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Principles of Macroeconomics: A Study Guide

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Chapter 10: The Money Supply and The Federal Reserve System Multiple Choice
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1. Which of the following statements is/are true about money? A major advantage of using money is that it tends to hold its value even when prices are changing. A monetary economy relies on a double coincidence of wants . Money is unmatched by any other asset in terms of its liquidity. Money is unmatched by any other asset as a store of value. All of the above. 2. Which of the following statements is/are correct? Commodity money can be used to buy commodities while fiat money cannot. Money that is backed by gold is also known as fiat money. If the price of gold is $35 per ounce, the government sells an ounce of gold for 35 dollar bills. That’s how the value of money is determined today. The value of fiat money is determined only by the willingness of people to accept it as a medium of exchange. All of the above.
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3. Which of the following is/are part of M2? Near monies--or close substitutes--for transactions money. M1--or transactions--money. Savings and money market accounts. All of the above. None of the above. 4. During the 15 th and 16 th centuries, goldsmiths ran gold warehouses that resembled today's banks. As this system of gold safekeeping evolved, Goldsmiths gradually realized that they could lend out some of the "extra" gold sitting around. There were more claims to gold than there were ounces of gold. Goldsmiths increased the amount of money in circulation without adding any more real gold to the system. Receipts for gold rather than gold itself began to be traded for goods and services. All of the above. 5. On the T-account of a bank:
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Reserves are on the liability side. Loans are the most important asset.
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