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 something the other wants, making trade possible without money.

Question 2

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

Accepted Answer

Source of economic growth

Question 3

Suppose the required reserve ratio ($$RR) is 10$$%. If a customer deposits $$\1$$,000$ in cash into a checking account at a bank, what is the maximum possible increase in the money supply, assuming banks lend out all excess reserves and there are no currency leakages?

Accepted Answer

$$\9$$,000$

Question 4

Which of the following is an example of commodity money?

Accepted Answer

Gold coins used for transactions

Question 5

Why is fiat money considered to have value?

Accepted Answer

Because it is authorized by a central bank or government and people have confidence in its value

Question 6

Which of the following is included in the M1 measure of the money supply in the United States?

Accepted Answer

Currency in circulation and checking account deposits

Question 7

A bank receives a $$\5$$,000$ deposit. The required reserve ratio is 20%. What is the maximum amount this bank can lend out from this deposit?

Accepted Answer

$$\4$$,000$

Question 8

Which of the following is a potential problem with fiat money?

Accepted Answer

It can lose value if people lose confidence in it

Question 9

During a bank panic, what role does the central bank play to prevent the collapse of the banking system?

Accepted Answer

It acts as a lender of last resort, providing loans to banks to meet depositor demands

Question 10

Which of the following is NOT a main goal of the Federal Reserve's monetary policy?

Accepted Answer

Maximizing government tax revenue

Question 11

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

Accepted Answer

Buy government securities in open market operations

Question 12

Which of the following best explains why credit cards are NOT considered money?

Accepted Answer

They represent a short-term loan rather than a store of value or medium of exchange

Question 13

Suppose the simple deposit multiplier is given by $$\frac{1}{RR}. If $$the reserve requirement ($$RR) is 5$$%, what is the value of the simple deposit multiplier?

Accepted Answer

$$20$$

Question 14

Which of the following is a reason why banks are subject to government supervision?

Accepted Answer

Banking involves significant risks that can impact the entire economy

Question 15

If households and firms decide to hold more currency and less in bank deposits, what is the likely effect on the money supply, assuming the reserve requirement remains unchanged?

Accepted Answer

The money supply will decrease because banks have fewer deposits to lend out

Question 16

Which of the following is NOT a characteristic that makes a good suitable to be used as money?

Accepted Answer

It must be perishable

Question 17

After the COVID-19 pandemic, what major change occurred regarding reserve requirements for banks in the US?

Accepted Answer

The required reserve ratio was reduced to zero

Question 18

Which of the following best describes the feedback loop that can occur during a bank panic?

Accepted Answer

Depositors lose confidence, withdraw funds, banks sell assets and reduce loans, leading to economic decline and more bank failures

Question 19

Which of the following is a direct result of the Federal Reserve paying interest on reserve balances (a policy started in 2008)?

Accepted Answer

Banks may choose to hold more reserves instead of lending them out

Question 20

Which of the following is the primary responsibility of the Federal Open Market Committee (FOMC)?

Accepted Answer

Conducting open market operations by buying and selling government securities

Banks, Money, and the Federal Reserve System: Core Concepts and Mechanisms

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