The public debt

5.2

7.

The public debt is the:

A) Amount of U.S. paper currency in circulation
B) Ratio of all past deficits to all past surpluses
C) Total of all past deficits minus all past surpluses
D) Difference between current government expenditures and revenues

11.

Which is an important problem associated with the public debt?

A) Payments of interest on the debt lead to greater income equality
B) Interest payments on the debt tend to improve economic incentives to work and produce more unemployment
C) Government borrowing to finance the debt may increase the level of private investment
D) Payment of interest on the debt held by foreigners transfers real resources to other countries

5.3

2.

Which of the following is an example of representative money?

A) an IOU note
B) diamonds
C) gold earrings
D) a fur coat

4.

Which is the definition of liquidity?

A) Liquidity is the rate of return on assets held in banks
B) Liquidity is the tax rate applied to the earnings from assets held in banks
C) Liquidity is the ease with which financial assets can be converted into money
D) Liquidity is the profit margin banks can earn on demand deposits

5.

When money specifies the value of something, what function does it serve?

A) medium of exchange
B) store of value
C) unit of measurement
D) standard of payment

6.

What function does money serve when you trade it for some good or service?

A) medium of exchange
B) unit of measurement
C) store of value
D) standard of payment

7.

Match the statement to the definition that fits the best.

A.Johnny washes Mrs. Smith’s car. She offers to pay Johnny with cookies but Johnny prefers cash.
B.Johnny puts the money he earns from washing cars under his mattress. He will spend it later.
C.Johnny has $30. He knows he can either buy one pair of jeans or two CDs with that money.

Measure of Value

Medium of Exchange

Store of Value

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1.

If the Required Reserve Ratio is 20%, and a bank receives a $1,000 dollars, they would have to keep this amount in reserve, not to be loaned out.

A) $1,000
B) $800
C) $600
D) $200
E) None of it

2.

If the Required Reserve Ratio is 20%, and a bank receives a $1,000 dollars, they would loan out this amount.

A) $1,000
B) $800
C) $600
D) $200
E) None of it

3.

The name for the amount of reserves banks can loan out is

A) Required Reserves
B) Additional Reserves
C) Private Reserves
D) Excess Reserves
E) Minimum Reserves

4.

The maximum amount of dollars that can be created from a $1,000 through the fractional reserve system with a required reserve ratio of 20% is

A) $2,000
B) $5,000
C) $8,000
D) $10,000
E) No limit applies

5.

Which of the following Required Reserve Ratios would allow for the fractional Reserve System to create the greatest amount of money?

A) 10%
B) 20%
C) 50%
D) 75%
E) 100%

5.4

3.

When a commercial bank has “excess reserves:

A) it is in a position to make additional loans
B) its actual reserves are less than its required reserves
C) it is charging too high an interest rate on its loans
D) its reserves exceed its assets
E) the supply of its loans exceeds the demand for its loans

5.

Which of the following is correct?

A) The Federal Reserve has 14 regional banks. The Board of Governors has 12 members who serve 7 year terms.
B) The Federal Reserve has 12 regional banks. The Board of Governors has 7 members who serve 14-year terms.
C) The Federal Reserve has 12 regional banks. The Board of Governors has 14 members who serve 7-year terms.
D) None of the above is correct.

6.

When the Fed wants to change the money supply, it most frequently

A) conducts open market operations.
B) changes the discount rate.
C) changes the reserve requirement.
D) issues Federal Reserve notes.

8.

Under a fractional reserve banking system, banks

A) hold more reserves than deposits.
B) generally lend out a majority of the funds deposited.
C) cause the money supply to fall by lending out reserves.
D) All of the above are correct.

1.

If a bank has $100 in demand deposits and the reserve requirement is 20%, the amount of the Required Reserves is is __________, and excess reserves ____________?

A) 0, $0
B) $80, $20
C) $0, $100
D) $20, $80
E) Impossible to determine

2.

If the FED wanted bank reserves to increase (that is, encourage creation of money), it could do which of the following with the corresponding tools:__________the reserve requirement _________the discount rate__________ government securities or bonds

A) raise, lower, sell
B) lower, lower, buy
C) raise, raise, buy
D) raise, lower, buy
E) lower, lower, sell

3.

