Question 1

Money is:

Accepted Answer

A)   the set of all assets regularly used to purchase goods and services.
B)   the amount of currency in our economy.
C)   controlled by the supply and demand of goods and services.
D)   anything used to buy goods and services if it is not a good itself.E) A) and B)
F) A) and D)

Question 2

The twin responsibilities of the Federal Reserve are to:

Accepted Answer

A)   maintain full employment and balance the federal budget.
B)   ensure price stability and maintain full employment.
C)   ensure price stability and regulate international trade.
D)   print money and ensure price stability.E) B) and C)
F) All of the above

Question 3

What is a major danger of fiat money?

Accepted Answer

A)   Its value may not be stable if the government prints a lot more money.
B)   There is often not enough of a resource to use it for money.
C)   The value of fiat currency may stay locked in place and stifle the economy.
D)   It can be costly to exchange money for the commodity that backs it.E) C) and D)
F) A) and B)

Question 4

A larger money multiplier means:

Accepted Answer

A)   the reserve ratio must be smaller.
B)   a bank can loan out less.
C)   less money is created in the economy.
D)   private demand for loans will be higher.E) None of the above
F) A) and C)

Question 5

Assets regularly used to purchase goods and services are called:

Accepted Answer

A)   money.
B)   consumption income.
C)   disposable income.
D)   fungible goods.E) A) and D)
F) A) and C)

Question 6

Which tool does the Fed use most often to change the money supply?

Accepted Answer

A)   Open market operations
B)   The reserve requirement
C)   The discount window
D)   All of these are used with equal frequency.E) None of the above
F) B) and C)

Question 7

The money multiplier:

Accepted Answer

A)   was relatively stable until 2008, when it dropped dramatically.
B)   was relatively stable until 2008, when it rose dramatically.
C)   has historically followed the business cycle.
D)   runs contrary to the business cycle.E) A) and B)
F) A) and C)

Question 8

The graph shown displays the relationship between money and the interest rate. S3, to engage in expansionary policy the Fed would use open market operations to move the money supply to which point? A)  M S1 B)  M S2 C)  M S4 D)  The money supply would remain at M S3." class="answers-bank-image d-inline" rel="preload" > If the money supply in the economy is currently at MS3, to engage in expansionary policy the Fed would use open market operations to move the money supply to which point?

Accepted Answer

A)   M S1
B)   M S2
C)   M S4
D)   The money supply would remain at M S3.E) A) and B)
F) None of the above

Question 9

One of the main roles of a central bank is:

Accepted Answer

A)   managing the nation's money demand.
B)   coordinating the banking system to ensure a sound economy.
C)   accepting deposits from households and other private individuals.
D)   funding federal government spending.E) A) and D)
F) B) and C)

Question 10

If there were no fractional reserve banking:

Accepted Answer

A)   the reserve ratio would be zero percent.
B)   banks would not create money in the economy.
C)   a very small amount of lending using deposits would occur.
D)   account holders would not be able to withdraw their money in times of recession.E) All of the above
F) C) and D)

Question 11

The discount window allows the Federal Reserve to fulfill its responsibility:

Accepted Answer

A)   as a lender of last resort.
B)   to keep the economy at full employment.
C)   of increasing the money supply.
D)   to conduct fiscal policy.E) B) and C)
F) A) and C)

Question 12

If the money multiplier is 4, the reserve ratio is:

Accepted Answer

A)   25 percent.
B)   2.5 percent.
C)   5 percent.
D)   4 percent.E) C) and D)
F) B) and C)

Question 13

The interest rate charged for loans through the discount window is called the:

Accepted Answer

A)   discount rate.
B)   reserve rate.
C)   federal funds rate.
D)   prime rate.E) None of the above
F) B) and C)

Question 14

Under fractional reserve banking:

Accepted Answer

A)   banks only need to keep a portion of each deposit on hand.
B)   the money multiplier is equal to 1.
C)   banks cannot create money in the economy.
D)   lending would be curtailed to nearly zero.E) None of the above
F) C) and D)

Question 15

The ratio of money created by the lending activities of the banking system to the money created by the government's central bank is called the:

Accepted Answer

A)   money multiplier.
B)   reserve ratio.
C)   federal funds.
D)   demand deposits.E) A) and B)
F) B) and D)

Question 16

The Federal Reserve System consists of:

Accepted Answer

A)   twelve regional banks and a 7-member Board of Governors.
B)   a twelve-member Board of Governors and 7 regional banks.
C)   twelve regional banks and 7 member banks.
D)   twelve member banks and 7 regional banks.E) None of the above
F) B) and C)

Question 17

Why is providing a medium of exchange an important role of money?

Accepted Answer

A)   It makes the economy much more efficient by reducing transaction costs.
B)   It helps the government tax its citizens.
C)   It allows consumers to more easily compare different transactions.
D)   It provides a long-term place to store value.E) B) and D)
F) A) and D)

Question 18

In the simple liquidity preference model, changes to the money supply will have a smaller effect on interest rates when the money demand curve:

Accepted Answer

A)   is more elastic.
B)   is less elastic
C)   shifts to the right.
D)   is perfectly inelastic.E) B) and C)
F) C) and D)

Question 19

Expansionary monetary policy _______ the interest rate and _______ the price level.

Accepted Answer

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

Question 20

The chair of the Federal Reserve:

Accepted Answer

A)   is responsible for regulating the banking system.
B)   has significant direct control over the conduct of monetary policy by the central bank.
C)   is generally a partisan political appointment.
D)   All of these are true.E) C) and D)
F) A) and B)

Exam 15: Moneyand the Monetary System

Under fractional reserve banking:

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Which tool does the Fed use most often to change the money supply?

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The chair of the Federal Reserve:

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A larger money multiplier means:

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The twin responsibilities of the Federal Reserve are to:

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If the money multiplier is 4, the reserve ratio is:

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The interest rate charged for loans through the discount window is called the:

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Assets regularly used to purchase goods and services are called:

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The graph shown displays the relationship between money and the interest rate. If the money supply in the economy is currently at MS3, to engage in expansionary policy the Fed would use open market operations to move the money supply to which point?

Correct AnswerverifiedShow Answer

In the simple liquidity preference model, changes to the money supply will have a smaller effect on interest rates when the money demand curve:

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One of the main roles of a central bank is:

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Expansionary monetary policy _______ the interest rate and _______ the price level.

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If there were no fractional reserve banking:

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Why is providing a medium of exchange an important role of money?

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Money is:

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What is a major danger of fiat money?

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The money multiplier:

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The Federal Reserve System consists of:

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The ratio of money created by the lending activities of the banking system to the money created by the government's central bank is called the:

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The discount window allows the Federal Reserve to fulfill its responsibility:

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The graph shown displays the relationship between money and the interest rate. If the money supply in the economy is currently at M^S3, to engage in expansionary policy the Fed would use open market operations to move the money supply to which point?

Correct Answer
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Expansionary monetary policy _ the interest rate and _ the price level.

Correct Answer
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