question

money

answer

whatever is generally accepted as a medium of exchange

question

fiat money

answer

money by government decree. has no intrinsic value

question

barter

answer

the direct exchange of goods

question

checkable deposits

answer

deposits in banks or other financial institutions on which checks can be written

question

money creation

answer

increases in checkable deposits made possible by fractional reserve banking

question

financial intermediation

answer

the process by which banks make depositors' savings available to borrowers

question

required reserves

answer

the minimum amount of reserves that a bank is legally required to hold against its deposits

question

reserves

answer

vault cash plus bank deposits with the fed

question

excess reserves

answer

the excess of reserves over required reserves

question

liquid asset

answer

an asset that can be converted quickly into cash at a low transaction cost

question

one-shot inflation

answer

a one-time increase in the price level

question

continued inflation

answer

if the price level increases at a high rate year after year

question

seignorage

answer

the profit derived by the issuer of money by issuing new money

question

money is: a. a valuable good b. a valuable resource c. valuable because it can be used for making exchanges d. all of the above

answer

C

question

the direct exchange of goods: a. is barter b. requires a double coincidence of wants c. is harder than making a trade through the use of money d. all of the above

answer

D

question

compared to barter, money: a. increases transaction costs b. requires a double coincidence of wants c. increases specialization d. all of the above

answer

C

question

the most important function of money is: a. measure of value b. medium of exchange c. store of value d. makes goods valuable

answer

B

question

when we hold onto money instead of spending it immediately: a. we are using money as store of value b. we can use our buying power when it is most valuable to us c. we may lose buying power if there is inflation d. all of the above

answer

D

question

money has value because: a. it is backed by gold b. it is backed by the full faith and credit of the U.S. government c. it is generally accepted as a medium of exchange d. all of the above

answer

C

question

M1 consists of: a. currency in circulation b. checkable deposits c. savings deposits d. both a and b above

answer

D

question

which of the following is money? a. a check b. a credit card c. both of the above d. neither of the above

answer

D

question

in our fractional reserve banking system: a. banks hold reserves equal to only a fraction of their deposits b. the fraction of deposits that must be held is determined by the required-reserve ratio c. the required-reserve ratio is set by the Federal Reserve System d. all of the above

answer

D

question

if checkable deposits in 1st Bank total $500 million and the required-reserve ratio is 10%, then required reserves for 1st Bank equal: a. $5 million b. $10 million c. $50 million d. $450 million

answer

C

question

to meet its reserve requirement, a bank may count which of the following assets? a. business loans b. U.S. government securities c. deposit with the Fed d. all of the above

answer

C

question

if the required-reserve ratio is 12%, and a bank receives a deposit of $1,000, how much may the bank loan out? a. $120 b. $760 c. $880 d. $1,000

answer

C

question

excess reserves: a. is the excess of reserves over required reserves b. may be loaned out c. earn little or no revenue for the bank d. all of the above

answer

D

question

U.S. government securities: a. are debt instruments issue by the federal government b. pay a high rate of interest since they are high risk c. must be held by the original buyer until maturity d. all of the above

answer

A

question

U.S. government securities are an attractive investment for a bank because they: a. pay interest b. are highly liquid c. are low risk d. all of the above

answer

D

question

if the required-reserve ratio is 10%, the potential deposit multiplier is: a. 10 b. 8 c. 5 d. 4

answer

A

question

one-shot inflation can be caused by: a. an increase in AD b. an increase in SRAS c. continued increases in AD d. both a and b above

answer

A

question

if the price level increases at a higher rate year after year: a. this is continued inflation b. this is caused by continued increases in AD c. the money supply must be increasing rapidly d. all of the above

answer

D

question

an increase in the rate of inflation: a. increases the buying power of people who hold money b. increases the real interest rate earned on savings c. benefits lenders and hurts borrowers d. none of the above

answer

D

question

if Karen earns a 6% interest rate on her savings when the inflation rate is 4%, her real interest rate is: a. -2% b. 2% c. 4% d. 10%

answer

B

question

a successful counterfeiter: a. earns profit by seignorage b. gains at no expense to the rest of society c. both of the above d. neither of the above

answer

A

question

when a government pays for government spending by issuing new currency: a. the increase in the money supply will cause inflation b. this is an indirect tax on the holders of money c. both of the above d. neither of the above

answer

C

question

according to "The Economic Organization of a P.O.W. Camp", economic activity in the camp: a. was organized by the German's to keep the prisoners occupied b. was organized by the leadership among the prisoners to improve discipline c. arose spontaneously as prisoners attempted to enhance their standard of living d. none of the above

answer

C

question

in the P.O.W. camp, cigarettes had the following flaws when used as money: a. they were not accepted as money by nonsmokers b. their quantity fluctuated causing price level instability c. both of the above d. neither of the above

answer

B

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