Question 1

Which of the following is included in M2?

Accepted Answer

A) Treasury bills. 
B) Commercial paper. 
C) Savings accounts. 
D) Overnight Eurodollars. 
A) Treasury bills. 
B) Commercial paper. 
C) Savings accounts. 
D) Overnight Eurodollars.

Question 2

Regulations are a major constraint on deposit creation.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following insures deposits at banks?

Accepted Answer

A) The Federal Reserve. 
B) The RTC. 
C) The FDIC. 
D) The FSLIC. 
A) The Federal Reserve. 
B) The RTC. 
C) The FDIC. 
D) The FSLIC.

Question 4

Checking accounts perform the same market functions as cash.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is not included in the narrowest definition of the money supply or M1?

Accepted Answer

A) Currency in circulation. 
B) Transactions account balances. 
C) Credit card balances. 
D) Traveler's checks. 
A) Currency in circulation. 
B) Transactions account balances. 
C) Credit card balances. 
D) Traveler's checks.

Question 6

Money does all of the following except

Accepted Answer

A) Reduce the efficiency with which market exchanges take place. 
B) Serve as a mechanism for transforming current income into future purchases. 
C) Promote efficient division of labor. 
D) Facilitate the continuous series of exchanges that characterizes a market economy. 
A) Reduce the efficiency with which market exchanges take place. 
B) Serve as a mechanism for transforming current income into future purchases. 
C) Promote efficient division of labor. 
D) Facilitate the continuous series of exchanges that characterizes a market economy.

Question 7

The required reserve ratio is the

Accepted Answer

A) Fraction of loans to shareholders equity. 
B) Highest level of interest rates that can legally be charged to borrowers. 
C) Fraction of deposits that banks can lend out. 
D) Fraction of total deposits banks must hold. 
A) Fraction of loans to shareholders equity. 
B) Highest level of interest rates that can legally be charged to borrowers. 
C) Fraction of deposits that banks can lend out. 
D) Fraction of total deposits banks must hold.

Question 8

If excess reserves are $10,000,demand deposits are $100,000,and the required reserve ratio is 10 percent,then total reserves are

Accepted Answer

A) $0. 
B) $20,000. 
C) $10,000. 
D) $110,000. 
A) $0. 
B) $20,000. 
C) $10,000. 
D) $110,000.

Question 9

When a bank makes a loan,it

Accepted Answer

A) Reduces the amount of money in the monetary system. 
B) Creates a transactions account balance for the borrower. 
C) Is insured against losses from borrowers who fail to pay off their loans. 
D) Must hold deposits of an equal amount to offset the loan. 
A) Reduces the amount of money in the monetary system. 
B) Creates a transactions account balance for the borrower. 
C) Is insured against losses from borrowers who fail to pay off their loans. 
D) Must hold deposits of an equal amount to offset the loan.

Question 10

M1 is the most liquid form of money.

Accepted Answer

A) True 
 B)False

Question 11

Initially a bank has a required reserve ratio of 15 percent and no excess reserves.If $10,000 is deposited in the bank,then,ceteris paribus,

Accepted Answer

A) This bank can increase its loans by $1,500. 
B) Required reserves will increase by $10,000. 
C) Total reserves will increase by $8,500. 
D) This bank can increase its loans by $8,500. 
A) This bank can increase its loans by $1,500. 
B) Required reserves will increase by $10,000. 
C) Total reserves will increase by $8,500. 
D) This bank can increase its loans by $8,500.

Question 12

Suppose a banking system has $100,000 in deposits,a required reserve ratio of 25 percent,and total bank reserves for the whole system of $25,000.Then the potential increase in deposit creation for the whole system is equal to

Accepted Answer

A) $0. 
B) $25,000. 
C) $50,000. 
D) $100,000. 
A) $0. 
B) $25,000. 
C) $50,000. 
D) $100,000.

Question 13

Suppose a bank has $5,000,000 in deposits,a required reserve ratio of 20 percent,and total reserves of $1,000,000.Then the bank has excess reserves of

Accepted Answer

A) $1,000,000. 
B) $2,000,000. 
C) $500,000. 
D) $0. 
A) $1,000,000. 
B) $2,000,000. 
C) $500,000. 
D) $0.

Question 14

A reduction in the minimum required reserve ratio will reduce the money multiplier.

