Question 1

Describe the three purposes that money must perform.

Accepted Answer

Money must function as a medium of excha

Question 2

Which of the following is not a transactions account?

Accepted Answer

A) A share draft account. 
B) A savings account. 
C) A NOW account. 
D) A checking account. 
A) A share draft account. 
B) A savings account. 
C) A NOW account. 
D) A checking account.

Question 3

If the banking system has demand deposits of $100,000,total reserves equal to $15,000,and a required reserve ratio of 10 percent,the banking system can increase the volume of loans by a maximum of

Accepted Answer

A) $5,000. 
B) $50,000. 
C) $85,000. 
D) $100,000. 
A) $5,000. 
B) $50,000. 
C) $85,000. 
D) $100,000.

Question 4

According to a World View article titled "Trading Chickens for Diapers," the Venezuelan economy turned to a barter system because

Accepted Answer

A) The bolivar has become worthless. 
B) The movement to a cashless society was the next step in the movement toward the ideal communist state. 
C) A system of barter is typically more efficient than a monetary system. 
D) It is usually easier to measure the value of goods in terms of other goods rather than cash. 
A) The bolivar has become worthless. 
B) The movement to a cashless society was the next step in the movement toward the ideal communist state. 
C) A system of barter is typically more efficient than a monetary system. 
D) It is usually easier to measure the value of goods in terms of other goods rather than cash.

Question 5

Which of the following is an example of barter?

Accepted Answer

A) Jordan buys eggs with Canadian dollars from Ryan's Grocery,and Ryan buys gas from Jordan's Gas Station with Japanese yen. 
B) Nicki uses her mom's credit card to purchase her textbooks online. 
C) Keisha takes care of the neighbor's children,and the neighbor mows Keisha's yard as repayment. 
D) Natalie buys gum at a convenience store and tells the cashier to keep the dollar change. 
A) Jordan buys eggs with Canadian dollars from Ryan's Grocery,and Ryan buys gas from Jordan's Gas Station with Japanese yen. 
B) Nicki uses her mom's credit card to purchase her textbooks online. 
C) Keisha takes care of the neighbor's children,and the neighbor mows Keisha's yard as repayment. 
D) Natalie buys gum at a convenience store and tells the cashier to keep the dollar change.

Question 6

Suppose a bank has $160,000 in deposits and a required reserve ratio of 10 percent.Then required reserves are

Accepted Answer

A) $16,000. 
B) $160,000. 
C) $1,600,000. 
D) $1,600. 
A) $16,000. 
B) $160,000. 
C) $1,600,000. 
D) $1,600.

Question 7

Each bank may lend money greater than its excess reserves.

Accepted Answer

A) True 
 B)False

Question 8

Suppose Jared takes $200 from his savings account and holds it as cash.The immediate result of this transaction is that M2

Accepted Answer

A) Increases by $200 and M1 remains the same. 
B) Decreases by $200 and M1 remains the same. 
C) And M1 do not change. 
D) Remains the same and M1 increases by $200. 
A) Increases by $200 and M1 remains the same. 
B) Decreases by $200 and M1 remains the same. 
C) And M1 do not change. 
D) Remains the same and M1 increases by $200.

Question 9

Suppose a banking system has a required reserve ratio of 0.10.How much can the money supply increase in response to a $500 increase in excess reserves for the whole banking system?

Accepted Answer

A) $50. 
B) $500. 
C) $5,000. 
D) $4,500. 
A) $50. 
B) $500. 
C) $5,000. 
D) $4,500.

Question 10

Suppose a bank has $2 million in deposits,a required reserve ratio of 10 percent,and total reserves of $500,000.Then it has excess reserves of

Accepted Answer

A) $50,000. 
B) $200,000. 
C) $500,000. 
D) $300,000. 
A) $50,000. 
B) $200,000. 
C) $500,000. 
D) $300,000.

Question 11

If the banking system has a required reserve ratio of 25 percent,the money multiplier is

Accepted Answer

A) 4.0. 
B) 1.25. 
C) 0.25. 
D) 0.2. 
A) 4.0. 
B) 1.25. 
C) 0.25. 
D) 0.2.

Question 12

If the banking system has a required reserve ratio of 10 percent,the money multiplier is

Accepted Answer

A) 0.1. 
B) 0.9. 
C) 1.11. 
D) 10.0. 
A) 0.1. 
B) 0.9. 
C) 1.11. 
D) 10.0.

Question 13

One of the main functions of banks is

Accepted Answer

A) Borrowing money and lending to savers. 
B) Creating money. 
C) Ownership of projects in which they invest. 
D) Maintaining a constant money supply. 
A) Borrowing money and lending to savers. 
B) Creating money. 
C) Ownership of projects in which they invest. 
D) Maintaining a constant money supply.

Question 14

Which of the following statements is not correct about the U.S.monetary system?

Accepted Answer

A) The federal government did not print paper money until the Civil War. 
B) Between 1789 and 1865,paper money was issued by hundreds of state-chartered banks. 
C) Credit cards are the most common form of money today. 
D) Early in U.S.history,the money supply consisted of items such as tobacco and bullets. 
A) The federal government did not print paper money until the Civil War. 
B) Between 1789 and 1865,paper money was issued by hundreds of state-chartered banks. 
C) Credit cards are the most common form of money today. 
D) Early in U.S.history,the money supply consisted of items such as tobacco and bullets.

