1、Chapter 29 /The Monetary System v 2013Chapter 29 The Monetary SystemTRUE/FALSE1.In an economy that relies on barter, trade requires a double-coincidence of wants.ANS:TDIF:1REF:29-0NAT:AnalyticLOC:The role of moneyTOP:BarterMSC:Definitional2.Joe wants to trade eggs for sausage. Lashonda wants to trad
2、e sausage for eggs. Joe and Lashonda have a double-coincidence of wants.ANS:TDIF:1REF:29-0NAT:AnalyticLOC:The role of moneyTOP:BarterMSC:Definitional3.The use of money allows trade to be roundabout.ANS:TDIF:1REF:29-0NAT:AnalyticLOC:The role of moneyTOP:Money | TradeMSC:Definitional4.Roundabout trade
3、 is beneficial for an economy.ANS:TDIF:1REF:29-0NAT:AnalyticLOC:The role of moneyTOP:Money | TradeMSC:Definitional5.Money allows people to specialize in what they do best, thereby raising everyones standard of living.ANS:TDIF:2REF:29-0NAT:AnalyticLOC:The role of moneyTOP:MoneyMSC:Interpretive6.When
4、money functions as a unit of account, then it cannot be commodity money.ANS:FDIF:2REF:29-1NAT:AnalyticLOC:The role of moneyTOP:MoneyMSC:Interpretive7.Demand deposits are balances in bank accounts that depositors can access by writing a check.ANS:TDIF:1REF:29-1NAT:AnalyticLOC:The role of moneyTOP:Dem
5、and depositsMSC:Definitional8.According to economists, a collection of valuable jewels is not money.ANS:TDIF:2REF:29-1NAT:AnalyticLOC:The Study of economics, and the definitions of economicsTOP:MoneyMSC:Interpretive9.A debit card is more similar to a credit card than to a check.ANS:FDIF:2REF:29-1NAT
6、:AnalyticLOC:The Study of economics, and the definitions of economicsTOP:MoneyMSC:Interpretive10.Garys wealth is $1 million. Economists would say that Gary has $1 million worth of money.ANS:FDIF:1REF:29-1NAT:AnalyticLOC:The role of moneyTOP:MoneyMSC:Definitional11.Marc puts prices on surfboards and
7、skateboards at his sporting goods store. He is using money as a unit of account.ANS:TDIF:1REF:29-1NAT:AnalyticLOC:The role of moneyTOP:MoneyMSC:Definitional12.Sandra routinely uses currency to purchase her groceries. She is using money as a unit of account.ANS:FDIF:1REF:29-1NAT:AnalyticLOC:The role
8、of moneyTOP:MoneyMSC:Definitional13.Bottles of very fine wine are less liquid than demand deposits.ANS:TDIF:1REF:29-1NAT:AnalyticLOC:The role of moneyTOP:LiquidityMSC:Interpretive14.U.S. dollars are an example of commodity money and hides used to make trades are an example of fiat money.ANS:FDIF:1RE
9、F:29-1NAT:AnalyticLOC:The role of moneyTOP:Commodity moneyMSC:Definitional15.When the Soviet Union began breaking up in the late 1980s, cigarettes began replacing the ruble as the medium of exchange even though the ruble was legal tender. The cigarettes provide an example of fiat money.ANS:FDIF:1REF
10、:29-1NAT:AnalyticLOC:The role of moneyTOP:Commodity moneyMSC:Interpretive16.In order for currency to be widely used as a medium of exchange, it is sufficient for the government to designate it as legal tender.ANS:FDIF:1REF:29-1NAT:AnalyticLOC:The role of moneyTOP:CurrencyMSC:Definitional17.M1 includ
11、es savings deposits.ANS:FDIF:1REF:29-1NAT:AnalyticLOC:The role of moneyTOP:Money supplyMSC:Definitional18.M2 is both larger and more liquid than M1.ANS:FDIF:1REF:29-1NAT:AnalyticLOC:The role of moneyTOP:Money supply | LiquidityMSC:Interpretive19.Credit cards are a medium of exchange.ANS:FDIF:2REF:29
12、-1NAT:AnalyticLOC:The role of moneyTOP:Medium of exchangeMSC:Definitional20.The series of bank failures in 1907 occurred despite the creation of the Federal Reserve many years earlier.ANS:FDIF:1REF:29-2NAT:AnalyticLOC:The role of moneyTOP:Federal Reserve SystemMSC:Interpretive21.Federal Reserve gove
13、rnors are given long terms to insulate them from politics.ANS:TDIF:2REF:29-2NAT:AnalyticLOC:Monetary and fiscal policyTOP:Federal Reserve SystemMSC:Interpretive22.The Federal Reserve is a privately operated commercial bank.ANS:FDIF:1REF:29-2NAT:AnalyticLOC:Monetary and fiscal policyTOP:Federal Reser
14、ve SystemMSC:Definitional23.The Federal Reserve was created in 1913 after a series of bank failures in 1907.ANS:TDIF:1REF:29-2NAT:AnalyticLOC:Monetary and fiscal policyTOP:Federal Reserve SystemMSC:Definitional24.Members of the Board of Governors are appointed by the president of the U.S. and confir
15、med by the U.S. Senate.ANS:TDIF:1REF:29-2NAT:AnalyticLOC:Monetary and fiscal policyTOP:Federal Reserve SystemMSC:Definitional25.Monetary policy is determined by a committee whose voting members include all the presidents of the regional Federal Reserve Banks.ANS:FDIF:1REF:29-2NAT:AnalyticLOC:Monetar
