QUESTION 1

If the reserve requirement is 5%, what will be the change in the money supply form the Federal Reserve adding $100,000 in new money to the banking system? (Use the PDM.) 

a.   $100,000

b.   $500,000

c.   $5,000

d.   $1,000,000

e.   $2,000,000

 

 

QUESTION 2

What function must money have in order for it to truly be money?

 

a.   It must be durable

b.   It must have a commodity value

c.   It must have intrinsic value

d.   It must be generally accepted in exchange

e.   It must be a unit of account

 

 

QUESTION 3

When a customer deposits money into a bank in a bank in our fractional reserve banking system, what does the bank do with it? 

 

a.     it keeps it in the vault until the customer returns for it

b.     it deposits the full amount with the Federal Reserve

c.     it lends it all out

d.     it lends out the amount over the reserve requiremet

e.     it lends out am amount equal to the reserve requirement

 

 

QUESTION 4

Paper money in a commodity money system contains a redemption statement. What is a redemption statement? 

 

a.   If you come forward and pay your taxes, the IRS will redeem you

b.   If the bill is lost, it will be replaced on demand

c.   By presenting this bill at banks, the U.S. Treasury, or the U.S. Mint, you can redeem it for smaller denominations (smaller bills) 

d.   By presenting this bill at banks, the U.S. Treasury, or the U.S. Mint, you can redeem it for commodity money

e.   You can use the money to pay your taxes and debts

 

 

 

QUESTION 5

 

  Disintermediation will have more of a distorting effect on which measure of the money supply? _______ (i.e., M1 or M2). 

 

a.   M1

b.   M2

c.   Both distortions are the same

d.   There is no distortion with either M1 or M2