Question 1

Describe the difference between a commercial bank and the central bank.

Accepted Answer

A commercial bank is a financial institu

Question 2

-In Ithaca, NY, Ithaca Hours, valued at the area's average hourly wage ($10), can be used to buy goods and pay for services. About 5,700 Ithaca Hours are in circulation. Because they are accepted in local stores and accepted by local people as income, Ithaca Hours:

Accepted Answer

A) although less liquid than Fed Notes, are money because they are accepted as money. 
B) are money because they are backed by the local government. 
C) are not money because they do not serve as a medium of exchange. 
D) are not money because their value depends upon the area's average hourly wage. 
A) although less liquid than Fed Notes, are money because they are accepted as money. 
B) are money because they are backed by the local government. 
C) are not money because they do not serve as a medium of exchange. 
D) are not money because their value depends upon the area's average hourly wage.

Question 3

Demonstrate equilibrium in the money market.Why does the demand curves have the slopes as you have drawn them? How does an increase in the demand for money affect the short-term interest rate?

Accepted Answer

The market for money is shown below.The

Question 4

When money is used to set the value of goods such as cars, and TVs, money is serving as a:

Accepted Answer

A) medium of exchange. 
B) unit of account. 
C) store of wealth. 
D) unit of wealth. 
A) medium of exchange. 
B) unit of account. 
C) store of wealth. 
D) unit of wealth.

Question 5

If the total deposits of the banking system are $400 billion, how much money could these reserves support if the required reserve ratio is 0.20 and banks hold no excess reserves?

Accepted Answer

A) $400 billion 
B) $1,200 billion 
C) $1,600 billion 
D) $2,000 billion 
A) $400 billion 
B) $1,200 billion 
C) $1,600 billion 
D) $2,000 billion

Question 6

If a bank's reserve ratio is increasing,

Accepted Answer

A) reserves must be increasing. 
B) deposits must be decreasing. 
C) the rate of change in reserves must exceed the rate of change in deposits. 
D) the rate of change in deposits must exceed the rate of change in reserves. 
A) reserves must be increasing. 
B) deposits must be decreasing. 
C) the rate of change in reserves must exceed the rate of change in deposits. 
D) the rate of change in deposits must exceed the rate of change in reserves.

Question 7

The major measures of money are M1 and M2.What are the major components of each of these measures? Why do economists focus their attention on M2?

Accepted Answer

M1 is a measure of money that consists o

Question 8

Using a credit card creates a financial:

Accepted Answer

A) liability for the person using it and a financial asset for the issuer. 
B) asset for the person using it and a financial liability for the issuer. 
C) liability for both the person using it and issuer. 
D) asset for both the person using it and issuer. 
A) liability for the person using it and a financial asset for the issuer. 
B) asset for the person using it and a financial liability for the issuer. 
C) liability for both the person using it and issuer. 
D) asset for both the person using it and issuer.

Question 9

When you stuff dollar bills under your mattress, knowing that they will be there next year to help buy your next major purchase, money is serving which function?

Accepted Answer

A) Medium of exchange 
B) Store of real assets 
C) Unit of account 
D) Store of wealth 
A) Medium of exchange 
B) Store of real assets 
C) Unit of account 
D) Store of wealth

Question 10

A commercial bank's reserve ratio equals the ratio of its reserves to its:

Accepted Answer

A) assets. 
B) required reserves. 
C) deposits. 
D) excess reserves. 
A) assets. 
B) required reserves. 
C) deposits. 
D) excess reserves.

Question 11

The financial sector channels savings back into the spending stream.

Accepted Answer

A) True 
 B)False

Question 12

If the reserve ratio is 0.08, the money multiplier is:

Accepted Answer

A) 1.0. 
B) 8.0. 
C) 10.5. 
D) 12.5. 
A) 1.0. 
B) 8.0. 
C) 10.5. 
D) 12.5.

Question 13

A month ago, you bought a one-year bond with a value of $100 that pays a fixed interest rate of 5 percent per year. The interest rate of the economy was also 5 percent. Today you read in the newspaper that the interest rate in the economy increased to 6 percent. You are holding a bond that is:

Accepted Answer

A) highly desirable to other investors. 
B) less desirable to other investors. 
C) not desirable at all. 
D) desirable to you. 
A) highly desirable to other investors. 
B) less desirable to other investors. 
C) not desirable at all. 
D) desirable to you.

Question 14

If the reserves in U.S. banks totaled $10,000 and total deposits were $20,000, the banking system's reserve ratio would be:

Accepted Answer

A) 0.05. 
B) 0.20. 
C) 0.50. 
D) 0.95. 
A) 0.05. 
B) 0.20. 
C) 0.50. 
D) 0.95.

