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When you walk into a store, you see the price tags marking “$.99”, “$100”, or “$14.99”. You don’t see the price tags with “1 bitcoin”, “3 bitcoins”, or “100 bitcoins”, etc. This illustrates that bitcoins cannot fulfill the _______ function.

?????

unit of account

medium of exchange

store of value

liquidity

??????? 25 ?

Last year, bitcoins were traded at $1000 a piece. The year before, they were traded at $20 a piece. Next year, it may be traded at $100,000 a piece. This illustrates that bitcoins cannot fulfill the _______ function very well.

?????

unit of account

medium of exchange

store of value

liquidity

??????? 39 ?

You own some bitcoins. But you cannot go to One Stop at Miami and pay your tuition with your bitcoins. This illustrates that bitcoins cannot fulfill the _______ function.

?????

unit of account

medium of exchange

store of value

liquidity

??????? 49 ?

Visit the U.S. central bank website on money supply in the U.S. and answer the following two questions.

M1 and M2 are called Money Stock Measures because:

?????

they take into consideration the value of stocks traded on a stock exchange.

they reflect the quantity of money available during a period of time, say a month.

they track the amount of paper bills stocked up in the nation’s banking system.

they measure the amount of money at a specific point in time.

??????? 59 ?

According to the footnotes for Table 1, currency stored in commercial banks’ vaults

?????

is part of M1 only.

is not part of money supply.

is not part of M1, but part of M2.

is part of M1 and M2.

??????? 69 ?

You find a 20 dollar bill in your winter jacket when you clean up your closet. You then spend the money at Kroger for some groceries. As a result,

?????

currency in circulation decreases by $20 because the $20 now stays in Kroger’s cash register and no longer circulates.

currency in circulation increases by $20 because the $20 is no longer hiding in your pocket but enters circulation.

currency in circulation stays unchanged because the $20 is already out in circulation and counted.

currency in circulation increases by $40 because you first discover $20 and then now Kroger has the $20.

??????? 79 ?

Suppose the required reserve ratio is 10 percent. When a bank receives a new deposit of $5,000 from the public, how will this deposit be recorded in the bank’s balance sheet? Assuming the deposit is not loaned out yet.

?????

The bank’s reserves increase by $5,000 while the bank’s liabilities increase by $500.

The bank’s reserves increase by $500 while the bank’s liabilities increase by $5,000.

The bank’s assets decrease by $5,000 while the bank’s liabiliites increase by $5,000.

The bank’s assets and liabilities will both increase by $5,000.

??????? 89 ?

Which of the following scenarios will result in the greatest amount of money being created?

?????

A $1,000 transfer from a checking account to a savings account.

A $1,000 cash deposit into a checking account and then 90% of the deposit is loaned out.

$1,000 in coins that is converted into $1,000 in bills.

A $1,000 bond that matures which is used to buy another $1,000 bond.

??????? 99 ?

Suppose the required reserve ratio is 10 percent. When a bank receives a new deposit of $5,000 from the public, what might be the minimum change in money supply?

?????

an increase of $5,000

an increase of $500

a decrease of $5,000

??????? 109 ?

Suppose the required reserve ratio is 20 percent and the two assumptions on the simple money multiplier are true. When a bank receives a new deposit of $20,000 from the public, what is the amount that the bank will keep as reserves based on this deposit?

?????

$20,000

$2,000

$100,000

$4,000

??????? 119 ?

Suppose the required reserve ratio is 20 percent and the two assumptions on the simple money multiplier are true. When a bank receives a new deposit of $20,000 from the public, what might be the maximum change in the amount of deposits?

?????

An increase of $4,000.

An increase of $100,000.

A increase of $1,000.

A decrease of $100,000.

??????? 129 ?

Consider the following balance sheet of a bank. If the required reserve ratio is 12%,

Assets	Liabilities
Reserves $15,000	Deposits 100,000
Loans $85,000

?????

the bank has loaned out all of its excess reserves.

money supply could not be further increased.

the bank is allowed to make a new loan of $12,000.

The bank’s actual reserve ratio is higher than the required reserve ratio.

Which asset is money?

a baseball signed by a famous player

a work of art

a $20 bill

shares of stock in a profitable company

An example of a double coincidence of wants is:

an electronics store owner who wants car repairs finding a car mechanic who wants money.

a car dealer who wants a TV finding an electronics store owner who wants money.

a car dealer who wants a new employee finding a car mechanic who wants money.

a car mechanic who wants a TV finding an owner of an electronics store who wants a car repaired.

A bond is considered:

M2.

an asset for the owner and is not part of the money supply.

a liability for the owner and is part of the money supply.

M1.

Complete the sentences with the correct function of money.

Norah walks into her favorite department store, Bullseye, to pick out a new dress. She checks out the price tag and is excited to see that the dress is on sale and is now relatively cheaper than another dress she was considering.

Here, money is serving as a

She is especially excited because she has been saving money each week in her piggy bank at home so that she can afford a trip to Florida next summer.