16、y and fiscal policyTOP:Federal Open Market CommitteeMSC:Definitional26.The Federal Reserve primarily uses open-market operations to change the money supply.ANS:TDIF:1REF:29-3NAT:AnalyticLOC:Monetary and fiscal policyTOP:Open-market operationsMSC:Definitional27.If the Fed buys bonds in the open marke
17、t, the money supply decreases.ANS:FDIF:1REF:29-3NAT:AnalyticLOC:Monetary and fiscal policyTOP:Open-market operationsMSC:Applicative28.Banks cannot influence the money supply if they hold all deposits in reserve.ANS:TDIF:2REF:29-3NAT:AnalyticLOC:Monetary and fiscal policyTOP:Banks | Money supplyMSC:I
18、nterpretive29.Banks still could contribute to changes in the money supply, even if they were required to hold all deposits in reserve.ANS:FDIF:1REF:29-3NAT:AnalyticLOC:Monetary and fiscal policyTOP:Fractional-reserve bankingMSC:Applicative30.If banks hold any amount of their deposits in reserve, the
19、n they do not have the ability to influence the money supply.ANS:FDIF:2REF:29-3NAT:AnalyticLOC:The role of moneyTOP:Reserves | Money supplyMSC:Interpretive31.When the Federal Reserve decreases the discount rate, the quantity of reserves increases and the money supply increases.ANS:TDIF:2REF:29-3NAT:
20、AnalyticLOC:Monetary and fiscal policyTOP:Discount rate | Reserves | Money supplyMSC:Interpretive32.The money multiplier equals 1/(1 - R), where R represents the reserve ratio.ANS:FDIF:1REF:29-3NAT:AnalyticLOC:Monetary and fiscal policyTOP:Money multiplierMSC:Definitional33.Assume that when $100 of
21、new reserves enter the banking system, the money supply ultimately increases by $625. Assume also that no banks hold excess reserves and that the entire money supply consists of bank deposits. If, at a point in time, reserves for all banks amount to $500, then at that same point in time, loans for a
22、ll banks amount to $2,625.ANS:TDIF:3REF:29-3NAT:AnalyticLOC:Monetary and fiscal policyTOP:Money multiplierMSC:Analytical34.Assume that when $100 of new reserves enter the banking system, the money supply ultimately increases by $800. Assume also that no banks hold excess reserves and that the entire
23、 money supply consists of bank deposits. If, at a point in time, reserves for all banks amount to $750, then at that same point in time, loans for all banks amount to $6,000.ANS:FDIF:3REF:29-3NAT:AnalyticLOC:Monetary and fiscal policyTOP:Money multiplierMSC:Analytical35.As banks create money, they c
24、reate wealth.ANS:FDIF:1REF:29-3NAT:AnalyticLOC:The role of moneyTOP:Banks | MoneyMSC:Definitional36.The money supply of Hooba is $10,000 in a 100-percent-reserve banking system. If Hooba decreases the reserve requirement to 10 percent, the money supply could increase by no more than $9,000.ANS:FDIF:
25、2REF:29-3NAT:AnalyticLOC:Monetary and fiscal policyTOP:Money multiplierMSC:Applicative37.If the Fed decreases reserve requirements, the money supply will increase.ANS:TDIF:1REF:29-3NAT:AnalyticLOC:Monetary and fiscal policyTOP:Reserve requirementsMSC:Applicative38.An increase in reserve requirements
26、 increases reserves and decreases the money supply.ANS:FDIF:2REF:29-3NAT:AnalyticLOC:Monetary and fiscal policyTOP:Reserve requirementsMSC:Applicative39.Just after the terrorist attack on September 11, 2001, the Fed stood ready to lend financial institutions funds. When the Fed did this, it was acti
27、ng in its role of lender of last resort.ANS:TDIF:1REF:29-3NAT:AnalyticLOC:Monetary and fiscal policyTOP:Lender of last resortMSC:Definitional40.Because of the multiple tools at its disposal, the Fed can control the money supply very precisely.ANS:FDIF:2REF:29-3NAT:AnalyticLOC:Monetary and fiscal pol
28、icyTOP:Federal Reserve SystemMSC:Interpretive41.In the months of November and December, people in the United States hold a larger part of their money in the form of currency because they intend to shop and travel for the holidays. As a result, other things the same the money supply increases.ANS:FDI
29、F:2REF:29-3NAT:AnalyticLOC:Monetary and fiscal policyTOP:Currency | Money multiplierMSC:Applicative42.Other things the same, if banks decide to hold a smaller part of their deposits as excess reserves, the money supply will fall.ANS:FDIF:2REF:29-3NAT:AnalyticLOC:Monetary and fiscal policyTOP:Reserve
30、sMSC:Applicative43.Bank runs and the accompanying increase in the money multiplier caused the U.S. money supply to rise by 28 percent from 1929 to 1933.ANS:FDIF:2REF:29-3NAT:AnalyticLOC:Monetary and fiscal policyTOP:Banks | Money multiplierMSC:DefinitionalSHORT ANSWER1.Economists argue that the move
31、 from barter to money increased trade and production. How is this possible?ANS:The use of money allows people to trade more easily. When it is easier to trade, specialization increases. Increased specialization increases production and the standard of living.DIF:2REF:29-1NAT:AnalyticLOC:The role of
