Chapter 27 The Monetary System

Test B
NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON LINE QUI!!ES" #OUR STUDENTS MA# HA$E ALREAD# SEEN THIS QUESTION AND ITS ANSWER"
1

Giving up a dollar bill to purchase an ice cream cone best illustrates moneys function as a a. store of wealth. b. unit of account. c. medium of exchange. d. standard of value. ANSW !" c. medium of exchange. #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " 1 !AN(+&" $
/

Which of the following provides a store of value0 a. 1.S. currency b. stoc2s in &icrosoft )orporation c. bonds issued by &rs. %auls )orporation d. All the above are correct. ANSW !" d. All of the above are correct. #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " 1 !AN(+&" $
3

+f the following assets which is the most li4uid0 a. stoc2s in *ntel )orporation b. a painting by van Gogh c. a used car d. fine 5ewelry ANSW !" a. stoc2s in *ntel )orporation #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " 1 !AN(+&" $
6

Which of the following types of currency has intrinsic value0 a. commodity money b. fiat money c. both commodity money and fiat money d. neither commodity money nor fiat money ANSW !" a. commodity money #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " 1 !AN(+&" $
7

Which of the following is not contained in &10 a. currency b. demand deposits c. savings deposits d. travelers chec2s ANSW !" c. savings deposits #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " 1 !AN(+&" $

)opyright 8 9arcourt: *nc.

71

7/ )hapter /;<#he &onetary System

=

&/ is a. smaller and less li4uid than &1. b. smaller but more li4uid than &1. c. larger but less li4uid than &1. d. larger than and more li4uid than &1. ANSW !" c. larger but less li4uid than &1. #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " 1 !AN(+&" $
;

)redit cards are a a. store of value. b. method of deferring payments. c. medium of exchange included in both &1 and &/. d. All of the above are correct. ANSW !" b. method of deferring payments. #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " 1 !AN(+&" $
>

Which of the following pairs correctly list a function of the ?ed and the part of the ?ed directly responsible for the function. a. income tax policy@,oard of Governors b. conduct openAmar2et operations@#he )hair of the ,oard of Governors c. lender of last resort@New $or2 ?ederal !eserve ,an2 d. chec2 clearing@regional ?ederal !eserve ,an2s ANSW !" d. chec2 clearing@regional ?ederal !eserve ,an2s #$% " & ' $1" ( S )#*+N" / +,- )#*. " / !AN(+&" $
B

Which part of the ?ed meets about every six wee2s to discuss the economy and ma2e changes in monetary policy0 a. the ,oard of Governors b. the ?+&) c. the regional ?ederal !eserve ,an2s d. the )entral ,an2 %olicy )ommission ANSW !" b. the ?+&) #$% " & ' $1" ( S )#*+N" / +,- )#*. " / !AN(+&" $
1C

*f the ?ed ma2es openAmar2et purchases it will a. increase the money supply which will increase the price level. b. increase the money supply which will decrease the price level. c. decrease the money supply which will increase the price level. d. decrease the money supply which will decrease the price level. ANSW !" a. increase the money supply which will increase the price level. #$% " & ' $1" ( S )#*+N" / +,- )#*. " / !AN(+&" $
11

?+&) policy decisions have an important influence on the economys a. rate of inflation in the long run and level of employment in the short run. b. rate of inflation and level of employment in the long run. c. rate of inflation in the short run and level of employment and long run. d. employment in the short run: but have no influence on inflation in either the short or long run. ANSW !" a. rate of inflation in the long run and level of employment in the short run. #$% " & ' $1" ( S )#*+N" / +,- )#*. " / !AN(+&" $

)opyright 8 9arcourt: *nc.

)hapter /;<#he &onetary System 73

1/

#he ?irst National ,an2 of #inyville has D1C:CCC of reserves. *f it is holding no excess reserves: and the reserve ratio is 1CE: its deposits are a. DBC:CCC. b. DBB:CCC. c. D1CC:CCC. d. D11C:CCC. ANSW !" c. D1CC:CCC. #$% " & ' $1" ( S )#*+N" 3 +,- )#*. " 3 !AN(+&" $ NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON LINE QUI!!ES" #OUR STUDENTS MA# HA$E ALREAD# SEEN THIS QUESTION AND ITS ANSWER"
13

Which of the following items is a liability to a ban20 a. loans b. reserves c. deposits d. an interestAbearing asset owned by the ban2 ANSW !" c. deposits #$% " & ' $1" ( S )#*+N" 3 +,- )#*. " 3 !AN(+&" $
16

