Question 1

When money is used to buy a computer,it is functioning as a

Accepted Answer

A)  unit of account. 
B)  store of value. 
C)  medium of exchange. 
D)  none of the above 
A)  unit of account. 
B)  store of value. 
C)  medium of exchange. 
D)  none of the above

Question 2

A unit of account is

Accepted Answer

A)  anything that is generally accepted in exchange for goods and services. 
B)  a common measurement in which relative values are expressed. 
C)  an item's ability to hold value over time. 
D)  the exchange of goods and services for other goods and services. 
E)  both a and d 
A)  anything that is generally accepted in exchange for goods and services. 
B)  a common measurement in which relative values are expressed. 
C)  an item's ability to hold value over time. 
D)  the exchange of goods and services for other goods and services. 
E)  both a and d

Question 3

Small-denomination time deposits are part of M2,but not part of M1.

Accepted Answer

A) True 
 B)False

Question 4

In March 2010,M2 in the United States was approximately

Accepted Answer

A)  $990 billion. 
B)  $6.6 billion. 
C)  $1.3 billion. 
D)  $2.2 billion. 
E)  $9.9 billion. 
A)  $990 billion. 
B)  $6.6 billion. 
C)  $1.3 billion. 
D)  $2.2 billion. 
E)  $9.9 billion.

Question 5

According to the text,The Wonderful Wizard of Oz is alleged to be a story about

Accepted Answer

A)  the California gold strikes of 1849. 
B)  the end of the gold standard in 1934. 
C)  the presidential election of 1896. 
D)  the financial panic of 1907. 
A)  the California gold strikes of 1849. 
B)  the end of the gold standard in 1934. 
C)  the presidential election of 1896. 
D)  the financial panic of 1907.

Question 6

In the history of banking,warehouse receipts refer to receipts

Accepted Answer

A)  that goldsmiths once issued acknowledging that they held a customer's gold. 
B)  for storing furniture in a warehouse. 
C)  goldsmiths issued to each other when they borrowed gold. 
D)  for storing food and other perishables in a warehouse. 
A)  that goldsmiths once issued acknowledging that they held a customer's gold. 
B)  for storing furniture in a warehouse. 
C)  goldsmiths issued to each other when they borrowed gold. 
D)  for storing food and other perishables in a warehouse.

Question 7

Credit cards are a widely accepted form of money.

Accepted Answer

A) True 
 B)False

Question 8

If peanuts were widely accepted for purposes of exchange,then

Accepted Answer

A)  peanuts would be money. 
B)  peanuts would be less valuable than they are currently. 
C)  we would observe people using peanuts to purchase cars. 
D)  a and c 
E)  a and b 
A)  peanuts would be money. 
B)  peanuts would be less valuable than they are currently. 
C)  we would observe people using peanuts to purchase cars. 
D)  a and c 
E)  a and b

Question 9

A bank's assets are $400 million and its liabilities are $300 million,which means that the bank's net worth (bank capital)is ____________________. If the bank's assets rise by 8% at the same time that its liabilities rise by 5%,the bank's new net worth will then be _______________.

Accepted Answer

A)  $700 million; $713 million 
B)  $100 million; $117 million 
C)  $100 million; $102 million 
D)  $350 million; $360.5 million 
A)  $700 million; $713 million 
B)  $100 million; $117 million 
C)  $100 million; $102 million 
D)  $350 million; $360.5 million

Question 10

Fractional reserve banking is a term used to describe a banking system whereby

Accepted Answer

A)  individual banks share a fraction of the total funds deposited in the whole banking system. 
B)  banks are required to quote interest rates in fractions. 
C)  banks hold reserves equal to only a fraction of their deposit liabilities. 
D)  banks hold reserves equal to a multiple of their deposit liabilities; that is, fractional in this case really means multiple. 
E)  banks are required to maintain a certain fraction of their deposits in the form of checkable deposits, a certain fraction of their deposits in the form of savings deposits, etc. 
A)  individual banks share a fraction of the total funds deposited in the whole banking system. 
B)  banks are required to quote interest rates in fractions. 
C)  banks hold reserves equal to only a fraction of their deposit liabilities. 
D)  banks hold reserves equal to a multiple of their deposit liabilities; that is, fractional in this case really means multiple. 
E)  banks are required to maintain a certain fraction of their deposits in the form of checkable deposits, a certain fraction of their deposits in the form of savings deposits, etc.

