Macroeconomics Ch. 13 Review – Flashcards
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Compared to a barter economy, using money increases efficiency by reducing
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transaction costs
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When the Fed lowers the discount rate, it makes it
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cheaper for banks to obtain additional reserves by borrowing from the Fed
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Which of the following is the primary tool the Fed uses to control the supply of money?
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open market operations
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The primary source of earnings of commercial banks is income derived from
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the use of deposits to extend loans and undertake investments
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Which of the following will limit the money creation process to an amount less than the potential amount?
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increase in currency holdings by the public
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If you have a checking account at a local bank, your bank account there is
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a liability of the bank and an asset to you
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Who owns the Fed?
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member banks
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Are outstanding credit card balances counted as part of the money supply?
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No; money is an asset, while the credit card balances are a liability. Thus, they are not included in the money supply figures
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Checking account deposits are counted as part of the M1 money supply because
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they are widely used as a means of making payment
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Which of the following is true regarding the foreign holdings of U.S. dollars?
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They indicate that foreigners have confidence in the monetary policy and economy of the United States
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What is meant by the expression, "There is too much money chasing too few goods"?
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An expansion in the supply of money relative to the availability of goods and services is causing an increase in the general level of prices
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What is the effect when a customer deposits $100 into a checking account?
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Both the bank's liabilities and its assets will increase
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Which of the following would be true if money were not used as a medium of exchange?
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The gains from trade would be severely limited
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What is the primary benefit of a monetary system of exchange compared to a barter system?
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Better efficiency in arranging transactions
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In order to increase the money supply, the banking system must have which of the following?
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Excess reserves
