The primary difference between commodity money and fiat money is that

commodity money has intrinsic value but fiat money does not.

commodity money is a medium of exchange but fiat money is not.

fiat money is a medium of exchange but commodity money is not.

fiat money has intrinsic value but commodity money does not.

In a system of 100-percent-reserve banking,

currency is the only form of money.

deposits are banks’ only assets.

In a system of 100-percent-reserve banking,

banks do not influence the supply of money.

loans are the only asset item for banks.

If a bank has a reserve ratio of 8 percent, then

the bank keeps 8 percent of its deposits as reserves and loans out the rest.

government regulation requires the bank to use at least 8 percent of its deposits to make loans.

the bank’s ratio of loans to deposits is 8 percent.

the bank keeps 8 percent of its assets as reserves and loans out the rest.

A bank has a 10 percent reserve requirement, $5,000 in deposits, and has loaned out all it can given the reserve requirement.

It has $500 in reserves and $4,500 in loans.

It has $50 in reserves and $4,950 in loans.

It has $555 in reserves and $4,445 in loans.

The money multiplier equals

1/R, where R represents the reserve ratio for all banks in the economy.

1/R, where R represents the quantity of reserves in the economy.

1/(1+R), where R represents the quantity of reserves in the economy.

1/(1+R), where R represents the reserve ratio for all banks in the economy.

In the special case of the 100 percent-reserve banking the money multiplier is

1 and banks do not create money.

2 and banks do not create money.

If the reserve ratio is 100 percent, then a new deposit of $500 into a bank account

leaves the size of the money supply unchanged.

eventually increases the money supply by $500.

eventually decreases the size of the money supply by $500.

If the Fed sells government bonds to the public, then reserves

decrease and the money supply decreases.

increase and the money supply increases.

increase and the money supply decreases.

decrease and the money supply increases.

The discount rate is the interest rate that

the Fed charges banks for loans.

banks charge one another for loans.

banks charge the Fed for loans.

the Fed charges Congress for loans.

The Fed can increase the money supply by conducting open-market

purchases or by lowering the discount rate.

sales or by raising the discount rate.

sales or by lowering the discount rate.

purchases or by raising the discount rate.

To increase the money supply, the Fed can

buy government bonds or decrease the discount rate.

buy government bonds or increase the discount rate.

sell government bonds or increase the discount rate.

sell government bonds or decrease the discount rate.

To decrease the money supply, the Fed can

sell government bonds or increase the discount rate.

buy government bonds or increase the discount rate.

buy government bonds or decrease the discount rate.

sell government bonds or decrease the discount rate.

When there is a reserve requirement, banks

may hold more than, but not less than, the required quantity of reserves.

must hold exactly the required quantity of reserves.

may hold less than, but not more than, the required quantity of reserves.

must seek the Fed’s permission whenever they wish to expand or contract their loans to customers.

The money supply increases when the Fed

buys bonds. The increase will be larger, the smaller is the reserve ratio.

buys bonds. The increase will be larger, the larger is the reserve ratio.

sells bonds. The increase will be larger, the smaller is the reserve ratio.

sells bonds. The increase will be larger, the larger is the reserve ratio.

The money supply increases when the Fed

lowers the discount rate. The increase will be larger the smaller the reserve ratio is.

lowers the discount rate. The increase will be larger the larger the reserve ratio is.

raises the discount rate. The increase will be larger the smaller the reserve ratio is.

raises the discount rate. The increase will be larger the larger the reserve ratio is.

If people decide to hold more currency relative to deposits, the money supply

falls. The larger the reserve ratio is, the more the money supply falls.

falls. The larger the reserve ratio is, the less the money supply falls.

rises. The larger the reserve ratio is, the more the money supply rises.

rises. The larger the reserve ratio is, the less the money supply rises.

During recessions, banks typically choose to hold more excess reserves relative to their deposits. This action

decreases the money multiplier and decreases the money supply.

increases the money multiplier and increases the money supply.

does not change the money multiplier, but increases the money supply.

does not change the money multiplier, but decreases the money supply.

