Name: __________________________ Date: _____________
1. Money is:
A) paper money and coins, but not checks.
B) currency and stocks.
C) anything that can easily be used to buy goods and services.
D) not represented by any of the above.
2. Which of the following combination of assets are considered to be money?
A) currency in circulation, checkable bank deposits, and credit cards
B) currency in circulation, checkable bank deposits, and travelers' checks
C) currency in circulation and in bank vaults, checkable bank deposits, and travelers' checks
D) currency in circulation and in bank vaults, checkable bank deposits, and credit cards
3. Commodity-backed money is:
A) a medium of exchange with no intrinsic value.
B) equivalent to commodity money.
C) a medium of exchange which has alternative economic uses.
D) gold and silver coins used for exchange.
4. When we keep part of our wealth in a savings account, money is playing the role of:
A) medium of exchange. B) unit of account C) barter D) store of value
Use the following to answer question 5:
Table: Monetary Aggregates
5. (Table: Monetary Aggregates) The value of M1 is:
A) $880 billion. B) $ 895 billion C) $2005 billion
D) $920 billion
6. The U.S. dollar is defined as:
A) fiat money, because it was created by an act of law.
B) faith money, because we trust the government to defend its value.
C) commodity-backed money, because it is convertible into gold.
D) commodity money, because it is widely used to buy commodities.
7. If a bank has deposits of $100,000, loans of $75,000, cash on hand of $10,000, and $15,000 on
deposit at the Federal Reserve, then its reserve ratio is:
A) 5%.
B) 10%.
C) 12.5%.
D) 25%.
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Use the following to answer questions 8-9:
Table: ABC Bank's Balance Sheet
8. (Table: ABC Bank's Balance Sheet) Refer to the balance sheet. If the minimum reserve ratio for
ABC Bank is 10%, then the bank is required to maintain minimum reserves of:
A) $10 million. B) $15 million C) $9.5 million D) $ 7.5 million
9. (Table: ABC Bank's Balance Sheet) Using the information in ABC Bank's Balance sheet, the bank is
holding excess reserve of:
A) $17 million. B) $15 million C) $5 million D) $25 million
10. A bank run can “break a bank” because:
A) borrowers default on their loans, and the bank's assets become worthless.
B) banks can not convert quickly illiquid loans into liquid assets without facing a large financial
loss.
C) depositors' panic spreads to borrowers, who want to take additional loans from the bank.
D) the bank's reserves kept with the Federal Reserve are in the form of illiquid U.S. Treasury
bonds.
11. Which of the following is a component of BOTH the monetary base and the money supply?
A) bank reserves at the Fed
B) currency in bank vaults
C) demand deposits
D) currency in circulation
12. The Federal Reserve Bank of the United States is:
A) a purely private central bank.
B) a purely public central bank.
C) is part of the U.S. government.
D) is not exactly part of the U.S. government but not really a private institution either.
13. All of the following are responsibilities of the Fed EXCEPT:
A) control the monetary base.
B) mint bills and coins.
C) oversee and regulate the banking system.
D) set the discount rate.
14. Which of the following is a tool used by the Fed in the conduct of monetary policy?
A) changes in the prime rate
B) issuing new government bonds and retiring old ones
C) buying and selling corporate bonds
D) buying and selling federal government bonds
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15. If the Fed increases the discount rate:
A) the money supply is likely to decrease.
B) the money supply is likely to increase.
C) the money supply is not likely to change.
D) the federal funds rate must decrease.
16. To _______ the money supply, the Fed could ________.
A) increase; lower the reserve requirements
B) decrease; lower the discount rate
C) increase; raise the federal funds rate
D) decrease; conduct open-market purchases
17. To _______ the money supply, the Fed could ________.
A) increase; decrease the money multiplier
B) decrease; lower the reserve requirements
C) increase; conduct open-market purchases
D) decrease; lower the discount rate
18. The money demand curve shows the relationship between the:
A) the money supply and the quantity of money demanded.
B) aggregate price level and the nominal quantity of money demanded.
C) interest rate and the nominal quantity of money demanded.
D) real GDP and the nominal quantity of money demanded.
19. The demand curve for money will shift to the right because of a:
A) fall in the interest rate.
B) rise in real GDP.
C) rise in the interest rate
D) fall in real GDP.
20. A 30% increase in the aggregate price level will:
A) increase money demand by 30%.
B) increase money demand by the money multiplier.
C) decrease money demand by 30%.
D) not affect the demand for money.
21. Now that fast food places such as McDonald's are accepting credit card payments:
A) the demand for money has increased.
B) the demand for money has decreased.
C) the demand for money has not been affected because credit cards are not considered to be
money.
D) the supply for money has increased as there is unused cash.
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Use the following to answer questions 22-25:A Money Market
22. The accompanying graph shows the money market. In this market, the equilibrium interest rate is:
A) r1.
B) r2.
C) r3.
D) M0.
23. The accompanying graph shows the money market. In this market, if the current interest rate is r3,
we would expect to see the interest rate _____ because there is a ______ of money in the market.
A) fall; surplus
B) fall; shortage C) rise; surplus D) rise; shortage
24. The accompanying graph shows the money market. In this market, if the current interest rate is r1,
we would expect to see the interest rate _____ because there is a ______ of money in the market.
A) fall; surplus
B) fall; shortage
C) rise; surplus
D) rise; shortage
25. The accompanying graph shows the money market in equilibrium at an interest rate of r2. Holding
money supply constant, which of the following might cause the interest rate in the market to
decrease to r1?
A) The inflation rate falls to historically low levels.
B) Higher payroll taxes cause employers to pay workers cash “under the table.”
C) There is a recession that decreases real GDP.
D) There is a significant increase in the stock market.
26. The money demand curve is _________ because a lower interest rate ___________.
A) upward-slopping; increases the opportunity cost of holding money
B) downward-slopping; increases the opportunity cost of holding money
C) upward-slopping; decreases the opportunity cost of holding money
D) downward-slopping; decreases the opportunity cost of holding money
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