Q&A Hero

Q: During the early years of the Great Depression, the monetary base and M2: A. both increased significantly.B. both decreased significantly.C. moved in opposite directions; M2 increased while the monetary base decreased.D. moved in opposite directions; the monetary base increased but M2 decreased.

Q: Which of the following is NOT a step involved in using checks? A) The recipient must take the check to the bank. B) The bank must present the check to the checkwriter's bank. C) The funds must be transferred from the checkwriter's bank to the recipient's bank. D) The funds must be transferred from the recipient's bank to the checkwriter's bank.

Q: If M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R = Reserves, RR = required reserves, and ER = excess reserves, then m would equal: A. R/ER.B. M/MB.C. C + D.D. D - C

Q: Checks are A) not acceptable for settling transactions in most industrialized countries. B) less important than currency as a means of settling transactions. C) promises to pay on demand money deposited with a financial institution. D) promises to pay coins minted from precious metals on demand.

Q: During the Great Depression, the monetary base in the U.S.: A. decreased significantly.B. increased.C. remained constant.D. was highly erratic.

Q: If M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R = Reserves, RR = required reserves, and ER = Excess reserves, then RR would equal: A. MB.B. D - C.C. M/MB.D. R - ER.

Q: Which of the following is an example of fiat money? A) a cowry shell used as money on a South Pacific island B) a gold coin used as money in nineteenth century England C) a Federal Reserve Note used as money in the twenty-first century United States D) a pound of salt used as money in medieval France

Q: If M = the quantity of money, m, the money multiplier, MB, the Monetary Base, C = Currency, D = Deposits, R = Reserves, RR = required reserves, and ER = Excess reserves, then C + R would equal: A. M.B. R.C. MB.D. ER.

Q: All of the following are problems associated with commodity money EXCEPT A) it is a cumbersome form of payments system. B) commodities tend to have little value in and of themselves. C) its value is dependent on its purity. D) costs are incurred in certifying the purity and weight of commodity money.

Q: How does the existence of money affect economic growth?

Q: If there were an increase in the number of bank failures, we should expect the amount of excess reserves in the banking system to: A. decrease.B. increase.C. not change.D. decrease since failing banks lost theirs.

Q: Which of the following is an example of a commodity money? A) gold coins B) dollar bills C) British pound notes D) Japanese yen notes

Q: Money can BEST be described as: A) anything that is generally accepted as payment for goods and services or in the settlement of debts. B) paper that can be used to purchase goods and services C) commodities that have intrinsic value D) any form of wealth possessed by consumers

Q: Which of the following best completes the statement? If people increase their currency holdings, all else the same, the monetary base: A. does not change but the quantity of M2 will decrease.B. increases as does the quantity of M2.C. decreases as does the quantity of M2.D. does not change and neither does M2.

Q: The introduction of money to an economy results in: A) higher incomes B) higher productivity C) increased specialization D) a more efficient barter system

Q: The payments system is A) the mechanism for conducting economic transactions. B) another name for the system of foreign exchange rates. C) the phrase used to describe how transactions are carried out in an economy that does not use money. D) the way in which economic transactions are carried out in a government-controlled economy, such as the former Soviet Union.

Q: Assume that the required reserve rate is ten percent, banks want to hold excess reserves in an amount that equals three percent of deposits, and the public withdraws ten percent of every deposit in cash. An open market purchase of $1 million by the Fed will see banking system deposits increase by: A. more than $1 million but less than $10 million.B. exactly $1 million.C. less than $1 million.D. more than $10 million but less than $20 million.