Here, money is serving as a

She quickly walks to the checkout line where she pays the cashier for her new dress.

Here, money is serving as a

Answer Bank

purchase agent.

medium of exchange.

store of value.

unit of account.

Throughout history, all sorts of interesting things have been used as money, including fresh fish and cattle.

Fresh fish is not an effective form of money. What essential characteristic of money does fresh fish lack that most makes it ineffective?

allocated by the government

store of value

medium of exchange

stackablity

unit of account

Cattle is not an effective form of money. What essential characteristic of money does cattle lack that most makes it ineffective?

stackability

medium of exchange

unit of account

allocated by the government

store of value

Fiat money has value because the government has declared that it can be exchanged for gold or silver.

False

True

Currency in circulation is cash:
I. held by the public.
II. in the vaults of commercial banks.
III. in the vault of the Federal Reserve.

I only

III only

I, II, and III

II only

The primary difference between M1 and M2 is that:

M1 includes checkable deposits, but M2 does not.

M2 includes savings deposits and time deposits, but M1 does not.

M2 includes checkable deposits, but M1 does not.

the dollar amount of M1 is much larger than the dollar amount of M2.

Suppose you find a $50 bill that you put in a coat pocket last winter. If you deposit it in your checking account:

M1 and M2 both increase by $50.

M1 increases by $50.

M2 increases by $50.

there is no change in M1 or M2.

When a waiter deposits his cash tips in his savings account:

M2 decreases.

M3 increases.

M2 increases.

M1 decreases.

Table 1 shows the financial position of Bank Uno once $4769.00 has been deposited.

Assume that the required reserve ratio is 5.00%, that banks do not keep excess reserves, and that all the money loaned out from Bank Uno is deposited into Bank Duo (whose loans go to other banks not shown here).

Once the lending and depositing process is complete, what will the accounts look like in Tables 2 and 3? Specify all answers to two decimal places.

Table 1. Bank Uno’s Initial T-Account

Assets	Liabilities
Reserves: $4769.00	Deposits: $4769.00

Table 2. Bank Uno’s T-Account After Loans

Assets	Liabilities
Reserves: ?	Deposits: ?
Loans: ?

Table 3. Bank Duo’s T-Account After Deposits and Loans

Assets	Liabilities
Reserves: ?	Deposits: ?
Loans: ?

What are Bank Uno’s deposits in Table 2?

What are Bank Uno’s reserves in Table 2?

What are Bank Duo’s loans in Table 3?

What are Bank Uno’s loans in Table 2?

The balance sheet represents the current financial situation of a commercial bank named Novatia Bank. Suppose that a 15?year?old girl takes the $150 cash that she received for her birthday and deposits it in her checking account at Novatia Bank.

Balance Sheet
Assets	Liabilities
cash: $650	stock shares: $950
property: $1050	checkable deposits: $750

What will happen to the bank’s liabilities after the $150 deposit?

The value of stock shares will decrease by $150.

The value of checkable deposits will increase by $150.

The value of stock shares will increase by $150.

Deposits increase cash assets, so they do not affect the liabilities side of a bank’s balance sheet.

The value of checkable deposits will decrease by $150.

What will happen to the bank’s assets after the $150 deposit?

Since deposits are a liability, there is no change to the asset side of the bank’s balance sheet.

The value of cash holdings will increase by $150.

The value of propery holdings will increase by $150.

The value of propery holdings will decrease by $150.

The value of cash holdings will decrease by $150.

Table: Balance Sheet

The table has two columns: Assets and Liabilities. Under Assets, two factors are given: Reserves and Loans. Under Liabilities one factor is give: Deposits. Reserves value is 20000 dollars. Deposits and Loans values are blank.

Refer to Table: Balance Sheet. If the reserve ratio is 25%, deposits are:

$60,000.

$15,000.

$80,000.

$5,000.

Table: Balance Sheet

Refer to Table: Balance Sheet. If the reserve ratio is 25%, loans are:

$60,000.

$5,000.

$80,000.

$15,000.

Suppose a bank faces a 10% required reserve ratio and it has $100 in required reserves. If it is fully loaned out, what is the amount of deposits in this bank?

$10

$900

$1,000

$10,000

Suppose that your grandma sends you $100 for your birthday and you deposit that $100 in your checking account. The reserve ratio is 10%. Based upon this deposit, the bank’s excess reserves have increased by _____, and if the bank lends these new excess reserves, the money supply could eventually grow by as much as an additional _____.

$100; $900

$100; $1,000

$90; $1,000

$90; $900

You just deposited $4,000 in cash into a checking account at the local bank. Assume that banks lend out all excess reserves and there are no leaks in the banking system. That is, all money lent by banks gets deposited in the banking system. Round your answers to the nearest dollar.

If the reserve requirement is 12%, how much will your deposit increase the total value of checkable bank deposits?

If the reserve requirement is 4%, how much will your deposit increase the total value of checkable deposits?

Increasing the reserve requirement

decreases
increases

the money supply.

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