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Economics 101 Practice Test: The Monetary System
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A monetary system is a set of institutions, policies, and laws that govern the creation, distribution, use, and regulation of a country's currency.  The three main economic functions of money are: medium of exchange, unit of account, and store of value.  Monetary policy is a set of actions that control a country's money supply and achieve economic growth. Monetary policy strategies include: changing bank reserve requirements and revising interest rates.  Monetary policy is commonly classified as either expansionary or contractionary. Contractionary monetary policy, also known as tight... Show more
Economics 101 Practice Test: The Monetary System
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25 Questions

1. If R is the reserve ratio, which of the following is the correct way to find the money multiplier?
2. If the reserve requirement is 10 percent, the Last Bank of Hope
3. On a bank’s T-account,
4. In a fractional reserve banking system, an increase in reserve requirements
5. Barter
6. U.S. currency is currently
7. Which part of the Fed meets about every six weeks to discuss the economy and make changes in monetary policy?
8. Credit cards are a
9. If banks choose to hold more excess reserves,
10. Which of the following provides a store of value?
11. Which of the following items is a liability to a bank?
12. Giving up a dollar bill to purchase an ice cream cone best illustrates money’s function as a
13. An increase in the discount rate encourages banks to borrow
14. M1 includes
15. When the Fed increases the discount rate, banks will borrow
16. To increase the money supply, the Fed could
17. An increase in the discount rate
18. If the Last Bank of Hope is holding only the amount of reserves required, the reserve requirement is
19. Of the following assets which is the most liquid?
20. Suppose the Federal Reserve System purchases one-hundred thousand dollars of government bonds. If the reserve requirement is 10%, the Fed’s purchase
21. Credit cards are
22. Which of the following might explain why the United States has so much currency per person?
23. In 1991 the Federal Reserve lowered the reserve requirement ratio from 12% to 10%. This should have
24. The higher the reserve requirement ratio the
25. During World War II people chose to hold relatively more currency and relatively fewer checking deposits. This should have

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