*f ! is the reserve ratio: which of the following is the correct way to find the money multiplier0 a. 1 F ! b. 1<! c. 1<G1 F !H d. G1I!H<! ANSW !" b. 1<! #$% " & ' $1" S )#*+N" 3 +,- )#*. " 3 !AN(+&" $
17

#he higher the reserve re4uirement ratio the a. more of each deposit ban2s may lend out: and the larger the multiplier. b. more of each deposit ban2s may lend out: and the smaller the multiplier. c. less of each deposit ban2s may lend out: and the larger the multiplier. d. less of each deposit ban2s may lend out: and the smaller the multiplier. ANSW !" d. less of each deposit ban2s many lend out: and the smaller the multiplier. #$% " & ' $1" ( S )#*+N" 3 +,- )#*. " 3 !AN(+&" $ NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON LINE QUI!!ES" #OUR STUDENTS MA# HA$E ALREAD# SEEN THIS QUESTION AND ITS ANSWER"
1=

Suppose the reserve ratio is 1CE. #here are D1CC:CCC of excess reserves in the ban2ing system. #he maximum amount by which the money supply can expand is a. D1C:CCC. b. D1CC:CCC. c. DBCC:CCC. d. D1:CCC:CCC. ANSW !" d. D1:CCC:CCC. #$% " & ' $1" ( S )#*+N" 3 +,- )#*. " 3 !AN(+&" $
1;

#he ?eds most fre4uently used tool of monetary control is a. openAmar2et operations. b. changes in reserve re4uirements. c. changes in the discount rate. d. ban2 runs. ANSW !" a. openAmar2et operations. #$% " & ' $1" ( S )#*+N" 3 +,- )#*. " 6 !AN(+&" $

)opyright 8 9arcourt: *nc.

76 )hapter /;<#he &onetary System

1>

*n 1BB1 the ?ederal !eserve lowered the reserve re4uirement ratio from 1/E to 1CE. #his should have a. increased both the money multiplier and the money supply. b. increased both the money multiplier and the money supply. c. decreased the money multiplier and increased the money supply. d. increased the money multiplier and decreased the money supply. ANSW !" a. increased both the money multiplier and the money supply. #$% " & ' $1" ( S )#*+N" 3 +,- )#*. " 6 !AN(+&" $
1B

Suppose the ?ederal !eserve System purchases oneAhundred thousand dollars of government bonds. *f the reserve re4uirement is 1CE: the ?eds purchase a. increases the money supply by BC thousand dollars. b. increases the money supply by one million dollars. c. decreases the money supply BC thousand dollars. d. decreases the money supply by one million dollars. ANSW !" b. increases the money supply by one million dollars. #$% " & ' $1" ( S )#*+N" 3 +,- )#*. " 6 !AN(+&" $
/C

An increase in the discount rate a. increases the money supply: while an increase in the reserve ratio decreases the money supply. b. or an increase in the reserve ratio increases the money supply. c. or an increase in the reserve ratio decreases the money supply. d. decreases the money supply: while an increase in the reserve ratio increases the money supply. ANSW !" c. or an increase in the reserve ratio decreases the money supply. #$% " & ' $1" ( S )#*+N" 3 +,- )#*. " 6 !AN(+&" $
/1

*f the ?ederal !eserve wished to increase the money supply it could ma2e openAmar2et a. sales or raise the discount rate. b. sales or decrease the discount rate. c. purchases or increase the discount rate. d. purchases or decrease the discount rate. ANSW !" d. purchases or decrease the discount rate. #$% " & ' $1" ( S )#*+N" 3 +,- )#*. " 6 !AN(+&" $
//

Which of the following will increase the money supply: but leave the money multiplier unchanged0 a. an increase in the discount rate. b. openAmar2et sales. c. an increase in the reserve ratio. d. None of the above is correct. ANSW !" d. None of the above is correct. #$% " & ' $1" ( S )#*+N" 3 +,- )#*. " 6 !AN(+&" $
/3

An increase in the discount rate encourages ban2s to borrow a. more from the ?ed and increases the money supply. b. less from the ?ed and reduces the money supply. c. more from the ?ed and reduces the money supply. d. less from the ?ed and increases the money supply. ANSW !" b. less from the ?ed and reduces the money supply. #$% " & ' $1" ( S )#*+N" 3 +,- )#*. " 6 !AN(+&" $

)opyright 8 9arcourt: *nc.

