Question 1

Which of the following best describes the 'double coincidence of wants' problem in a barter economy?

Accepted Answer

It occurs when two parties each have a good or service that the other wants, making exchange possible without money.

Question 2

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

Accepted Answer

Source of income

Question 3

Which of the following assets is considered the most liquid?

Accepted Answer

Currency

Question 4

Which of the following is an example of commodity money?

Accepted Answer

Gold coins

Question 5

Suppose the reserve requirement is 10%. What is the value of the money multiplier?

Accepted Answer

$$1/0.10 = 10$$

Question 6

If the Federal Reserve wants to increase the money supply, which of the following actions should it take?

Accepted Answer

Buy government bonds in open-market operations

Question 7

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

Accepted Answer

None; everything in M1 is also in M2

Question 8

In a fractional reserve banking system, what happens when a bank makes a loan?

Accepted Answer

The money supply increases

Question 9

If households decide to hold more of their money as currency rather than deposits, what is the likely effect on the money supply?

Accepted Answer

The money supply decreases

Question 10

A bank has $200 in deposits and a reserve requirement of 10%. What is the minimum amount of reserves the bank must hold?

Accepted Answer

$$20$$

Question 11

Which of the following best describes fiat money?

Accepted Answer

Money without intrinsic value, used as money because of government decree

Question 12

If the Fed lowers the reserve requirement, what is the expected effect on the money multiplier and the money supply?

Accepted Answer

The money multiplier increases and the money supply increases

Question 13

Which of the following is a liability for a bank?

Accepted Answer

Deposits

Question 14

Suppose you find $50 and deposit it in your checking account. The reserve requirement is 20%. If banks hold no excess reserves, what is the maximum possible increase in the money supply?

Accepted Answer

$$200$$

Question 15

Which of the following is NOT a tool the Federal Reserve uses to control the money supply?

Accepted Answer

Changing the federal income tax rate

Question 16

If the Fed raises the interest rate paid on reserves, what is the likely effect on the money multiplier?

Accepted Answer

The money multiplier decreases

Question 17

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

Accepted Answer

It decides U.S. monetary policy, including open-market operations

Question 18

If banks choose to hold more reserves than required, what is the effect on the money supply?

Accepted Answer

The money supply decreases

Question 19

Which of the following is a direct result of the Fed selling government bonds in open-market operations?

Accepted Answer

Bank reserves decrease and the money supply decreases

Question 20

A bank has $$500 in deposits and 50 in $$reserves. What is the reserve ratio?

Accepted Answer

$$0.10 or$$ $$10\%$$

The Monetary System: Structure, Functions, and Policy

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