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In a barter system,

an individual offers one good or service to get another good or service

Which of the following is not a function of money?

to provide a double coincidence of wants

Which of following is not an important characteristic of money?

has commodity value

Commodity money is something

that has an intrinsic value

A government receives seigniorage whenever it

mints coins whose face value is greater than the value of the resources used up in producing the money

Under a fractional reserve banking system

bank reserves represent only a fraction of bank deposits

Some financial institutions are known as financial intermediaries because they serve as go-betweens that link

savers and borrowers

Which of the following is a depository institution

a credit union

Federal Reserve banks do all of the following except one. Which is the exception?

hold deposits of households and firms

The discount rate is

the interest rate charged by the Federal Reserve banks on loans to banking institutions

The FDIC insures deposits in

any banking institution that purchases FDIC insurance

The purpose of deregulating banks during the 1980s was to

allow banks to compete with other financial institutions

Money market mutual funds

offer higher rates of interest than bank checking accounts and also offer check writing privileges

Which of the following is not true of Federal Reserve notes?

They are redeemable for gold.

Which of the following are included in the narrow definition of the money supply?

checkable deposits

Asymmetric information in financial markets exists when

borrowers know more about their ability to repay loans than lenders do

Net Worth on a bank's balance sheet is

sometimes called the owners' equity

A bank's assets include all but one of the following. Which one is the exception?

checkable deposits

If you know the required reserve ratio and the total value of a bank's assets, then you know how much the bank is holding in reserves.


If a bank has $6,000 in checkable deposits and the required reserve ratio is 0.2, then the bank can lend

No more than $4,899

Banks want to minimize their holdings of excess reserves because

excess reserves earn no interest

The immediate effect of a member bank's sale of U.S. government securities to the Fed is a(n)

increase in that bank's excess reserves

What essential factor enables commercial banks to create money?

excess reserves

If the required reserve ratio is 0.2, and the Fed buys $3,000 of U.S. government securities, the maximum amount by which the money supply can increase is


The actual money multiplier is smaller than the simple money multiplier because

cash withdrawals reduce the amount banks can lend out

Suppose the banking system has no excess reserves and required reserves equal to 20 percent of checkable deposits. If the Fed sells $10,000 in securities to Joe Bankustomer, what is the most that checkable deposits in the banking system fall? (Hint: Compare what the banking system might have done if it had loaned at every opportunity; also include the initial transaction with the Fed.)


Which of the following is not one of the procedures the Fed uses to change the money supply?

extending loans to the public

Increasing the required reserve ratio is

a contractionary policy because it lowers the amount of excess reserves in the banking system

To increase the money supply, the Fed might

decrease the reserve requirement and the discount rate

If the Fed buys U.S. government securities from a bank and credits the bank's reserve account,

the Fed's assets increase

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