3 Mia puts money into a piggy bank so she can spend it later What function of money does this illustrate Review packet for Chapters 29 30 31 Multiple Choice Identify the letter of the choice that best completes the statement or answers the question Consider the following traders who meet Bob Ted Mary Alice has an apple has an orange has a pear has a peach wants an orange wants a peach wants an apple wants an orange 1 The existence of money leads to a higher standard of living but not greater specialization a greater specialization in production but not a higher standard of living b c greater specialization and a higher standard of living d neither greater specialization or a higher standard of living 2 Changes in the quantity of money affect interest rates a b prices c production d All of the above are correct store of value a b medium of exchange c unit of account d None of the above is correct a b c d currency fine art stocks currency stocks fine art fine art currency stocks fine art stocks currency 4 Which list ranks assets from most to least liquid 5 Fiat money a has no intrinsic value b is backed by gold c has intrinsic value equal to its value in exchange d is any close substitute for currency such as checkable deposits 6 Which of the following is included in M2 but not in M1 currency a b demand deposits c savings deposits d All of the above are included in both M1 and M2 7 Which of the following is included in M2 but not in M1 a demand deposits corporate bonds b c large time deposits d money market mutual funds 8 Credit cards a defer payments Use the hypothetical information in the following table to answer the following Questions are a store of value b c have led to wider use of currency are part of the money supply d 9 Credit cards a b c d are included in M1 but not M2 are included in M1 and M2 are included in M2 but not M1 are not included in any measure of the money supply 10 Which of the following defer payments a credit cards and debit cards b neither credit cards or debit cards c credit cards but not debit cards d debit cards but not credit cards Amount 80 billion 75 billion 75 billion 40 billion 10 billion 1 billion 15 billion 100 billion 10 billion 25 billion Table 29 1 Type of Money Large time deposits Small time deposits Demand deposits Other checkable deposits Savings deposits Travelers checks Money market mutual funds Currency SDRs Miscellaneous categories of M2 a 125 billion b 341 billion c 421 billion d 431 billion 11 Refer to Table 29 1 What is the M2 money supply a U S citizens are holding a lot of foreign currency b Currency may be a preferable store of wealth for criminals c People use credit and debit cards more frequently d All of the above help explain the abundance of currency 13 One puzzle about the U S money stock is that a banks hold so much currency relative to the public the public holds so much currency relative to banks b there is so little currency per person c there is so much currency per person d 14 Which of the following executes open market operations a Board of Governors b New York Federal Reserve Bank c The FOMC d None of the above is correct 12 Which of the following might explain why the United States has so much currency per person 15 The Board of Governors is currently chaired by Paul Volcker are appointed by the president and confirmed by the Senate a b c has twelve members d All of the above are correct 16 The Federal Open Market Committee is made up of a 5 Federal Reserve Regional Bank Presidents and all the members of the Board of Governors Governors b 5 Federal Reserve Regional Bank Presidents and 5 members of the Board of Governors c 12 Federal Reserve Regional Bank Presidents and all the members of the Board of d 12 Federal Reserve Regional Bank Presidents and 5 members of the Board of Governors 17 When the Fed conducts open market sales a b c d it sells Treasury securities which increases the money supply it sells Treasury securities which decreases the money supply it borrows from member banks which increases the money supply it lends money to member banks which decreases the money supply 18 When the Fed conducts open market purchases it buys Treasury securities which increases the money supply it buys Treasury securities which decreases the money supply a b c banks buy Treasury securities from Fed which increases the money supply d banks buy Treasury securities from the Fed which decreases the money supply 19 The Fed can increase the price level by conducting open market sales and raising the discount rate a b sales and lowering the discount rate c purchases and raising the discount rate d purchases and lowering the discount rate 20 There is a a b c d short run tradeoff between inflation and unemployment short run tradeoff between an increase in the money supply and inflation long run tradeoff between inflation and unemployment long run tradeoff between an increase in the money supply and inflation 21 A bank s assets include a both its reserves and the deposits of its customers b neither its reserves nor the deposits of its customers its reserves but not the deposits of its customers c the deposits of its customers but not its reserves d 22 Suppose a bank has 200 000 in deposits and 190 000 in loans It has loaned out all it can It has a reserve ratio of a 2 5 percent b 5 percent c 9 5 percent d 10 percent a does not change b decreases increases c d may do any of the above 23 When a bank loans out 1 000 the money supply 24 Under a fractional reserve banking system banks a hold more reserves than deposits b generally lend out a majority of the funds deposited c d All of the above are correct cause the money supply to fall by lending out reserves 25 Suppose the Fed requires banks to hold 10 of their deposits as reserves A bank has 20 000 of excess reserves and then sells the Fed a Treasury bill for 9 000 How much does this bank now have to lend out if it decides to hold only required reserves a 29 000 b 28 100 c 19 100 d 11 000 Use the balance sheet for the following questions Table 29 3 Assets Reserves Loans Last Bank of Cedar Bend Liabilities Deposits 25 000 125 000 150 000 26 Refer to Table 29 3 If the reserve requirement is 20 percent this bank a has 10 000 of excess reserves b needs 10 000 more reserves to meet its reserve requirements c needs 5 000 more reserves to meet its reserve requirements …