Dr.

Nguyễn Bá Trung Teaching Assistants - Đức Thành, Thế Hải

CHAPTER 16. THE MONETARY SYSTEM

1. The set of assets in an economy that people regularly use to buy goods and services
form other people is most commonly called:
a. financial assets.
b. liquid assets.
c. exchange assets.
d. money.
2. Paper money
a. has no intrinsic value.
b. is used in a barter economy.
c. is valuable because it is generally accepted in trade.
d. Both a and c are correct.
3. All of the following are functions of money, EXCEPT:
a. medium of exchange.
b. liquidity.
c. unit of account.
d. store of value
4. Which of the following is NOT a characteristic of commodity money?
a. It must have an intrinsic value.
b. It must be easily divisible, in order to make small payments.
c. It must be durable.
d. It must be set by decree.
5. Fiat money, such as the dollar bills we use now-a-days:
a. is backed by gold.
b. has no intrinsic value at all.
c. is based on the amount of precious metals held by the government.
d. is printed and introduced into the economy by the Treasury of the United
States.
6. Which of the following occurs when the Fed reduces the reserve requirement?
a. The money multiplier gets bigger.
b. Banks become more reluctant to lend.
c. The amount of money in the economy is reduced.
d. Interest rates tend to rise in the economy.
7. If the reverse ratio is 20 percent and a bank receives a new deposit of $100, then this
bank:
a. Must increase its required reserves by $20.
b. Will initially see its total reserves increase by $100.
c. Will be able to make a new loan of $80.
d. All of the above.
8. If the bank uses $80 of reserves to make a new loan when the reserve ratio is 25
percent, then:
a. The money supply initially increases by $20.
b. The money supply initially decreases by $80.
c. The level of wealth in the economy will not have changed.
 Dr. Nguyễn Bá Trung Teaching Assistants - Đức Thành, Thế Hải

d. The money supply will eventually increases by more than $20 but less than
$80.
9. If the reserve ratio is 100 percent, depositing $500 of paper money in a bank will
increase the money supply by:
a. $500.
b. $0.
c. $5000.
d. $500000.
10. As banks hold more excess reserves, the money multiplier:
a. Increases and the money supply increases.
b. Decreases and the money supply decreases.
c. Increases and the money supply decreases.
d. Decreases and the money supply increases.
11. Under a fractional - reserve banking system, banks:
a. Hold only a fraction of their deposits as reserves.
b. Generally lend out a majority of their deposits.
c. Can create money by lending out reserves.
d. All of the above.
12. Which of the following is a store of value?
a. Currency(dollar bills)
b. U.S. government bonds
c. Fine art
d. All of the above are correct.
13. M1 equals currency plus demand deposits plus
a. Nothing else.
b. Other checkable deposits.
c. Traveler’s checks plus other checkable deposits.
d. Traveler’s checks plus other checkable deposits plus savings deposits.
14. Which of the following items is included in M2
a. Credit cards
b. Money market mutual funds
c. Corporate bonds
d. Large time deposits.
15. When conducting an open - market purchase, the Fed
a. Buys government bonds, and in so doing increases the money supply.
b. Buys government bonds, and in so doing decreases the money supply.
c. Sells government bonds, and in so doing increases the money supply.
d. Sells government bonds, and in so doing decreases the money supply.
16. The interest rate that the Fed charges banks that borrow reserves from it is the
a. Federal funds rate.
b. Discount rate.
c. Reserve requirement.
d. Prime rate.
 Dr. Nguyễn Bá Trung Teaching Assistants - Đức Thành, Thế Hải

17. If the Fed increases the reserve ratio from 4 percent to 10 percent, then the money
multiplier
a. Decreases from 25 to 10.
b. Decreases from 20 to 10.
c. Increases from 10 to 25.
d. Increases from 10 to 20.
18. If the federal funds rate were above the level the Federal Reserve had targeted, the
Fed could move the rate back towards its target by
a. Buying bonds. This buying would reduce reserves.
b. Buying bonds. This buying would increase reserves.
c. Selling bonds. This selling would reduce reserves.
d. Selling bonds. Thisselling would increase reserves.
19. When bookkeepers use dollars to record income and expenses, they are using money
as a
a. Unit of account.
b. Means of payment.
c. Store of value.
d. Medium of exchange.
20. When you put money in a cookie jar, which function of money are you using?
a. Store of value
b. Medium of exchange
c. Unit of account
d. None of the above is correct.
21. Which of the following is included in the M2 definition of the money supply?
a. Credit cards
b. Money market mutual funds
c. Corporate bonds
d. Large time deposits
22. When the Fed wants to change the money supply, it most frequently
a. Conducts open market operations.
b. Changes the discount rate.
c. Changes the reserve requirement.
d. Issues Federal Reserve notes.
23. Suppose a bank has a 10 percent reserve ratio, $5,000 in deposits, and it loans out all
it can given the reserve ratio.
a. It has $50 in reserves and $4,950 in loans.
b. It has $500 in reserves and $4,500 in loans.
c. It has $555 in reserves and $4,445 in loans.
d. None of the above is correct.
24. Suppose a bank has $10,000 in deposits and $8,000 in loans. It has a reserve ratio of
a. 8 percent.
b. 20 percent.
c. 25 percent.
d. 80 percent.
 Dr. Nguyễn Bá Trung Teaching Assistants - Đức Thành, Thế Hải

25. If you deposit $100 into a demand deposit at a bank, this action by itself
a. Does not change the money supply.
b. Increases the money supply.
c. Decreases the money supply.
d. Has an indeterminate effect on the money supply.

