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The main disadvantage of using money as a store of value is that:


A) other assets provide greater anonymity than cash.
B) barter is a more efficient way to conduct transactions than using money.
C) unlike other assets, money serves as a medium of exchange.
D) other assets pay relatively higher rates of interest than money.

E) B) and D)
F) None of the above

Correct Answer

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When a baker exchanges a pie for dollars, this is an example of dollars serving as:


A) barter.
B) a medium of exchange.
C) a unit of account.
D) a store of value.

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

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In Macroland there is $12,000,000 in currency.The public holds half of the currency and banks hold the rest as reserves.If banks'desired reserve/deposit ratio is 12.5%, deposits in Macroland equal ______ and the money supply equals _______.


A) $48,000,000; $75,000,000
B) $54,000,000; $54,000,000
C) $48,000,000; $54,000,000
D) $96,000,000; $96,000,000

E) B) and C)
F) C) and D)

Correct Answer

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The components of M2 that are not also in M1:


A) sum to an amount that is smaller than the sum of the components of M1.
B) pay lower rates of interest than do the components of M1.
C) are not usable for making payments.
D) are usable for making payments, but at a greater cost or inconvenience than currency or checks.M2 is a broader measure of money than M1, thus it contains assets that are less liquid than M1.

E) None of the above
F) B) and D)

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Two examples of governments that printed large quantities of paper currency to finance massive budget deficits, causing hyperinflation, are ______ and ______.


A) the Confederacy during the American Civil War; Japan after World War II
B) the Confederacy during the American Civil War; Germany after World War I
C) the United States during the Great Depression; Japan after World War II
D) the United States during the Great Depression; Germany after World War I

E) C) and D)
F) A) and B)

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In a fractional-reserve banking system the reserve/deposit ratio equals:


A) more than 100 percent.
B) currency held by the public divided by deposits.
C) 100 percent.
D) less than 100 percent.

E) A) and B)
F) None of the above

Correct Answer

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If bank reserves are 200, the public holds 400 in currency, and the desired reserve/deposit ratio is 0.25, the deposits are ______ and the money supply is _____.


A) 200; 600
B) 400; 800
C) 600; 1,000
D) 800; 1,200

E) All of the above
F) C) and D)

Correct Answer

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In the United States saving is allocated to its most productive use by:


A) the Federal Reserve.
B) the federal, state, and local governments.
C) regulations and laws designed to improve productivity.
D) a decentralized, market-oriented financial system.

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

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In Macroland there is $1,000,000 in currency that can either be held by the public as currency or deposited into banks.Banks'desired reserve/deposit ratio is 10%.If the public of Macroland decides to hold more currency, increasing the proportion they hold from 50% to 75%, the money supply in Macroland will ______.


A) increase.
B) decrease.
C) remain the same.
D) either increase or decrease.

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

Correct Answer

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If a bank's desired reserve/deposit ratio is 0.33 and it has deposit liabilities of $100 million and reserves of $50 million, it:


A) has too few reserves and will reduce its lending.
B) has too many reserves and will increase its lending.
C) has the correct amount of reserves and outstanding loans.
D) should increase the amount of its reserves.

E) A) and B)
F) None of the above

Correct Answer

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If you post your car on eBay with a Buy-It-Now price of $1,800, you are using money as:


A) bank reserves.
B) a medium of exchange.
C) a unit of account.
D) a store of value.

E) A) and D)
F) C) and D)

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Commercial banks create new money:


A) when they increase their desired reserve/deposit ratio.
B) by issuing checks.
C) through multiple rounds of lending.
D) when they buy government bonds from the Federal Reserve.

E) A) and B)
F) C) and D)

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If banks'desired reserve ratio increases from 0.10 to 0.15, the public still desires to hold the same amount of currency, and the Fed takes no actions, the money supply will:


A) increase.
B) decrease.
C) not change.
D) either increase or decrease.

E) A) and C)
F) B) and D)

Correct Answer

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When an individual deposits currency into a checking account:


A) bank reserves increase, which allows banks to lend more and increases the money supply.
B) bank reserves decrease, which reduces the amount banks can lend and reduces the growth of the money supply.
C) bank reserves are unchanged.
D) bank liabilities increase, which reduces the amount banks can lend and reduces the growth of the money supply.

E) A) and B)
F) C) and D)

Correct Answer

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The financial system consists of financial _____, such as commercial banks, and financial markets, such as the stock market.


A) corporations
B) allocations
C) intermediaries
D) brokers

E) A) and C)
F) All of the above

Correct Answer

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When a bank makes a loan by crediting the borrower's checking account balance with an amount equal to the loan:


A) money is created.
B) the bank gains new reserves.
C) the bank immediately loses reserves.
D) the Fed has made an open-market purchase.

E) All of the above
F) B) and D)

Correct Answer

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If the Central Bank of Macroland puts an additional 1,000 dollars of currency into the economy, the public deposits all currency into the banking system, and banks have a desired reserve/deposit ratio of 0.10, then the banks will eventually make new loans totaling ______ and the money supply will increase by _______.


A) $1,000; $1,000
B) $9,000; $9,000
C) $9,000; $10,000
D) $1,000; $9,000

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

Correct Answer

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A rapidly growing supply of money will lead to:


A) rising real GDP.
B) rising velocity.
C) unemployment.
D) inflation.

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

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Decentralized market-based financial systems improve the allocation of saving by:


A) ensuring capital gains exceed dividend payments.
B) eliminating the need for commercial banks or other financial intermediaries.
C) matching net capital inflows to net capital outflows.
D) providing information and risk-sharing services.

E) B) and C)
F) None of the above

Correct Answer

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The most important tool of monetary policy is:


A) reserve requirement ratios.
B) the discount rate.
C) open-market operations.
D) market interest rates.

E) None of the above
F) C) and D)

Correct Answer

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