Q: Which of the following is NOT a problem with barter? A) each good has multiple prices B) high transactions costs C) the commodity money having value for other uses besides money D) lack of standardization of products exchanged

Q: If the required reserve rate is ten percent and banks do not hold any excess reserves and there are no changes in currency holdings, a $1 million open market purchase by the Fed will result in what change in loans? A. No changeB. A decrease of $1 millionC. An increase of $10 millionD. An increase of $1 million

Q: The simple deposit expansion multiplier is really too simple for understanding the link between changes in a central bank's balance sheet and the quantity of money in the economy because it: A. ignores how central banks could change their balance sheet.B. assumes banks hold excess reserves.C. ignores the fact people might change their currency holdings.D. ignores changes in vault cash.

Q: Commodity money can best be described as A) money used to purchase agricultural products B) a good used as money that also has value independent of its use as money C) standardized goods like gold that trade in a financial market D) the form of money used in a barter system

Q: If the Fed were to decrease the required reserve rate from ten percent to five percent, the simple deposit expansion multiplier would: A. double.B. decrease by 5 percent.C. increase by a factor of five.D. be half as large as it was before the reduction.

Q: If we assume a ten percent required reserve rate, and banks not holding any excess reserves and no change in currency holdings, an open market sale of $5 million of U.S. Treasury securities by the Fed, will result in deposits: A. decreasing by $50 million.B. increasing by $5 million.C. increasing by $50 million.D. not changing.

Q: Using a good as a medium of exchange confers the benefit that A) the need to quote so many prices in trade is reduced. B) the need for a double coincidence of wants is greatly increased. C) the need for specialization is reduced. D) transactions costs are increased, but they now may be paid in money terms.

Q: If the Fed were to increase the required reserve rate from ten percent to twenty percent, the simple deposit expansion multiplier would: A. double.B. increase by 10 percent.C. decrease by a factor of ten.D. be half as large as it was before the increase.

Q: If we focus on the banking system and assume no change in the public's currency holdings, a loss of reserves by any one bank must: A. equal the loss of reserves by the entire system.B. be equal to the net loss of reserves for the banking system.C. result in no change in reserves for the banking system.D. result in a multiple loss to the banking system.

Q: Money eliminates the need for A) any government role in the economy. B) specialization. C) people to have a double coincidence of wants. D) the market system.

Q: If required reserves are expressed by RR; the required reserve rate by rD and deposits by D, the simple deposit expansion multiplier is expressed as: A. RDD.B. (1/rD) D.C. RD.D. 1/rD.

Q: In Moscow in 1989, what were taxi drivers using as a medium of exchange? A) Russian rubles B) Marlboro cigarettes C) gold coins D) caviar

Q: The problem of a double coincidence of wants refers to A) the insatiability of wants in a free market economy. B) poorly-managed companies producing what consumers want only by coincidence. C) the necessity in a barter system of each trading partner wanting what the other has to trade. D) the likelihood that needs will not be the same as wants.

Q: The formula for required reserves is: A. (1/rD) D.B. 1/rD.C. rD.D. D/rD.

Q: Which of the following is the most efficient means of trade? A) barter B) money C) government rationing D) the combination of barter with some government rationing

Q: If the required reserve rate is ten percent and banks do not hold any excess reserves and there are no changes in currency holdings, a $1 million open market purchase by the Fed will result in deposit creation of: A. $9 million.B. $90 million.C. $10 million.D. $900,000.

Q: How many prices would there be in a barter economy with 100 goods? A) 100 B) 1,000 C) 4,950 D) 10,000

Q: Which of the following is NOT a significant cost that a barter system imposes on an economy? A) Many prices must be maintained for each good. B) Only agricultural goods may be traded. C) Specialization of labor is hindered. D) The costs arising from the problem of finding two people who each want what the other produces.

Q: Under a barter system A) each good has many prices. B) each good has a single price. C) no prices for goods exist. D) prices for goods are very stable.

