Money and the Money Supply.doc

Money and the Money Supply1. If there are five goods in a barter economy, you need to know ten pairs of relative prices to knowledgably exchange one good for another. If, however, there are ten goods in a barter economy, then the number of relative prices one needs to know to knowledgably exchange one good for another is. (a) 20. (b) 25. (c) 30. (d) 45. (e) 90.2. One major difference between money and income is that (a) money is a flow and income is a stock. (b) money is a stock and income is a flow. (c) there is no difference-money and income are both stocks. (d) there is no difference-money and income are both flows.3. Money most helps us avoid the problems associated with the requirement for exchange that (a) government regulations are often barriers to certain transactions. (b) a double coincidence of wants must exist. (c) specialization according to subdivisions of labor create alienation. (d) comparative disadvantages raise production costs to unprofitable levels.4. Fiat money has value primarily because it is: (a) accepted as a medium of exchange. (b) verified by the United Nations. (c) backed by gold or silver. (d) a good hedge against inflation. (e) heterogeneous and indivisible.5. The most important function of money is its use as a: (a) medium of exchange. (b) scoring mechanism. (c) coincider of needs. (d) store of value. (e) means of production.6. The most important of the major functions of money is its use as a: (a) store of value. (b) medium of exchange. (c) standard of deferred payment. (d) measure of value.7. If our economy is a car, then money as a medium exchange functions most like: (a) the steering wheel. (b) antifreeze. (c) gasoline. (d) the headlights. (e) the gear shift.8. Alexa and Chandra were destitute before they loaded five ATM machines from three shopping malls into their rented U-Haul truck, escaped, and broke the machines open. The immediate result of their crime spree is an increase in the: (a) Keynesian spending multiplier. (b) money supply. (c) government budget deficit. (d) monetary base. (e) reserves in the banking system.9. A bank robber who gets away with a lot of cash has most immediately and directly increased the: (a) riskiness of financial investments. (b) expectations of inflation. (c) potential money multiplier. (d) liquidity effect. (e) monetary base.10. One effect of a successful bank robbery is to increase the: (a) expectations effect. (b) money supply. (c) liquidity effect. (d) governments profit from printing currency. (e) potential money multiplier.11. In the very short run, a successful major bank robbery increases the money supply because it increases the: (a) monetary base. (b) velocity of money. (c) potential money multiplier. (d) level of government spending on police protection.12. The idea that using money as a medium of exchange promotes efficiency is based on the fact that money: (a) increases transactions costs. (b) is inexpensive to produce. (c) generates seignorage profits to the Treasury at lower costs than is true of taxation. (d) is a reasonably accurate measure of value. (e) facilitates divisions of labor and specialization and trade according to comparative advantage.13. Money can comprehensively (but fuzzily) be characterized as: (a) any set of assets that is widely accepted in payment for goods and services or in the repayment of debt. (b) a unique and accurate cardinal measure of income and wealth. (c) riskless repositories of spending power. (d) bills of exchange and trade. (e) an acknowledged liability of the federal government. (f) all of the above.14. When economists say that money promotes efficiency, they mean that money (a) increases transactions costs. (b) encourages specialization and the division of labor. (c) is inexpensive to produce. (d) generates seignorage profits to the Treasury at lower costs than is true of taxation.15. Calculating relative prices is most difficult in a: (a) capitalist economy. (b) monetary economy. (c) socialist economy. (d) barter economy. (e) market economy.16. If there are five goods in a barter economy, one needs to know ten prices in order to exchange one good for another. If, however, there are ten goods in a barter economy, then the number of relative prices one needs to know in order to efficiently exchange one good for another is: (a) 20 (b) 25 (c) 30 (d) 45 (e) 90. (f) 100.17. When money prices are used to facilitate comparisons of value, money is said to function as a (a) unit of account. (b) medium of exchange. (c) store of value. (d) payments-system ruler.18. Items that cannot reasonably serve as a store of value would include: (a) money (b) stocks and bonds (c) houses (d) credit cards 19. Money is a completely safe asset only in that there is almost no risk that: (a) you never lose anything by holding money. (b) its purchasing power will change. (c) its face value will change while you own it. (d) you will lose it or be robbed.20. Unexpected creeping inflation at moderate double-digit rates most reduces the usefulness of money as a: (a) store of value. (b) unit of account. (c) medium of exchange. (d) measure of value. (e) mechanism for interpersonal comparisons of utility.21. Money is NOT a: (a) medium of exchange. (b) standard unit of account. (c) store of value. (d) standard of deferred payment. (e) unique way to hold wealth.22. Goldsmiths were the ancestors of modern banks because they: (a) required minimum average balances in all accounts. (b) gave away gold prizes to new depositors. (c) held all their reserves in gold. (d) held only part of their deposits as gold reserves, and created money by lending excess reserves. (e) were subject to tight regulation.23. Fractional reserve banking is the system that (a) allows banks not to insure their deposits. (b) allows banks not to join the Federal Reserve System. (c) limits banks activities from crossing state lines. (d) allows banks to keep smaller