Question 1

When the economy experiences inflation, people demand _______ money, shifting the money demand curve to the _______.

Accepted Answer

A)   less; left
B)   more; left
C)   less; right
D)   more; rightE) All of the above
F) C) and D)

Question 2

If the economy is in a recession, the Fed is likely to:

Accepted Answer

A)   buy bonds through open market operations.
B)   increase the discount rate.
C)   increase the reserve requirement.
D)   decrease taxes.E) C) and D)
F) A) and B)

Question 3

In order to change the money supply, the Fed might use which of the following tools?

Accepted Answer

A)   Legislation
B)   The reserve requirement
C)   Fiscal policy
D)   Deficit spendingE) A) and C)
F) None of the above

Question 4

The Treasury Department conducts _______, while the Federal Reserve conducts _______.

Accepted Answer

A)   monetary policy; tax policy
B)   tax policy; financial market regulations
C)   fiscal policy; monetary policy
D)   fiscal policy; tax policyE) None of the above
F) B) and D)

Question 5

We say that money is a unit of account 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 B)
F) A) and D)

Question 6

Why aren't avocados a good source of money?

Accepted Answer

A)   Avocados are not a good medium of exchange.
B)   Avocados wouldn't store value for a long time.
C)   Avocados have no common unit of account.
D)   None of these are true.E) A) and B)
F) A) and C)

Question 7

What does a money multiplier of 10 represent?

Accepted Answer

A)   Banks create 10 dollars in deposits from each original deposit of a dollar.
B)   Banks create approximately 10 times the amount of cash in the economy.
C)   The economy overall has 10 times the amount of deposits as existing cash.
D)   All of these are true when the money multiplier is 10.E) B) and D)
F) None of the above

Question 8

The goal of expansionary 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 9

An essential function of a central bank is to:

Accepted Answer

A)   manage the money supply.
B)   collect taxes.
C)   issue debt.
D)   control and monitor government budgets.E) None of the above
F) B) and C)

Question 10

What must be true when people decide to hold some of their cash and not deposit it?

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) A) and C)
F) A) and B)

Question 11

Companies periodically report their assets, liabilities, and owner's equity using a(n) :

Accepted Answer

A)   shareholder report.
B)   profit loss statement.
C)   balance sheet.
D)   accounting statement.E) C) and D)
F) A) and D)

Question 12

The lending facility that allows any bank to borrow reserves from the Fed is called the:

Accepted Answer

A)   discount window.
B)   reserve window.
C)   reserve rate.
D)   borrower of last resort.E) C) and D)
F) B) and D)

Question 13

Central banks:

Accepted Answer

A)   exist in almost every major nation.
B)   are common only in industrialized nations.
C)   do not play a major role in the money creation process.
D)   became less useful after the Great Depression proved their ability to fail.E) A) and D)
F) B) and C)

Question 14

If the Fed wishes to decrease the money supply, it could:

Accepted Answer

A)   buy bonds.
B)   increase the reserve requirement.
C)   decrease the discount rate.
D)   print less currency.E) C) and D)
F) B) and D)

Question 15

When interest rates rise, the quantity of money demanded _______, causing a move _______ along the money demand curve.

Accepted Answer

A)   decreases; leftward
B)   increases; leftward
C)   decreases; rightward
D)   increases; rightwardE) All of the above
F) B) and C)

Question 16

The discount window is a:

Accepted Answer

A)   lending facility that allows any bank to borrow reserves from the Fed.
B)   lending facility that banks can use at specified times to borrow reserves needed to meet reserve requirements.
C)   large banking transaction that is associated with lower risk, and therefore qualifies for lower interest rates.
D)   situation in which large banks offer a lower interest rate to attract more borrowers.E) A) and B)
F) None of the above

Question 17

Your checking account balance would be counted in which measure of money?

Accepted Answer

A)   M1
B)   M2
C)   The monetary base
D)   Both M1 and M2E) A) and B)
F) B) and C)

Question 18

If the economy is in a recession, the Fed might:

Accepted Answer

A)   buy bonds through open market operations to increase spending in the economy.
B)   decrease taxes to increase spending in the economy.
C)   increase the discount rate to encourage lending in the economy.
D)   increase the reserve requirement to increase confidence in the financial system.E) All of the above
F) A) and B)

Question 19

Which of the following would cause the money demand curve to shift to the right?

Accepted Answer

A)   Inflation
B)   An increase in interest rates
C)   A decrease in GDP
D)   A technological advanceE) A) and B)
F) All of the above

Question 20

What is the dual mandate?

Accepted Answer

A)   The Federal Reserve's two responsibilities to ensure price stability and to maintain full employment.
B)   The orders given to both the Federal Reserve and the Treasury department to ensure price stability.
C)   The responsibility of the Federal Reserve and Congress to conduct monetary and fiscal policy.
D)   The dual role that the Fed plays by being a governmental agency that also must act independently.E) A) and B)
F) A) and C)

Exam 15: Moneyand the Monetary System

The lending facility that allows any bank to borrow reserves from the Fed is called the:

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If the economy is in a recession, the Fed might:

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When interest rates rise, the quantity of money demanded _______, causing a move _______ along the money demand curve.

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Central banks:

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The discount window is a:

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

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Which of the following would cause the money demand curve to shift to the right?

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The Treasury Department conducts _______, while the Federal Reserve conducts _______.

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What must be true when people decide to hold some of their cash and not deposit it?

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What does a money multiplier of 10 represent?

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We say that money is a unit of account because it:

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Why aren't avocados a good source of money?

Correct AnswerverifiedShow Answer

What is the dual mandate?

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If the Fed wishes to decrease the money supply, it could:

Correct AnswerverifiedShow Answer

When the economy experiences inflation, people demand _______ money, shifting the money demand curve to the _______.

Correct AnswerverifiedShow Answer

In order to change the money supply, the Fed might use which of the following tools?

Correct AnswerverifiedShow Answer

If the economy is in a recession, the Fed is likely to:

Correct AnswerverifiedShow Answer

An essential function of a central bank is to:

Correct AnswerverifiedShow Answer

Your checking account balance would be counted in which measure of money?

Correct AnswerverifiedShow Answer

Companies periodically report their assets, liabilities, and owner's equity using a(n) :

Correct AnswerverifiedShow Answer

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When interest rates rise, the quantity of money demanded _, causing a move _ along the money demand curve.

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

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The Treasury Department conducts _, while the Federal Reserve conducts _.

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When the economy experiences inflation, people demand _ money, shifting the money demand curve to the _.

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