Chapter 15 questions Flashcards
(12 cards)
The benefit of holding money is _______, while the opportunity cost of holding money is _______.
A. the nominal interest rate; the fees charged by banks
B. the nominal interest rate; its usefulness in carrying out transactions
C. increased income; lost purchasing power
D. its usefulness in carrying out transactions; the nominal interest rate
D. its usefulness in carrying out transactions; the nominal interest rate
The opportunity cost of money is:
the time spent going to the bank to withdraw funds.
the fees charged by banks to provide checking services.
the nominal interest rate.
the price level.
the nominal interest rate.
Credit card balances are not considered to be money primarily because they:
are rarely used to make purchases.
are not part of people’s wealth.
are an asset used in making transactions.
do not represent an obligation to pay someone else
are not part of people’s wealth.
You swipe your debit card to purchase gasoline for your lawn mower:
You stuff your earnings from mowing lawns into a piggy bank:
You pay your friend Cornelius $5 to help you mow lawns:
You calculate your net earnings for the year on your tax return:
You determine how much value your new lawn mower has added to your business:
medium of exchange
store of value
medium of exchange
unit of account
unit of account
When the economy experiences inflation, people demand _________ money, shifting the money demand curve to the _________.
less; left
more; left
less; right
more; right
more; right
Banks hold reserves:
to earn interest.
to increase profits.
only because the government requires them to hold reserves.
to meet depositor withdrawals and payments.
to meet depositor withdrawals and payments.
Bank reserves are:
currency and customer checking deposits.
currency, customer checking and savings deposits.
any asset used to purchase goods and services.
cash and similar assets held to meet depositor withdrawals or payments.
cash and similar assets held to meet depositor withdrawals or payments.
What is an essential function of any central bank?
acting as a lender of last resort
overseeing major business transactions
preventing the formulation of monopolies
collecting taxes
acting as a lender of last resort
Deposit insurance is a system in which the government guarantees that:
depositors will not lose any money even if their bank goes bankrupt.
people can have deposits at commercial banks.
commercial banks will not go bankrupt.
commercial banks will not lose any deposits.
depositors will not lose any money even if their bank goes bankrupt.
Commercial banks create new money:
when they increase their desired reserve/deposit ratio.
by issuing checks.
through multiple rounds of lending.
when they buy government bonds from the Federal Reserve.
through multiple rounds of lending.
The unemployment rate is at 0.5 percent:
The economy is experiencing record growth in GDP:
The unemployment rate is at 15 percent:
Inflation has reached 10 percent, a recent high: .
A hurricane recently demolished a major city, causing a major recession:
Contractionary
Contractionary
Expansion
Contractionary
Expansion
Name the monetary policy tool being used in each of the following examples.
The central bank buys government securities from banks:
The central bank raises the cost of borrowing money directly from them:
The central bank provides banks with a profitable alternative to lending:
The central bank changes the amount of money banks must hold from their depositors:
