Question 1

Which of the following is NOT one of the four primary functions of money?

Accepted Answer

Source of credit

Question 2

Suppose the Federal Reserve conducts an open market purchase of $5 million in Treasury securities. If the money multiplier is 4, by how much will the money supply potentially increase?

Accepted Answer

$20 million

Question 3

Which of the following best describes fiat money?

Accepted Answer

Money that is authorized by a central bank and not exchangeable for a commodity

Question 4

A bank receives a $$2,000 deposit. If it lends out 1$$,800 and keeps the rest as reserves, what is the reserve ratio?

Accepted Answer

$$\frac{200}{2000} = 0.10$$

Question 5

Which of the following is included in M2 but NOT in M1?

Accepted Answer

Small-denomination time deposits

Question 6

Why are credit cards NOT considered part of the money supply?

Accepted Answer

They represent a short-term loan, not actual money

Question 7

Which of the following scenarios best illustrates the concept of moral hazard in banking?

Accepted Answer

A bank takes on excessive risk because it expects government bailouts if it fails

Question 8

According to the quantity theory of money, if the money supply grows at 8% per year, real GDP grows at 3% per year, and velocity is constant, what is the predicted inflation rate?

Accepted Answer

$$8\% - 3\% = 5\%$$ inflation

Question 9

Which of the following is a key reason why banks are able to create money in a fractional reserve banking system?

Accepted Answer

Banks lend out a portion of deposits, creating new deposits

Question 10

Which of the following best describes the role of the Federal Open Market Committee (FOMC)?

Accepted Answer

It manages open market operations and the money supply

Question 11

If a country experiences hyperinflation, which of the following is most likely true?

Accepted Answer

The central bank is increasing the money supply much faster than real GDP is growing

Question 12

Which of the following is an example of commodity money?

Accepted Answer

Gold coins

Question 13

What is the main purpose of the Federal Deposit Insurance Corporation (FDIC)?

Accepted Answer

To insure bank deposits and help prevent bank panics

Question 14

Which of the following is a characteristic that a good must have to serve as money?

Accepted Answer

It must be divisible

Question 15

If the money multiplier becomes unstable, what is a likely consequence for the Federal Reserve's ability to control the money supply?

Accepted Answer

The Fed will focus more on controlling interest rates

Question 16

Which of the following best explains why U.S. currency is held in large amounts outside the United States?

Accepted Answer

People in other countries lack confidence in their local currency

Question 17

Which of the following is a direct effect of an open market sale by the Federal Reserve?

Accepted Answer

Bank reserves decrease

Question 18

Which of the following is a key difference between commercial banks and shadow banking institutions?

Accepted Answer

Commercial banks accept deposits and are FDIC-insured, while shadow banks are not

Question 19

If the velocity of money is not constant, what implication does this have for the quantity theory of money?

Accepted Answer

The theory's predictions about inflation become less precise in the short run

Question 20

Which of the following best describes the process of securitization?

Accepted Answer

Transforming loans into securities that can be traded in financial markets

Banks, Money, and the Federal Reserve System: Chapter 14 Study Notes

Guida di studio - Domande di pratica

Study guide - Flashcard