True/False
Indicate whether the statement is true or false.
____ 1. Banks try to keep their excess reserves at a maximum in order to maximize profits.
____ 2. The demand for reserves depends on income and the price level.
____ 3. The "infant industry argument" recommends protectionism for industries that produce children's clothing.
____ 4. Money and income are used interchangeably by noneconomists but mean different things.
____ 5. The International Monetary Fund was established to manage the Bretton Woods System.
____ 6. The ability of a government to fix its currency's exchange rate is limited by the size of its reserves.
____ 7. When one currency appreciates, another currency must depreciate.
____ 8. To decrease the money supply, the Fed purchases government securities, which decreases government spending.
____ 9. Tariffs are more desirable than quotas if a government wants to increase revenues and reduce benefits to inefficient exporters.
____ 10. Comparative advantage is the rule that ordinarily prevents a nation from independently producing all of the goods it requires.
____ 11. Liquidity refers to the ability of an asset to hold its value in periods of inflation.
____ 12. If one country has an absolute advantage in every commodity, there is no reason for it to trade.
____ 13. Monetary policy is the system of actions taken by the Fed to influence the money supply.
____ 14. An economic recession in the United States would shift the demand for foreign currencies outward, that is, increase demand.
____ 15. To increase the money supply, the Fed purchases government securities from banks, paying for them with new reserves.
____ 16. A country's comparative advantage can be illustrated by the graph of the production possibilities frontier.
____ 17. Fractional reserve banking began as a result of the search for additional profits.
____ 18. Modern paper money is fiat money because it is backed only by the faith the holder has in the government that issued it.
____ 19. Open market operations refer to the purchase and sales of stocks listed on the New York Stock Exchange.