Monetary system

Which of the following is not a function of money?

• hedge against inflation

• medium of exchange

• unit of account

• store of value

Which of the following statements about money is not true?

• A debit card is not really money because it is only a means of transferring money between accounts.

• All the wealth that people hold, in whatever form, should be considered as money.

• Wealth held in the current account you hold with your bank is almost as convenient for buying things as wealth held in your wallet, so the wealth in current accounts should be included in measures of money.

• In a complex economy it is not easy to draw a clear dividing line between assets that should be considered as money and those that should not.

Which of the following statements is not true?

• The purchase of government bonds from the public increases the money supply.

• The US Federal Reserve is run by its Board of Governors, which comprises seven people who are appointed by the US President.

• When the central bank sells government bonds to the public, the money supply decreases.

• Monetary policy in the UK is set by the Chancellor of the Exchequer in consultation with the Bank of England

• Monetary policy in the euro area is set by the Governing Council of the European Central Bank.

If the banks in an economy operate with a reserve ratio of 20 per cent then the money multiplier is:

• 4

• 20

• 25

• 5

Suppose Gerard moves his €1,000 demand deposit from Bank A to Bank B. If both banks operate with a reserve ratio of 10 per cent, what is the potential change in money supply as a result of Gerard’s action?

• €10,000

• €1,000

• €9,000

• €0

Reserve requirements that may be imposed on an economy’s banks by its central bank specify that banks’ reserves must be a minimum percentage of their

• assets.

• deposits

• loans

• government bonds.

Which of the following policy actions by a central bank is likely to increase the money supply?

• Increasing the refinancing rate.

• Buying government bonds in open market operations.

• Increasing reserve requirements.

• All of these will increase the money supply

Suppose the Bank of England purchases a £1,000 government bond from you. If you deposit the entire £1,000 in your bank, what is the total potential change in the money supply as a result of the Bank of England’s action if the your bank’s reserve ratio is 20 per cent?

• £4,000

• £5,000

• £1,000

• £0

The three main tools of monetary policy are

• fiat, commodity, and deposit money.

• open-market operations, reserve requirements, and the refinancing rate.

• the money supply, government purchases, and taxation.

• government expenditures, taxation, and reserve requirements.

Suppose all banks maintain a 100 percent reserve ratio. If an individual deposits €1,000 of currency in a bank,

• the money supply increases by more than €1,000

• the money supply increases by less than €1,000

• the money supply decreases by less than €1,000

• the money supply decreases by more than €1,000

• the money supply is unaffected