Your Chapter 15-18 Questions
Chapter 15
1. Money is a. a synonym for income b. a financial instrument backed by some precious metal such as gold or silver c. anything that people generally accept in exchange for goods and services d. whatever the government defines it to be
2. A medium of exchange is a. any asset that sellers will accept as payment b. a measure by which prices are expressed c. an asset that is used to settle future debts d. the thing traded when barter takes place
3. Which of the following is not one of the functions of money? a. medium of exchange b. source of wealth c. unit of accounting d. store of value
4. What system explains why we accept payment that has no intrinsic value? a. fiduciary monetary system b. department of commerce system c. national monetary system d. digestive system
5. Why can transaction accounts and currency be considered money? a. Because of the CPI b. They are accepted in exchange for goods and services c. It is not predictable in value d. They are not accepted by people
6. What is not included in M1? a. currency b. checkable deposits c. traveler’s checks d. Eurodollar deposits

7. What is not considered money? a. currency b. checkable deposits c. traveler’s checks d. Eurodollar deposits
8. What is M2 a. M1 – near monies b. M3- M1 c. M1 + near monies d. M2 + M1
9. What is the liquidity approach? a. A method of measuring the money supply by looking at money as a medium of exchange b. A method of measuring the money supply by looking at money as a basis of acceptability c. A method of measuring the money supply by looking at money as a temporary store of value d. A method of measuring the money supply by looking at money as a temporary method of exchange
10. Ultimate lenders and ultimate borrowers include a. Households b. Businesses c. Governments d. All of the above
11. The process by which financial institutions accept saving from businesses, households, and governments and savings to other businesses and savings to other businesses, households, and governments is called: a. financial intermediate b. financial intermediaries c. transactions approach d. liquidity approach
12. The Federal Reserve System is run by a. 25 branch banks b. Board of directors

c. 12 district banks d. Board of Governors
13. Functions of the Federal Reserve include a. supervising member banks b. regulating money supply c. supplying the economy with fiduciary currency d. all of the above
14. The Monetary system is composed of a. commercial banks b. savings and loans c. credit unions d. all of the above
15. Electronic banking is also known as a. Web-banking b. Cyber-banking c. Virtual-banking d. None of the above.
Chapter 16
1. All banks have zero reserves. The Fed raises the required reserve ratio from 8 percent to 10 percent. Consequently,
A. The money multiplier decreases and the money supply falls.
B. The money multiplier increases and the money supply will increase.
C. The money multiplier decreases but the money supply increases initially.
D. The money multiplier increases but the money supply falls initially.
2. Which of the following examples is characteristic of a fractional reserve banking system?
A. Bank A1OK makes some of its loans to businesses and some to consumers.
B. First Last Bank does not keep sufficient deposits on hand to cover all customer deposits; rather it keeps a fraction of deposits and loans out the rest.
C. The Republic Central Bank of Tuvalu holds all deposits.
D. Union Commerce Bank makes some of its loans to businesses, and some of its loans are mortgages.

3. What determines the maximum potential change in the money supply following an open market operation?
A. The FDIC.
B. The discount rate.
C. The required reserve ratio, whether banks hold excess reserves, and whether there are leakages of currency.
D. The federal funds rate
4. The Federal Deposit Insurance Corporation (FDIC):
A. Creates moral hazard problems in those big banks that take on more risk knowing the FDIC will consider them "too big to fail."
B. Assures depositors that their deposits will be fully recoverable (up to a maximum of $100,000) regardless of how serious a bank's financial situation may be.
C. Was created in 1933 to prevent bank runs that had been plaguing the economy during the Great Depression.
D. All of the above.
5. A primary reason for establishing the FDIC was bank runs. A bank run is
A. When many of a bank's depositors simultaneously try to withdraw their deposits.
B. When many of a bank's depositors simultaneously deposit checks that are drawn on other banks.
C. When many of the bank's depositors simultaneously deposit currency.
D. When many of a bank's depositors simultaneously deposit checks that are drawn on the same bank.
6. Which of the following is a true statement?
A. Moral hazard is a problem before a transaction takes place when asymmetric information is a problem.
B. The FDIC has reduced the number of depositors who have lost savings but has increased adverse selection and moral hazard.
C. Adverse selection occurs after a transaction has taken place in insurance markets.
D. The FDIC has reduced the problem of moral hazard but not the problem of adverse selection.
7. Assuming people hold no currency and banks are fully loaned up, then the potential money multiplier is equal to:
A. The inverse of the dollar amount of legal reserves in the banking system.
B. The inverse of the dollar amount of excess reserves in the banking system.
C. The inverse of the required reserve ratio.
D. The direct dollar amount of legal reserves in the banking system.

8. If a bank found itself with negative excess reserves it could:
A. Borrow from another bank to replenish its required reserves to the legal minimum.
B. Sell some of its assets and keep the cash, either as deposits at the Federal
Reserve or as vault cash, to replenish its required reserves to the legal minimum.
C. Borrow from the Federal Reserve to replenish its required reserves to the legal minimum.
D. Do any of the above.
9. The actual money multiplier falls in value as:
A. Excess reserves held by banks are increased.
B. The required reserve ratio falls.
C. Currency holdings by the public are reduced.
D. None of the above.
10. Which one of these organizations was created to insure deposits in savings and loan associations and mutual savings banks?
A. FDIC
B. FSLIC
C. NCUSIF
D. SAIF
Chapter 17
1. O pen market operations by the Fed cause… a. a change in discount rate b. a change in aggregate supply c. a change in the price of bonds c. a change in the demand for money
2. If the Fed thought the economy was experiencing a contractionary gap, it would a. buy bonds b. lower the discount rate c. raise the reserve requirement d. increase the aggregate supply
3. An expansionary monetary policy is one that a. stimulates aggregate supply b. reduces aggregate supply while stimulating aggregate demand c. stimulates aggregate demand d. reduces aggregate demand while stimulating aggregate supply
4. The equation for exchange is a. M s
V = PQ