Q: A customer of Bank A writes a $20,000 check for a new car, which the car dealer deposits in his bank, Bank B. Which of the following statements pertaining to this transaction is most true? A. Banks A's reserves will decrease by the required reserve rate times $20,000 and Banks B's reserves will increase by (1 - required reserve rate) times $20,000B. Bank A's reserves decrease by $20,000 and Bank B's reserves increase by $20,000C. Neither Bank A's nor B's reserves will changeD. Bank B's reserves will decrease and Bank A's reserves will increase by $20,000

Q: Andy can't make a deal with Danny. Andy has a Alex Rodriguez baseball card and would like to trade it to Danny for Danny's Albert Pujols card, but Danny doesn't want a Alex Rodriquez card. Andy's problem illustrates the drawback to a barter system known as A) the specialization problem. B) the double coincidence of wants problem. C) the many prices problem. D) the transactions problem.

Q: Bank A has checkable deposits of $140 million, vault cash equaling $1 million and deposits at the Fed equaling $14 million. If the required reserve rate is ten percent what is the amount of excess reserves Bank A is holding? A. It does not have any excess reservesB. $15 millionC. $2 millionD. $1 million

Q: A system of barter has substantial transactions costs because A) taxes under such a system are generally a large fraction of the value of output. B) traders must spend considerable time searching for trading partners. C) the uncertainties of trade result in high legal fees being incurred to draw up binding contracts. D) the uncertainties of trade result in high insurance premiums.

Q: If Bank A sells a $100,000 U.S. Treasury bond to the Fed, Bank A's reserves will: A. increase by $100,000.B. increase by less than $100,000.C. not change.D. decrease.

Q: Bank A has checkable deposits of $100 million, vault cash equaling $1 million and deposits at the Fed equaling $14 million. If the required reserve rate is ten percent what is the maximum amount Bank A could lend? A. $85 millionB. $15 millionC. $14 millionD. $5 million

Q: In a barter system individuals A) find it impossible to specialize. B) must be entirely self-sufficient. C) find it difficult to specialize, but may be able to do so. D) will almost invariably specialize.

Q: If Bank A sells a $100,000 U.S. Treasury bond to the Fed, Bank A's required reserves will: A. not change.B. increase by $100,000.C. decrease.D. increase but by less than $100,000.

Q: The most a bank could lend at any time without altering its assets is an amount equal to its: A. checkable deposits.B. reserves.C. excess reserves.D. net worth.

Q: Which of the following is an example of a barter transaction? A) An individual pays her electric bill with a check. B) An individual pays her electric bill with currency. C) An individual provides three light bulbs to her neighbor in exchange for two gallons of milk. D) An individual deposits three twenty-dollar bills in her checking account.

Q: Over the two-year period during which the financial crisis occurred, the amount of assets in the Federal Reserve balance sheet increased by: A. 2.5 times.B. 3 times.C. 4.5 times.D. 6 times.

Q: Under a system of barter A) each individual trades output directly with another. B) only agricultural goods may be traded. C) goods may be traded for money, but money may not be traded for goods. D) currency is accepted for purchases, but personal checks are not.

Q: If Bank A sells a $100,000 U.S. Treasury bond to the Fed, Bank A's excess reserves will: A. increase by less than $100,000.B. not change.C. decrease by less than $100,000.D. increase by $100,000.

Q: Harry gets $1000 in currency from his grandfather when he graduates from college. He deposits these funds into his checking account. What is the impact on the monetary base of Harry's deposit? A. The monetary base did not changeB. The monetary base increased by $1000C. The monetary base decreased by $1000D. The monetary base increases by more than a $1000

Q: Barter is A) another name for money. B) an exchange of goods and services directly for goods and services. C) the basis for economic specialization. D) the main system of exchange in the United States today.

Q: The financial system performs the role of communicating information by A) constantly increasing the liquidity of most assets. B) constantly reducing the riskiness of most assets. C) incorporating all available information into the prices of financial assets. D) providing to investors for a nominal charge all government reports available about a particular company.