Question 11

Consider the following data: currency (held outside banks)= $354 billion,checkable deposits = $250 billion,traveler's checks = $4 billion,small-denomination time deposits = $200 billion,savings deposits = $100 billion,retail money market mutual funds = $160 billion.M1 equals __________ billion and M2 equals __________ billion.

Accepted Answer

A)  $608; $1,068 
B)  $708; $1,038 
C)  $708; $948 
D)  $694; $1,038 
E)  none of the above 
A)  $608; $1,068 
B)  $708; $1,038 
C)  $708; $948 
D)  $694; $1,038 
E)  none of the above

Question 12

A bank has $50,000 in excess reserves and the required reserve ratio is 10 percent.This means the bank could have __________ in checkable deposit liabilities and __________ in (total)reserves.

Accepted Answer

A)  $500,000; $90,000 
B)  $100,000; $20,000 
C)  $50,000; $25,000 
D)  $250,000; $75,000 
A)  $500,000; $90,000 
B)  $100,000; $20,000 
C)  $50,000; $25,000 
D)  $250,000; $75,000

Question 13

Which of the following illustrates a barter transaction?

Accepted Answer

A)  A bushel of oranges is traded for a bushel of apples. 
B)  Someone buys a pizza for the special price of $4. 
C)  Someone buys a house for $100,000. 
D)  b and c 
E)  a, b, and c 
A)  A bushel of oranges is traded for a bushel of apples. 
B)  Someone buys a pizza for the special price of $4. 
C)  Someone buys a house for $100,000. 
D)  b and c 
E)  a, b, and c

Question 14

Which of the following statements is false?

Accepted Answer

A)  Asymmetric information can exist both before and after a transaction. 
B)  Moral hazard occurs when one party to a transaction changes his or her behavior in a way that is hidden from and costly to the other party. 
C)  Adverse selection has the potential to eliminate some markets. 
D)  none of the above 
A)  Asymmetric information can exist both before and after a transaction. 
B)  Moral hazard occurs when one party to a transaction changes his or her behavior in a way that is hidden from and costly to the other party. 
C)  Adverse selection has the potential to eliminate some markets. 
D)  none of the above

Question 15

In which situation are transaction costs most likely to be the lowest?

Accepted Answer

A)  Rodney buys antiques; he is currently looking for an eighteenth-century table. 
B)  Cathy is looking for someone who is willing to trade accounting services (in return) for law services. 
C)  Rodriguez wants to buy a house with two master bedrooms. 
D)  Melinda wants to buy a McDonald's Big Mac (she will not be asking for a special order). 
A)  Rodney buys antiques; he is currently looking for an eighteenth-century table. 
B)  Cathy is looking for someone who is willing to trade accounting services (in return) for law services. 
C)  Rodriguez wants to buy a house with two master bedrooms. 
D)  Melinda wants to buy a McDonald's Big Mac (she will not be asking for a special order).

Question 16

Tenth National Bank holds $285 million in checkable deposits and $35 million in reserves.With a required reserve ratio of 11 percent,how much in excess reserves is Tenth National holding?

Accepted Answer

A)  $250 million 
B)  $3.65 million 
C)  $35.2 million 
D)  3.85 million 
A)  $250 million 
B)  $3.65 million 
C)  $35.2 million 
D)  3.85 million

Question 17

Inflation does the greatest harm to money's function as a

Accepted Answer

A)  medium of exchange. 
B)  unit of account. 
C)  store of value. 
D)  liquid asset. 
A)  medium of exchange. 
B)  unit of account. 
C)  store of value. 
D)  liquid asset.

