Question 1

An essential function of a central bank is to:

Accepted Answer

A)  manage the money supply.
B)  collect taxes.
C)  issue debt.
D)  All of these are true.

Question 2

The nominal interest rate is determined by:

Accepted Answer

A)  the point where the supply of money meets the demand for money.
B)  the Fed.
C)  the Treasury.
D)  inflation.

Question 3

The regional Federal Reserve bank presidents are:

Accepted Answer

A)  selected by the Federal Reserve Board of Directors.
B)  allowed to serve no more than two consecutive four-year terms.
C)  are responsible for overseeing the day-to-day actions of the regional banks.
D)  All of these are true.

Question 4

If the Fed wishes to decrease the money supply,it could:

Accepted Answer

A)  buy a bond.
B)  increase the reserve requirement.
C)  decrease the discount rate.
D)  All of these would decrease the money supply.

Question 5

When deciding what to use as money,one characteristic to look for is:

Accepted Answer

A)  the stability of value.
B)  the shape.
C)  the intrinsic value.
D)  All of these are important characteristics.

Question 6

Giving the Fed a high degree of independence means that:

Accepted Answer

A)  the Fed governors will not be as tempted by political pressure.
B)  it is less likely to expand the money supply simply to make it cheaper for the government to repay its debt.
C)  technocrats-rather than politicians-are in charge,which tends to increase people's trust in the stability of the dollar.
D)  All of these are true.

Question 7

In the simple liquidity preference model,if the money demand curve is elastic,then:

Accepted Answer

A)  small changes to the money supply will cause large changes to the interest rate.
B)  only large changes to the money supply will cause large changes to the interest rate.
C)  small changes to the money supply will cause insignificant changes to the interest rate.
D)  even large changes to the money supply will cause small changes to the interest rate.

Question 8

An increase in interest rates:

Accepted Answer

A)  decreases aggregate demand,slowing economic activity.
B)  decreases aggregate demand,increasing economic activity.
C)  increases aggregate demand,slowing economic activity.
D)  increases aggregate demand,increasing economic activity.

Question 9

When the interest rate earned on government bonds is high,most people will try to hold:

Accepted Answer

A)  more bonds and less cash.
B)  less bonds and more cash.
C)  more bonds and more cash.
D)  less bonds and less cash.

Question 10

Commodity-backed money is:

Accepted Answer

A)  any form of money that can be legally exchanged into a fixed amount of an underlying commodity.
B)  money created by rule.
C)  money used for the exchange of large commodities.
D)  None of these is true.

Question 11

The Federal Open Market Committee:

Accepted Answer

A)  includes all regional bank presidents and the Board of Governors.
B)  is the most important policy-making body of the Federal Reserve.
C)  is responsible for regulatory oversight and implementation of monetary policy of regional banks.
D)  All of these are true.

Question 12

The discount window provides:

Accepted Answer

A)  guaranteed emergency funds for banks in trouble at a higher interest rate than others.
B)  loans to banks at low interest rates,so they can lend more money out to the public.
C)  guaranteed emergency funds for banks in trouble at a lower interest rate than others.
D)  loans to banks at low interest rates,only when the economy is doing well.

Question 13

A Certificate of Deposit would be counted in which measure of money?

Accepted Answer

A)  M1
B)  M2
C)  Hard money
D)  It would be counted in both M1 and M2

Question 14

M1 is considered ___________ measure of money compared to M2.

Accepted Answer

A)  a more legitimate
B)  a less legitimate
C)  just as legitimate a
D)  Neither of these is a particularly good measure of money.

Question 15

Assets that are used for money that have intrinsic value generally:

Accepted Answer

A)  keep a more steady value than those that don't.
B)  keep just as steady a value than those that don't.
C)  keep a less steady value than those that don't.
D)  All forms of money have an intrinsic value.

Question 16

The main reason barter is extremely inefficient is that:

Accepted Answer

A)  you have to find someone who both has what you want and wants what you have.
B)  it can have very high transactions costs associated with it.
C)  people and firms have to spend a lot of time looking for mutually agreeable trades.
D)  All of these are true.

Question 17

Contractionary monetary policy involves:

Accepted Answer

A)  actions that reduce the money supply in order to decrease aggregate demand.
B)  actions that increase the money supply in order to decrease aggregate demand.
C)  actions that reduce the money supply in order to increase aggregate demand.
D)  actions that increase the money supply in order to increase aggregate demand.

Question 18

The cost of owning a government bond is ____________,and the benefit of owning one is ______________.

Accepted Answer

A)  that it is not very liquid;interest earned
B)  interest earned;that it is not very liquid
C)  interest charged;that it is highly liquid
D)  interest charged;that it is not very liquid

Question 19

The twin responsibilities of the Federal Reserve are:

Accepted Answer

A)  to maintain full employment and balance the federal budget.
B)  to ensure price stability and maintain full employment.
C)  to ensure price stability and regulate international trade.
D)  to print money and ensure price stability.

Question 20

Comparing _____ can give us some sense of what the multiplier actually is in the economy.

Accepted Answer

A)  hard money to M2
B)  hard money to M1
C)  M1 to M2
D)  hard money to fiat money

Exam 31: Money and the Monetary System

If the Fed wishes to decrease the money supply,it could:

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The discount window provides:

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A Certificate of Deposit would be counted in which measure of money?

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The regional Federal Reserve bank presidents are:

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An increase in interest rates:

Correct AnswerverifiedShow Answer

When the interest rate earned on government bonds is high,most people will try to hold:

Correct AnswerverifiedShow Answer

Contractionary monetary policy involves:

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M1 is considered ___________ measure of money compared to M2.

Correct AnswerverifiedShow Answer

The main reason barter is extremely inefficient is that:

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Assets that are used for money that have intrinsic value generally:

Correct AnswerverifiedShow Answer

Comparing _____ can give us some sense of what the multiplier actually is in the economy.

Correct AnswerverifiedShow Answer

The Federal Open Market Committee:

Correct AnswerverifiedShow Answer

In the simple liquidity preference model,if the money demand curve is elastic,then:

Correct AnswerverifiedShow Answer

The cost of owning a government bond is ____________,and the benefit of owning one is ______________.

Correct AnswerverifiedShow Answer

Giving the Fed a high degree of independence means that:

Correct AnswerverifiedShow Answer

Commodity-backed money is:

Correct AnswerverifiedShow Answer

The nominal interest rate is determined by:

Correct AnswerverifiedShow Answer

The twin responsibilities of the Federal Reserve are:

Correct AnswerverifiedShow Answer

When deciding what to use as money,one characteristic to look for is:

Correct AnswerverifiedShow Answer

An essential function of a central bank is to:

Correct AnswerverifiedShow Answer

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The cost of owning a government bond is ,and the benefit of owning one is __.

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