)hapter /;<#he &onetary System 77

/6

(uring World War ** people chose to hold relatively more currency and relatively fewer chec2ing deposits. #his should have a. increased the money multiplier and the money supply. b. increased the money multiplier and decreased the money supply. c. decreased the money multiplier and increased the money supply. d. decreased the money multiplier and decreased the money supply. ANSW !" d. decreased the money multiplier and decreased the money supply. #$% " & ' $1" ) S )#*+N" 3 +,- )#*. " 6 !AN(+&" $
/7

*n the nineteenth century when there were ban2 runs: ban2s would ma2e relatively fewer loans and hold relatively more excess reserves. #his should have a. increased both the money multiplier and the money supply. b. decreased both the money multiplier and the money supply. c. increased the money multiplier and decreased the money supply. d. decreased the multiplier and increased the money supply. ANSW !" b. decreased both the money multiplier and the money supply. #$% " & ' $1" ) S )#*+N" 3 +,- )#*. " 6 !AN(+&" $

)opyright 8 9arcourt: *nc.

ANSW !" c. medium of exchange. #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " 1 !AN(+&" $
/

ANSW !" d. All of the above are correct. #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " 1 !AN(+&" $
3

ANSW !" a. stoc2s in *ntel )orporation #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " 1 !AN(+&" $
6

ANSW !" a. commodity money #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " 1 !AN(+&" $
7

ANSW !" c. savings deposits #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " 1 !AN(+&" $
=

ANSW !" c. larger but less li4uid than &1. #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " 1 !AN(+&" $
;

ANSW !" b. method of deferred payments. #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " 1 !AN(+&" $
>

ANSW !" d. )hec2 clearing AA regional ?ederal !eserve ,an2s #$% " & ' $1" ( S )#*+N" / +,- )#*. " / !AN(+&" $
B

ANSW !" b. the ?+&) #$% " & ' $1" ( S )#*+N" / +,- )#*. " / !AN(+&" $
1C

ANSW !" a. increase the money supply which will increase the price level. #$% " & ' $1" ( S )#*+N" / +,- )#*. " / !AN(+&" $
11

ANSW !" a. rate of inflation in the long run and level of employment in the short run. #$% " & ' $1" ( S )#*+N" / +,- )#*. " / !AN(+&" $
1/

ANSW !" c. D1CC:CCC. #$% " & ' $1" ( S )#*+N" 3 +,- )#*. " 3 !AN(+&" $
13

ANSW !" c. deposits #$% " & ' $1" ( S )#*+N" 3 +,- )#*. " 3 !AN(+&" $
16

#$% " & ' $1"

17

ANSW !" b. 1<! S )#*+N" 3 +,- )#*. " 3 !AN(+&" $ ANSW !" d. less of each deposit ban2s many lend out: and the smaller the multiplier.

#$% " & ' $1" ( S )#*+N" 3 +,- )#*. " 3 !AN(+&" $
1=

ANSW !" d. D1:CCC:CCC. #$% " & ' $1" ( S )#*+N" 3 +,- )#*. " 3 !AN(+&" $
1;

ANSW !" a. openAmar2et operations. #$% " & ' $1" ( S )#*+N" 3 +,- )#*. " 6 !AN(+&" $
1>

ANSW !" a. increased both the money multiplier and the money supply. #$% " & ' $1" ( S )#*+N" 3 +,- )#*. " 6 !AN(+&" $
1B

ANSW !" b. increases the money supply by one million dollars. #$% " & ' $1" ( S )#*+N" 3 +,- )#*. " 6 !AN(+&" $
/C

ANSW !" c. or an increase in the reserve ratio decreases the money supply. #$% " & ' $1" ( S )#*+N" 3 +,- )#*. " 6 !AN(+&" $
/1

ANSW !" d. purchases or decrease the discount rate. #$% " & ' $1" ( S )#*+N" 3 +,- )#*. " 6 !AN(+&" $
//

ANSW !" d. None of the above is correct. #$% " & ' $1" ( S )#*+N" 3 +,- )#*. " 6 !AN(+&" $
/3

ANSW !" b. less from the ?ed and reduces the money supply. #$% " & ' $1" ( S )#*+N" 3 +,- )#*. " 6 !AN(+&" $
/6

ANSW !" d. decreased the money multiplier and decreased the money supply. #$% " & ' $1" ) S )#*+N" 3 +,- )#*. " 6 !AN(+&" $
/7

ANSW !" b. decreased both the money multiplier and the money supply. #$% " & ' $1" ) S )#*+N" 3 +,- )#*. " 6 !AN(+&" $