Q: Harry gets $1000 in currency from his grandfather when he graduates from college. He deposits these funds into his checking account. Considering Harry's personal balance sheet, his assets: A. increased by $1000 when he deposited the $1000 into his checking account.B. Increased when he received the $1000 in currency from his grandfather.C. And liabilities increased by $1000 when he deposited the funds into his checking account.D. Increased by $1000 and his liabilities decreased by $1000 when he deposited the funds into his checking account.

Q: Fundamentally, to reap the benefits of specialization, an economy must A) be heavily industrial. B) be heavily agricultural. C) have an extensive system of higher education. D) develop ways for individuals to trade goods with one another.

Q: Increased liquidity in recent decades has reduced interest rates on which of the following assets (holding constant all other things that affect interest rates)? A) U.S. government bonds B) bonds issued by large corporations C) business loans D) bonds issued by state governments

Q: When an individual withdraws funds from a checking account the: A. bank's balance sheet shrinks but the size of the Fed's balance sheet is not affected.B. bank's balance sheet shrinks and so does the Fed's balance sheet.C. bank's balance sheet shrinks but the size of the Fed's balance sheet increases.D. size of the bank's balance sheet stays the same but the size of the Fed's balance sheet shrinks.

Q: When an economy relies on specialization, A) the economy will generally produce only one product. B) the economy will usually be heavily agricultural. C) each individual in the economy produces the goods or services for which he or she has relatively the best ability. D) each individual will be assigned by the government to produce that good or service the government believes the economy should specialize in.

Q: Which of the following assets is the least liquid? A) money market mutual fund B) stock C) treasury bond D) house

Q: Tom decides to withdraw $300 out of his checking account. The impact of this transaction on the Fed's balance sheet will be: A. no change in total assets or total liabilities, but an increase in the liability of currency and a decrease in the liability of reserves by $300 respectively.B. no change in total assets but the liability of currency increases by $300.C. total assets decrease by $300 and the liability of currency increases by $300.D. no change in either total assets or total liabilities.

Q: The most important economic benefit from specialization is that it A) makes it possible for an economy to begin using money. B) leads to an increase in the standard of living in an economy. C) makes barter possible. D) eliminates the need for financial markets.

Q: Liquidity A) is the best available measure of the riskiness of an asset. B) is a characteristic of money, and of no other asset. C) is the ease with which an asset can be exchanged for money. D) was declining for many financial assets during the 1990s.

Q: Mary decides to withdraw $500 out of her checking account. The impact of this transaction on the Banking System's balance sheet will be to: A. only reduce checkable deposits by $500.B. increase reserves and reduce checkable deposits by $500 respectively.C. decrease reserves and checkable deposits by $500 respectively.D. only reduce reserves by the required reserve rate times $500.

Q: When the Fed makes a discount loan, the impact on the Banking System's balance sheet is: A. an increase in liabilities with no change in assets.B. an increase in assets and a decrease in liabilities.C. a decrease in assets and an increase in liabilities.D. the same as that of an open market purchase.

Q: The financial system provides risk sharing by allowing A) borrowers to obtain funds either directly or indirectly. B) savers to earn interest tax-free. C) borrowers to convert liabilities into assets. D) savers to hold many assets.

Q: Which of the following have the same impact on the Fed's balance sheet? A. An open market purchase and an increase in loans by the Fed to banksB. An open market sale and an increase in foreign exchange reservesC. An open market purchase and a decrease in foreign exchange reservesD. An increase in loans by the Fed to banks and a decrease in foreign exchange reserves

Q: When the Fed makes a discount loan, the impact on the Fed's balance sheet will reflect: A. no change in liabilities but an increase in assets.B. a decrease in assets and liabilities.C. an increase in assets and liabilities.D. an increase in assets and a decrease in liabilities.

Q: The purpose of diversification is to A) increase the liquidity of a financial portfolio. B) reduce the brokerage fees involved in managing a financial portfolio. C) reduce risk. D) reduce tax liability.

