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Assignment Print View Assignment Print View http://ezto.mhecloud.mcgraw-hill.com/hm.tpx award: 0.00 points The direct exchange of one good for another → Is barter. Is most efficient for an economy. Facilitates specialization in production. Facilitates market exchanges. Barter involves trade of one good for another without the use of money. Learning Objective: 13-01 What Multiple Choice Difficulty: 1 Easy money is. award: 0.00 points Money is functioning as a store of value when you Use it to compare the cost of tuition 10 years ago to the cost today. Take out a student loan to buy books. → Save your cash to pay for tuition next semester. Pay your tuition in installments rather than all at one time. Saving involves holding the money and potentially earning interest for use at a later date. Learning Objective: 13-01 What Multiple Choice Difficulty: 2 Medium money is. award: 0.00 points Which of the following statements is not correct about the U.S. monetary system? The federal government did not print paper money until the Civil War. Between 1789 and 1865, paper money was issued by hundreds of state-chartered banks. → Credit cards are the most common form of money today. Early in U.S. history, the money supply consisted of items such as tobacco and bullets. Credit cards are a means of payment, but they do not count as money because they are not a store of value. Learning Objective: 13-01 What Multiple Choice Difficulty: 2 Medium money is. 1 of 12 11/12/2013 11:37 AM Assignment Print View http://ezto.mhecloud.mcgraw-hill.com/hm.tpx award: 0.00 points Which of the following is not included in the narrowest definition of the money supply or M1? Currency in circulation. Transactions account balances. → Credit card balances. Traveler's checks. The narrowest definition of money includes currency in circulation, traveler's checks, and checking and other transactions account balances. Learning Objective: 13-01 What Multiple Choice Difficulty: 2 Medium money is. award: 0.00 points The basic money supply or M1 includes → Currency in circulation, transactions accounts, and traveler's checks. Currency in circulation, transactions accounts, and savings accounts . Currency in circulation, transactions accounts, traveler's checks, and money market mutual funds . Currency in circulation, savings accounts , and credit card balances. Currency in circulation, transactions accounts, and traveler's checks make up the M1 money supply, which are the most basic types of money. Learning Objective: 13-01 What Multiple Choice Difficulty: 1 Easy money is. award: 0.00 points Transactions account balances are included in M1 only. M2 only. → Both M1 and M2. None of the choices are correct. Transactions accounts are the most basic form of money, and as such are included in M1 and therefore M2. Learning Objective: 13-01 What Multiple Choice Difficulty: 2 Medium money is. 2 of 12 11/12/2013 11:37 AM Assignment Print View http://ezto.mhecloud.mcgraw-hill.com/hm.tpx award: 0.00 points Savings accounts are included in M1 only. → M2 only. M1 and M2. None of the choices are correct. Savings accounts are less liquid than transactions accounts and therefore are included in M2 but not M1. Learning Objective: 13-01 What Multiple Choice Difficulty: 2 Medium money is. award: 0.00 points Which of the following is not included in M1? Credit union share drafts. Transactions account balances at mutual savings banks. Currency in circulation outside of commercial banks. → Savings account balances at a federal savings bank. Savings accounts are less liquid and are counted in M2 but not M1. Learning Objective: 13-01 What Multiple Choice Difficulty: 2 Medium money is. award: 0.00 points Which of the following is not included in transactions accounts? A checking account at a commercial bank. → A money market mutual fund . A credit union share draft. A demand deposit account at a mutual savings bank. Money in a money market mutual fund is a form of savings account and counts in the M2 money supply. Learning Objective: 13-01 What Multiple Choice Difficulty: 2 Medium money is. 3 of 12 11/12/2013 11:37 AM Assignment Print View http://ezto.mhecloud.mcgraw-hill.com/hm.tpx award: 0.00 points Suppose Jared takes $200 from his savings account and holds it as cash. The immediate result of this transaction is that M2 Increases by $200 and M1 remains the same. Decreases by $200 and M1 remains the same. And M1 do not change. → Remains the same and M1 increases by $200. Savings count only in M2, but currency in circulation counts in both M1 and M2. A withdrawal from savings held in cash causes M1 to rise. Learning Objective: 13-01 What Multiple Choice Difficulty: 3 Hard money is. award: 0.00 points The various money supply measures (M1 and M2) are used to distinguish the Rate at