b. M s
Q = PV c. M s
= PV/Q d. M s
P = QV
5. An increase in money supply, other things constant, a. cause changes in relative price between goods and services b. generates an increase in the demand for money c. Causes the price level to increase d. causes the purchasing power of money to increase
6. The Fed wants to target interest rates, it must … a. control the money supply b. control the value for velocity c. give up trying to control money supply d, coordinate its activities with the largest private banks in the US
7. According to the Keynesian transmission mechanism, an increase in the money s upply generates…. a. lower interest rates, which causes an increase in the quantity demanded of planned investment and an increase in aggregate demand b. increased spending on consumer goods and services directly, which cause an increase in aggregate demand c. an increase in nominal national income and a change in the price level, but not change in real national income d. an increase in aggregate supply since the supply of money is part of aggregate supply
8. An increase in the money supply will affect aggregate deman d… a. only if the increase in the money supply causes interest rates to fall b. only if the increase in the money supply causes people to buy more goods
and services c. only if the increase in the money supply causes people to increase their
savings d. if the increase in the money supply causes interest rates to fall and/or causes
people to buy more goods and services
9. The function of money is to… a. Have a more efficient system than bartering b. It allows people to express prices in common units that all people agree upon c. Is used as medium of exchange for goods and services offered. d. All of the above.
10. The money used for expected expenditures is called… a. Transactions demand b. Asset Demand

c. Precautionary demand d. None of the Above
Bonus Question
1. Why do monetarists not support the usual monetary policy carried out by the government? a. It is too slow to fully take effect by in the short run and the market might have already adjusted or have another problem which makes the policy ineffective b. The rate at which they change the money supply and/or affect interest rates should be steady and constant over time instead of the irregular rate increased and decreases carried out by the government’s monetary policy. c. They DO support monetary policy all the time but DO NOT support fiscal policy. d. A and B only
Chapter 18
Chapter 18 Quiz
1) __________ fiscal or monetary policy shifts AD to the right. a) contractionary b) discretionary c) nondiscretionary d) expansionary*
2) Cyclical unemployment occurs when monetary and fiscal policies move the _________ unemployment rate from the ___________ unemployment rate. a) actual, natural* b) natural, actual c) contractionary, expansionary d) wait, actual
3) Which of the following does NOT occur during contractionary policy? a) unemployment rate rises b) price level falls c) unemployment rate falls* d) AD shifts left
4) ____________ unemployment is caused by “rigidities” in the economy, for example, factors like welfare and unemployment benefits reducing incentives to work.

a) cyclical b) wait* c) natural d) actual
5) In modern times, there is no clear relationship between unemployment rate and inflation rate. a) True* b) False
6) The Friedman-Phelps research implies that for any given unemployment rate a) only positive inflation rate is possible b) only negative inflation rate is possible c) no inflation rate is possible d) any inflation rate is possible*
7) The assumptions of the new classical model include a) Flexible prices and wages b) Pure competition and market c) Working rational expectations hypothesis d) All of the above*
8) The conclusion that policy actions have no real effects in the short run if the policy actions are anticipated and none in the long run even if the policy actions are unanticipated is called a) Phillip’s Curve b) Policy irrelevance proposition* c) Policy dilemma d) Real Business Cycle Theory
9) The vertical and horizontal axes of the Phillip’s curve are a) Inflation rate and Unemployment rate* b) Price level and Real GDP c) Price and Quantity demanded d) Dollar and cents
10) The slope of the Phillip’s curve is a) positive b) horizontal c) vertical d) negative*
11) If the money supply increases and is then held constant, the Phillip’s curve moves

a) left b) down c) right* d) up
12) If the expected inflation rate increases, the unemployment rate will a) cease to exist b) increase c) decrease d) stay the same
13) The new classical model can have real effects when
a) the Fed successfully executes a policy
b) the public anticipates a new policy
c) the public makes a mistake in anticipating the policy*
d) the Fed does nothing
14) With the new classical model, if the economy entered a recessionary period, policymakers would
______________ push real GDP and unemployment back to long-run levels. a) be unable to* b) successfully c) not care to d) possibly try to
15) What was one effect of the oil shocks of the 1970s?
a) rise in employment
b) reduction in employment*
c) reduction in price levels
d) there were no effects
16) The business cycle theory is _______ and ___________ explain a great deal of rigidity of prices throughout the economy.
a) complex; fails to*
b) simple; fails to
c) complex; can successfully
d) simple; can successfully
17) Which theory states that it is costly for firms to change prices in response to demand changes because cost of renegotiating contracts, printing price lists, etc? a.
Small-Menu Coast Theory b.
Efficiency Wage Theory c.
New Growth Theory d.
Stabilization Theory

18) What are coast associated with changing prices called? e.
Price list f.
Contracts g.
Menu costs h.
Efficiency wage
19) Which theory states that the productivity of workers depends on the level of the real wage rate? a.
Efficiency Wage theory b.
New Growth Theory c.
Small-Menu Cost Theory d.
Stabilization Theory
20) Real wealth creation comes from which of the following? a.
Wage decrease b.
Innovation c.
Unemployment rate increase d.
Inflation increases