32、moneyTOP:Barter | MoneyMSC:Interpretive2.What is the difference between money and wealth?ANS:Money is defined as the set of assets in the economy that people regularly use to buy goods and services from other people. Wealth includes all assets, both monetary and nonmonetary.DIF:2REF:29-1NAT:Analytic
33、LOC:The role of moneyTOP:MoneyMSC:Definitional3.Which of the three functions of money are commonly met by each of the following assets in the U.S. economy?a.paper dollarb.precious metalsc.collectibles such as baseball cards, stamps, and antiquesANS:a.medium of exchange, store of value, unit of accou
34、ntb.store of valuec.store of valueDIF:1REF:29-1NAT:AnalyticLOC:The role of moneyTOP:MoneyMSC:Interpretive4.Are credit cards and debit cards money? Whats the difference between credit and debit cards?ANS:Neither credit cards nor debit cards are money, but credit cards are very different from debit ca
35、rds. Credit cards are not a medium of exchange, but are a means of deferring payment. Debit cards allow the user immediate access to deposits in a bank account. These deposits are part of the money supply.DIF:2REF:29-1NAT:AnalyticLOC:The role of moneyTOP:MoneyMSC:Interpretive5.What is the difference
36、 between commodity money and fiat money? Why do people accept fiat money in trade for goods and services?ANS:Commodity money has intrinsic value, or value in uses other than as money. Fiat money is established as money by the government. It has very little, if any, intrinsic value. Although fiat mon
37、ey has no intrinsic value, people accept it in trade when they are confident that others will also accept it. The governments decree that fiat currency serves as legal tender increases this confidence.DIF:2REF:29-1NAT:AnalyticLOC:The role of moneyTOP:Commodity moneyMSC:Definitional6.What does the te
38、xt mean by the question, Where Is All the Currency? How does it answer the question?ANS:The amount of currency per person is nearly $3,300. Most people carry far less than this. The question is, where is the rest of the currency? Foreigners and criminals hold some. In some foreign countries, people
39、have more confidence in the U.S. dollar than in their own currency. Criminals use currency because it makes it harder for the government to trace their activities than if they used bank accounts. So they may hold above average amounts of currency.DIF:2REF:29-1NAT:AnalyticLOC:The role of moneyTOP:Cur
40、rencyMSC:Definitional7.What is meant by the term lender of last resort? In what circumstances might the Fed be a lender of last resort?ANS:A lender of last resort is a lender to those who cannot borrow anywhere else. The Fed might loan funds to a solvent bank that is experiencing a bank run and so d
41、oesnt currently have enough cash on hand to meet depositors demands.DIF:1REF:29-2NAT:AnalyticLOC:Monetary and fiscal policyTOP:Lender of last resortMSC:Interpretive8.Compare the Board of Governors and the Federal Open Market Committee.ANS:The Board of Governors runs the Federal Reserve. It has seven
42、 members who are appointed by the U.S. president with the advice and consent of the Senate. The voting members of the Federal Open Market Committee include the 7 members of the Board of Governors and 5 of the 12 regional bank presidents, rotated among the 12 regional presidents, but always including
43、 the president of the New York Fed. The chair of the BOG also serves as chair of the FOMC. The FOMC meets about every six weeks in Washington, D.C. to discuss the condition of the economy and to consider changes in monetary policy.DIF:1REF:29-2NAT:AnalyticLOC:Monetary and fiscal policyTOP:Federal Re
44、serve SystemMSC:Definitional9.What makes the New York Federal Reserve regional bank so important?ANS:The president of the New York Federal Reserve regional bank is the only regional bank president who is always a voting member of the FOMC, the committee that determines monetary policy. New York is t
45、he traditional financial center of the U.S. economy and the New York Federal Reserve Bank conducts all open-market transactions.DIF:1REF:29-2NAT:AnalyticLOC:Monetary and fiscal policyTOP:Federal Reserve SystemMSC:Definitional10.Designers of the Federal Reserve System were concerned that the Fed migh
46、t form policy favorable to one part of the country or to a particular party. What are some ways that the organization of the Fed reflects such concerns?ANS:1.The president appoints the Board of Governors, but the Senate must approve them.2.The seven members of the Board of Governors serve 14-year terms, so it is unlikely that a sing
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