23. Today, money is the form of currency (Federal Reserve Notes) can only be red

Question

23. Today, money is the form of currency (Federal Reserve Notes) can only be redeemed for: A. gold B. silver C. Treasury Bonds D. demand deposits E. Other Federal Reserve Notes

24. In the final analysis, the value of money: A. is determined by how much gold or silver backs it B. depends on the costs incurred to produce it. C. is contained in the interest rate that money pays D. is that it is readily accepted as a medium of exchange thus making economic transactions easier

29. The commercial banking system creates "deposit money" when it:

A. accepts cash deposits from the public. B. purchases US Treasury accounts (bonds) from the Federal Reserve C. creates demand deposit accounts for depositors and lends its excess reserves. D. raises its prime rate in accordance with an increase in the federal funds rate target

30. Suppose a commercial banking system has $ 100000 of outstanding checkable deposits and actual reserves of $35000. The reserve requirement is 20%. This banking system can expand the supply of money by the minimum amount of : A. 65000 B. 500000 C. 300000 D.75000 E. 20000

31. If the federal funds rate is below its target ratio, its appropriate monetary policy action would be:

A. an open market purchase B. an open market sale C. a decrease in the discount rate D. a new issue by the Fed's term auction activity

Explanation / Answer

Ans

1 other Federer reserve notes. After 1971 they are not backed by gold

2 D is right. It is simply readily accepted as means of payment

3 c is right. This is the beginning of money creation by banjs

4 money multiplier=1/20%=5.So it will expand by 5(100000)=500000

5 an open market sale. This will decrease money supply and thus raise rate of interest

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