Question 1

Comparing _______ can give us some sense of what the money multiplier is.

Accepted Answer

A)   the monetary base to M2
B)   the monetary base to M1
C)   M1 to M2
D)   the monetary base to fiat moneyE) A) and B)
F) None of the above

Question 2

The narrowest definition of money is:

Accepted Answer

A)   the monetary base.
B)   M1.
C)   M2.
D)   L.E) B) and C)
F) A) and B)

Question 3

Central banks have two essential functions:

Accepted Answer

A)   managing the money supply and acting as a lender of last resort.
B)   creating full employment and acting as a lender of last resort.
C)   regulating financial markets and creating full employment.
D)   regulating financial markets and collecting taxes.E) B) and C)
F) None of the above

Question 4

The graph shown displays the relationship between money and the interest rate. S1 to M S3. B)  M S3 to M S2. C)  M S4 to M S3. D)  M S2 to M S1." class="answers-bank-image d-inline" rel="preload" > The Fed could use open market operations to expand the economy from:

Accepted Answer

A)   M S1 to M S3.
B)   M S3 to M S2.
C)   M S4 to M S3.
D)   M S2 to M S1.E) None of the above
F) B) and D)

Question 5

Money has replaced the need to barter, which is:

Accepted Answer

A)   changing the price of goods in response to inflation.
B)   using a medium of exchange to purchase goods and services.
C)   directly offering a good or service in exchange for some other good or service you want.
D)   comparing different goods to create a standard unit of worth.E) A) and B)
F) None of the above

Question 6

We say that money is a store of value because it:

Accepted Answer

A)   represents a certain amount of purchasing power held over time.
B)   can be used to purchase goods and services.
C)   holds a fixed value over time.
D)   provides a standard unit of comparison.E) A) and C)
F) B) and D)

Question 7

Banks earn money:

Accepted Answer

A)   by lending funds and collecting interest on those loans.
B)   through the accumulation of deposits.
C)   by lending money to the government.
D)   through government payments for regulation of the financial system.E) B) and D)
F) B) and C)

Question 8

The graph shown displays the relationship between money and the interest rate. S1 to M S3. B)  M S3 to M S4. C)  M S4 to M S3. D)  M S2 to M S3." class="answers-bank-image d-inline" rel="preload" > The Fed could use open market operations to contract the economy from:

Accepted Answer

A)   M S1 to M S3.
B)   M S3 to M S4.
C)   M S4 to M S3.
D)   M S2 to M S3.E) C) and D)
F) B) and C)

Question 9

The discount window provides:

Accepted Answer

A)   guaranteed emergency funds for banks in trouble at a higher interest rate than the federal funds rate.
B)   loans to banks at low interest rates, so they can lend more money out to the public.
C)   guaranteed emergency funds for banks in trouble at a lower interest rate.
D)   loans to banks at low interest rates only when the economy is doing well.E) All of the above
F) B) and D)

Question 10

When the Fed buys bonds through open market operations it gives banks money in return, which ______ banks' ability to lend and _______ aggregate demand.

Accepted Answer

A)   increases; increases
B)   decreases; increases
C)   increases; decreases
D)   decreases; decreasesE) All of the above
F) A) and B) A

Question 11

The reserve requirement is:

Accepted Answer

A)   the regulation that sets the minimum fraction of deposits banks must hold in reserve.
B)   the dollar amount of cash banks must keep on hand and not loan out.
C)   the amount of gold the federal government needs to keep on hand to support the value of the dollar.
D)   the cooling period between when money is created and when it can be spent in the economy.E) A) and B)
F) A) and C)

Question 12

Fiat money is:

Accepted Answer

A)   any form of money that can be legally exchanged into a fixed amount of an underlying commodity.
B)   money created by rule.
C)   money used together with the barter of goods.
D)   any form of money that trades goods with intrinsic value.E) A) and B)
F) C) and D)

Question 13

The nominal interest rate is determined by:

Accepted Answer

A)   the intersection of money supply and money demand.
B)   a country's central bank.
C)   the demand for credit.
D)   the amount of money supplied by the reserve requirement.E) A) and B)
F) A) and C)

Question 14

Which of the following is a good with intrinsic value?

