Question 1

The gold standard is used as the basis for a nation's money supply.

Accepted Answer

A) True 
 B)False

Question 2

The value of money:

Accepted Answer

A)   increases when prices rise
B)   increases when the price of bonds falls
C)   increases when prices fall
D)   decreases when prices fall

Question 3

If the reserve requirement is increased to 25 per cent, then the First Bank of Oz:

Accepted Answer

A)   can create money by making a new loan
B)   can hold excess reserves
C)   cannot make a new loan
D)   both B and C

Question 4

Fiat money is:

Accepted Answer

A)   money based on the value of a commodity, such as a car
B)   money without intrinsic value
C)   commodity money
D)   paper or plastic money under gold standard

Question 5

If the RBA sold government securities, then:

Accepted Answer

A)   the money supply would increase
B)   the money supply would not change
C)   the money supply would decrease
D)   none of the above

Question 6

Money is the set of assets in the economy that people regularly use to buy goods and services from other people.

Accepted Answer

A) True 
 B)False

Question 7

The RBA is required to ensure that:

Accepted Answer

A)   prices of all products need to increase by a maximum of 3 per cent per annum
B)   target inflation is at 2-3 per cent
C)   there is adequate money available for the government's projects
D)   all of the above

Question 8

What are the problems facing the RBA in its management of the money supply?

Accepted Answer

a. The RBA does not control the amount of money that households deposit in banks.
b. The RBA cannot control the amount of money that bankers choose to lend.

Question 9

If the reserve ratio is 20 per cent and a bank receives a new deposit of $100, then this bank:

Accepted Answer

A)   must increase its required reserves by $20
B)   will initially see its total reserves increase by $100
C)   will be able to make a new loan of $80
D)   all of the above D

Question 10

A decrease in reserve requirements will likely result in banks:

Accepted Answer

A)   holding fewer reserves
B)   making more loans
C)   increasing the money supply
D)   all of the above

Question 11

Explain what will happen to the money supply under each of the following circumstances:
a. The public decides to increase the amount of currency it holds.
b. Banks decide to hold fewer excess reserves.

Accepted Answer

a. If the public decides to hold more currency, it can do so only by taking reserves out of the banking system. With fewer reserves in the banking system, there will be less bank money, hence the money supply will fall.
b. If banks decide to hold fewer excess reserves, they will lend more reserves, lowering the reserve ratio and increasing the money multiplier. Additional bank money will be created, and the money supply will increase.

Question 12

Store of value deteriorates when:

Accepted Answer

A)   when only the cost of fruit and vegetables increases
B)   when there are inflationary expectations
C)   when there are deflationary expectations
D)   none of the above

Question 13

If the reserve ratio is 10 per cent, the money multiplier is:

Accepted Answer

A)   10
B)   10 per cent
C)   90 per cent
D)   90

Question 14

If the reserve ratio is 100 per cent, depositing $500 of paper money in a bank will increase the money supply by:

Accepted Answer

A)   $500
B)   $0
C)   $5000
D)   $500 000

Question 15

If you deposited $100 of your currency into a bank, and the reserve ratio were 5 per cent, then the banking system could create as much as $1900 in additional money.

Accepted Answer

A) True 
 B)False

Question 16

A decrease in reserve requirements lowers the reserve ratio, raises the money multiplier and increases the money supply.

Accepted Answer

A) True 
 B)False

Question 17

Bank runs:

Accepted Answer

A)   occur when the discount rate rises
B)   occur when large numbers of depositors all try to withdraw their deposits at the same time
C)   are only a problem in a 100 per cent reserve banking system
D)   none of the above

Question 18

Which of the following statements about credit cards is correct?

Accepted Answer

A)   Credit cards are a method of payment
B)   Credit cards are included in measures of the quantity of money
C)   Credit cards are a method of deferring payment
D)   Credit cards are considered a form of money

Question 19

Use the following balance sheet for the First Bank of Oz:  If $1000 is deposited into the First Bank of Oz, then:

Accepted Answer

A)   assets will increase by $1000
B)   liabilities will decrease by $1000
C)   total reserves will initially increase by $150
D)   required reserves will increase by $850

Question 20

When the RBA is trying to control rising inflation, it:

Accepted Answer

A)   decreases the interest rate that financial institutions can earn on overnight loans of their currency
B)   targets inflation is at 2-3 percent
C)   increases the interest rate that financial institutions can earn on overnight loans of their currency
D)   all of the above

Exam 29: The Monetary System

The gold standard is used as the basis for a nation's money supply.