reserves than their deposits.24. Fractional reserve banking systems are more stable if: (a) fiat money is backed by agricultural commodities. (b) people keep stable proportions of their money in banks. (c) banks excess reserves rise when depressions begin. (d) psychological theories of business cycles are valid.25. Banks can increase the money supply by: (a) raising the excess reserve ratio. (b) debasing the supply of currency. (c) lending excess reserves as demand-deposit money. (d) selling Treasury bills directly to the public. (e) printing money. (f) behaving in accord with Greshams law.26. Banks increase the money supply when they: (a) build assets by charging interest. (b) print currency. (c) put more coins into circulation. (d) lend parts of excess reserves.27. A loan automatically deposited in your checking account at the financial institution that issued the loan is: (a) backed by new corporate stock. (b) possible only in a 100% reserve banking system. (c) new money. (d) part of M2 but not M1. (e) credit liquidity.28. If all currency is held in bank vaults and each bank loans exactly 80 percent of its total reserves, then there will be: (a) runs on banks. (b) five times as much money as reserves. (c) excess liquidity. (d) inflation. (e) financial collapse.29. The potential (mp) and actual (ma) money multipliers would be equal only if: (a) the public closed all bank deposits and held only cash. (b) banks held no excess reserves and all currency were deposited in banks. (c) the FED bought all U.S. government debt. (d) all borrowers paid off all their bank loans. (e) banks closed all FED deposits, holding all reserves as vault cash.30. The share of bank reserves held to accommodate depositors withdrawals is: (a) excess reserves. (b) free reserves. (c) speculation reserves. (d) Federal Reserves. (e) defensive reserves.31. The sum of currency in circulation and total bank reserves is called (a) the nonborrowed base. (b) the borrowed base. (c) the monetary base. (d) the money supply.32. The monetary base is defined as (a) bank reserves legal reserves = LR plus currency in circulation Cnbp. (b) bank reserves minus vault cash. (c) all deposits at the Fed. (d) deposits at the Fed plus vault cash. (e) the stock of gold in Fort Knox.33. Currency in circulation + legal reserves in banks equals: (a) the monetary base. (b) lowpowered money. (c) demand deposits. (d) checkable accounts + time deposits. (e) quasi-money.34. The money supply is negatively related to the: (a) potential money multiplier. (b) margin requirement ratio. (c) actual money multiplier. (d) percentages of excess reserves held by banks.35. The actual money multiplier ma is least affected by a the marginal propensity to save (mps). b excess reserves as a percentage of bank liabilities (xr). c the reserve requirement ratio (rr). d the Feds discount rate (d). e the federal funds rate.36. The actual money multiplier is: (a) 1/rr. (b) equal to MS/MB. (c) larger than the potential money multiplier. (d) reduced if the public deposits its cash in banks.37. Financial services that have become increasingly practical realities for many or most Americans primarily because of computer technologies developed in the last four decades or so do not include: (a) credit cards. (b) electronic banking facilities. (c) checking and savings accounts. (d) debit cards and ATM machines.(e) on-line banking.38. Overnight loans between banks that belong to the Federal Reserve System are transacted through the: (a) required reserves market. (b) excess reserves markets. (c) federal funds market. (d) interbank money market. (e) surplus funds market.39. The nations M1 money supply does not include the values of: (a) coins. (b) paper. (c) travelers checks. (d) stocks and bonds. (e) funds in checkable accounts demand deposits at commercial banks, savings & loans, mutual savings banks, and credit unions.40. If Professor Byrns deposited a check from the Federal Reserve Bank of Dallas received to cover travel expenses while doing research as part of a consulting contract, these transactions would not result in an increase in the aggregate measured: (a) federal budget deficit. (b) reserves in the banking system. (c) simple M1 money supply. (d) liabilities of commercial banks. (e) monetary base.41. Yasmin owns an appliance store, and Jill is a painter with nine gallons of leftover paint. They both belong to the Swap Club, which was organized to evade income taxes. Yasmin would like a fresh coat of paint on the interior of her house and Jill wants a television. Jill agrees to paint three of Yasmins rooms in exchange for a wide-screen digital TV. Jill and Yasmin have experienced: (a) zero transaction costs. (b) fiscal deficiency. (c) costly disequilibrium. (d) a double coincidence of wants. (e) an underground division of labor.42. The potential (mp) and actual (ma) money multipliers would be equal only if: (a) the public closed all bank deposits and held only cash. (b) banks held no excess reserves and all currency were deposited in banks. (c) the FED bought all U.S. government debt. (d) all borrowers paid off all their bank loans. (e) banks closed all FED deposits, holding all reserves as vault cash.43. A system in which financial institutions can legally hold less than 100 % of their deposits is known as: (a) dimensional banking. (b) fractional reserve banking. (c) the Federal Funds Market. (d) the Euro-Dollar market. (e) utter foolishness.44. If a bank is fully loaned up, its: (a) required reserves are zero. (b) excess reserves are zero. (c) total reserves are zero. (d) total lending is zero.45. As the reserve requirements ratio increases, the: (a) level of required reserves decreases. (b) rate of excess reserves increases. (c) potential money multiplier increases. (d) actual money multiplier decreases. (e) interest rate declines.46. If a bank is loaned up, it: (a) has excess reserves available for new loans. (b) has no res