$$\frac{1}{\text{Reserve Ratio}}$$

$$\frac{1}{0.10} \times 1,000 = 10,000$$

Question 1

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

Accepted Answer

Producer of Wealth

Question 2

In a barter economy, trade is limited by the need for a 'double coincidence of wants.' What does this mean?

Accepted Answer

Both parties must want what the other has to offer.

Question 3

Which of the following best describes 'fiat money'?

Accepted Answer

Money that has value only because the government says it does.

Question 4

Which asset is considered the most liquid?

Accepted Answer

Cash (currency)

Question 5

What distinguishes M1 from M2 in the definitions of money supply?

Accepted Answer

M1 is more liquid than M2.

Question 6

If the reserve ratio is 10%, what is the money multiplier?

Accepted Answer

$$\frac{1}{0.10}$$

Question 7

A bank receives a $1,000 deposit and the reserve ratio is 10%. How much can the bank loan out?

Accepted Answer

$900

Question 8

Which of the following is NOT included in M1?

Accepted Answer

Savings accounts

Question 9

What is the primary role of the Federal Reserve's Federal Open Market Committee (FOMC)?

Accepted Answer

Make decisions to increase or decrease the money supply

Question 10

During the Panic of 1907, which financial institution type was most affected due to risky investments?

Accepted Answer

Trusts

Question 11

What was the main purpose of the Glass-Steagall Act of 1933?

Accepted Answer

To insure bank deposits and separate commercial and investment banking

Question 12

If a bank has $10,000 in deposits and the reserve ratio is 20%, what are the required reserves?

Accepted Answer

$2,000

Question 13

Which event led to the creation of the Federal Reserve in 1913?

Accepted Answer

The Panic of 1907

Question 14

What is the formula for the money multiplier?

Accepted Answer

$$\frac{1}{	ext{Reserve Ratio}}$$

Question 15

Which of the following best describes 'moral hazard' in the context of the 2007-2009 financial crisis?

Accepted Answer

Banks took riskier positions because they expected government bailouts.

Question 16

A $1,000 deposit is made in a bank with a 10% reserve ratio. What is the total change in deposits possible in the banking system?

Accepted Answer

$$\frac{1}{0.10} 	imes 1,000 = 10,000$$

Question 17

Which of the following is a characteristic of commodity money?

Accepted Answer

It can be used for purposes other than as money.

Question 18

What is the main difference between commercial banks and investment banks after the Glass-Steagall Act?

Accepted Answer

Commercial banks are FDIC-insured, investment banks are not.

Question 19

Which of the following would increase the money supply in the economy?

Accepted Answer

The Federal Reserve lowers the discount rate.

Question 20

During the 2007-2009 financial crisis, what was the main reason mortgage-backed securities (MBS) failed?

Accepted Answer

Homeowners defaulted on their mortgage payments.

The Monetary System: Functions, Money Supply, Banking, and Financial Crises

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