Question 1

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

Accepted Answer

It refers to the need for two parties to have exactly what the other wants in order to trade.

Question 2

Which of the following is NOT a primary function of money?

Accepted Answer

Increasing the rate of economic growth

Question 3

According to the study materials, which characteristic is NOT required for a good to serve as money?

Accepted Answer

It must be edible.

Question 4

Which of the following is an example of commodity money?

Accepted Answer

Gold coins

Question 5

What is the main advantage of fiat money over commodity money?

Accepted Answer

Fiat money allows central banks more flexibility in creating money.

Question 6

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

Accepted Answer

Checking account deposits

Question 7

Suppose you deposit $2,000 in currency into your checking account at a bank. If the bank loans out 80% of the deposit, what is the initial effect on the money supply?

Accepted Answer

The money supply increases by $1,600.

Question 8

Which of the following best explains why banks are able to create money in a fractional reserve banking system?

Accepted Answer

Banks keep less than 100% of deposits as reserves and lend out the rest.

Question 9

If the required reserve ratio is 10%, what is the maximum amount a bank can lend out from a $5,000 deposit?

Accepted Answer

$4,500

Question 10

Which of the following actions by the Federal Reserve would increase the money supply?

Accepted Answer

Buying Treasury securities in the open market

Question 11

According to the quantity theory of money, what is the predicted effect if the money supply grows faster than real GDP?

Accepted Answer

Inflation

Question 12

Which formula represents the quantity theory of money?

Accepted Answer

$$M 	imes V = P 	imes Y$$

Question 13

If the growth rate of the money supply is 6% and the growth rate of real GDP is 2%, what is the predicted inflation rate according to the quantity theory?

Accepted Answer

$$4\%$$

Question 14

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

Accepted Answer

It is only valuable if people have confidence in it.

Question 15

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

Accepted Answer

To insure deposits in banks up to a certain limit

Question 16

Which of the following is NOT counted in either M1 or M2?

Accepted Answer

Balances in your mobile wallet (e.g., Apple Pay)

Question 17

During a bank panic, what is the primary function of the central bank?

Accepted Answer

To act as a lender of last resort

Question 18

Which of the following best describes 'moral hazard' in banking?

Accepted Answer

Banks may take on more risk if they expect to be bailed out by the government.

Question 19

What is securitization in the context of banking?

Accepted Answer

The process of transforming loans into securities that can be traded

Question 20

Which of the following is a consequence of hyperinflation?

Accepted Answer

The price level rises extremely rapidly, often exceeding 50% per month

Money, Banking, and the Money Supply: Principles of Macroeconomics

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