ECU ECON 2133 - Chapter 29 The Monetary System

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1950 Chapter 29 The Monetary System TRUE/FALSE 1. In an economy that relies on barter, trade requires a double-coincidence of wants. ANS: T DIF: 1 REF: 29-0 NAT: Analytic LOC: The role of money TOP: Barter MSC: Definitional 2. Joe wants to trade eggs for sausage. Lashonda wants to trade sausage for eggs. Joe and Lashonda have a double-coincidence of wants. ANS: T DIF: 1 REF: 29-0 NAT: Analytic LOC: The role of money TOP: Barter MSC: Definitional 3. The use of money allows trade to be roundabout. ANS: T DIF: 1 REF: 29-0 NAT: Analytic LOC: The role of money TOP: Money | Trade MSC: Definitional 4. Roundabout trade is beneficial for an economy. ANS: T DIF: 1 REF: 29-0 NAT: Analytic LOC: The role of money TOP: Money | Trade MSC: Definitional 5. Money allows people to specialize in what they do best, thereby raising everyone’s standard of living. ANS: T DIF: 2 REF: 29-0 NAT: Analytic LOC: The role of money TOP: Money MSC: Interpretive 6. When money functions as a unit of account, then it cannot be commodity money. ANS: F DIF: 2 REF: 29-1 NAT: Analytic LOC: The role of money TOP: Money MSC: Interpretive 7. Demand deposits are balances in bank accounts that depositors can access by writing a check. ANS: T DIF: 1 REF: 29-1 NAT: Analytic LOC: The role of money TOP: Demand deposits MSC: Definitional 8. According to economists, a collection of valuable jewels is not money. ANS: T DIF: 2 REF: 29-1 NAT: Analytic LOC: The Study of economics, and the definitions of economics TOP: Money MSC: Interpretive 9. A debit card is more similar to a credit card than to a check. ANS: F DIF: 2 REF: 29-1 NAT: Analytic LOC: The Study of economics, and the definitions of economics TOP: Money MSC: Interpretive 10. Gary's wealth is $1 million. Economists would say that Gary has $1 million worth of money. ANS: F DIF: 1 REF: 29-1 NAT: Analytic LOC: The role of money TOP: Money MSC: Definitional 11. Marc puts prices on surfboards and skateboards at his sporting goods store. He is using money as a unit of account. ANS: T DIF: 1 REF: 29-1 NAT: Analytic LOC: The role of money TOP: Money MSC: DefinitionalChapter 29 /The Monetary System  1951 12. Sandra routinely uses currency to purchase her groceries. She is using money as a unit of account. ANS: F DIF: 1 REF: 29-1 NAT: Analytic LOC: The role of money TOP: Money MSC: Definitional 13. Bottles of very fine wine are less liquid than demand deposits. ANS: T DIF: 1 REF: 29-1 NAT: Analytic LOC: The role of money TOP: Liquidity MSC: Interpretive 14. U.S. dollars are an example of commodity money and hides used to make trades are an example of fiat money. ANS: F DIF: 1 REF: 29-1 NAT: Analytic LOC: The role of money TOP: Commodity money MSC: Definitional 15. When the Soviet Union began breaking up in the late 1980s, cigarettes began replacing the ruble as the medium of exchange even though the ruble was legal tender. The cigarettes provide an example of fiat money. ANS: F DIF: 1 REF: 29-1 NAT: Analytic LOC: The role of money TOP: Commodity money MSC: Interpretive 16. In order for currency to be widely used as a medium of exchange, it is sufficient for the government to designate it as legal tender. ANS: F DIF: 1 REF: 29-1 NAT: Analytic LOC: The role of money TOP: Currency MSC: Definitional 17. M1 includes savings deposits. ANS: F DIF: 1 REF: 29-1 NAT: Analytic LOC: The role of money TOP: Money supply MSC: Definitional 18. M2 is both larger and more liquid than M1. ANS: F DIF: 1 REF: 29-1 NAT: Analytic LOC: The role of money TOP: Money supply | Liquidity MSC: Interpretive 19. Credit cards are a medium of exchange. ANS: F DIF: 2 REF: 29-1 NAT: Analytic LOC: The role of money TOP: Medium of exchange MSC: Definitional 20. The series of bank failures in 1907 occurred despite the creation of the Federal Reserve many years earlier. ANS: F DIF: 1 REF: 29-2 NAT: Analytic LOC: The role of money TOP: Federal Reserve System MSC: Interpretive 21. Federal Reserve governors are given long terms to insulate them from politics. ANS: T DIF: 2 REF: 29-2 NAT: Analytic LOC: Monetary and fiscal policy TOP: Federal Reserve System MSC: Interpretive 22. The Federal Reserve is a privately operated commercial bank. ANS: F DIF: 1 REF: 29-2 NAT: Analytic LOC: Monetary and fiscal policy TOP: Federal Reserve System MSC: Definitional 23. The Federal Reserve was created in 1913 after a series of bank failures in 1907. ANS: T DIF: 1 REF: 29-2 NAT: Analytic LOC: Monetary and fiscal policy TOP: Federal Reserve System MSC: Definitional1952  Chapter 29 /The Monetary System 24. Members of the Board of Governors are appointed by the president of the U.S. and confirmed by the U.S. Senate. ANS: T DIF: 1 REF: 29-2 NAT: Analytic LOC: Monetary and fiscal policy TOP: Federal Reserve System MSC: Definitional 25. Monetary policy is determined by a committee whose voting members include all the presidents of the regional Federal Reserve Banks. ANS: F DIF: 1 REF: 29-2 NAT: Analytic LOC: Monetary and fiscal policy TOP: Federal Open Market Committee MSC: Definitional 26. The Federal Reserve primarily uses open-market operations to change the money supply. ANS: T DIF: 1 REF: 29-3 NAT: Analytic LOC: Monetary and fiscal policy TOP: Open-market operations MSC: Definitional 27. If the Fed buys bonds in the open market, the money supply decreases. ANS: F DIF: 1 REF: 29-3 NAT: Analytic LOC: Monetary and fiscal policy TOP: Open-market operations MSC: Applicative 28. Banks cannot influence the money supply if they hold all deposits in reserve. ANS: T DIF: 2 REF: 29-3 NAT: Analytic LOC: Monetary and fiscal policy TOP: Banks | Money supply MSC: Interpretive 29. Banks still could contribute to changes in the money supply, even if they were required to hold all deposits in reserve. ANS: F DIF: 1 REF: 29-3 NAT: Analytic LOC: Monetary and fiscal policy TOP: Fractional-reserve banking MSC: Applicative 30. If banks hold any amount of their deposits in reserve, then they do not have the ability to influence the money supply. ANS: F DIF: 2 REF: 29-3 NAT: Analytic LOC: The role of money TOP: Reserves | Money supply MSC: Interpretive 31.


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