Chapter 29 Quizzes

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Which of the following is not a function of money?

A hedge against inflation

The M1 money supply is composed of...

currency, demand deposits, traveler's checks, and other checkable accounts.

An example of fiat money is...

paper dollars

The Board of Governors of the Federal Reserve System consists of...

7 members appointed by the president

Commodity money

has intrinsic value.

To insulate the Federal Reserve from political pressure,

the Board of Governors are appointed to 14-year terms

Which of the following statements is true?

When the Fed sells government bonds, the money supply decreases.

Required reserves of banks are a fixed percentage of their...

deposits.

If the reserve requirement is 25 percent, the value of the money multiplier is...

4

Which of the following policy actions by the Fed is likely to increase the money supply?

Reducing reserve requirements.

Suppose Joe changes his $1,000 demand deposit from Bank A to Bank B. If the reserve requirement is 10 percent, what is the potential change in demand deposits as a result of Joe's action?

$0

A decrease in the reserve requirement causes

the money multiplier to rise.

The discount rate is...

The interest rate the Fed charges on loans to banks.

Which of the following policy combinations would consistently work to increase the money supply?

buy government bonds, decrease reserve requirements, decrease the discount rate

Suppose the Fed purchases a $1,000 government bond from you. If you deposit the entire $1,000 in your bank, what is the total potential change in the money supply as a result of the Fed's action if reserve requirements are 20 percent?

$5,000

Suppose all banks maintain a 100 percent reserve ration. If an individual deposits $1,000 of currency in a bank,

the money supply is unaffected.

If the Fed engages in an open-market purchase, and at the same time, it raises reserve requirements,

we cannot be certain what will happen to the money supply.

... no idea what the question is...

$50

The three main tools of monetary policy are

Open-market operations, reserve requirements, and the discount rate.

Suppose the Fed purchases a government bond from a person who deposits the entire amount from the sale in her bank. If the bank holds some of the deposit as excess reserves, the money supply will

rise less than the money multiplier would suggest.

Money eliminates the need for double coincidence of wants...

True

One plausible explanation for the large amount of U.S. currency outstanding is that the dollars are held abroad.

True

Members of the Board of Governors of the Federal Reserve System are appointed for life.

False

The federal funds rate is a long-term interest rate banks charge one another for loans.

False

Currently, bank runs are a major problem for the U.S. banking system and the Fed.

False

Two people each have a good or service that the other wants. This is called

A double coincidence

Given the following information, what are the values of M1 and M2?
Small time deposits: $1,300 billion
Demand deposits and other checkable deposits: $600 billion
Savings deposits: $1,500 billion
Money market mutual funds: $1,200 billion
Travelers' checks: $50 billion
Large time deposits: $1,200 billion
Currency: $200 billion
Miscellaneous categories in M2: $50 billion

M1 = $850 billion, M2 = $4, 900 billion.

Given the following information, what are the values of M1 and M2?
Small time deposits: $1,100 billion
Demand deposits and other checkable deposits: $800 billion
Savings deposits: $1,350 billion
Money market mutual funds: $900 billion
Travelers' checks: $30 billion
Large time deposits: $750 billion
Currency: $150 billion
Miscellaneous categories in M2: $40 billion

M1 = $980 billion, M2 = $4,370 billion.

Small time deposits are included in

M2 but not M1

Which of the following is included in M1 and M2?

Traveler's checks

Traveler's checks increase $500 and small time deposits increase by $1,000. As a result,

M1 increases by $500 and M2 increases by $1,500.

John and Jane decide to go on a vacation. As a result, they withdraw $2,500 from their savings account. As a result,

M1 increases by $2,500 and M2 stays the same.

Derek decides to forego a major appliance purchase and save the money. He transfers $2,100 from his checking account to his savings account. As a result,

M1 decreases by $2,100 and M2 stays the same.

Writing in The New York Times in 2004, economist Hal R. Varian concludes that

All of the above: paper currency can take on a life of its own, government backing makes a significant contribution to the value of paper currency, dollars are valuable because of network effects.

The Fed has the power to increase or decrease the number of dollars in the economy through the decisions of

the FOMC

Which of the following statements regarding the Federal Open Market Committee is correct?

All twelve regional Fed presidents attend, but only five get to vote.

Which of the following institutions is not a central bank?

The Bank of America

Which of the following groups is chiefly responsible for seeing that the Fed meets its bank regulation and banking system health goal?

the regional Federal Reserve Banks

The Federal Open Market Committee meets approximately

every six weeks

Which of the following is not a reason the New York Federal Reserve Bank president always gets to vote at the Federal Open Market Committee meetings?

New York has higher population than other cities in the U.S.

The Fed's policy decisions have an important influence on

inflation in the long run and employment and production in the short run.

When conducting an open market sale, the Fed

sells government bonds, and in so doing decreases the money supply.

When conducting an open market purchase, the Fed

buys government bonds, and in so doing increases the money supply.

If the Fed increases the reserve ratio from 4 percent to 10 percent, then the money multiplier

decreases from 25 to 10.

If the money multiplier decreased from 20 to 12.5, then

the Fed increased the reserve ratio from 5 percent to 8 percent.

The manager of the bank where you work tells you that the bank has $300 million in deposits and $255 million dollars in loans. If the reserve requirement is 10 percent, how much is the bank holding in excess reserves?

$15 million

The manager of the bank where you work tells you that the bank has $400 million in deposits and $340 million dollars in loans. The Fed then raises the reserve requirement from 10 percent to 15 percent. Assuming everything else stays the same, how much is the bank holding in excess reserves after the increase in the reserve requirement?

$0

The Fed purchases $200 worth of government bonds from the public. The reserve requirement is 8 percent and the banking system keeps no excess reserves. The U.S. money supply eventually increases by

$1,600

The Northern Rock bank run in 2007 occurred in

the United Kingdom

Which of the following will not help to prevent bank runs?

fractional reserve banking

Money and wealth are the same thing

False

Fiat money is money that is used in Italy

False

Commodity money has value independent of its use as money

True

The M1 money supply is composed of currency, demand deposits, travler's checks, and other checkable deposits

True

When you are willing to go to sleep tonight with $100 in your wallet and you have complete confidence that you can spend it tomorrow and receive the same amount of goods as you would have received had you spent it today, money has demonstrated its function as a medium of exchange

False

Money has three functions: It acts as a medium of exchange, a unit of account, and a hedge against inflation

False

Credit cards are part of the M2 money supply and are valued at the maximum credit limit of the cardholder

False

The Federal Reserve is the central bank of the United States and is run by the seven members of the Board of Covernors

True

The Federal Open Market Committee (FOMC) meets about every six weeks and discusses the condition of the economy and votes on changes in monetary policy

True

If there is 100 percent reserve banking, the money supply is unaffected by the proportion of the dollars that the public chooses to hold as currency versus deposits

True

If the Fed purchases $100,000 of government bonds, and the reserve requirement is 10 percent, the maximum increase in the money supply is $10,000

False

If the Fed desires to contract the money supply, it could do any of the following: sell government bonds, raise the reserve requirement, and raise the discount rate

True

If the Fed sells $1,000 of government bonds, and the reserve requirement is 10 percent, deposits could fall by as much as $10,000

True

An increase in the reserve requirement increases the money multiplier and increases the money supply

False

If bands choose to hold excess reserves, lending decreases and the money supply decreases

True

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