Chapter 21 Answersmultiple Choices
Chapter 21 Answersmultiple Choices
_D_ 1. Money
a. is more efficient than barter.
b. makes trades easier.
c. allows greater specialization.
d. All of the above are correct.
_A 2. The existence of money leads to
a. greater specialization in production, but not to a higher standard of living.
b. a higher standard of living, but not to greater specialization.
c. greater specialization and to a higher standard of living.
d. neither greater specialization nor to a higher standard of living.
_A_ 3. Which of the following lists is included in what economists call money?
a. cash
b. cash and stocks and bonds
c. cash and stocks and bonds and real estate
d. cash and stocks and bonds and real estate and all other assets
_D__ 4. Economists use the term money to refer to
a. all wealth.
b. all assets, including real assets and financial assets.
c. all financial assets, but not real assets.
d. those types of wealth that are regularly accepted by sellers in exchange for goods and services.
_D_5. Which of the following is a function of money?
a. a unit of account
b. a store of value
c. medium of exchange
d. All of the above are correct.
_C_6. Which of the following best illustrates the medium of exchange function of money?
a. You keep some money hidden in your shoe.
b. You keep track of the value of your assets in terms of currency.
c. You pay for your oil change using currency.
d. None of the above is correct.
_C_7. Any item that people can use to transfer purchasing power from the present to the future is called
a. a medium of exchange.
b. a unit of account.
c. a store of value.
d. None of the above is correct.
_D_ 8.. Which of the following is a store of value?
a. Currency (dollar bills)
b. U.S. government bonds
c. fine art
d. All of the above are correct.
_A_ 9. Liquidity refers to
a. the ease with which an asset is converted to the medium of exchange.
b. the measurement of the intrinsic value of commodity money.
c. the measurment of the durability of a good.
d. how many time a dollar circulates in a given year.
2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
_D_27. The amount of currency per person in the United States is about
a.
$125. b.
$300.
c.
$2,500. d.
$3,700.
_D_ 28.
a.
b.
c.
d.
_D_29. Who was reappointed Chair of the Board of Governors in 2009 by President Barrack Obama?
a. Ben Bernanke b. Christina Romer c. Timothy Geithner d.
Bernie Madoff ___
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a.
b.
c.
d.
_B_ 31. Which of the following entities actually executes open-market operations?
a. the Board of Governors
b. the New York Federal Reserve Bank
c. the Federal Open Market Committee
d. the Open Market Committees of the regional Federal Reserve Banks
_A_32. When conducting an open-market purchase, the Fed
a. buys government bonds, and in so doing increases the money supply.
b. buys government bonds, and in so doing decreases the money supply.
c. sells government bonds, and in so doing increases the money supply.
d. sells government bonds, and in so doing decreases the money supply.
_D__33. In a system of 100-percent-reserve banking,
a. banks do not make loans.
b. currency is the only form of money.
c. deposits are banks only assets.
d. All of the above are correct.
_B__ 34.If R represents the reserve ratio for all banks in the economy, then the money multiplier is
a. 1/(1-R).
b. 1/R.
c. 1/(1+R).
d. (1+R)/R.
_C_35. The Feds primary tool to change the money supply is
a. changing the interest rate on reserves.
b. changing the reserve requirement.
c. conducting open market operations.
d. redeeming Federal Reserve notes.
_C__36. The interest rate the Fed charges on loans it makes to banks is called
a. the prime rate.
b. the federal funds rate.
c. the discount rate.
d. the LIBOR.
__B_37. The interest rate that the Fed charges banks that borrow reserves from it is the
a. federal funds rate.
b. discount rate.
c. reserve requirement.
d. prime rate.
_A_38. If the Fed increases the reserve ratio from 4 percent to 10 percent, then the money multiplier
a. decreases from 25 to 10.
b. decreases from 20 to 10.
c. increases from 10 to 25.
d. increases from 10 to 20.
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_B_39 During recessions, banks typically choose to hold more excess reserves relative to their deposits. This action
a. increases the money multiplier and increases the money supply.
b. decreases the money multiplier and decreases the money supply.
c. does not change the money multiplier, but increases the money supply.
d. does not change the money multiplier, but decreases the money supply.
_D_40. Today, bank runs are not a major problem for the U.S. banking system because
a. bank runs are now illegal.
b. banks now hold 100 percent of their deposits in reserve.
c. banks are now all government-operated.
d. the federal government now guarantees the safety of deposits at most banks.
_A_41. The Federal Deposit Insurance Corporation
a. protects depositors in the event of bank failures.
b. has become insolvent in recent years due to a large number of bank failures.
c. is part of the Federal Reserve System.
d. in practice has seldom been of much use.
_B, E_42.(LATA) In recent years the Federal Open Market Committee has focused on a target for
a. M1 growth.
b. the federal funds rate.
c. the number of Treasury Securities issued by the federal government.
d. total reserves of banks.
e. Inflation
_B_43. If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate
back towards its target by
a. buying bonds. This buying would reduce reserves.
b. buying bonds. This buying would increase reserves.
c. selling bonds. This selling would reduce reserves.
d. selling bonds. This selling would increase reserves.
True/False
_T_44. The Federal Reserve was created in 1913 after a series of bank failures in 1907.
_T_45. Federal Reserve governors are given long terms to insulate them from politics.
_T_46. The chair of the Board of Governors regularly testifies to Congress about Fed policy.
__47. Members of the Board of Governors are appointed by the president of the U.S. and confirmed by the U.S.
Senate.
_F_48. Other things the same, if banks decide to hold a smaller part of their deposits as excess reserves, the money
supply will fall.
SHORT ANSWER
__49. Draw a simple T-account for First National Bank which has $5,000 of deposits, a required reserve ratio of 10
percent, and excess reserves of 0%. Make sure your balance shee t balances.
First National Bank
Assets
Liabilities
Reserves
$800
Deposits
$5,000
Loans
$4,200
2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.