Question 1

In which of the following ways does deflation create problems for the economy?

a.Unstable prices discourage people from holding onto money.

b.It can destroy the value of the currency.

c.It can force people to revert back to a barter economy.

d.The decline in prices can increase the real value of debt.

Question 2

Select the statement below that is FALSE regarding the history of the development of central banks.

a.Banks record entries in people's deposit accounts, allowing them to write checks based on money in reserves.

b.Today, banks prefer people to deposit gold instead of paper currency.

c.Banks have developed ways to prevent future panics and runs from happening.

d.Banks store paper money, known as reserves, in the vault.

Question 3

Which of the following definitions corresponds to economic growth?

a.The cost of money

b.The difference between tax revenue and government expenditures

c.Percent change in value of the sum of a country's goods and services

d.The quantity of one type of money that corresponds to another

Question 4

A(n) __________ is a system where banks in the United States eventually figured out that they could print more __________ than the gold that they had in their vaults.

a.fractional reserve; fiduciary currency

b.open market operation; fiduciary currency

c.fractional reserve; paper money

d.open market operation; paper money

Question 5

Which of the following was an advantage associated with the free banking system in place in the United States during the 19th century prior to the development of the Central Bank?

a.The banking system created a very stable form of currency.

b.Currency traders could make a living trading currency between cities.

c.If a bank in one city went bankrupt, people in other cities would not hear about it for several weeks.

d.Individuals had difficulty judging the value of a note printed by an unknown bank.

Question 6

Select the statement below that is true.

a.An increase in the money supply will also increase interest rates.

b.The Fed buys treasury securities as a way to circulate money.

c.Once money is printed, the U.S. Treasury spends it.

d.An increase in the money supply will decrease loanable funds.

Question 7

Which statement below regarding the use of a gold standard is FALSE?

a.The United States currently uses the gold standard to value its currency.

b.Gold had much more practical value than as jewelry in regards to the gold standard.

c.Banks developed as a way to store gold safely.

d.Paper money is more liquid than gold.

Question 8

Which answer below is NOT one of the goals of monetary policy?

a.To avoid extremes of inflation and deflation

b.To promote the maximum sustainable level of employment

c.To promote stable prices

d.To change levels of government spending and taxation