IHSS 1200 Chapter 16 Comprehensive Actual Questions And Well Elaborated Answers.

The U.S. dollar can best be described as - correct answer fiat money Which of the following is NOT a function of money? - correct answer Acceptability The use of money - correct answer - allows for greater specialization - reduces the transaction costs of exchange -eliminates the double coincidence of wants Credit cards are - correct answer included in neither the M1 definition of the money supply nor in the M2 definition. The figure to the right shows a breakdown of the M1 definition of the money supply in 2017. Which area corresponds to the amount of checking account deposits? - correct answer C (The largest area) The M2 definition of the money supply includes - correct answer M1, savings accounts, small time deposits, and money markets Banks use deposits to make consumer loans to households and commercial loans to businesses. Banks will loan out every penny of their deposits in order to make a profit. - correct answer False. Banks must hold a fraction of their deposits as vault cash or with the Federal Reserve. Suppose the reserve requirement is 15%. What is the effect on total checkable deposits in the economy if bank reserves increase by $50 billion? - correct answer $333 billion increase An initial increase in a bank's reserves will increase checkable deposits - correct answer by an amount greater than the increase in reserves. In 2008, the required reserve ratio for a bank's first $9.3 million in checking account deposits was zero. It was 3 percent on deposits between $9.3 million and $43.9 million, and 10 percent on deposits above $43.9 million. In most cases, and for simplicity, we assume that the required reserve ratio is 10 percent on all deposits. Therefore, the simple deposit multiplier is 10. Is the real-world deposit multiplier greater than, less than, or equal to the simple deposit multiplier? - correct answer Less. The simple deposit multiplier is a model with assumptions that keep it higher than the real-world multiplier. In a fractional reserve banking system, what is the difference between a "bank run" and a "bank panic?" - correct answer A bank run involves one bank; a bank panic involves many banks. The United States is divided into ___ Federal Reserve Districts. The Federal Reserve Bank's Board of Governors consists of ___ members appointed by the president of the U.S. to 14-year, non-renewable terms. One of the board members is appointed to a ___ year, renewable term as the chairman. - correct answer 12; 7; 4 Which of the following is a monetary policy tool used by the Federal Reserve Bank? - correct answer Increasing the reserve requirement from 10 percent to 12.5 percent; Buying $500 million worth of government securities, such as Treasury bills; Decreasing the rate at which banks can borrow money from the Federal Reserve In addition to the Federal Reserve Bank, what other economic actors influence the money supply? - correct answer Households, firms, and banks. Which of the following is true with respect to hyperinflation? - correct answer In the presence of hyperinflation, firms and households avoid holding money; It is caused by central banks increasing the money supply at a rate much greater than the growth rate of real GDP; It can be hundreds—even thousands—of percentage points per year. Which of the following is true with respect to Irving Fisher's quantity equation, M×V=P×Y? - correct answer M = M1 definition of the money supply; V = Average number of times a dollar is spent on goods and services; P = the GDP deflator; V = (P*Y)/M According to the quantity theory of money, inflation results from which of the following? - correct answer The money supply grows faster than real GDP. If Irving Fisher was correct in his prediction about the value of velocity, then the quantity equation can be written to solve for the inflation rate as follows: - correct answer Inflation rate = Growth rate of the money supply - Growth rate of real output. Which of the following conditions make a good suitable for use as a medium of exchange? - correct answer All of the above conditions must be met (The good should be of standardized quality, so that any two units are identical; The good should be durable, valuable relative to its weight, and divisible; The good must be acceptable to (that is, usable by) most buyers and sellers) fiat money - correct answer money that is authorized by a central bank and that does not have to be exchanged for gold or some other commodity money In the definition of the money supply, where