If the FED wanted bank reserves to decrease (that is, to discourage creation of money), it could do which of the following with the corresponding tools: __________the reserve requirement_________the discount rate__________ government securities or bonds

A) raise, raise, sell
B) lower, raise, sell
C) raise, lower, buy
D) lower, lower, buy
E) raise, raise, buy

4.

If the FED sells bonds, the public holds _________ money, and the money supply is _______________________.

A) less, higher
B) more, higher
C) less, lower
D) more, lower

5.

If the FED buys bonds, the public holds _________ money, and the money supply is ________________________.

A) less, higher
B) more, higher
C) less, lower
D) more, lower

6.

Lowering the discount rate makes borrowing __________attractive to banks and may result in a(n) ___________________ in the money supply.

A) less, increase
B) more, increase
C) less, decrease
D) more, decrease

7.

Raising the discount rate makes borrowing _________ attractive to banks and may result in a(n) ___________________ in the money supply.

A) less, increase
B) more, increase
C) less, decrease
D) more, decrease

1.

Which list contains only actions that increase the money supply?

A) raise the discount rate, make open market purchases
B) raise the discount rate, make open market sales
C) lower the discount rate, make open market purchases
D) lower the discount rate, make open market sales

2.

Which list contains only actions that decrease the money supply?

A) raise the discount rate, raise the reserve requirement ratio
B) raise the discount rate, lower the reserve requirement ratio
C) lower the discount rate, raise the reserve requirement ratio
D) lower the discount rate, lower the reserve requirement ratio

3.

Which of the following lists ranks the Fed’s monetary policy tools from most to least frequently used?

A) discount rate changes, reserve requirement changes, open market transactions
B) reserve requirement changes, open market transactions, discount rate changes
C) open market transactions, discount rate changes, reserve requirement changes
D) None of the above lists ranks the tools correctly.

4.

Which of the following is not a tool of monetary policy?

A) open market operations
B) reserve requirements
C) the prime rate
D) the discount rate

5.

To increase the money supply, the Fed could

A) sell government bonds.
B) increase the discount rate.
C) decrease the reserve requirement.
D) Both a and c are correct.

6.

To decrease the money supply, the Fed could

A) sell government bonds.
B) increase the discount rate.
C) increase the reserve requirement.
D) All of the above are correct.

7.

Reserve requirements are regulations concerning

A) the amount of deposits banks are allowed to accept.
B) the amount of reserves banks must hold against deposits.
C) the types of loans banks are allowed to make.
D) the interest rate at which banks can borrow from the Fed.

8.

When the Fed increases the discount rate, banks will borrow

A) more, banks will lend more, and the money supply will increase.
B) more, banks will lend less, and the money supply will decrease.
C) less, banks will lend more, and the money supply will decrease.
D) less, banks will lend less, and the money supply will decrease.

9.

The discount rate is

A) the interest rate the Fed charges banks.
B) one divided by the reserve ratio.
C) the interest rate banks receive on reserve deposits with the Fed.
D) the interest rate that banks charge on loans to their best customers.

10.

When the Fed buys government bonds, the reserves of the banking system

A) increase, shifting the money supply curve to the right.
B) increase, shifting the money supply curve to the left.
C) decrease, shifting the money supply curve to the right.
D) decrease, shifting the money supply curve to the left.

11.

Which of the following shifts aggregate demand to the right?

A) an increase in the price level.
B) an increase in the money supply.
C) a decrease in the price level.
D) a decrease in the money supply.

12.

If the Fed conducts open-market sales, the money supply

A) increases and aggregate demand shifts right.
B) increases and aggregate demand shifts left.
C) decreases and aggregate demand shifts right.
D) decreases and aggregate demand shifts left.

8.

What is the opportunity cost for America to make 1 bulldozer instead of cars?

A) 1 car
B) 2 cars
C) 1/2 car

9.

What is the opportunity cost for Japan to make 1 bulldozer instead ofcars?

A) 1 car
B) 1/3 car
C) 3 cars

10.

Which country has the lower opportunity cost in making bulldozers?

A) Japan
B) America
C) neither

11.

Who has the absolute advantage in making cars?

A) Japan
B) America
C) neither

12.

What is the opportunity cost for Japan making 1 car?

A) 1 bulldozer
B) 3 bulldozers
C) 1/3 of a bulldozer

13.

Who has the comparative advantage in making bulldozers?

A) Japan
B) America
C) neither

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