Question 1

What is the money multiplier?

Accepted Answer

The money multiplier describes how much ...

Question 2

If you deposited $100 of your currency into a bank, and the reserve ratio were five per cent, then the banking system could create as much as $1900 in additional money.

Accepted Answer

A) True 
 B)False

Question 3

Modern banking systems have reserve-deposit ratios of more than 100%, and are called fractional-reserve banking systems.

Accepted Answer

A) True 
 B)False  False

Question 4

The value of money:

Accepted Answer

A)  increases when prices rise
B)  increases when the price of bonds falls
C)  increases when prices fall
D)  decreases when prices fallE) A) and B)
F) A) and C)

Question 5

If the public switches from doing most of its shopping with currency to using cheques instead, and the Reserve Bank takes no action, the money supply will:

Accepted Answer

A)  increase
B)  decrease
C)  not change
D)  either increase or decreaseE) A) and D)
F) A) and C)

Question 6

When money takes the form of a commodity with intrinsic value, it is called a:

Accepted Answer

A)  barter money
B)  legal tender
C)  commodity money
D)  debased moneyE) B) and C)
F) C) and D)

Question 7

In Econland, all $5 000 000 in currency is held by banks as reserves.The public does not hold any currency.If the banks' desired reserve-deposit ratio is 10 per cent, the money supply in Econland equals:

Accepted Answer

A)  $4 545 545
B)  $5 000 000
C)  $5 500 000
D)  50 000 000E) All of the above
F) A) and D)

Question 8

The Reserve Bank can affect the money supply indirectly through its control of the supply of bank reserves.

Accepted Answer

A) True 
 B)False

Question 9

Imagine a simple world in which currency is the only form of money.If there is only a depository bank and the total quantity of currency is $100, then the total supply of money will be:

Accepted Answer

A)  $0
B)  $10
C)  $100
D)  $1000E) All of the above
F) A) and B)

Question 10

Money has three main functions.It is a medium of exchange, a unit of account and is used as a store of value.

Accepted Answer

A) True 
 B)False

Question 11

There is a _____:

Accepted Answer

A)  short-run trade-off between prices and interest rates
B)  long-run trade-off between inflation and unemployment
C)  short-run trade-off between inflation and unemployment
D)  short-run trade-off between inflation and the money supplyE) C) and D)
F) A) and D) C

Question 12

When money is used as a means to hold wealth, it serves as a:

Accepted Answer

A)  financial intermediary
B)  double coincidence of wants
C)  store of value
D)  medium of exchangeE) B) and D)
F) A) and B)

Question 13

If the actual reserve-deposit ratio equals eight per cent and the desired reserve-deposit ratio for this bank is 10 per cent, the bank should:

Accepted Answer

A)  do nothing, because this is a profitable situation
B)  stop making loans
C)  send the extra reserves to the central bank
D)  request that customers withdraw deposits from the bankE) All of the above
F) C) and D)

Question 14

The gold standard is used as the basis for a nation's money supply.

Accepted Answer

A) True 
 B)False  False

Question 15

If the reserve ratio is 10 per cent and a bank holds $1000 in deposits, then the bank must hold $100 in reserve.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements about credit cards is correct?

Accepted Answer

A)  Credit cards are a method of payment
B)  Credit cards are included in measures of the quantity of money
C)  Credit cards are a method of deferring payment
D)  Credit cards are considered a form of moneyE) All of the above
F) A) and B)

Question 17

The M1 measure of money consists of the sum of:

Accepted Answer

A)  currency, cheque account deposits and travellers' cheques
B)  currency and travellers' cheques
C)  currency, cheque account deposits and savings account deposits
D)  cheque account deposits and travellers' chequesE) B) and C)
F) A) and B)

Question 18

What are the problems facing the RBA in its management of the money supply?

Accepted Answer

a.The RBA does not control the...

Question 19

If the cash rate is increased, the RBA is trying to:

Accepted Answer

A)  address excessive inflation in the economy
B)  reduce the demand for money in the economy
C)  discourage credit-based spending
D)  all of the aboveE) B) and C)
F) C) and D)

Question 20

A relatively narrow measure of money is M3, which includes currency and cheque accounts.

Accepted Answer

A) True 
 B)False

Exam 29: The Monetary System

What is the money multiplier?

Correct AnswerverifiedThe money multiplier describes how much ...View AnswerShow Answer

If you deposited $100 of your currency into a bank, and the reserve ratio were five per cent, then the banking system could create as much as $1900 in additional money.

Correct AnswerverifiedShow Answer

Modern banking systems have reserve-deposit ratios of more than 100%, and are called fractional-reserve banking systems.

Correct AnswerverifiedFalse

The value of money:

Correct AnswerverifiedShow Answer

If the public switches from doing most of its shopping with currency to using cheques instead, and the Reserve Bank takes no action, the money supply will:

Correct AnswerverifiedShow Answer

When money takes the form of a commodity with intrinsic value, it is called a:

Correct AnswerverifiedShow Answer

In Econland, all $5 000 000 in currency is held by banks as reserves.The public does not hold any currency.If the banks' desired reserve-deposit ratio is 10 per cent, the money supply in Econland equals:

Correct AnswerverifiedShow Answer

The Reserve Bank can affect the money supply indirectly through its control of the supply of bank reserves.

Correct AnswerverifiedShow Answer

Imagine a simple world in which currency is the only form of money.If there is only a depository bank and the total quantity of currency is $100, then the total supply of money will be:

Correct AnswerverifiedShow Answer

Money has three main functions.It is a medium of exchange, a unit of account and is used as a store of value.

Correct AnswerverifiedShow Answer

There is a _____:

Correct AnswerverifiedC

When money is used as a means to hold wealth, it serves as a:

Correct AnswerverifiedShow Answer

If the actual reserve-deposit ratio equals eight per cent and the desired reserve-deposit ratio for this bank is 10 per cent, the bank should:

Correct AnswerverifiedShow Answer

The gold standard is used as the basis for a nation's money supply.

Correct AnswerverifiedFalse

If the reserve ratio is 10 per cent and a bank holds $1000 in deposits, then the bank must hold $100 in reserve.

Correct AnswerverifiedShow Answer

Which of the following statements about credit cards is correct?

Correct AnswerverifiedShow Answer

The M1 measure of money consists of the sum of:

Correct AnswerverifiedShow Answer

What are the problems facing the RBA in its management of the money supply?

Correct Answerverifieda.The RBA does not control the...View AnswerShow Answer

If the cash rate is increased, the RBA is trying to:

Correct AnswerverifiedShow Answer

A relatively narrow measure of money is M3, which includes currency and cheque accounts.

Correct AnswerverifiedShow Answer

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The money multiplier describes how much ...
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False

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C

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False

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a.The RBA does not control the...
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