Q: Which formula correctly represents the simple deposit multiplier?

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

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 both parties in a transaction to want what the other is offering at the same time.

Question 2

Which of the following is NOT a function of money?

Accepted Answer

Source of income

Question 3

Which of the following is an example of commodity money?

Accepted Answer

Gold coins used in trade

Question 4

Which of the following criteria is NOT necessary for something to serve as money?

Accepted Answer

It must be edible

Question 5

Suppose you withdraw $2,000 from your checking account and use it to buy a certificate of deposit (CD). What is the effect on M1 and M2?

Accepted Answer

M1 decreases, M2 remains unchanged

Question 6

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

Accepted Answer

Small-denomination time deposits (CDs)

Question 7

Why are credit cards not considered part of the money supply?

Accepted Answer

They represent loans, not actual money

Question 8

A bank receives a $1,000 deposit. If the reserve requirement is 10%, what is the maximum amount this deposit can increase the money supply, according to the simple deposit multiplier?

Accepted Answer

$10,000

Question 9

Which formula correctly represents the simple deposit multiplier?

Accepted Answer

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

Question 10

If a bank loans out 90% of its deposits and keeps 10% as reserves, what is the reserve ratio?

Accepted Answer

$$0.10$$

Question 11

Which of the following best describes fiat money?

Accepted Answer

Money that has no intrinsic value but is accepted as legal tender

Question 12

Which of the following is a function of money that allows you to compare the value of different goods and services?

Accepted Answer

Unit of account

Question 13

If the Federal Reserve eliminates the reserve requirement, what is the likely effect on the money multiplier?

Accepted Answer

The money multiplier becomes undefined (infinite)

Question 14

Which of the following is NOT a characteristic of a good medium of exchange?

Accepted Answer

It must be perishable

Question 15

Which of the following best explains why cigarettes were used as money in prisoner-of-war camps?

Accepted Answer

They were widely accepted and had value independent of their use as money

Question 16

Which of the following statements about Bitcoin is most accurate based on the functions of money?

Accepted Answer

Bitcoin can serve as a medium of exchange but is not widely accepted as a unit of account or store of value.

Question 17

If a bank receives a $$1,000 deposit and loans out 900$$, what happens to the bank's balance sheet?

Accepted Answer

Assets increase by $$1,000 in reserves and 900 in $$loans; liabilities increase by $1,000 in deposits.

Question 18

Which of the following best describes the role of banks in the money creation process?

Accepted Answer

Banks create money by making loans from deposits, which leads to new deposits in the banking system.

Question 19

Which of the following is true about the relationship between money, income, and wealth?

Accepted Answer

Money is what you have in currency and checking accounts, income is your earnings, and wealth is your assets minus debts.

Money and the Financial System: Functions, Types, and Money Creation

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