The Monetary System

2. 27 The Monetary System CLICKER QUESTIONS

3. Checkpoint 27.4 Checkpoint 27.1 Checkpoint 27.2 Question 8 Question 1 Question 4 Question 9 Question 2 Question 5 Question 10 Question 3 Checkpoint 27.3 Question 6 Question 7

4. CHECKPOINT 27.1 Question 1 Which of the following best defines what money is now and what it has been in the past? • currency • currency plus checking deposits • currency plus credit cards • anything accepted as a means of payment • anything used as a store of value

5. CHECKPOINT 27.1 Question 2 Individuals and firms hold $800 billion in currency, $10 billion in traveler’s checks, and $700 billion in checkable deposits; savings deposits are $4,000 billion; small time deposits are $1,000 billion; and money market funds and other deposits are $800 billion, then M1 equals ____ billion. • $7,310 • $5,800 • $2,510 • $1,510 • $710

6. CHECKPOINT 27.1 Question 3 Credit cards, debit cards, and e-checks are ________. • always counted as money • not money • sometimes counted as money, depending on how they are used • sometimes counted as money, depending on what is purchased • sometimes counted as money, depending on what measure of money is being used

7. CHECKPOINT 27.2 Question 4 A commercial bank’s reserves are _____. • the safe U.S. government bonds that it owns • the provision of funds to businesses and individuals • the currency in its vault plus the balance on its reserve account at a Federal Reserve Bank • the savings and time deposits that it holds • the loans it has made

8. CHECKPOINT 27.2 Question 5 Banks’ assets include _______. • liquid assets, loans, securities, and reserves • reserves, savings deposits, securities, and loans • reserves, securities, liquid assets, and savings deposits • securities, reserves, checkable deposits, and liquid assets • reserves, checkable deposits, securities, and loans

9. CHECKPOINT 27.3 Question 6 If Federal Reserve notes and coins are $765 billion, and banks’ reserves at the Fed are $8 billion, banks’ liquid assets are $11 billion, and the Fed owns $725 billion of government securities, the monetary base equals _______. • $765 billion • $773 billion • $776 billion • $744 billion • $1,509 billion

10. CHECKPOINT 27.3 Question 7 The Fed’s policy tools include _________. • holding deposits for the U.S. government, reserve requirements, and the discount rate • setting regulations for lending standards and extraordinary crisis measures • supervision of the banking system and buying and selling commercial banks • required reserve ratios, the discount rate, and open market operations, extraordinary crisis measures • required reserve ratios, mortgage rates, and open market operations

11. CHECKPOINT 27.4 Question 8 If the Fed buys government securities, then _______. • the composition of money changes but the quantity of money does not • new bank reserves are created • the quantity of money decreases • bank reserves are destroyed • banks’ excess reserves decrease

12. CHECKPOINT 27.4 Question 9 The money multiplier determines the increase in the _____. • monetary base when the Fed purchases government securities • quantity of money when the monetary base increases • monetary base when the quantity of money increases • quantity of money when the desired reserve ratio increases • monetary base when the Fed sells government securities.

13. CHECKPOINT 27.4 Question 10 The Fed makes an open market purchase, which increases the monetary base by $200,000. If the currency drain ratio is 33 percent of deposits and the desired reserve ratio is 10 percent, the quantity of money increases by ______. • $800,000 • $333,333 • $2,000,000 • $618,605 • $465,116