Question 1

Transaction costs are best defined as the

Accepted Answer

A)  various costs of different goods and services. 
B)  cost of one good in terms of another; that is, the price of apples in terms of oranges. 
C)  costs involved in borrowing money from someone, that is, the interest that must be paid for the use of someone else's money. 
D)  costs associated with the time and effort necessary to make an exchange. 
A)  various costs of different goods and services. 
B)  cost of one good in terms of another; that is, the price of apples in terms of oranges. 
C)  costs involved in borrowing money from someone, that is, the interest that must be paid for the use of someone else's money. 
D)  costs associated with the time and effort necessary to make an exchange.

Question 2

According to the text,L.Frank Baum,the author of The Wonderful Wizard of Oz,blamed ____________________ for the economic depression of 1893 and the related hardships faced by farmers and workers.

Accepted Answer

A)  the gold standard 
B)  the silver standard 
C)  a massive tornado 
D)  high taxes 
A)  the gold standard 
B)  the silver standard 
C)  a massive tornado 
D)  high taxes

Question 3

Compared to barter,money __________ transaction costs,making transactions __________ time-consuming.

Accepted Answer

A)  increases; more 
B)  increases; less 
C)  reduces; more 
D)  reduces; less 
A)  increases; more 
B)  increases; less 
C)  reduces; more 
D)  reduces; less

Question 4

Which of the following represents a double coincidence of wants?

Accepted Answer

A)  Smith has what Jones has and neither wants what the other has. 
B)  Smith has what Jones wants but Jones doesn't have what Smith wants. 
C)  Smith has what Jones wants and Jones has what Smith wants. 
D)  Smith wants what Jones has, Jones wants what Brown has, and Brown wants what Smith has. 
E)  none of the above 
A)  Smith has what Jones has and neither wants what the other has. 
B)  Smith has what Jones wants but Jones doesn't have what Smith wants. 
C)  Smith has what Jones wants and Jones has what Smith wants. 
D)  Smith wants what Jones has, Jones wants what Brown has, and Brown wants what Smith has. 
E)  none of the above

Question 5

Which of the following is not included in M1?

Accepted Answer

A)  retail money market mutual funds 
B)  checkable deposits 
C)  traveler's checks 
D)  all of the above 
A)  retail money market mutual funds 
B)  checkable deposits 
C)  traveler's checks 
D)  all of the above

Question 6

To a bank,a checkable deposit is classified as

Accepted Answer

A)  an asset. 
B)  a liability. 
C)  vault cash. 
D)  excess reserves. 
E)  bank capital. 
A)  an asset. 
B)  a liability. 
C)  vault cash. 
D)  excess reserves. 
E)  bank capital.

Question 7

Exhibit 12-1
  
-Refer to Exhibit 12-1.The required reserve ratio is

Accepted Answer

A)  0.10. 
B)  0.15. 
C)  0.20. 
D)  0.25. 
E)  0.30. 
A)  0.10. 
B)  0.15. 
C)  0.20. 
D)  0.25. 
E)  0.30.

Question 8

Money is an invention of government.

Accepted Answer

A) True 
 B)False

Question 9

If a bank's deposits at the Federal Reserve equal $40 million and its total reserves equal $35 million,what does the bank's vault cash equal?

Accepted Answer

A)  $5 million 
B)  $75 million 
C)  $37.5 million 
D)  $30 million 
A)  $5 million 
B)  $75 million 
C)  $37.5 million 
D)  $30 million

Question 10

In which setting are the transaction costs of making an exchange likely to be the highest?

Accepted Answer

A)  buying cereal at the grocery store 
B)  buying a house 
C)  buying a computer over the Internet 
D)  buying stock in a company 
E)  buying a Big Mac at McDonald's 
A)  buying cereal at the grocery store 
B)  buying a house 
C)  buying a computer over the Internet 
D)  buying stock in a company 
E)  buying a Big Mac at McDonald's

Question 11

Bank A has checkable deposits of $800,000 and total reserves of $200,000.If the required reserve ratio is 0.15,the bank has required reserves of

Accepted Answer

A)  $600,000. 
B)  $120,000. 
C)  $90,000. 
D)  $30,000. 
A)  $600,000. 
B)  $120,000. 
C)  $90,000. 
D)  $30,000.