Accepted Answer

A) True 
 B)False

Question 15

One In the News article is titled "CDs Not Paying Much." From this article and from reading the text,one would infer that

Accepted Answer

A) CD balances are only in M2. 
B) CD balances are only in M1. 
C) CD balances are in both M1 and M2. 
D) CD balances are not in M1 or M2. 
A) CD balances are only in M2. 
B) CD balances are only in M1. 
C) CD balances are in both M1 and M2. 
D) CD balances are not in M1 or M2.

Question 16

Which of the following is not a constraint on deposit creation?

Accepted Answer

A) The reserve requirement increases. 
B) Businesses and consumers stop using and accepting checks or debit cards. 
C) Banks become less willing to lend money to businesses and consumers. 
D) The interest rate falls,making borrowing less costly for businesses and consumers. 
A) The reserve requirement increases. 
B) Businesses and consumers stop using and accepting checks or debit cards. 
C) Banks become less willing to lend money to businesses and consumers. 
D) The interest rate falls,making borrowing less costly for businesses and consumers.

Question 17

The different components of the money supply reflect

Accepted Answer

A) Variations in liquidity and accessibility of assets. 
B) Whether deposits are domestic or international. 
C) How often depositors use their accounts. 
D) Whether the deposits are earned or inherited. 
A) Variations in liquidity and accessibility of assets. 
B) Whether deposits are domestic or international. 
C) How often depositors use their accounts. 
D) Whether the deposits are earned or inherited.

Question 18

Which of the following is not true about barter?

Accepted Answer

A) It involves the direct exchange of one good or service for another. 
B) It is more likely to occur if people lose faith in a nation's currency. 
C) It is considered to be less efficient than the use of money. 
D) It allows people to obtain more goods than they would under a money payment system. 
A) It involves the direct exchange of one good or service for another. 
B) It is more likely to occur if people lose faith in a nation's currency. 
C) It is considered to be less efficient than the use of money. 
D) It allows people to obtain more goods than they would under a money payment system.

Question 19

Given a required reserve ratio of 0.25,what is the maximum amount by which the money supply can increase in response to a $200 million increase in excess reserves for the whole banking system?

Accepted Answer

A) $200 million. 
B) $250 million. 
C) $500 million. 
D) $800 million. 
A) $200 million. 
B) $250 million. 
C) $500 million. 
D) $800 million.

Question 20

Suppose a bank has $1 million in deposits,a required reserve ratio of 25 percent,and total reserves of $600,000.Then it has excess reserves of

Accepted Answer

A) $250,000. 
B) $600,000. 
C) $350,000. 
D) $1,000,000. 
A) $250,000. 
B) $600,000. 
C) $350,000. 
D) $1,000,000.

Exam 13: Money and Banks

Which of the following is included in M2?

Regulations are a major constraint on deposit creation.

Which of the following insures deposits at banks?

Checking accounts perform the same market functions as cash.

Which of the following is not included in the narrowest definition of the money supply or M1?

Money does all of the following except

The required reserve ratio is the

If excess reserves are $10,000,demand deposits are $100,000,and the required reserve ratio is 10 percent,then total reserves are

When a bank makes a loan,it

M1 is the most liquid form of money.

Initially a bank has a required reserve ratio of 15 percent and no excess reserves.If $10,000 is deposited in the bank,then,ceteris paribus,

Suppose a banking system has $100,000 in deposits,a required reserve ratio of 25 percent,and total bank reserves for the whole system of $25,000.Then the potential increase in deposit creation for the whole system is equal to

Suppose a bank has $5,000,000 in deposits,a required reserve ratio of 20 percent,and total reserves of $1,000,000.Then the bank has excess reserves of

A reduction in the minimum required reserve ratio will reduce the money multiplier.

One In the News article is titled "CDs Not Paying Much." From this article and from reading the text,one would infer that

Which of the following is not a constraint on deposit creation?

The different components of the money supply reflect

Which of the following is not true about barter?

Given a required reserve ratio of 0.25,what is the maximum amount by which the money supply can increase in response to a $200 million increase in excess reserves for the whole banking system?

Suppose a bank has $1 million in deposits,a required reserve ratio of 25 percent,and total reserves of $600,000.Then it has excess reserves of

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