1) Money is a) the income a person earns over a period of time. b) a person's assets net of liabilities at any point in time. c) a liability that people are willing to accept in exchange for goods and services. d) an asset that people are generally willing to accept in exchange for goods and services.

2) The problem with barter economies is that they require

a) that there be a double coincidence of wants. b) a banking system for trade to occur. c) that there be a single coincidence of wants. d) less time and trouble to trade as compared with a money economy.

3) In World War II, cigarettes were used as money in some prisoner of war camps. Given this, we would expect to

see a) prices of other goods expressed in terms of cigarettes. b) people bartering instead of using cigarettes as money. c) only government-issued cigarettes being accepted as money. d) no one ever smoking cigarettes in the prisoner of war camps.

4) The statement 'a Dell laptop costs $2500' illustrates which function of money?

a) Store of value b) Medium of exchange c) Standard of deferred payment d) Unit of account

5) If you save $3000 for a deposit on a new car, you are using money as a

a) standard of deferred payment. b) store of value. c) medium of exchange. d) unit of account.

6) A unit of account is

a) an asset that can be used to transport purchasing power from one period of time to another. b) a standard unit that provides a consistent way of quoting prices. c) the ability to buy something today but to defer payment to the future. d) what sellers generally accept and buyers generally use to pay for goods and services.

7) If Thrifty Bank receives a $10 000 deposit, and keeps 10% of its deposits in reserve, how much will the bank loan

out? a) $1000 b) $9000 c) $11 000 d) $10 000

8) Suppose you deposit $2000 into a bank that has a reserve ratio of 0.1. How does this affect the bank's balance

sheet? a) Reserves rise by $200. b) Excess reserves rise by $1800. c) Required reserves rise by $2000. d) Deposits rise by $1000.

9) Banks can increase the money supply by

a) making loans that result in additional deposits. b) printing additional currency notes. c) paying interest to their depositors. d) offering financial services, such as money market accounts.

10) Given a required reserve ratio of 20 percent, a bank having no excess reserves, can make additional loans of _________ after receiving a new deposit of $100. a) $80 b) $20 c) $400 d) $0

11) The ________ the amount of excess reserves a bank holds, the ________ the size of the deposit multiplier.

a) smaller; smaller b) greater; smaller c) smaller; larger d) greater; larger

12) If the reserve ratio is 0.05 then the simple deposit multiplier is

a) 20. b) 10. c) 2. d) 5.

13) The ________ the reserve ratio, the ________ the simple deposit multiplier.

a) larger; larger b) smaller; larger c) smaller; smaller d) smaller; greater likelihood there is no change in

14) If banks do not loan out all their excess reserves then the real world multiplier is

a) larger than 1/RR. b) not related to 1/RR. c) equal to 1/RR. d) smaller than 1/RR.

15) Suppose a bank is exactly meeting its required reserve ratio of 10 percent and a new deposit of $75,000 is made.

immediately after the deposit is made, the excess reserves will be a) $7,500 b) 67,500 c) zero d) impossible to determine given the limited information.

16) Money demand will decrease if the price level ________ or if real GDP ________.

a) increases; increases b) decreases; increases c) decreases; decreases d) increases; decreases

17) The money demand curve is downward sloping because

a) lower interest rates cause households and firms to switch from money to financial assets. b) lower interest rates cause households and firms to switch from financial assets to money. c) lower interest rates cause households and firms to switch from money to bonds. d) lower interest rates cause households and firms to switch from money to shares.

18) Increases in the price level

a) increase the quantity of money needed for buying and selling. b) increase the opportunity cost of holding money. c) decrease the opportunity cost of holding money. d) decrease the quantity of money needed for buying and selling.

19) If the interest rate increases, then a) the money demand curve will shift to the left. b) there will be a rightwards movement along the money demand curve. c) the money demand curve will shift to the right. d) there will be a leftwards movement along the money demand curve.

20) An increase in real GDP

a) decreases the buying and selling of goods and decreases the demand for money as a medium of exchange. b) increases the buying and selling of goods and decreases the demand for money as a medium of exchange. c) increases the buying and selling of goods and increases the demand for money as a medium of

exchange. d) decreases the buying and selling of goods and increases the demand for money as a medium of exchange.