Question

 1. Which of these illustrates the primary drawback of money as a store of value:

 A. other assets provide greater anonymity than cash.

 B. barter is a more efficient way to conduct transactions than using money.

 C. unlike other assets, money serves as a medium of exchange.

 D. other assets pay relatively higher rates of interest than money.

 2. Why is the balance owed on your credit card not typically thought of as money? Because credit cards:

 A. are rarely used to make purchases.

 B. are not part of people's wealth.

 C. is an asset used in making transactions?

 D. do not represent an obligation to pay someone else.

 3. In the country of Birdland there is S1,000 in currency. The currency can either be held by the public or deposited into

 banks. Birdland's Banks' desired reserve/deposit ratio = 10%. If the public in Birdland decides to hold more

 curreney, inereasing the amount they hold by 25%, the supply of Birdland's money will

 A. increase.

 B. decrease.

 C. remain the same.

 D. either increase or decrease.

 4. Deposit liabilities = S100 million

 Reserves = S50 million

 Desired reserve/deposit ratio = 33% (i.e. 0.33)

 Given the data shown above, this bank:

 A. has too few reserves and will reduce its lending.

 B. has too many reserves and will increase its lending.

 C. has the correct amount of reserves and outstanding loans.

 D. should increase the amount of its reserves.

 5.

 Given the following data, bank reserves =

 Money supply =$1,000

 Desired reserve/deposit ratio = 0.25

 Public held currency = bank reserves

 A. 200

 B. 250

 C. 500

 D. 800

Answer 1

1. Option D) other assets pay relatively higher rates of interest than money.

Money is normally kept in a bank account in a savings or a current account which gives low returns. But, other assets such as real assets, stocks, bonds and debentures give more returns than money. These other assets are a little risky, i.e. they can decrease in value, but when they increase in value, they give higher rates of interest than money. So, this is the primary drawback of money as a store of value.

2. Option B) are not a part of people's wealth.

Credit cards are used to make transactions for goods and services between the seller of those goods and services and the cardholder. The cardholder borrows money to pay the seller and thus they are not a part of people's wealth, it is just a type of credit facility which incur interest charges and represent an obligation by the cardholder to pay to the lender.

3. Option B) decrease

Currency = $ 1,000, Reserve/Deposit Ratio = 10%

If the public in Birdland hold more money thereby increasing their hold by 25 %, the supply of Birdland's money will decrease.

The supply of money decreases when people spend less money and holds their money. When people hold more money, they spend less buying goods and services and thus the money circulation in the economy decreases.

4. Option B) has too many reserves and will increase its lending.

If the desired reserve/deposit ratio is 33% (i.e. 0.33) and the deposit liabilities is $ 100 million, then the desired reserve/deposit ratio that should be kept is $ 33 million. But, the bank has $ 50 million as reserves, so the bank has too many reserves and will increase its lending.

5. Option B) 250

Money supply = $1000

Desired reserve/deposit ratio = 0.25

so, Bank reserves = $ 1000 * 0.25

= $ 250