Q: During the 2007-2009 financial crisis which of the following became the largest component of assets on the Fed's balance sheet: A. foreign exchange reserves.B. loans.C. U.S. Treasury securities.D. mortgage backed securities.

Q: To obtain a discount loan from the Fed, a commercial bank must: A. prove that it will fail if it does not obtain the loan.B. prove that the loan will be used to make loans.C. provide collateral.D. agree to more frequent examinations.

Q: Diversification refers to the A) splitting of wealth into many assets. B) difference between the liquidity of an asset and its risk. C) difficulty of converting investments in common stocks into investments in bonds. D) difficulty of selling common stocks in a weak market.

Q: When the Fed makes a discount loan, the impact on the Banking System's balance sheet will reflect: A. an increase in liabilities with no change in assets.B. an increase in assets and a decrease in liabilities.C. a decrease in assets and an increase in liabilities.D. an increase in assets and liabilities.

Q: The Fed sells German bonds to commercial banks. Which of the following best describes the impact on the Fed's and the Banking System's balance sheets resulting from this transaction? A. The Fed's assets and liabilities increase, the banking systems assets and liabilities decrease.B. The Fed's assets increase and its liabilities both increase. For the banking system, the value of assets and liabilities do not change, only the composition of assets changes.C. The Fed's assets and liabilities do not change, only the compositions of the assets change. For the banking system, assets and liabilities increase.D. The Fed's assets and liabilities both decrease. For the banking system, the value of assets and liabilities do not change, only the composition of assets changes.

Q: Monetary policy refers to the government's A) decisions on how much money to spend. B) decisions on how much money to collect in taxes. C) plans for retiring the national debt. D) management of the money supply and interest rates to achieve macroeconomic objectives.

Q: The Fed purchases German bonds from commercial banks. Which of the following best describes the impact on the Fed's and the Banking System's balance sheets resulting from this transaction? A. The Fed's assets and liabilities increase, the banking systems assets and liabilities decrease.B. The Fed's assets increase and its liabilities increase, for the banking system, the value of assets and liabilities do not change, only the composition of assets changes.C. The Fed's assets and liabilities do not change, only the compositions of the assets change. For the banking system, assets and liabilities increase.D. The Fed's assets increase and its liabilities decrease, for the banking system, the value of assets and liabilities do not change, only the composition of assets changes.

Q: The Federal Reserve System A) is in charge of managing the New York Stock Exchange. B) is headed by the Secretary of the Treasury. C) is the central bank of the United States. D) is responsible for conducting fiscal policy for the United States.

Q: A bank lending depositors' money to a local business and a pension fund investing contributions in shares of a company are similar financial activities in that A) both involve the use of financial markets. B) both involve funds being channeled from savers to borrowers through financial intermediaries. C) both involve a reduction in the overall level of liquidity in the financial system. D) both involve in an increase in the overall level of risk in the financial system.

Q: An open market sale of U.S. Treasury securities by the Fed will cause the Banking System's balance sheet to show: A. only an increase in liabilities.B. only a decrease in assets.C. no net change in assets or liabilities, only a change in the composition of assets with securities decreasing and reserves increasing.D. no net change in assets or liabilities, only a change in the composition of assets with securities increasing and reserves decreasing.

Q: A "primary market" is a market A) for government securities. B) in which newly issued claims are sold to buyers by borrowers. C) in which newly issued claims are sold by savers to borrowers. D) for debt by large or "primary" corporations.

Q: Economists define money as A) cash in circulation. B) deposits in commercial banks. C) anything that people are willing to accept in payment for goods and services or to pay off debts. D) bonds issued by large corporations.

Q: An open market sale of U.S. Treasury securities by the Fed will cause the Fed's balance sheet to show: A. a decrease in the asset of securities and a decrease in the liability of reserves.B. an increase in the liability of reserves.C. no change in the size of the balance sheet, just the composition of assets will change from securities to cash.D. an increase in the asset category of securities and the liability category of reserves.