ch 14 study questions – Flashcards

Assets that are generally accepted in exchange for goods and services or for payment of debts are specifically called a. wealth. b. net worth. c. money. d. capital.

A double coincidence of wants refers to a. the situation in which a good that is used as money also has value independent of its use as money. b. the fact that for a barter trade to take place between two people, each person must want what the other one has. c. the idea that a barter economy is more efficient than an economy that uses money. d. the situation where two parties are involved in a transaction where money is the medium of exchange.

By making exchange easier, money allows for a. a double coincidence of wants. b. the possible risk of inflation. c. specialization and higher productivity. d. all of the above.

If prisoners of war use cigarettes as money, then cigarettes are a. token money. b. fiduciary money. c. fiat money. d. commodity money.

Money serves as a unit of account when a. sellers are willing to accept it in exchange for goods or services. b. it can be easily stored and used for transactions in the future. c. prices of goods and services are stated in the monetary unit. d. All of the above are examples of money serving as a unit of account.

Money serves as a standard of deferred payment when a. it can be easily stored today and used for transactions in the future. b. repayment of debts is made using money units. c. sellers are willing to accept it in exchange for goods or services. d. All of the above are examples of money serving as a standard of deferred payment.

Which of the following conditions make a good suitable for use as a medium of exchange? a. The good must be acceptable to (that is, usable by) most buyers and sellers. b. The good should be of standardized quality, so that any two units are identical. c. The good should be durable, valuable relative to its weight, and divisible. d. All of the above conditions must be met.

Which of the following statements is correct? a. Today, most governments in the world issue paper currency that is backed by gold and can be redeemed for gold. b. Paper currency has no value unless it is used as money. c. Paper money is commodity money. d. All of the above are true.

What is fiat money? a. money that has value independent of its use as money b. an asset that has the ability to be easily converted into the medium of exchange c. money that is authorized by a central bank and that does not have to be exchanged for gold or some other commodity money d. money issued by financial intermediaries, such as banks and thrift institutions, not the central bank

What of the following statements is true about money? a. Money is only those assets that serve as a medium of exchange. b. Money is only currency, checking account deposits, or traveler's checks. c. Money can be narrowly or broadly defined, depending on the types of assets included. d. None of the above. There is no official definition or measurement of the money supply today.

The sum of currency in circulation, checking account balances in banks, and holdings of traveler's checks equals a. M1. b. M2. c. M1 + M2. d. none of the above.

Savings account balances, small-denomination time deposits, and noninstitutional money market fund shares are a. included only in M1. b. included only in M2. c. included in both M1 and M2. d. financial assets that are not included in the money supply.

Jamie makes a deposit into her savings account at the local bank with $500 in cash. As a result of this transaction, a. both M1 and M2 will increase by $500. b. M2 will increase by $500. c. M1 will decrease by $500. d. Both b. and c. are correct.

Which of the following statements is correct about currency in the United States? a. Currency is used much more often than checking account balances to make payments. b. More than 80 percent of all goods and services are purchased with checking account balances rather than with currency. c. Most of the U.S. currency is held within the United States, but a small amount is actually outside the borders of the United States. d. All of the above are true.

Which of the following statements is true? a. Today, U.S. law prohibits banks from paying interest on checking account deposits. b. Today, people are not allowed to write checks against their savings account balances. c. Today, the difference between checking accounts and savings accounts is greater than it was before the banking reform in 1980. d. All of the above are true.

Which of the following are included in M2? a. M1 b. savings account balances and small-denomination time deposits c. balances in money market deposit accounts in banks, and noninstitutional money market fund shares d. All of the above are included in M2.

In the definition of the money supply, where do credit cards belong? a. M1 b. M2 c. both M1 and M2 d. Credit cards are not included in the definition of the money supply.

Warren Buffett holds money and wealth. He also earns an annual income. Which of the following is largest? a. his money b. his income c. his wealth d. All three of the above mean the same thing and are the same size.

The key role that banks play in the economy is to a. provide a market for stocks and bonds. b. manage the money supply. c. accept deposits and make loans. d. serve as lenders of last resort.

Which of the following is an asset to a bank? a. reserves b. checking account deposits c. savings account deposits d. certificates of deposit

Which of the following is the largest asset of a typical bank? a. loans b. buildings c. vault cash d. checking account deposits

Which of the following is the largest liability of a typical bank? a. deposits b. loans c. reserves d. treasury bills

Which of the following is the largest liability of a typical bank? a. deposits b. loans c. reserves d. treasury bills

If the required reserve ratio is 10 percent, then using the simple deposit multiplier, what is the total increase in checking account deposits caused by an initial deposit of $1,000? a. $100 b. $1,000 c. $10,000 d. $100,000

The simple deposit multiplier equals a. the inverse, or reciprocal, of the required reserve ratio. b. the ratio of the amount of deposits created by banks to the amount of new reserves. c. the formula used to calculate the total increase in checking account deposits from an increase in bank reserves. d. all of the above.