Question 15

When banks store your money in a checking account, they give you checks. These checks:

Accepted Answer

A) become liabilities to you. 
B) become assets of the bank. 
C) are another form of money. 
D) make your money more liquid. 
A) become liabilities to you. 
B) become assets of the bank. 
C) are another form of money. 
D) make your money more liquid.

Question 16

The risk that all loans will default at the same time is called:

Accepted Answer

A) systemic risk. 
B) diversified risk. 
C) liquid risk. 
D) security risk. 
A) systemic risk. 
B) diversified risk. 
C) liquid risk. 
D) security risk.

Question 17

"Credit cards make a difference in how much money people hold,but they are not money." Explain this statement.

Accepted Answer

Having credit cards allows people to car

Question 18

Why is money important from a short-run macroeconomic perspective?

Accepted Answer

Money is important in macroeconomics bec

Question 19

Holding money for the transactions motive implies the need to hold money for:

Accepted Answer

A) spending. 
B) emergencies. 
C) impulses. 
D) speculation. 
A) spending. 
B) emergencies. 
C) impulses. 
D) speculation.

Question 20

The present value of a future payment:

Accepted Answer

A) is constant. 
B) is independent of when the payment is received. 
C) is independent of the market interest rate. 
D) varies depending on when the payment is received and the market interest rate. 
A) is constant. 
B) is independent of when the payment is received. 
C) is independent of the market interest rate. 
D) varies depending on when the payment is received and the market interest rate.

Exam 28: The Financial Sector and the Economy

Describe the difference between a commercial bank and the central bank.

-In Ithaca, NY, Ithaca Hours, valued at the area's average hourly wage ($10), can be used to buy goods and pay for services. About 5,700 Ithaca Hours are in circulation. Because they are accepted in local stores and accepted by local people as income, Ithaca Hours:

Demonstrate equilibrium in the money market.Why does the demand curves have the slopes as you have drawn them? How does an increase in the demand for money affect the short-term interest rate?

When money is used to set the value of goods such as cars, and TVs, money is serving as a:

If the total deposits of the banking system are $400 billion, how much money could these reserves support if the required reserve ratio is 0.20 and banks hold no excess reserves?

If a bank's reserve ratio is increasing,

The major measures of money are M1 and M2.What are the major components of each of these measures? Why do economists focus their attention on M2?

Using a credit card creates a financial:

When you stuff dollar bills under your mattress, knowing that they will be there next year to help buy your next major purchase, money is serving which function?

A commercial bank's reserve ratio equals the ratio of its reserves to its:

The financial sector channels savings back into the spending stream.

If the reserve ratio is 0.08, the money multiplier is:

A month ago, you bought a one-year bond with a value of $100 that pays a fixed interest rate of 5 percent per year. The interest rate of the economy was also 5 percent. Today you read in the newspaper that the interest rate in the economy increased to 6 percent. You are holding a bond that is:

If the reserves in U.S. banks totaled $10,000 and total deposits were $20,000, the banking system's reserve ratio would be:

When banks store your money in a checking account, they give you checks. These checks:

The risk that all loans will default at the same time is called:

"Credit cards make a difference in how much money people hold,but they are not money." Explain this statement.

Why is money important from a short-run macroeconomic perspective?

Holding money for the transactions motive implies the need to hold money for:

The present value of a future payment:

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Describing Supply and Demand: Elasticities

Taxation and Government Intervention

Market Failure Versus Government Failure

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

Production and Cost Analysis I

Production and Cost Analysis II

Perfect Competition

Monopoly and Monopolistic Competition

Oligopoly and Antitrust Policy

Real-World Competition and Technology

Work and the Labor Market

Who Gets What the Distribution of Income

The Logic of Individual Choice: the Foundation of Supply and Demand

Game Theory, Strategic Decision Making, and Behavioral Economics

Thinking Like a Modern Economist

Behavioral Economics and Modern Economic Policy

Microeconomic Policy, Economic Reasoning, and Beyond

Economic Growth, Business Cycles, and Unemployment

Measuring and Describing the Aggregate Economy

The Keynesian Short-Run Policy Model: Demand-Side Policies

The Classical Long-Run Policy Model: Growth and Supply-Side Policies

Monetary Policy

Financial Crises, Panics, and Unconventional Monetary Policy

Deficits and Debt: the Austerity Debate

The Fiscal Policy Dilemma

Jobs and Unemployment

Inflation, Deflation, and Macro Policy

International Financial Policy

Macro Policy in a Global Setting

Structural Stagnation and Globalization

Macro Policy in Developing Countries

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