Question 1

Which of the following best describes the function of money as a medium of exchange?

Accepted Answer

Money facilitates transactions by being widely accepted in exchange for goods and services.

Question 2

If a country has $1,000 in total printed currency and a money supply of $10,000, what is the money multiplier? Use the formula $	ext{Money Multiplier} = \frac{	ext{Money Supply}}{	ext{Monetary Base}}$.

Accepted Answer

$10$

Question 3

A bank holds $100 in reserves, $500 in loans, $300 in deposits, and $200 in debt. What is the bank's owners' equity? Use the formula $	ext{Owners' Equity} = 	ext{Assets} - 	ext{Liabilities}$.

Accepted Answer

$400$

Question 4

Suppose you borrow $10 from a friend and deposit the other $10 in the bank. What is the total value of all your assets?

Accepted Answer

$20$

Question 5

If the required reserve ratio is 10% and banks have a reserve ratio of 5%, what is the total money supply in Littletown if the initial deposit is $1,000? Use the formula $	ext{Money Multiplier} = \frac{1}{	ext{Reserve Ratio}}$.

Accepted Answer

$20,000$

Question 6

If First National Bank owns $1,000 worth of Bitcoin, what happens to its balance sheet if the value of Bitcoin doubles?

Accepted Answer

Owners' equity increases by $1,000

Question 7

If a bank has total assets of $2,000 and total liabilities of $1,500, what is its owners' equity?

Accepted Answer

$500$

Question 8

Which of the following is true about the slope of the asset and/or transaction demand for money?

Accepted Answer

Asset demand slopes down because, when interest rates are low, the opportunity cost of holding money is low.

Question 9

If the Federal Reserve increases the required reserve ratio for banks, what is the effect on the equilibrium interest rate and equilibrium quantity of money?

Accepted Answer

Interest rate increases. Quantity decreases.

Question 10

Suppose the transaction demand for money increases. How will this affect the equilibrium interest rate and quantity of money?

Accepted Answer

Interest rate increases. Quantity increases.

Question 11

Which of the following is true about the slope of the money supply curve?

Accepted Answer

It is vertical because the money supply is determined directly by the Fed.

Question 12

Which of the following is NOT a function of money?

Accepted Answer

Source of income

Question 13

If a bank practices 100% reserve banking and has zero owners' equity, what is the value of its loans?

Accepted Answer

$0$

Question 14

Which of the following scenarios is an example of using money as a lender?

Accepted Answer

Marcus lends $100 to George.

Question 15

If the total printed currency in Middletown is $1,000 and the money supply is $100,000, what is the money multiplier? Use $	ext{Money Multiplier} = \frac{	ext{Money Supply}}{	ext{Monetary Base}}$.

Accepted Answer

$100$

Question 16

If First National Bank owns $1,000 worth of Bitcoin and the value of Bitcoin halves, how does the balance sheet change?

Accepted Answer

Owners' equity decreases by $500

Question 17

If a bank has $1,000 in reserves, $5,000 in loans, $10,000 in deposits, and $2,000 in debt, what is its owners' equity? Use $	ext{Owners' Equity} = 	ext{Assets} - 	ext{Liabilities}$.

Accepted Answer

$6,000$

Question 18

If the reserve ratio is 20%, what is the money multiplier? Use $	ext{Money Multiplier} = \frac{1}{	ext{Reserve Ratio}}$.

Accepted Answer

$5$

Question 19

If the Federal Reserve decreases the required reserve ratio, what is the likely effect on the money supply?

Accepted Answer

The money supply increases.

Money, Banking, and the Monetary System: Key Concepts and Applications

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