1. Even if a nation's money is not readily accepted as a medium of exchange and does not maintain a store of value, it can still function quite well if the government declares it to be the nation's legal currency.
a. True
b. False
2. Loans or advances to private banks reflect how much credit a central bank has extended to its banking system and are reflected on its balance sheet as an asset that represents a part of total domestic credit.
a. True
b. False
3. M1 and M2 are not monetary aggregates because they are not equal to the monetary base.
a. True
b. False
4. A central bank can directly determine a country's level of economic activity as well as its price level.
a. True
b. False
5. The easiest and most common monetary policy tool used by central banks involves changes in the amount of reserves a bank must hold relative to its checking account deposits in order to respond to unexpected events.
a. True
b. False
6. A large part of a central bank's liabilities are the gold and silver it always owes to holders of a nation's currency.
a. True
b. False
7. When economic growth and inflation in China decrease, we can expect the central bank of China to loosen credit restrictions on banks and other financial institutions.
a. True
b. False
8. Open market sales of U.S. securities in the open market will increase the money supply through the money multiplier process.
a. True
b. False
9. M2 is an important monetary aggregate that does not include narrower monetary aggregates such as M1 or the monetary base.
a. True
b. False
10. Open market operations that increase a central banks balance sheet indicate an expansionary monetary policy because the central bank is increasing domestic credit.
a. True
b. False