24) Commodity money is

a. backed by gold.
b. more commonly used than fiat money.
c. money with intrinsic value.

d. All of the above are correct

25) Paper money

a. has no intrinsic value.
b. is used in a barter economy.
c. is valuable because it is generally accepted in trade.
d. Both a and c are correct.

26) When bookkeepers use dollars to record income and expenses, they are using money
as a
a. unit of account.
b. means of payment.
c. store of value.
d. medium of exchange.

27) When you put money in a cookie jar, which function of money are you using?
a. store of value
b. medium of exchange
c. unit of account
d. None of the above is correct.

28) Liquidity refers to

a. the suitability of an asset to serve as a store of value.
b. a measurement of the intrinsic value of commodity money.
c. the ease with which an asset is converted to the medium of
exchange.
d. None of the above refers to liquidity.

29) Fiat currency

a. is used as a medium of exchange.
b. is equivalent to wealth.
c. is backed by gold.
d. Both b and c are correct.

30) Current U.S. currency is

 Dr. Nguyễn Bá Trung Teaching Assistants - Đức Thành, Thế Hải

a. commodity money with intrinsic value.

b. commodity money with no intrinsic value.
c. fiat money with intrinsic value.
d. fiat money with no intrinsic value.

31) If the reserve ratio is 20 percent, the money multiplier is

a. 100.
b. 20.
c. 9/20.
d. 1/5.
Use the balance sheet for the following three questions.
Vietcombank
Assets Liabilities
Required Reserves $20.00 Deposits $100.00
Loans $80.00

32) The reserve ratio is

a. zero percent.
b. 20 percent.
c. 80 percent.
d. 100 percent.

33) If $1,000 is deposited into the Vietcombank,

a. liabilities will decrease by $1,000.
b. assets will increase by $1,000.
c. total reserves will initially increase by $200.
d. required reserves will increase by $800.

34) If $400 is deposited into the Vietcombank,

a. the bank will be able to make additional loans totaling $320.
b. excess reserves initially increase by $320.
c. required reserves initially increase by $80.
d. All of the above are true.

35) When a bank loans out $100, the money supply

a. does not change.
b. increases.
c. decreases.
d. may do any of the above.

36) Suppose a bank has $10,000 in deposits and $8,000 in loans. It has a reserve ratio
of
a. 8 percent.
b. 20 percent.
c. 25 percent.
 Dr. Nguyễn Bá Trung Teaching Assistants - Đức Thành, Thế Hải

d. 80 percent.

37) Which of the following is not a tool of monetary policy?

a. open market operations
b. reserve requirements
c. the prime rate
d. the discount rate

38) If the State Bank wanted to increase the money supply, it would
a. make open market purchases and raise the discount rate.
b. make open market sales and raise the discount rate.
c. make open market purchases and lower the discount rate.
d. make open market sales and lower the discount rate.

39) To increase the money supply, the State Bank could

a. sell government bonds.
b. increase the discount rate.
c. decrease the reserve requirement.
d. Both a and c are correct.

40) Reserve requirements are regulations concerning

a. the amount of deposits banks are allowed to accept.
b. the amount of reserves banks must hold against deposits.
c. the types of loans banks are allowed to make.
d. the interest rate at which banks can borrow from the Fed.

41) Commodity money is

a. backed by gold.
b. more commonly used than fiat money.
c. money with intrinsic value.

d. All of the above are correct

42) Vietnam Dong, which is the money of Vietnam

a. has no intrinsic value.
b. is used in a barter economy.
c. is valuable because it is generally accepted in trade.
d. Both a and c are correct.

43) If reserve requirements are decreased, the reserve ratio

a. increases, the money multiplier increases, and the money supply
increases.
b. increases, the money multiplier increases, and the money supply
decreases.
c. decreases, the money multiplier increases, and the money supply
decreases.
 Dr. Nguyễn Bá Trung Teaching Assistants - Đức Thành, Thế Hải

d. decreases, the money multiplier increases, and the money supply increases

44) If the discount rate is raised, banks choose to borrow

a. more from the Fed so reserves increase.
b. more from the Fed so reserves decrease.
c. less from the Fed so reserves increase.
d. less from the Fed so reserves decrease.

45) If the reserve ratio is 25 percent, and banks do not hold excess reserves, when the
Fed sells $40 million of bonds to the public, bank reserves
a. increase by $40 million and the money supply eventually increases by
$100 million.
b. increase by $40 million and the money supply eventually increases by
$160 million.
c. decrease by $40 million and the money supply eventually decreases by
$100 million.
d. decrease by $40 million and the money supply eventually decreases by
$160 million

46) The interest rate the Fed charges on loans it makes to banks is called
a. the prime rate.
b. the federal funds rate.
c. the reserve ratio.
d. the discount rate.

47) The discount rate is

a. the interest rate the Fed charges banks.
b. one divided by the reserve ratio.
c. the interest rate banks receive on reserve deposits with the Fed.
d. the interest rate that banks charge on loans to their best customers.

48) When the Fed increases the discount rate, banks will borrow
a. more, banks will lend more, and the money supply will increase.
b. more, banks will lend less, and the money supply will decrease.
c. less, banks will lend more, and the money supply will decrease.
d. less, banks will lend less, and the money supply will decrease

49) Which of the following is false?

a. The Fed indirectly controls the money supply.
b. Banks determine the reserve requirement.
c. Banks can create money in a fractional reserve banking system.
d. The Fed can control the level of reserves in the banking system.

50) Which list contains only actions that decrease the money supply?
a. raise the discount rate, make open market purchases
Dr. Nguyễn Bá Trung Teaching Assistants - Đức Thành, Thế Hải

b. raise the discount rate, make open market sales

c. lower the discount rate, make open market purchases
d. lower the discount rate, make open market sales