funds rate.
B)   lower than federal funds rate.
C)   about the same as federal funds rate.
D)   determined by the government, and does not correlate with other interest rates.E) All of the above
F) B) and C)

Question 8

We say that money is a unit of account because it represents:

Accepted Answer

A)   a certain amount of purchasing power held over time.
B)   something you can use to purchase goods and services.
C)   something you can directly offer, like any good or service, in exchange for some good or service you want.
D)   a standard unit of comparison.E) A) and C)
F) None of the above

Question 9

The interest rate charged for loans through the discount window is called the:

Accepted Answer

A)   discount rate.
B)   reserve rate.
C)   interest rate.
D)   prime rate.E) None of the above
F) A) and D)

Question 10

Expansionary monetary policy:

Accepted Answer

A)   decreases the interest rate and increases the price level.
B)   decreases the interest rate and decreases the price level.
C)   increases the interest rate and increases the price level.
D)   increases the interest rate and decreases the price level.E) A) and D)
F) A) and C)

Question 11

Commodity-backed money is:

Accepted Answer

A)   any form of money that can be legally exchanged into a fixed amount of an underlying commodity.
B)   money created by rule.
C)   money used for the exchange of large commodities.
D)   any form of money that also has a role as a commodity.E) None of the above
F) A) and B)

Question 12

In order to change the money supply, the Fed might use which of the following tools?

Accepted Answer

A)   Dual mandate
B)   Reserve requirement
C)   Fiscal policy
D)   Deficit spendingE) B) and D)
F) All of the above

Question 13

The nominal interest rate is determined by:

Accepted Answer

A)   the point where the supply of money meets the demand for money.
B)   the Fed.
C)   the Treasury.
D)   inflation.E) B) and C)
F) All of the above

Question 14

If the Fed were to change the reserve requirement in an effort to increase the money supply, they would:

Accepted Answer

A)   increase the reserve requirement.
B)   decrease the reserve requirement.
C)   open the discount window longer.
D)   increase the discount rate.E) A) and B)
F) B) and C)

Question 15

In the United States, the dollar was commodity backed by:

Accepted Answer

A)   gold.
B)   silver.
C)   oil.
D)   diamonds.E) A) and B)
F) A) and C)

Question 16

Funds held in bank accounts that can be withdrawn by depositors at any time without advance notice are called:

Accepted Answer

A)   demand deposits.
B)   required reserves.
C)   free funds.
D)   flow funds.E) A) and D)
F) B) and C)

Question 17

The reserve requirement is:

Accepted Answer

A)   the regulation that sets the minimum fraction of deposits banks must hold in reserve.
B)   the dollar amount of cash banks must keep on hand and not loan out.
C)   currently set at $2 million for most banks.
D)   a loose guideline for how much banks must hold in reserves.E) B) and C)
F) A) and D)

Question 18

Bartering is:

Accepted Answer

A)   very efficient compared to using money.
B)   slightly inefficient compared to using money.
C)   just as efficient as using money.
D)   extremely inefficient compared to using money.E) B) and D)
F) A) and B)

Question 19

If we wanted to consider all the money that had been "multiplied" in the economy, we would think about:

Accepted Answer

A)   hard money.
B)   M1.
C)   M2.
D)   None of these.E) A) and B)
F) All of the above

Question 20

Your checking account balance would be counted in which measure of money?

Accepted Answer

A)   M1
B)   M2
C)   Hard money
D)   It would be counted in both M1 and M2E) C) and D)
F) A) and D)

Exam 15: Money and the Monetary System

Funds held in bank accounts that can be withdrawn by depositors at any time without advance notice are called:

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The money multiplier is approximated as being equal to:

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In order to change the money supply, the Fed might use which of the following tools?

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In the United States, the dollar was commodity backed by:

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The discount rate is typically:

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Bartering is:

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When contractionary monetary policy increases the interest rate, it causes the price level to:

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Your checking account balance would be counted in which measure of money?

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An essential function of a central bank is to:

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Expansionary monetary policy:

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If we wanted to consider all the money that had been "multiplied" in the economy, we would think about:

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We know how many dollars banks create using the:

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Commodity-backed money is:

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If the Fed were to change the reserve requirement in an effort to increase the money supply, they would:

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We say that money is a unit of account because it represents:

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If people decide to hold some of their cash and not deposit it, then the:

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The nominal interest rate is determined by:

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The reserve requirement is:

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Which measure of money would we most likely use if we were interested in looking at spending in the economy?

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The interest rate charged for loans through the discount window is called the:

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