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50 Cards in this Set

  • Front
  • Back

Economists estimate that ________ of U.S. currency is outside the United States andheld primarily by ________.

over half; households and firms in countries where there is little confidence inthe local currency

Which of the following about fiat money is false? Fiat money

is backed by gold.

If whole tomatoes were money, which of the following functions of money would bethe hardest for tomatoes to satisfy?

store of value

The required reserves of a bank equal its ________ the required reserve ratio.

deposits multiplied by

If a person withdraws $500 from his/her checking account and holds it as currency,then M1 will ________ and M2 will ________.

not change; not change

The quantity theory of money was derived from the quantity equation by assertingthat

the velocity of money was fixed.

Which of the following assets is most liquid?


The impact of the Chinese government's reserve requirement policy has not slowedthe growth of the money supply because

A and B

The major shortcoming of a barter economy is

the requirement of a double coincidence of wants.

People hold money as opposed to financial assets because money

is perfectly liquid.

Your roommate argues that he can think of no better situation than living in adeflationary economy, as prices of goods and services would continuously fall.You disagree and argue that during a deflation, people can be made worse offbecause

borrowers will have to pay increasing amounts in real terms over time.

Which of the following is not a function of the Federal Reserve System, or the "Fed"?

insuring deposits in the banking system

Which of the following is not a consequence of hyperinflation?

Money's function as a medium of exchange is enhanced.

In economics, money is defined as

any asset people generally accept in exchange for goods and services.

In a ________ economy there are more prices than in a ________ economy.

barter; money

The purchase of $1 million of Treasury securities by the Federal Reserve, if there isno change in the quantity of currency, will cause reserves at banks to

increase by $1 million.

You earn $500 a month, currently have $200 in currency, $100 in your checkingaccount, $2,000 in your savings accounts, $3,000 worth of illiquid assets and $1,000of debt. You have

money = $300, annual income = $6,000, and wealth = $4,300.

Economies where goods and services are traded directly for other goods andservices are called ________ economies.


The quantity theory of money predicts that, in the long run, inflation results fromthe

money supply growing at a faster rate than real GDP.

The main tool the Federal Reserve uses to conduct monetary policy is

open market operations.

Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. As a result of Kristy's deposit, Bank A can make amaximum loan of


The M1 measure of the money supply equals

currency plus checking account balances plus traveler's checks.

Argentine banks were hampered by the government's decision to tie the peso to theU.S. dollar at a rate of one to one. This policy of fixing the peso to the dollar

prevented the central bank from acting as the lender of last resort during abanking panic.

The purchase of Treasury securities by the Federal Reserve will, in general,

increase the quantity of reserves held by banks.

The Federal Reserve was established in 1913 to

stop banking panics by acting as a lender of last resort.

Suppose the required reserve ratio is 20 percent. If banks are conservative andchoose not to loan all of their excess reserves, the real-world deposit multiplier is

less than 5.

Which of the following best describes how banks create money?

Banks create checking account deposits when making loans from excessreserves.

Hyperinflation can be caused by

the government selling bonds to the central bank.

If a bank receives a $1 million discount loan from the Federal Reserve, then thebank's reserves will

increase by $1 million.

Suppose a bank has $100 million in checking account deposits with no excessreserves and the required reserve ratio is 10 percent. If the Federal Reserve reducesthe required reserve ratio to 8 percent, then the bank can make a maximum loan of

$2 million.

According to the quantity theory of money, the inflation rate equals

the growth rate of the money supply minus the growth rate of real output.

If the current penny was made worth five cents rather than its current value of one cent, what would be the effect on M1?

It would rise.

The seven members of the Board of Governors of the Federal Reserve are appointedby

the President.

The sale of Treasury securities by the Federal Reserve will, in general,

decrease the quantity of reserves held by banks.

Which of the following is one of the most important benefits of money in aneconomy?

Money makes exchange easier, leading to more specialization and higher productivity.

The Federal Reserve's narrowest definition of the money supply is


Which of the following determines the amount of money the banking system as awhole can create?

the quantity of bank reserves

Suppose Warren Buffet withdraws $1 million from his checking account at ChaseManhattan Bank. If the required reserve ratio is 20 percent, what is the maximumchange in deposits in the banking system?

-$5 million

According to the quantity theory of money, deflation will occur if the

money supply grows at a slower rate than real GDP.

Dollar bills in the modern economy serve as money because

people have confidence that others will accept them as money.

The largest liability on the balance sheet of most banks is its

checking account and savings account deposits of its customers.

Which of the following is not counted in M1?

credit card balances

In response to the destructive banking panics of the Great Depression, futurebanking panics are designed to be prevented by

the establishment of the Federal Deposit Insurance Corporation.

Which of the following statements regarding the use of gold as money is false?

It is of standardized quality.

The three main monetary policy tools used by the Federal Reserve to manage themoney supply are

open market operations, discount policy, and reserve requirements.

Suppose you withdraw $500 from your checking account deposit and bury it in a jarin your back yard. If the required reserve ratio is 10 percent, checking accountdeposits in the banking system as a whole could drop up to a maximum of


To decrease the money supply, the Federal Reserve could

conduct an open market sale of Treasury securities.

The Argentine people lost confidence in the peso and as a result,

economic activity was severely limited.

Money's most narrow definition is based on its function as a

medium of exchange.

The most liquid measure of money supply is