Question 1

The money market refers to the market in which the commercial banks lend money to one another on a short-term basis.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is not a function of money?

Accepted Answer

A)   hedge against inflation
B)   medium of exchange
C)   unit of account
D)   store of valueE) B) and D)
F) A) and D)

Question 3

The three main tools of monetary policy are

Accepted Answer

A)   fiat, commodity, and deposit money.
B)   open-market operations, reserve requirements, and the refinancing rate.
C)   the money supply, government purchases, and taxation.
D)   government expenditures, taxation, and reserve requirements.
E)   coin, currency, and demand deposits.F) D) and E)
G) A) and B)

Question 4

You use euros to pay the owner of a restaurant for a delicious meal. The euro currency

Accepted Answer

A)   has no intrinsic value. The exchange is an example of barter.
B)   has no intrinsic value. The exchange is not an example of barter.
C)   has intrinsic value. The exchange is not an example of barter.
D)   has intrinsic value. The exchange is an example of barter.E) None of the above
F) A) and C)

Question 5

When an economy uses gold as money or uses paper money that is convertible into gold on demand, it is said to be operating under a _____________.

Accepted Answer

A)   gold standard.
B)   silver standard.
C)   credit account.
D)   bank account.E) A) and D)
F) A) and C)

Question 6

Credit cards are

Accepted Answer

A)   included in M2 but not in M1.
B)   not considered to be money.
C)   included in M3 but not in M2 or M1.
D)   considered as money only when they are in the hands of the public.E) A) and C)
F) All of the above

Question 7

After the 2007-09 global financial crisis, many central banks adopted macroprudential policies. Why?

Accepted Answer

One of the criticisms of central banks d...

Question 8

What is the difference between commodity money and fiat money? Why do people accept fiat money in trade for goods and services?

Accepted Answer

Commodity money has "intrinsic value," o...

Question 9

When you are willing to go to sleep tonight with €100 in your wallet and you have complete confidence that you can spend it tomorrow and receive the same amount of goods as you would have received had you spent it today, money has demonstrated its function as a medium of exchange.

Accepted Answer

A) True 
 B)False

Question 10

In addition to the European Central Bank, the national central banks of each of the countries comprising the European Monetary Union represent the

Accepted Answer

A)   eurosystem.
B)   central committee.
C)   budget committee
D)   governing councilE) A) and D)
F) B) and D)

Question 11

If there is a general shortage of liquidity in the money market then

Accepted Answer

A)   the long-term interest rate in the economy will rise and the central bank will raise its interest rate in response.
B)   the economy's banking system will lend more money to households and firms.
C)   the short-term interest rate at which the economy's commercial banks lend to and borrow from each other will fall and the central bank may be expected to reduce the supply of liquidity to the banks.
D)   the short-term interest rate at which the economy's commercial banks lend to and borrow from each other will rise and the central bank may be expected to increase the supply of liquidity to the banks.E) All of the above
F) A) and B)

Question 12

What are the paper notes and metal coins that are held in the hands of the public called?

Accepted Answer

A)   currency
B)   accounts
C)   bonds
D)   stockE) None of the above
F) B) and D)

Question 13

Discuss the role of the European Central Bank.

Accepted Answer

The primary objective of the ECB is to p...

Question 14

Barter exchange tends to be inefficient because

Accepted Answer

A)   gold is difficult to transport.
B)   it limits the time and effort required for trade.
C)   it can be time consuming to find a double coincidence of wants.
D)   a standardized unit of value can be difficult to find in a primitive economy.E) A) and D)
F) B) and C)

Question 15

When the central bank in an economy raises the refinancing rate it encourages commercial banks to reduce their lending, thereby tending to reduce the money supply.

Accepted Answer

A) True 
 B)False

Question 16

A(n)  _________ card is used as a means of transferring money between accounts.

Accepted Answer

A)   asset.
B)   debit.
C)   loan.
D)   bond.E) B) and C)
F) B) and D)

Question 17

The primary objective of the _______________ is to promote price stability throughout the euro area and to design and implement monetary policy that is consistent with this objective.

Accepted Answer

A)   European Parliament.
B)   European Commission.
C)   European Central Bank.
D)   European Council.E) B) and C)
F) A) and D)

Question 18

What are open market operations and in which circumstances are they performed?

Accepted Answer

Open market operations are the purchase ...

Question 19

A ________________ risk can occur when a bank cannot fund demand for withdrawals.

Accepted Answer

A)   savings.
B)   liquidity.
C)   depositor.
D)   systemic.E) B) and C)
F) All of the above

Question 20

A double coincidence of wants

Accepted Answer

A)   is required when there is no item in an economy that is widely accepted in exchange for goods and services.
B)   is required in an economy that relies on barter.
C)   is a hindrance to the allocation of resources when it is required for trade.
D)   All of the above are correct.E) All of the above
F) C) and D)

Exam 27: The Monetary System

You use euros to pay the owner of a restaurant for a delicious meal. The euro currency

Correct AnswerverifiedShow Answer

When the central bank in an economy raises the refinancing rate it encourages commercial banks to reduce their lending, thereby tending to reduce the money supply.

Correct AnswerverifiedShow Answer

What is the difference between commodity money and fiat money? Why do people accept fiat money in trade for goods and services?

Correct AnswerverifiedCommodity money has "intrinsic value," o...View AnswerShow Answer

Which of the following is not a function of money?

Correct AnswerverifiedShow Answer

If there is a general shortage of liquidity in the money market then

Correct AnswerverifiedShow Answer

Discuss the role of the European Central Bank.

Correct AnswerverifiedThe primary objective of the ECB is to p...View AnswerShow Answer

What are the paper notes and metal coins that are held in the hands of the public called?

Correct AnswerverifiedShow Answer

The three main tools of monetary policy are

Correct AnswerverifiedShow Answer

A ________________ risk can occur when a bank cannot fund demand for withdrawals.

Correct AnswerverifiedShow Answer

What are open market operations and in which circumstances are they performed?

Correct AnswerverifiedOpen market operations are the purchase ...View AnswerShow Answer

After the 2007-09 global financial crisis, many central banks adopted macroprudential policies. Why?

Correct AnswerverifiedOne of the criticisms of central banks d...View AnswerShow Answer

A double coincidence of wants

Correct AnswerverifiedShow Answer

A(n) _________ card is used as a means of transferring money between accounts.

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The primary objective of the _______________ is to promote price stability throughout the euro area and to design and implement monetary policy that is consistent with this objective.

Correct AnswerverifiedShow Answer

Credit cards are

Correct AnswerverifiedShow Answer

In addition to the European Central Bank, the national central banks of each of the countries comprising the European Monetary Union represent the

Correct AnswerverifiedShow Answer

When an economy uses gold as money or uses paper money that is convertible into gold on demand, it is said to be operating under a _____________.

Correct AnswerverifiedShow Answer

Barter exchange tends to be inefficient because

Correct AnswerverifiedShow Answer

The money market refers to the market in which the commercial banks lend money to one another on a short-term basis.

Correct AnswerverifiedShow Answer

When you are willing to go to sleep tonight with €100 in your wallet and you have complete confidence that you can spend it tomorrow and receive the same amount of goods as you would have received had you spent it today, money has demonstrated its function as a medium of exchange.

Correct AnswerverifiedShow Answer

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Commodity money has "intrinsic value," o...
View Answer

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The primary objective of the ECB is to p...
View Answer

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Open market operations are the purchase ...
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One of the criticisms of central banks d...
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