ch 16 – Flashcards

Money allows people to specialize in what they do best, thereby raising everyone's standard of living.

Gary's wealth is $1 million. Economists would say that Gary has $1 million worth of money.

Bottles of very fine wine are less liquid than demand deposits.

One plausible explanation for the large amount of U.S. currency outstanding is that many dollars are held abroad.

If banks hold any amount of their deposits in reserve, then they do not have the ability to influence the money supply

If the Fed buys bonds in the open market, the money supply decreases.

If the Fed decreases reserve requirements, the money supply will increase.

Currently, bank runs are a major problem for the U.S. banking system and the Fed

Economists use the term "money" to refer to a. all wealth. b. all assets, including real assets and financial assets. c. all financial assets, but not real assets. d. those types of wealth that are regularly accepted by sellers in exchange for goods and services.

Which of the following best illustrates the concept of a store of value? a. You are a precious-metals dealer, and you are always aware of how many ounces of platinum trade for an ounce of gold. b. You sell items on eBay, and your prices are stated in terms of dollars. c. You keep 6 ounces of gold in your safe-deposit box at the bank for emergencies. d. None of the above is correct.

Which of the following is both a store of value and regularly used as a medium of exchange? a. cash and stocks b. cash but not stocks c. stocks but not cash d. neither cash nor stocks

Which of the following best illustrates the unit of account function of money? a. You list prices for candy sold on your Web site, www.sweettooth.com, in dollars. b. You pay for your theater tickets with dollars. c. You hold currency even though you don't intend to spend it right away. d. None of the above is correct.

If an economy used gold as money, its money would be a. commodity money, but not fiat money. b. fiat money, but not commodity money. c. both fiat and commodity money. d. functioning as a store of value and as a unit of account, but not as a medium of exchange

People can write checks against a. demand deposits and money market mutual funds b. demand deposits but not money market mutual funds c. money market mutual funds but not demand deposits d. neither demand deposits nor money market mutual funds

Which of the following is not included in M1? a. currency b. demand deposits c. savings deposits d. traveler's checks

Which of the following is included in both M1 and M2? a. savings deposits b. demand deposits c. small time deposits d. money market mutual funds

Savings deposits are included in a. M1 but not M2. b. M2 but not M1. c. M1 and M2. d. neither M1 nor M2.

If traveler's checks were $500 higher and saving deposits were $1,000 higher, M1 would be a. $500 higher and M2 would be $1,000 higher b. $500 higher and M2 would be $1,500 higher c. M2 and M1 would be $1,500 higher d. None of the above are correct.

Which of the following does the Federal Reserve not do? a. conduct monetary policy b. act as a lender of last resort c. convert Federal Reserve Notes into gold d. serve as a bank regulator

The Federal Open Market Committee meets approximately a. every three weeks b. every six weeks c. every 3 months d. every 6 months.

Which of the following is not a reason the New York Federal Reserve Bank president always gets to vote at the Federal Open Market Committee meetings? a. New York is the traditional financial center of the U.S. economy. b. All Fed purchases and sales of bonds go through the New York Fed's trading desk. c. New York has higher population than other cities in the U.S. d. All of the above are reasons

An open-market purchase a. increases the number of dollars and the number of bonds in the hands of the public. b. increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public. c. decreases the number of dollars and the number of bonds in the hands of the public. d. decreases the number of dollars in the hands of the public and increases the number of bonds in the hands of the public.

Over one time horizon or another, Fed policy decisions influence a. inflation and employment. b. inflation but not employment. c. employment but not inflation. d. neither inflation nor employment.

The Fed's policy decisions have an important influence on a. inflation in the long run and employment and production in the short run. b. inflation in the long run and employment and production in the long run. c. inflation in the short run and employment and production in the short run. d. inflation in the short run and employment and production in the long run.

Which of the following is a liability of a bank and an asset of its customers? a. deposits of its customers and loans to it customers b. deposits of its customers but not loans to its customers c. loans of its customers but not the deposits of its customers d. neither the deposits of its customers nor the loans to its customers

If the reserve requirement is 10 percent and banks desire to hold no excess reserves, when a bank receives a new deposit of $100, a. it must increase its required reserves by $10. b. its total reserves initially increase by $10. c. it will be able to make new loans up to a maximum of $10. d. None of the above is correct.

When a bank loans out $1,000, the money supply a. does not change. b. decreases. c. increases. d. may do any of the above.

28. When the Fed makes open-market sales bank a. withdrawals and lending increase. b. withdrawals increase and lending decreases. c. deposits and lending increase. d. deposits increase and lending decreases.

The discount rate is a. the rate at which public banks lend to other public banks. b. the rate at which the Fed lends to banks. c. the percentage difference between the face value of a Treasury bond and what the Fed pays for it. d. the percentage of deposits banks hold as excess reserves

The Fed can increase the money supply by conducting open-market a. sales or by raising the discount rate. b. sales or by lowering the discount rate. c. purchases or by raising the discount rate. d. purchases or by lowering the discount rate.

The Fed can decrease the money supply by conducting open-market a. sales or by raising the discount rate. b. sales or by lowering the discount rate. c. purchases or by raising the discount rate. d. purchases or by lowering the discount rate.

To increase the money supply, the Fed can a. buy government bonds or increase the discount rate. b. buy government bonds or decrease the discount rate. c. sell government bonds or increase the discount rate. d. sell government bonds or decrease the discount rate.

Reserve requirements are regulations concerning a. the amount banks are allowed to borrow from the Fed. b. the amount of reserves banks must hold against deposits. c. reserves banks must hold based on the number and type of loans they make. d. the interest rate at which banks can borrow from the Fed.

A problem that the Fed faces when it attempts to control the money supply is that a. since the U.S. has a fractional-reserve banking system, the amount of money in the economy depends in part on the behavior of depositors and bankers. b. the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools. c. while the Fed has the ability to change the money supply by a large amount, it does not have the ability to change it by a small amount. d. federal legislation in the 1950s stripped the Fed of its power to act as a lender of last resort to banks.

Today, bank runs are not a major problem for the U.S. banking system because a. bank runs are now illegal. b. banks now hold 100 percent of their deposits in reserve. c. banks are now all government-operated. d. the federal government now guarantees the safety of deposits at most banks.