Macro

Liquidity refers to:

• The ability of an asset to be sold at a profit
  

• The ease with which an asset can be converted into cash without losing value
  

• The stability of a currency over time
  

• The interest rate applied to loans
  

Which of the following is an example of commodity money?

• A credit card
  

• Gold
  

• A U.S. dollar bill
  

• A check
  

Fiat money is different from commodity money because:

• It has intrinsic value

• It is backed by gold reserves

• It is declared as legal tender by the government

• It cannot be used for transactions

Demand deposits are:

• A type of savings account

• Bank deposits that can be withdrawn at any time without notice

• Loans given to businesses

• A form of fiat money

The institution responsible for setting monetary policy in the United States is:

• The U.S. Treasury

• The Federal Reserve

• The World Bank

• The International Monetary Fund
  

If the Federal Reserve wants to increase the money supply using open-market operations, it will:

• Increase the reserve requirement

• Buy government bonds

• Raise the discount rate

• Sell government bonds

Why don’t banks hold 100% reserves?

• It is illegal to hold too many reserves

• Holding reserves is costly and reduces the ability to lend and generate interest income

• The Federal Reserve does not allow them

• Banks do not have enough physical space

The discount rate is:

• The percentage of deposits that banks must hold as reserves

• The interest rate charged by the central bank on loans to commercial banks
  

• The rate at which commercial banks lend to consumers

• The tax rate on financial transactions
  

When the Federal Reserve raises the discount rate, the money supply:

• Increases

• Decreases

• Remains unchanged

• Doubles

Reserve requirements refer to:

• The amount of money banks must lend out

• The portion of deposits that banks must hold as reserves

• The tax banks must pay on their deposits

• The percentage of government bonds a bank must buy