True / False
1. In an economy that relies on barter, trade requires a double-coincidence of wants.
a.
True
b.
False
2. Sam wants to trade eggs for sausage. Sally wants to trade sausage for eggs. Sam and Sally have a double-coincidence of
wants.
a.
True
b.
False
3. The use of money allows trade to be roundabout.
a.
True
b.
False
4. Roundabout trade decreases production.
a.
True
b.
False
5. Money allows people to specialize in what they do best, thereby raising everyone’s standard of living.
a.
True
b.
False
6. According to economists, “money” means the same thing as “wealth”.
a.
True
b.
False
7. Gary’s wealth is $1 million. Economists would say that Gary has $1 million worth of money.
a.
True
b.
False
8. Commodity money cannot be used as a unit of account.
a.
True
b.
False
9. Marc puts prices on surfboards and skateboards at his sporting goods store. He is using money as a unit of account.
a.
True
b.
False
10. When you purchase school supplies at the book store using cash, you are using money as a medium of exchange.
a.
True
b.
False
11. Sandra routinely uses currency to purchase her groceries. She is using money as a medium of exchange.
a.
True
b.
False
12. Money is the only asset that functions as a store of value.
a.
True
b.
False
13. Bottles of very fine wine are less liquid than demand deposits.
a.
True
b.
False
14. U.S. dollars are an example of commodity money and hides used to make trades are an example of fiat money.
a.
True
b.
False
15. When the Soviet Union began breaking up in the late 1980s, cigarettes began replacing the ruble as the medium of
exchange even though the ruble was legal tender. The cigarettes provide an example of commodity money.
a.
True
b.
False
16. In order for currency to be widely used as a medium of exchange, it is sufficient for the government to designate it as
legal tender.
a.
True
b.
False
17. Demand deposits are balances in bank accounts that depositors can access by writing a check or using a debit card.
a.
True
b.
False
18. M1 includes savings deposits.
a.
True
b.
False
19. M2 is both larger and less liquid than M1.
a.
True
b.
False
20. One plausible explanation for the large amount of U.S. currency outstanding is that many dollars are held abroad.
a.
True
b.
False
21. Credit cards are a medium of exchange.
a.
True
b.
False
22. A debit card is more similar to a credit card than to a check.
a.
True
b.
False
23. The Federal Reserve was created in 1913 after a series of bank failures in 1907.
a.
True
b.
False
24. The series of bank failures in 1907 occurred despite the creation of the Federal Reserve many years earlier.
a.
True
b.
False
25. The Federal Reserve is a privately operated commercial bank.
a.
True
b.
False
26. Federal Reserve governors are given long terms to insulate them from politics.
a.
True
b.
False
27. The chair of the Board of Governors regularly testifies to Congress about Fed policy.
a.
True
b.
False
28. Members of the Board of Governors are appointed by the president of the U.S. and confirmed by the U.S. Senate.
a.
True
b.
False
29. Members of the Board of Governors of the Federal Reserve System are appointed for life.
a.
True
b.
False
30. Monetary policy is determined by a committee whose voting members include all the presidents of the regional
Federal Reserve Banks.
a.
True
b.
False
31. Fractional reserve banking is a system where banks must hold an amount of cash based on a percentage of its loans.
a.
True
b.
False
32. If banks hold any amount of their deposits in reserve, then they do not have the ability to influence the money supply.
a.
True
b.
False
33. As banks create money, they create wealth.
a.
True
b.
False
34. The money multiplier equals 1/(1 – R), where R represents the reserve ratio.
a.
True
b.
False
35. Assume that when $100 of new reserves enter the banking system, the money supply ultimately increases by $625.
Assume also that no banks hold excess reserves and that the entire money supply consists of bank deposits. If, at a point in
time, reserves for all banks amount to $500, then at that same point in time, loans for all banks amount to $2,625.
a.
True
b.
False
36. Assume that when $100 of new reserves enter the banking system, the money supply ultimately increases by $800.
Assume also that no banks hold excess reserves and that the entire money supply consists of bank deposits. If, at a point in
time, reserves for all banks amount to $750, then at that same point in time, loans for all banks amount to $6,000.
a.
True
b.
False
37. Banks cannot influence the money supply if they are required to hold all deposits in reserve.
a.
True
b.
False
38. In the months of November and December, people in the United States hold a larger part of their money in the form of
currency because they intend to shop and travel for the holidays. As a result, other things the same, the money supply
increases.
a.
True
b.
False
39. Other things the same, if banks decide to hold a smaller part of their deposits as excess reserves, the money supply
will fall.
a.
True
b.
False
40. The Federal Reserve primarily uses open-market operations to change the money supply.
a.
True
b.
False
41. The Federal Reserve can alter the size of the money supply by changing reserves or changing reserve requirements.
a.
True
b.
False
42. If the Fed buys bonds in the open market, the money supply decreases.
a.
True
b.
False
43. The discount rate is the rate the Federal Reserve charges banks for loans. By lowering this rate, the Fed provides
banks with a greater incentive to borrow from it.
a.
True
b.
False
44. Banks can hold deposits at the Federal Reserve. Balances in these accounts can be used by banks to meet their reserve
requirements, but the Fed pays no interest on these deposits.
a.
True
b.
False
45. The money supply of Granov is $10,000 in a 100-percent-reserve banking system. If the Central Bank of Granov
decreases the reserve requirement ratio to 10 percent, the money supply could increase by no more than $9,000.
a.
True
b.
False
46. If the Fed decreases reserve requirements, the money supply will increase.
a.
True
b.
False
47. An increase in the reserve requirement increases reserves and decreases the money supply.
a.
True
b.
False
48. Because of the multiple tools at its disposal, the Fed can control the money supply very precisely.
a.
True
b.
False
49. Bank runs and the accompanying increase in the money multiplier caused the U.S. money supply to rise by 28 percent
from 1929 to 1933.
a.
True
b.
False
50. Currently, bank runs are a major problem for the U.S. banking system and the Fed.
a.
True
b.
False
51. Just after the terrorist attack on September 11, 2001, the Fed stood ready to lend financial institutions funds. When the
Fed did this, it was acting in its role of lender of last resort.
a.
True
b.
False
52. The federal funds rate is a long-term interest rate banks charge one another for loans.
a.
True
b.
False
53. In a system of 100-percent-reserve banking, changes in the money supply depend on the decisions of the Fed as well
as the behavior of depositors and bankers.
a.
True
b.
False
54. Bank runs are only a concern under a fractional-reserve banking system.
a.
True
b.
False
55. The money multiplier is higher when bankers are more cautious and hold excess reserves.
a.
True
b.
False
56. Under a fractional-reserve banking system, the money supply cannot change without any action from the Federal
Reserve.
a.
True
b.
False
57. Under a 100-percent-reserve banking system, banks do not influence the supply of money.
a.
True
b.
False