Question 1

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

Accepted Answer

Facilitator of investment

Question 2

Which characteristic is essential for a good to serve as money?

Accepted Answer

All of the above

Question 3

What is the main difference between commodity money and fiat money?

Accepted Answer

Commodity money has value independent of its use as money

Question 4

Which of the following would NOT be included in the U.S. M1 money supply?

Accepted Answer

Credit card balances

Question 5

Suppose you deposit $2,000 in cash into your checking account at a bank with a required reserve ratio of 10%. What is the maximum possible increase in the money supply from this deposit, using the simple deposit multiplier?

Accepted Answer

$20,000

Question 6

If the Federal Reserve wants to decrease the money supply, which action should it take?

Accepted Answer

Increase the required reserve ratio

Question 7

Which equation represents the quantity theory of money?

Accepted Answer

$$M 	imes V = P 	imes Y$$

Question 8

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

Accepted Answer

Inflation occurs

Question 9

Which of the following is a plausible consequence of a price ceiling on credit card interest rates, as discussed in the study materials?

Accepted Answer

There will be a shortage of credit for riskier borrowers

Question 10

During a bank panic, what role does the Federal Reserve play to stabilize the banking system?

Accepted Answer

Acts as a lender of last resort

Question 11

Which of the following is NOT a tool used by the Federal Reserve to manage the money supply?

Accepted Answer

Fiscal policy

Question 12

If the required reserve ratio is 20%, what is the simple deposit multiplier?

Accepted Answer

5

Question 13

Which of the following best describes the 'shadow banking system'?

Accepted Answer

Financial firms that provide credit but are less regulated and do not accept deposits

Question 14

What is the main risk associated with highly leveraged financial firms in the shadow banking system?

Accepted Answer

They are more vulnerable to runs and bankruptcy

Question 15

Which of the following statements about hyperinflation is TRUE?

Accepted Answer

Hyperinflation results when central banks increase the money supply far in excess of real GDP growth

Question 16

Which of the following is a real-world example of commodity money?

Accepted Answer

Gold coins

Question 17

If the velocity of money is constant, and the money supply increases by 5% while real GDP increases by 2%, what is the predicted inflation rate according to the quantity theory of money?

Accepted Answer

3%

Question 18

Which of the following is NOT considered money according to the study materials?

Accepted Answer

Credit card balances

Question 19

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

Accepted Answer

To insure deposits in banks up to a certain limit

Question 20

Which of the following best explains why the real-world deposit multiplier is often less than the simple deposit multiplier?

Accepted Answer

Consumers keep some currency out of banks and banks may hold excess reserves

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

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