Accepted Answer

A)   Cigarettes
B)   Fish
C)   Gold
D)   All of these goods have intrinsic value.E) All of the above
F) B) and C) D

Question 15

If the Fed wishes to slow economic activity, it might actively pursue:

Accepted Answer

A)   expansionary fiscal policy.
B)   expansionary monetary policy.
C)   contractionary fiscal policy.
D)   contractionary monetary policy.E) B) and C)
F) A) and C) D

Question 16

The goal of contractionary monetary policy is to _______ the economy by _______ interest rates.

Accepted Answer

A)   stimulate; reducing
B)   stimulate; raising
C)   slow down; reducing
D)   slow down; raisingE) A) and B)
F) A) and C)

Question 17

What must be true when banks hold excess reserves?

Accepted Answer

A)   The money multiplier overestimates how much money will be created in the economy.
B)   The money multiplier underestimates how much money will be created in the economy.
C)   The reserve ratio is not fully functioning and should be raised.
D)   The reserve ratio is working too well and should be lowered.E) B) and C)
F) A) and B)

Question 18

When the interest rate earned on government bonds is high, most people will try to hold _______ bonds and _______ cash.

Accepted Answer

A)   more; less
B)   fewer; more
C)   more; more
D)   fewer; lessE) A) and C)
F) A) and B)

Question 19

In the simple liquidity-preference model, the money supply curve is:

Accepted Answer

A)   vertical, and it moves at the sole discretion of the Fed.
B)   horizontal, and it moves at the sole discretion of the Fed.
C)   vertical, and it moves when people change their rate of savings.
D)   horizontal, and it moves when people change their rate of savings.E) All of the above
F) B) and C)

Question 20

The Federal Open Market Committee:

Accepted Answer

A)   includes all regional bank presidents and the Board of Governors.
B)   is the most important policy-making body of the Federal Reserve.
C)   is responsible for regulatory oversight and implementation of monetary policy of regional banks.
D)   is responsible for monitoring how goods and services are being sold on the open market.E) C) and D)
F) A) and C)

Exam 15: Moneyand the Monetary System

Comparing _______ can give us some sense of what the money multiplier is.

Correct AnswerverifiedShow Answer

The narrowest definition of money is:

Correct AnswerverifiedShow Answer

Central banks have two essential functions:

Correct AnswerverifiedShow Answer

The graph shown displays the relationship between money and the interest rate. The Fed could use open market operations to expand the economy from:

Correct AnswerverifiedShow Answer

Money has replaced the need to barter, which is:

Correct AnswerverifiedShow Answer

We say that money is a store of value because it:

Correct AnswerverifiedShow Answer

Banks earn money:

Correct AnswerverifiedShow Answer

The graph shown displays the relationship between money and the interest rate. The Fed could use open market operations to contract the economy from:

Correct AnswerverifiedShow Answer

The discount window provides:

Correct AnswerverifiedShow Answer

When the Fed buys bonds through open market operations it gives banks money in return, which ______ banks' ability to lend and _______ aggregate demand.

Correct AnswerverifiedA

The reserve requirement is:

Correct AnswerverifiedShow Answer

Fiat money is:

Correct AnswerverifiedShow Answer

The nominal interest rate is determined by:

Correct AnswerverifiedShow Answer

Which of the following is a good with intrinsic value?

Correct AnswerverifiedD

If the Fed wishes to slow economic activity, it might actively pursue:

Correct AnswerverifiedD

The goal of contractionary monetary policy is to _______ the economy by _______ interest rates.

Correct AnswerverifiedShow Answer

What must be true when banks hold excess reserves?

Correct AnswerverifiedShow Answer

When the interest rate earned on government bonds is high, most people will try to hold _______ bonds and _______ cash.

Correct AnswerverifiedShow Answer

In the simple liquidity-preference model, the money supply curve is:

Correct AnswerverifiedShow Answer

The Federal Open Market Committee:

Correct AnswerverifiedShow Answer

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When the Fed buys bonds through open market operations it gives banks money in return, which banks' ability to lend and _ aggregate demand.

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A

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D

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D

The goal of contractionary monetary policy is to _ the economy by _ interest rates.

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When the interest rate earned on government bonds is high, most people will try to hold _ bonds and _ cash.

Correct Answer
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