A higher required reserve ratio _________ the value of the simple deposit multiplier. a. increases b. decreases c. leaves unchanged d. nullifies

An increase in the amount of excess reserves that banks keep _________ the value of the real-world deposit multiplier. a. increases b. decreases c. leaves unchanged d. nullifies

If American Bank has $500 in deposits and $200 in reserves and the required reserve ratio is 10 percent, then American Bank has a. $200 in excess reserves. b. $50 in required reserves. c. $50 in excess reserves. d. $200 in required reserves.

Whenever banks gain reserves and make new loans, the money supply ___________; and whenever banks lose reserves, they reduce their loans and the money supply __________. a. expands; expands b. expands; contracts c. contracts; contracts d. contracts; expands

A banking system in which banks keep less than 100 percent of deposits as reserves is called a. the Federal Reserve System. b. a fractional reserve banking system. c. a fully funded reserve system. d. wildcat banking.

When many depositors decide simultaneously to withdraw their money from a bank, there is a. an increase in bank lending. b. usually a decline in discount lending by the Fed. c. a bank run. d. inflation.

A bank panic occurs when a. there is an increase in bank lending. b. the central bank carries out open market purchases. c. many banks experience runs at the same time. d. many banks fail to attract depositors so their reserves increase significantly.

The Federal Reserve System is a. the central bank of the United States. b. the institution that regulates all state banks. c. the institution solely responsible for regulating the stock and bond markets. d. the institution also known as the Treasury of the United States.

There are ________ members of the Board of Governors, who are appointed by the president of the United States to ________, nonrenewable terms. One of the Board members is appointed Chairman for a(n) _________, renewable term. a. nine; seven-year; eight-year b. twelve; four-year; four-year c. seven; fourteen-year; four-year d. fourteen; four-year; four-year

The actions the Federal Reserve takes to manage the money supply and interest rates to pursue economic objectives is called a. fiscal policy. b. open market operations. c. monetary policy. d. financial management.

The Fed uses three monetary policy tools. Which of the following is not one of those tools? a. open market operations b. discount policy c. reserve requirements d. federal funds rate setting

To increase the money supply, the FOMC directs the trading desk, located at the Federal Reserve Bank of New York, to a. buy U.S. Treasury securities from the public. b. sell U.S. Treasury securities to the public. c. print U.S. Treasury securities and put them out in circulation. d. buy U.S. dollars in the foreign exchange market.

The Fed conducts monetary policy primarily through a. open market operations. b. discount policy. c. reserve requirements. d. none of the above.

By raising the discount rate, the Fed encourages banks to make _________ loans to ms, which will _________ checking account deposits and the money supply. a. more; increase b. more; decrease c. fewer; increase d. fewer; decrease

Which of the following is not a factor that helped lead to the financial panic of 2008? a. deposit insurance for all commercial banks b. falling housing prices c. high leverages of financial firms that purchased mortgage-backed securities d. none of the above

The theory concerning the link between the money supply and the price level that assumes the velocity of money is constant is called a. the quantity equation. b. the quantity theory of money. c. the constant velocity theory of money. d. the purchasing power parity theory of money.

Velocity is defined as: a. V = M/(P × Y). b. V = M × P × Y. c. V = M + P + Y. d. V = (P × Y)/M.

Suppose that velocity is 4 and the money supply is $100 million. According to the quantity theory of money, nominal output equals a. $25 million. b. $400 million. c. $40 billion. d. $400 billion.

If Irving Fisher was correct in his prediction about the value of velocity, then the quantity equation can be written to solve for the inflation rate as follows: a. Inflation rate = Growth rate of the money supply + Growth rate of real output. b. Inflation rate = Growth rate of the money supply - Growth rate of real output. c. Inflation rate = Growth rate of the money supply - Growth rate of velocity. d. Inflation rate = Growth rate of the money supply + Growth rate of velocity.

Which of the following predictions can be made using the growth rates associated with the quantity equation? a. If the money supply grows at a faster rate than real GDP, there will be inflation. b. If the money supply grows at a slower rate than real GDP, there will be inflation. c. If the money supply grows at the same rate as real GDP, the price level will fall. d. none of the above