Inflation can be measured by the

percentage change in the consumer price index.

change in the consumer price index.

percentage change in the price of a specific commodity.

change in the price of a specific commodity.

decreases incomes and reduces the ability of debtors to pay off their debts.

increases incomes and enhances the ability of debtors to pay off their debts.

increases incomes and reduces the ability of debtors to pay off their debts.

decreases incomes and enhances the ability of debtors to pay off their debts.

The term hyperinflation refers to

a period of very high inflation.

the spread of inflation from one country to others.

a decrease in the inflation rate.

inflation accompanied by a recession.

The classical theory of inflation

is also known as the quantity theory of money.

was developed by some of the earliest economic thinkers.

is used by most modern economists to explain the long-run determinants of the inflation rate.

The quantity theory of money

is a fairly recent addition to economic theory.

can explain both moderate inflation and hyperinflation.

argues that inflation is caused by too little money in the economy.

To explain the long-run determinants of the price level and the inflation rate, most economists today rely on the

disequilibrium theory of money and inflation.

When the price level falls, the number of dollars needed to buy a representative basket of goods

decreases, so the value of money rises.

increases, so the value of money rises.

increases, so the value of money falls.

decreases, so the value of money falls.

The value of money rises as the price level

rises, because the number of dollars needed to buy a representative basket of goods falls.

rises, because the number of dollars needed to buy a representative basket of goods rises.

falls, because the number of dollars needed to buy a representative basket of goods rises.

falls, because the number of dollars needed to buy a representative basket of goods falls.

If P denotes the price of goods and services measured in terms of money, then

1/P represents the value of money measured in terms of goods and services.

P can be regarded as the 'overall price level.'

an increase in the value of money is associated with a decrease in P.

Money demand refers to

the total quantity of financial assets that people want to hold.

how much income people want to earn per year.

how much wealth people want to hold in liquid form.

how much currency the Federal Reserve decides to print.

Money demand depends on

the price level and the interest rate.

the price level but not the interest rate.

the interest rate but not the price level.

neither the price level nor the interest rate.

As the price level decreases, the value of money

increases, so people want to hold more of it.

increases, so people want to hold less of it.

decreases, so people want to hold more of it.

decreases, so people want to hold less of it.

When the money market is drawn with the value of money on the vertical axis, as the price level increases, the value of money

decreases, so the quantity of money demanded increases.

increases, so the quantity of money demanded increases.

increases, so the quantity of money demanded decreases.

decreases, so the quantity of money demanded decreases.

When the money market is drawn with the value of money on the vertical axis, an increase in the price level causes a

shift to the left of the money demand curve.

shift to the right of the money demand curve.

movement to the left along the money demand curve.

movement to the right along the money demand curve.

When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an

excess supply of money, so the price level will fall.

excess demand for money, so the price level will rise.

excess demand for money, so the price level will fall.

excess supply of money, so the price level will rise.

When the money market is drawn with the value of money on the vertical axis, if there is a surplus of money then

the value of money falls which will make people desire to hold more money.

the value of money rises which will make people desire to hold more money.

the value of money rises which will make people desire to hold less money.

the value of money falls which will make people desire to hold less money.

Monetary System and Inflation Quiz Quiz

85 questions

Show all answers

1.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Which of the following is a function of money?

a unit of account

a store of value

medium of exchange

All of the above are correct.

2.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

You receive money as payment for babysitting your neighbors' children. This best illustrates which function of money?

medium of exchange

unit of account

store of value

liquidity

3.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Any item that people can use to transfer purchasing power from the present to the future is called

a medium of exchange.

a unit of account.

a store of value.

None of the above is correct.

4.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Which of the following is a store of value?

cash and stocks

cash but not stocks

stocks but not cash

neither cash nor stocks

5.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Which of the following is a store of value?

currency

U.S. government bonds

fine art

All of the above are correct.

6.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Commodity money is

backed by gold.

the principal type of money in use today.

money with intrinsic value.

receipts created in international trade that are used as a medium of exchange.

7.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Fiat money

has no intrinsic value.

is backed by gold.

is a medium of exchange but not a unit of account.

is any close substitute for currency such as checkable deposits.

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