Question 18

Which of the following is true?

Accepted Answer

A)  Reserves = required reserves - excess reserves. 
B)  Reserves - required reserves = excess reserves. 
C)  Reserves = required reserves + excess reserves. 
D)  b and c 
E)  a and b 
A)  Reserves = required reserves - excess reserves. 
B)  Reserves - required reserves = excess reserves. 
C)  Reserves = required reserves + excess reserves. 
D)  b and c 
E)  a and b

Question 19

The Federal Reserve began paying interest on reserves in 2008.

Accepted Answer

A) True 
 B)False

Question 20

Describe the circumstances under which the M1 money supply could fall while the M2 money supply remains constant at the same time.

Accepted Answer

In order for the M1 money supply to fall

Exam 12: Money, Banking,and the Financial System

When money is used to buy a computer,it is functioning as a

A unit of account is

Small-denomination time deposits are part of M2,but not part of M1.

In March 2010,M2 in the United States was approximately

According to the text,The Wonderful Wizard of Oz is alleged to be a story about

In the history of banking,warehouse receipts refer to receipts

Credit cards are a widely accepted form of money.

If peanuts were widely accepted for purposes of exchange,then

A bank's assets are $400 million and its liabilities are $300 million,which means that the bank's net worth (bank capital)is ____________________. If the bank's assets rise by 8% at the same time that its liabilities rise by 5%,the bank's new net worth will then be _______________.

Fractional reserve banking is a term used to describe a banking system whereby

A bank has $50,000 in excess reserves and the required reserve ratio is 10 percent.This means the bank could have __________ in checkable deposit liabilities and __________ in (total)reserves.

Which of the following illustrates a barter transaction?

Which of the following statements is false?

In which situation are transaction costs most likely to be the lowest?

Tenth National Bank holds $285 million in checkable deposits and $35 million in reserves.With a required reserve ratio of 11 percent,how much in excess reserves is Tenth National holding?

Inflation does the greatest harm to money's function as a

Which of the following is true?

The Federal Reserve began paying interest on reserves in 2008.

Describe the circumstances under which the M1 money supply could fall while the M2 money supply remains constant at the same time.

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, Controlled, and Relative

Supply, Demand, and Price: Applications

Macroeconomic Measurements: Prices and Unemployment

Macroeconomic Measurements: GDP and Real GDP

Aggregate Demand and Aggregate Supply

Classical Macroeconomics and the Self Regulating Economy

Keynesian Macroeconomics and Economic Instability: A Critique of the Self-Regulating Economy

Fiscal Policy and the Federal Budget

The Federal Reserve System

Money and the Economy

Monetary Policy

Expectations Theory and the Economy

Economic Growth: Resources, Technology, Ideas, and Institutions

The Financial Crisis of 2007-2009

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

Consumer Choice: Maximizing Utility and Behavioral Economics

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition, Oligopoly, and Game Theory

Government and Product Markets: Antitrust and Regulation

Factor Markets: With Emphasis on the Labor Market

Wages,Unions,and Labor

The Distribution of Income and Poverty

Interest, Rent, and Profit

Market Failure: Externalities, Public Goods, and Asymmetric Information

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

Globalization and International Impacts on the Economy

The Economic Case For and Against Government: Five Topics Considered

Stocks, Bonds, Futures, and Options

Agriculture: Problems, Policies, and Unintended Effects

Filters

A bank's assets are $400 million and its liabilities are $300 million,which means that the bank's net worth (bank capital)is ______. If the bank's assets rise by 8% at the same time that its liabilities rise by 5%,the bank's new net worth will then be _.

A bank has $50,000 in excess reserves and the required reserve ratio is 10 percent.This means the bank could have in checkable deposit liabilities and in (total)reserves.