Correct Answer
verified

The value of money:

Correct Answer
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If the reserve requirement is increased to 25 per cent, then the First Bank of Oz:

Correct Answer
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Fiat money is:

Correct Answer
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If the RBA sold government securities, then:

Correct Answer
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Money is the set of assets in the economy that people regularly use to buy goods and services from other people.

Correct Answer
verified

The RBA is required to ensure that:

Correct Answer
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What are the problems facing the RBA in its management of the money supply?

Correct Answer
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a. The RBA does not control the amount of money that households deposit in banks. b. The RBA cannot control the amount of money that bankers choose to lend.

If the reserve ratio is 20 per cent and a bank receives a new deposit of $100, then this bank:

Correct Answer
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D

A decrease in reserve requirements will likely result in banks:

Correct Answer
verified

Explain what will happen to the money supply under each of the following circumstances: a. The public decides to increase the amount of currency it holds. b. Banks decide to hold fewer excess reserves.

Store of value deteriorates when:

Correct Answer
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If the reserve ratio is 10 per cent, the money multiplier is:

Correct Answer
verified

If the reserve ratio is 100 per cent, depositing $500 of paper money in a bank will increase the money supply by:

Correct Answer
verified

If you deposited $100 of your currency into a bank, and the reserve ratio were 5 per cent, then the banking system could create as much as $1900 in additional money.

Correct Answer
verified

A decrease in reserve requirements lowers the reserve ratio, raises the money multiplier and increases the money supply.

Correct Answer
verified

Bank runs:

Correct Answer
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Which of the following statements about credit cards is correct?

Correct Answer
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Use the following balance sheet for the First Bank of Oz: If $1000 is deposited into the First Bank of Oz, then:

Correct Answer
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When the RBA is trying to control rising inflation, it:

Correct Answer
verified

Exam 29: The Monetary System

The gold standard is used as the basis for a nation's money supply.

Correct AnswerverifiedShow Answer

The value of money:

Correct AnswerverifiedShow Answer

If the reserve requirement is increased to 25 per cent, then the First Bank of Oz:

Correct AnswerverifiedShow Answer

Fiat money is:

Correct AnswerverifiedShow Answer

If the RBA sold government securities, then:

Correct AnswerverifiedShow Answer

Money is the set of assets in the economy that people regularly use to buy goods and services from other people.

Correct AnswerverifiedShow Answer

The RBA is required to ensure that:

Correct AnswerverifiedShow Answer

What are the problems facing the RBA in its management of the money supply?

Correct Answerverifieda. The RBA does not control the amount of money that households deposit in banks. b. The RBA cannot control the amount of money that bankers choose to lend.

If the reserve ratio is 20 per cent and a bank receives a new deposit of $100, then this bank:

Correct AnswerverifiedD

A decrease in reserve requirements will likely result in banks:

Correct AnswerverifiedShow Answer

Explain what will happen to the money supply under each of the following circumstances: a. The public decides to increase the amount of currency it holds. b. Banks decide to hold fewer excess reserves.

Store of value deteriorates when:

Correct AnswerverifiedShow Answer

If the reserve ratio is 10 per cent, the money multiplier is:

Correct AnswerverifiedShow Answer

If the reserve ratio is 100 per cent, depositing $500 of paper money in a bank will increase the money supply by:

Correct AnswerverifiedShow Answer

If you deposited $100 of your currency into a bank, and the reserve ratio were 5 per cent, then the banking system could create as much as $1900 in additional money.

Correct AnswerverifiedShow Answer

A decrease in reserve requirements lowers the reserve ratio, raises the money multiplier and increases the money supply.

Correct AnswerverifiedShow Answer

Bank runs:

Correct AnswerverifiedShow Answer

Which of the following statements about credit cards is correct?

Correct AnswerverifiedShow Answer

Use the following balance sheet for the First Bank of Oz: If $1000 is deposited into the First Bank of Oz, then:

Correct AnswerverifiedShow Answer

When the RBA is trying to control rising inflation, it:

Correct AnswerverifiedShow Answer

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a. The RBA does not control the amount of money that households deposit in banks. b. The RBA cannot control the amount of money that bankers choose to lend.

Correct Answer
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D

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