Econ Practice Test #3 Chapter 13 and 14 – Flashcards
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Professor Sims tutors her next-door neighbor's son in economics. Instead of paying her for this service, the neighbor washes the professor's car. This is an example of
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B) Bartering
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Which of the following is not an essential characteristic of money?
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B) It is backed by gold or silver.
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The basic money supply includes:
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A) Currency, checking accounts, and traveler's checks.
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Suppose First National Bank has zero excess reserves. If the required reserve ratio increases, which of the following will happen immediately?
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B) The bank will not have enough required reserves.
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Money creation occurs when:
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C) Banks make loans to borrowers.
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Which of the following does not occur when a bank makes a loan?
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D) It transfers money from spenders to savers.
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Ceteris paribus, the money supply becomes smaller when:
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C) An individual repays the money that he borrowed from a bank.
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The statement, "My iPhone is worth $300" represents money's function as
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C) a standard of value
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Which of the following information about fiat money is false? Fiat money
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A) is backed by gold.
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Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. As a result of Kristy's deposit, Bank A's reserves immediately increase by
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C) $10,000
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As a result of Kristy's deposit, Bank A's required reserves increase by
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A) $2,000
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As a result of Kristy's deposit, Bank A's excess reserves increase by
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B) $8,000
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As a result of Kristy's deposit, the money supply increases by
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B)$40,000
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Suppose you deposit $8000 into your checking account. If the required reserve ratio is 65%, how much money can the 4th bank loan?
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A) $120.05
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Which of the following functions of money would be violated if inflation were high?
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B) store of value
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Which of the following determines the amount of money the banking system as a whole can create?
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A) the quantity of bank reserves
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Which of the following will occur if the Fed raises the reserve requirement, ceteris paribus?
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C) The aggregate demand curve should shift leftward.
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If the Fed sells more bonds to the public, then the money supply will:
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D) Decrease and the aggregate demand curve will shift to the left.
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To decrease the money supply the Fed can:
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B) Raise the reserve requirement, raise the discount rate, or sell bonds.
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The purchase and sale of government bonds by the Fed for the purpose of altering bank reserves is referred to as:
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A) Open-market operations.
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Which of the following is not true about excess reserves?
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B) They are equal to the required reserve ratio times checking deposits.
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The money multiplier:
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C) Gets smaller as the required reserve ratio increases.
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Suppose the banks in the Federal Reserve System have $100 million in checking accounts and are currently holding the minimum reserve requirement of 0.10. Ceteris paribus, if the reserve requirement is decreased to 0.07, then excess reserves will immediately be:
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A) Increased by $3 million.
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If the Fed wants to increase bank reserves, it can:
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C) Raise the reserve requirement.
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Monetary policy affects aggregate demand
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B) Indirectly through the interest rate.
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When the Fed makes bonds more or less attractive, it influences the:
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A) Open market decision.
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Which of the following is not a monetary policy tool for shifting the aggregate demand curve?
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B) Government spending.
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Using aggregate supply and demand curves drawn according to the Keynesian view, which of the following will occur if the Fed buys bonds in the open market and the economy is below full employment?
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B) Aggregate demand will shift to the right and the unemployment rate will fall.
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Given an upward-sloping aggregate supply curve, attempts to reduce unemployment through monetary policy could result in inflation when:
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B) Aggregate demand shifts too far to the right.
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Required reserves:
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C) Are the minimum amount of reserves a bank is required to hold.
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Which of the following is not a basic monetary policy tool used by the Fed?
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C) Taxes
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Monetary policy involves the use of money and credit controls to:
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C) shift the aggregate demand curve.
