Barter is more feasible in primitive societies than in modern societies because
specialization is limited and thus there are few goods available for trade in primitive societies
How does money function as a unit of account?
The prices of all goods and services are measured in terms of money.
In order for something to be used as money, it must be
Commitments to make or receive payments in the future are made easier by money's function as a
unit of account
Gresham's Law states that people
spend lower-quality money and hoard higher-quality money
Goldsmiths are considered to be the forerunners of modern banks because they
created money by lending out gold reserves
Financial intermediaries do all of the following except one. Which is the exception?
The distinction between depository institutions and other financial institutions is that
only depository institutions receive funds through customer deposits
The powers of the Federal Reserve System do not include
the ability to provide deposit insurance for customers of only member banks
The Federal Reserve System has the power to
buy and sell federal government securities
The primary purpose of the Federal Open Market Committee (FOMC) is to
buy and sell government securities
The deregulation of U.S. banking in the 1980s led to
many bank failures as banks began to hold riskier assets
Compared to many other countries, the United States has
more commercial banks, with assets more widely distributed among banks
Stores need not accept your check but must accept currency because
currency is legal tender; checks are not
All of the following are part of M2 except one. Which is the exception?
large denomination time deposits
Which of the following is true of credit cards?
They are a way of postponing the payment of money.
Banks minimize the risk of loss to depositors by
making many different loans to different borrowers
If a bank has $1 million in assets and $50,000 in net worth, its liabilities must equal
The ready cash kept on hand by a bank to meet the needs of those who want to withdraw funds does not earn interest for the bank.
Suppose the required reserve ratio is 0.1 and Linda deposits $4,000 in cash at the College State Bank. If the bank held no excess reserves before Linda's deposit and now increases its reserves by $500, which of the following is true?
The bank has excess reserves of $100.
A bank manager who wants to increase profitability would likely
reduce the liquidity of a bank's assets
If a bank sells a $1,000 security to the Fed and the required reserve ratio is 20 percent,
the bank has $1,000 in additional excess reserves, all of which it can lend out
The banking system creates money in the sense that it
creates loans from excess reserves
If checking deposits increase by $6,000 after all rounds of the money-creation process when the Fed buys $1,200 worth of U.S. government securities, the maximum value of the required reserve ratio is
Under which of the following circumstances will the simple money multiplier most overstate the change in checkable deposits arising from a change in excess reserves?
The public withdraws cash and banks hold excess reserves.
Suppose the Fed sells $10 million in government securities to a commercial bank. If the required reserve ratio is 0.2, what is the maximum amount by which checkable deposits in the banking system can change? (Hint: Compare what the banking system might have done if it had loaned at every opportunity; also include the initial transaction with the Fed.)
The Fed's most important monetary policy tool today is
conducting open market operations
Raising the discount rate is
a contractionary policy on the part of the Fed because it raises commercial banks' cost of borrowing from it
To increase the money supply, the Fed might
decrease the reserve requirement and buy bonds on the open market
The immediate effect of a bank's purchase of U.S. government securities from the Fed is a(n)
decrease in the Fed's assets