Download Problem Set 9

Problem Set 9
Econ 201 (03 and 04) Spring 2002
(Dr. Tin-Chun Lin)
1. Which of the following is not one of the four functions of money?
(A) Medium of Exchange.
(B) Measure of liquidity.
(C) Stand of deferred payment.
(D) Store of value.
(Answer: (B))
2. If prices of goods and services were stated in terms of pounds of salt, then salt is
(A) A unit of account.
(B) A standard of deferred payment.
(C) A store of value.
(D) Medium of exchange.
(E) Quasi-money.
(Answer: (A))
3. Which of the following is a disadvantage of commodity money?
(A) It is valued for its own sake.
(B) Its value as money is much greater than its value as a commodity.
(C) The commodity could be used in other ways if it was not used as a medium of
exchange.
(D) It has little intrinsic value.
(E) Its value as money is much smaller than its value as a commodity.
(Answer: (C))
4. A checkable deposit in a financial institution is an example of
(A) Commodity money.
(B) Fiat money.
(C) Convertible money.
(D) Private debt money.
(E) None of above.
(Answer: (D))
5. U.S. currency today is an example of
(A) Commodity money.
(B) Fiat money.
(C) Convertible paper money.
(D) Private debt money.
(E) None of above.
(Answer: (B))
6. Which of the following items are fiat money? Which are private debt money?
a. Checkable deposits at Citicorp. (Answer: private debt money)
b. Shares of IBM stock held by individuals. (Answer: neither fiat money nor private
debt money)
c. Gold bars held by banks. (Answer: neither fiat money nor private debt money)
d. The Susan B. Anthony dollar. (Answer: fiat money)
e. U.S. government securities. (Answer: neither fiat money nor private debt money)
7. The commercial banks in Desertland have the following assets and liabilities:
Total reserves
Loans
Deposits
Total assets
$250 million
$1,000 million
$2,000 million
$2,500 million
a. Construct the commercial bank’s balance sheet. If you are missing any assets,
call them “other assets”; if you are missing any liabilities, call them “other
liabilities.” (Answer: see the following table)
Assets
Liabilities
Total reserves
$250
Deposit
$2000
Loans
1000
Other liabilities
500
Other assets
1250
Total assets
2500
Total liabilities
2500
b. Calculate the commercial banks’ reserve ratio. (Answer: 12.5%)
c. If the reserve ratio in part (b) is equal to the commercial banks’ desired reserve
ratio, calculate the simple money multiplier. (Answer: money multiplier = 8)
8. If all banks hold 100 percent reserves, the simple money multiplier is
(A) 0.
(B) 1.
(C) 10.
(D) 100.
(E) Infinite.
(Answer: (B))