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 one of the three functions of money?

Accepted Answer

Source of income

Question 3

Commodity money differs from fiat money in that:

Accepted Answer

Commodity money has intrinsic value, while fiat money does not.

Question 4

Which of the following assets is included in both M1 and M2 measures of the U.S. money supply?

Accepted Answer

Currency in the hands of the public

Question 5

Suppose the reserve ratio $R$ is 20%. What is the value of the money multiplier?

Accepted Answer

$1/R = 1/0.2 = 5$

Question 6

If you deposit $50 in your checking account and the reserve requirement is 20%, what is the maximum possible increase in the money supply?

Accepted Answer

$200$

Question 7

In a fractional reserve banking system, when a bank makes a loan, what happens to the money supply?

Accepted Answer

The money supply increases because new deposits and currency are created.

Question 8

Which of the following is a tool the Federal Reserve uses to influence the money supply?

Accepted Answer

Open-market operations (OMOs)

Question 9

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

Accepted Answer

Sell government bonds in open-market operations

Question 10

What is the effect of raising the interest rate paid on reserves held at the Fed?

Accepted Answer

Banks will hold more reserves, increasing the reserve ratio and decreasing the money multiplier.

Question 11

Which of the following scenarios would cause the money supply to fall?

Accepted Answer

Households hold more of their money as currency rather than deposits.

Question 12

A bank has $100 in deposits and $10 in reserves. What is its reserve ratio $R$?

Accepted Answer

$R = \frac{10}{100} = 0.1$

Question 13

Which of the following is NOT a liability for a bank?

Accepted Answer

Loans made to customers

Question 14

If the reserve requirement is lowered, what is the expected effect on the money multiplier?

Accepted Answer

The money multiplier increases because $1/R$ becomes larger.

Question 15

Which of the following best describes the role of the Federal Open Market Committee (FOMC)?

Accepted Answer

It decides monetary policy for the United States.

Question 16

If a bank chooses to hold more reserves than required, what is the impact on the money supply?

Accepted Answer

The money supply decreases because fewer loans are made.

Question 17

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

Accepted Answer

Gold coins

Question 18

What is the formula for the money supply in terms of the money multiplier and bank reserves?

Accepted Answer

$	ext{Money Supply} = 	ext{Money Multiplier} 	imes 	ext{Bank Reserves}$

Question 19

Which of the following is the best example of a highly liquid asset?

Accepted Answer

Currency

Question 20

If the Fed uses the Standing Repo Facility, what is the immediate effect on bank reserves?

Accepted Answer

Bank reserves increase as banks swap collateral for reserves.

The Monetary System: Structure, Functions, and Policy in Macroeconomics

Study Guide - Practice Questions