Question 12

"Barter" implies that

Accepted Answer

A)  to get one good or service, an individual offers another. 
B)  to get one good or service, an individual offers money. 
C)  to get a check, an individual offers a good or service. 
D)  different kinds of money are exchanged for each other. 
E)  none of the above 
A)  to get one good or service, an individual offers another. 
B)  to get one good or service, an individual offers money. 
C)  to get a check, an individual offers a good or service. 
D)  different kinds of money are exchanged for each other. 
E)  none of the above

Question 13

Asymmetric information exists when

Accepted Answer

A)  both parties to an exchange have all relevant facts about that exchange. 
B)  a good that is either nonrivalrous or nonexcludable is being sold on a market. 
C)  the two parties to an exchange differ in what they know about the good being exchanged. 
D)  neither party to an exchange is knowledgeable about the quality of the good being exchanged. 
A)  both parties to an exchange have all relevant facts about that exchange. 
B)  a good that is either nonrivalrous or nonexcludable is being sold on a market. 
C)  the two parties to an exchange differ in what they know about the good being exchanged. 
D)  neither party to an exchange is knowledgeable about the quality of the good being exchanged.

Question 14

To a bank,reserves are classified as

Accepted Answer

A)  an asset. 
B)  a liability. 
C)  equity 
D)  a liability or an asset 
A)  an asset. 
B)  a liability. 
C)  equity 
D)  a liability or an asset

Question 15

A moral hazard problem occurs before a loan is made,and the adverse selection problem occurs after a loan is made.

Accepted Answer

A) True 
 B)False

Question 16

Bank A has checkable deposits of $10 million and total reserves of $1 million.The required reserve ratio is 9 percent.The bank has required reserves of

Accepted Answer

A)  $910,000. 
B)  $90,000. 
C)  $900,000. 
D)  $1,000,000. 
E)  There is not enough information provided to answer this question. 
A)  $910,000. 
B)  $90,000. 
C)  $900,000. 
D)  $1,000,000. 
E)  There is not enough information provided to answer this question.

Question 17

In a barter economy,

Accepted Answer

A)  money trades for goods, goods trade for services, and services trade for money. 
B)  goods and services trade for other goods and services. 
C)  some goods are more readily accepted in exchange than others. 
D)  making exchanges takes less time (on average) than in a money economy. 
E)  b and c 
A)  money trades for goods, goods trade for services, and services trade for money. 
B)  goods and services trade for other goods and services. 
C)  some goods are more readily accepted in exchange than others. 
D)  making exchanges takes less time (on average) than in a money economy. 
E)  b and c

Question 18

If a person uses money to buy a pair of shoes,money is functioning as

Accepted Answer

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

Question 19

The existence and use of the Internet has lowered the transaction costs of making some exchanges.

Accepted Answer

A) True 
 B)False

Question 20

The first bankers were

Accepted Answer

A)  sheriffs. 
B)  goldsmiths. 
C)  clergy. 
D)  innkeepers. 
E)  economists. 
A)  sheriffs. 
B)  goldsmiths. 
C)  clergy. 
D)  innkeepers. 
E)  economists.

Exam 12: Money, Banking,and the Financial System

Transaction costs are best defined as the

According to the text,L.Frank Baum,the author of The Wonderful Wizard of Oz,blamed ____________________ for the economic depression of 1893 and the related hardships faced by farmers and workers.

Compared to barter,money __________ transaction costs,making transactions __________ time-consuming.

Which of the following represents a double coincidence of wants?

Which of the following is not included in M1?

To a bank,a checkable deposit is classified as

Exhibit 12-1 -Refer to Exhibit 12-1.The required reserve ratio is

Money is an invention of government.

If a bank's deposits at the Federal Reserve equal $40 million and its total reserves equal $35 million,what does the bank's vault cash equal?

In which setting are the transaction costs of making an exchange likely to be the highest?

Bank A has checkable deposits of $800,000 and total reserves of $200,000.If the required reserve ratio is 0.15,the bank has required reserves of

"Barter" implies that

Asymmetric information exists when

To a bank,reserves are classified as

A moral hazard problem occurs before a loan is made,and the adverse selection problem occurs after a loan is made.

Bank A has checkable deposits of $10 million and total reserves of $1 million.The required reserve ratio is 9 percent.The bank has required reserves of

In a barter economy,

If a person uses money to buy a pair of shoes,money is functioning as

The existence and use of the Internet has lowered the transaction costs of making some exchanges.

The first bankers were

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

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The Federal Reserve System

Money and the Economy

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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

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Factor Markets: With Emphasis on the Labor Market

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Market Failure: Externalities, Public Goods, and Asymmetric Information

Public Choice and Special-Interest-Group Politics

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The Economic Case For and Against Government: Five Topics Considered

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Compared to barter,money transaction costs,making transactions time-consuming.