which money flows through the economy. → Liquidity and accessibility of assets. Speed with which banks transfer funds between savings and checking accounts . Speed with which banks transfer funds between themselves. M1 involves only the most liquid forms of money, while M2 includes M1 along with less liquid assets that are near money. Learning Objective: 13-01 What Multiple Choice Difficulty: 2 Medium money is. award: 0.00 points One of the main functions of banks is Borrowing money and lending to savers. → Creating money. Ownership of projects in which they invest. Maintaining a constant money supply. Banks create money by making loans to businesses and individuals. Learning Objective: 13-02 How Multiple Choice Difficulty: 1 Easy banks create money. 4 of 12 11/12/2013 11:37 AM Assignment Print View http://ezto.mhecloud.mcgraw-hill.com/hm.tpx award: 0.00 points The term fractional reserves refers to The fact that reserves are split among many banks. → Reserves being a small fraction of total transactions account balances. The ratio of required reserves to total loans . The ratio of excess reserves to total loans . Banks retain only a fraction of total deposits, lending out the remainder. Learning Objective: 13-02 How Multiple Choice Difficulty: 1 Easy banks create money. award: 0.00 points The minimum amount of reserves a bank is required to hold is known as The money multiplier. Total reserves. Excess reserves. → Required reserves. The required reserve ratio is set and regulated by the Federal Reserve. Learning Objective: 13-02 How Multiple Choice Difficulty: 1 Easy banks create money. award: 0.00 points When the reserve requirement changes, which of the following will change for an individual bank? Transactions account balances and lending capacity. Transactions account balances, total reserves, and excess reserves. Total reserves, required reserves, and excess reserves. → Required reserves, excess reserves, and lending capacity. Changing the reserve requirement either makes excess reserves available to banks to make new loans or restricts their lending. Learning Objective: 13-02 How Multiple Choice Difficulty: 2 Medium banks create money. 5 of 12 11/12/2013 11:37 AM Assignment Print View http://ezto.mhecloud.mcgraw-hill.com/hm.tpx award: 0.00 points Banks are required to keep a minimum amount of funds in reserve because → Depositors may decide to withdraw funds at any time. The Fed may decide to withdraw funds at any time. The bank may decide to increase aggregate demand at any time. Borrowers may decide to repay loans ahead of schedule. Depositors may need to withdraw some of their funds for purchases, so banks need to have reserves to meet those types of day-to-day transactions. Learning Objective: 13-02 How Multiple Choice Difficulty: 2 Medium banks create money. award: 0.00 points Which of the following sets the legal minimum reserve ratio? The commercial banks . The U.S. Treasury. → The Federal Reserve. Congress. The Federal Reserve regulates the banking system, including setting the required reserve ratio. Learning Objective: 13-02 How Multiple Choice Difficulty: 1 Easy banks create money. award: 0.00 points Suppose University Bank has zero excess reserves. If the required reserve ratio decreases, the Bank's assets will increase. Bank will not have enough required reserves. → Bank will be able to make more loans . Money multiplier will decrease. Banks are able to make more loans when the required reserve ratio decreases because some of what the bank had been holding as reserves becomes available for new loans. Learning Objective: 13-02 How Multiple Choice Difficulty: 2 Medium banks create money. 6 of 12 11/12/2013 11:37 AM Assignment Print View http://ezto.mhecloud.mcgraw-hill.com/hm.tpx award: 0.00 points Initially a bank has a required reserve ratio of 10 percent and no excess reserves. If $1,000 is deposited into the bank, then, ceteris paribus, → This bank can increase its loans by $900. This bank can increase its loans by $1,000. Total reserves will increase by $900. Required reserves will increase by $1,000. The bank must only hold 10 percent or $100. So $900 of the $1,000 deposit is available to lend out. Learning Objective: 13-02 How Multiple Choice Difficulty: 3 Hard banks create money. award: 0.00 points Excess reserves are → Total reserves less required reserves. Total reserves less transactions account balances. Required reserves less demand deposits. Bank reserves in excess of vault cash. Excess reserves are reserves held above and beyond what is required by the Federal Reserve. Learning Objective: 13-02 How Multiple Choice Difficulty: 1 Easy banks create money. award: 0.00 points Suppose a bank has $600,000 in deposits, a required reserve ratio of 5 percent, and bank reserves of $90,000.
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