Chapter 10 Quiz

Money is _______.

• the sum of assets minus debts.

• any asset used to make purchases.

• all financial assets.

• the same as income.

Money serves as a unit of account when _______.

• it is used to purchase goods and services.

• it is a means of holding wealth.

• there is a double coincidence of wealth.

• it is a basic measure of economic value.

M1 differs from M2 in that _______.

• M1 is a broader measure of the money supply than M2.

• the assets in M2 are more liquid than the assets in M1.

• M2 includes small-denomination time deposits, and money market mutual funds that are not included in M1.

• M1 includes currency and balances held in checking accounts, which are not included in M2.

The amount of money in the United States is determined by _______.

• the combined behavior of commercial banks and the public, as well as actions of the Federal Reserve.

• the combined behavior of commercial banks and the public.

• the Federal Reserve.

• the public.

Banks hold reserves _______.

• to earn interest.

• only because the government requires them to hold reserves.

• to increase profits.

• to meet depositor withdrawals and payments.

Commercial banks create new money _______.

• when they buy government bonds from the Federal Reserve.

• through multiple rounds of lending.

• by issuing checks.

• when they increase their desired reserve/deposit ratio.

If the Central Bank of Macroland puts an additional 1,000 dollars of currency into the economy, the public deposits all currency into the banking system, and banks have a desired reserve/deposit ratio of 0.10, then the banks will eventually make new loans totaling _______ and the money supply will increase by _______.

The Federal Reserve System first began operations in _______.

• 1789.

• 1914.

• 1934.

• 1865.

The seven leaders of the Federal Reserve System headquartered in Washington, D.C. constitute the _______.

• Federal Reserve Bank of Washington, D.C.

• Board of Governors.

• Federal Economic Advisory Board.

• Federal Open Market Committee.

When the Federal Reserve buys government bonds from the public, this is an example of a(n) _______.

• bank panic.

• open-market sale.

• discount loan.

• open-market purchase.