Question 15

The money supply will grow even larger through deposit creation when

Accepted Answer

A) People decide to use cash instead of checks for transactions. 
B) Consumers,businesses,and government increasing their borrowing. 
C) Banks stop making new loans because they are too risky. 
D) Interest rates rise,causing people to move money out of banks and into bonds. 
A) People decide to use cash instead of checks for transactions. 
B) Consumers,businesses,and government increasing their borrowing. 
C) Banks stop making new loans because they are too risky. 
D) Interest rates rise,causing people to move money out of banks and into bonds.

Question 16

Which of the following is not correct about the money kept in transactions accounts?

Accepted Answer

A) It permits direct payment to a third party. 
B) It is backed by gold held by the government. 
C) It is part of the basic money supply. 
D) It is a good substitute for cash in many cases. 
A) It permits direct payment to a third party. 
B) It is backed by gold held by the government. 
C) It is part of the basic money supply. 
D) It is a good substitute for cash in many cases.

Question 17

In the 2008 credit crisis,

Accepted Answer

A) Home prices rose and caused a shortage in housing. 
B) Home prices fell and caused home owners to default on loans. 
C) Home prices had no effect on the economy. 
D) None of the choices are correct. 
A) Home prices rose and caused a shortage in housing. 
B) Home prices fell and caused home owners to default on loans. 
C) Home prices had no effect on the economy. 
D) None of the choices are correct.

Question 18

Suppose Oscar withdraws $100 from his checking account and deposits it into his savings account.This transaction causes M1 to

Accepted Answer

A) Increase by $100 and M2 to remain the same. 
B) Decrease by $100 and M2 to remain the same. 
C) Decrease by $100 and M2 to increase by $100. 
D) Remain the same and M2 to increase by $100. 
A) Increase by $100 and M2 to remain the same. 
B) Decrease by $100 and M2 to remain the same. 
C) Decrease by $100 and M2 to increase by $100. 
D) Remain the same and M2 to increase by $100.

Question 19

A bank may lend an amount equal to its

Accepted Answer

A) Required reserves. 
B) Total reserves. 
C) Total assets. 
D) Excess reserves. 
A) Required reserves. 
B) Total reserves. 
C) Total assets. 
D) Excess reserves.

Question 20

Banks are required to keep a minimum amount of funds in reserve because

Accepted Answer

A) Depositors may decide to withdraw funds at any time. 
B) The Fed may decide to withdraw funds at any time. 
C) The bank may decide to increase aggregate demand at any time. 
D) Borrowers may decide to repay loans ahead of schedule. 
A) Depositors may decide to withdraw funds at any time. 
B) The Fed may decide to withdraw funds at any time. 
C) The bank may decide to increase aggregate demand at any time. 
D) Borrowers may decide to repay loans ahead of schedule.

Exam 13: Money and Banks

Describe the three purposes that money must perform.

Which of the following is not a transactions account?

If the banking system has demand deposits of $100,000,total reserves equal to $15,000,and a required reserve ratio of 10 percent,the banking system can increase the volume of loans by a maximum of

According to a World View article titled "Trading Chickens for Diapers," the Venezuelan economy turned to a barter system because

Which of the following is an example of barter?

Suppose a bank has $160,000 in deposits and a required reserve ratio of 10 percent.Then required reserves are

Each bank may lend money greater than its excess reserves.

Suppose Jared takes $200 from his savings account and holds it as cash.The immediate result of this transaction is that M2

Suppose a banking system has a required reserve ratio of 0.10.How much can the money supply increase in response to a $500 increase in excess reserves for the whole banking system?

Suppose a bank has $2 million in deposits,a required reserve ratio of 10 percent,and total reserves of $500,000.Then it has excess reserves of

If the banking system has a required reserve ratio of 25 percent,the money multiplier is

If the banking system has a required reserve ratio of 10 percent,the money multiplier is

One of the main functions of banks is

Which of the following statements is not correct about the U.S.monetary system?

The money supply will grow even larger through deposit creation when

Which of the following is not correct about the money kept in transactions accounts?

In the 2008 credit crisis,

Suppose Oscar withdraws $100 from his checking account and deposits it into his savings account.This transaction causes M1 to

A bank may lend an amount equal to its

Banks are required to keep a minimum amount of funds in reserve because

Economics: the Core Issues

The Useconomy: a Global View

Supply and Demand

The Role of Government

National Income Accounting

Unemployment

Inflation

The Business Cycle

Aggregate Demand

Self-Adjustment or Instability

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The Federal Reserve System

Monetary Policy

Supply-Side Policy: Short-Run Options

Growth and Productivity: Long-Run Possibilities

Theory Versus Reality

Consumer Choice

Elasticity

The Costs of Production

The Competitive Firm

Competitive Markets

Monopoly

Oligopoly

Monopolistic Competition

Natural Monopolies: Deregulation

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Labor Unions

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