Question 1

Using the annuity rule, an annuity that pays $10 annually has a present value of $200 if the market interest rate is:

Accepted Answer

A) 5 percent. 
B) 10 percent. 
C) 15 percent. 
D) 20 percent. 
A) 5 percent. 
B) 10 percent. 
C) 15 percent. 
D) 20 percent.

Question 2

In practice, the Fed focuses on changing reserves to change the total money supply.

Accepted Answer

A) True 
 B)False

Question 3

Bank reserves are:

Accepted Answer

A) real assets deposited at banks. 
B) cash and deposits a bank keeps on hand or at the central bank. 
C) loans issued by banks deposited into checking accounts. 
D) checks held by depositors. 
A) real assets deposited at banks. 
B) cash and deposits a bank keeps on hand or at the central bank. 
C) loans issued by banks deposited into checking accounts. 
D) checks held by depositors.

Question 4

Which of the following is included in the M1 definition of money?

Accepted Answer

A) Checking accounts 
B) Time deposits 
C) Reserves 
D) Savings and money market accounts 
A) Checking accounts 
B) Time deposits 
C) Reserves 
D) Savings and money market accounts

Question 5

If the money multiplier is 2.5, the reserve ratio is:

Accepted Answer

A) 0.3. 
B) 0.4. 
C) 0.5. 
D) 0.6. 
A) 0.3. 
B) 0.4. 
C) 0.5. 
D) 0.6.

Question 6

What are M1 and M2?

Accepted Answer

M1 is a measure of money that consists o

Question 7

What is money? What is a liquid financial asset? Why do people hold their assets in the form of money?

Accepted Answer

Money is a highly liquid financial asset

Question 8

When you withdraw $1,000 from your bank account:

Accepted Answer

A) the bank's financial assets fall by $1,000 and your financial liabilities rise by $1,000. 
B) the bank's financial liabilities fall by $1,000 and your financial assets rise by $1,000. 
C) both your and the bank's financial assets rise by $1,000. 
D) the bank's financial liabilities and assets fall by $1,000, and you have exchanged one financial asset for another. 
A) the bank's financial assets fall by $1,000 and your financial liabilities rise by $1,000. 
B) the bank's financial liabilities fall by $1,000 and your financial assets rise by $1,000. 
C) both your and the bank's financial assets rise by $1,000. 
D) the bank's financial liabilities and assets fall by $1,000, and you have exchanged one financial asset for another.

Question 9

Why do banks package loans into securities?

Accepted Answer

A) The banking regulations require them to do so. 
B) To get around adhering to current banking regulations. 
C) To spread the risk of default and increase liquidity. 
D) To take advantage of tax breaks passed by the federal government as part of stimulus packages. 
A) The banking regulations require them to do so. 
B) To get around adhering to current banking regulations. 
C) To spread the risk of default and increase liquidity. 
D) To take advantage of tax breaks passed by the federal government as part of stimulus packages.

Question 10

Suppose total deposits in the First Bank of Commerce are $200,000 and required reserves are $10,000. Based on this information, the required reserve ratio is:

Accepted Answer

A) 0.05. 
B) 0.10. 
C) 0.20. 
D) 20.0. 
A) 0.05. 
B) 0.10. 
C) 0.20. 
D) 20.0.

Question 11

What does it mean to say that money is liquid?

Accepted Answer

Saying that money is

Question 12

If the money multiplier is 5, what is the reserve ratio?

Accepted Answer

A) 0.10 
B) 0.20 
C) 0.25 
D) 0.80 
A) 0.10 
B) 0.20 
C) 0.25 
D) 0.80

Question 13

For every financial asset there is a:

Accepted Answer

A) corresponding financial liability. 
B) corresponding financial liability if the financial asset is financed. 
C) real liability. 
D) corresponding real asset. 
A) corresponding financial liability. 
B) corresponding financial liability if the financial asset is financed. 
C) real liability. 
D) corresponding real asset.

Question 14

A bank has a reserve requirement of 0.10. If it has demand deposits of $100,000 and is holding $12,000 in reserves:

Accepted Answer

A) all the bank's reserves are excess reserves. 
B) the bank is not meeting its reserve requirement. 
C) the bank is holding $2,000 in excess reserves. 
D) all reserves are required reserves. 
A) all the bank's reserves are excess reserves. 
B) the bank is not meeting its reserve requirement. 
C) the bank is holding $2,000 in excess reserves. 
D) all reserves are required reserves.

Question 15

All of the following are reasons why people hold cash money except:

Accepted Answer

A) money can be used to buy goods. 
B) emergencies. 
C) to avoid losses from changes in bond prices. 
D) cash earns interest. 
A) money can be used to buy goods. 
B) emergencies. 
C) to avoid losses from changes in bond prices. 
D) cash earns interest.

Question 16

Which of the following components is not included in the M2 definition of money?

Accepted Answer

A) M1 
B) Savings and money market accounts 
C) Small-denomination time deposits 
D) Bonds 
A) M1 
B) Savings and money market accounts 
C) Small-denomination time deposits 
D) Bonds

Question 17

What are three reasons people hold money? Be sure to mention the three motives.

Accepted Answer

People hold money for spending.This is c

Question 18

Liability management refers to:

Accepted Answer

A) a bank's handling of the assets in individual trust funds. 
B) a bank's handling of loans and other assets. 
C) how a bank attracts deposits and what it pays for them. 
D) how a bank manages its accounts receivable. 
A) a bank's handling of the assets in individual trust funds. 
B) a bank's handling of loans and other assets. 
C) how a bank attracts deposits and what it pays for them. 
D) how a bank manages its accounts receivable.

Question 19

Real assets are created by:

Accepted Answer

A) government intervention. 
B) real economic activity, such as the construction of a house. 
C) the agreement by individuals to exchange financial assets for financial liabilities. 
D) borrowing and lending. 
A) government intervention. 
B) real economic activity, such as the construction of a house. 
C) the agreement by individuals to exchange financial assets for financial liabilities. 
D) borrowing and lending.

Question 20

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 decreased to 3 percent. You are holding a bond that is:

Accepted Answer

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

Exam 28: The Financial Sector and the Economy

Using the annuity rule, an annuity that pays $10 annually has a present value of $200 if the market interest rate is:

In practice, the Fed focuses on changing reserves to change the total money supply.

Bank reserves are:

Which of the following is included in the M1 definition of money?

If the money multiplier is 2.5, the reserve ratio is:

What are M1 and M2?

What is money? What is a liquid financial asset? Why do people hold their assets in the form of money?

When you withdraw $1,000 from your bank account:

Why do banks package loans into securities?

Suppose total deposits in the First Bank of Commerce are $200,000 and required reserves are $10,000. Based on this information, the required reserve ratio is:

What does it mean to say that money is liquid?

If the money multiplier is 5, what is the reserve ratio?

For every financial asset there is a:

A bank has a reserve requirement of 0.10. If it has demand deposits of $100,000 and is holding $12,000 in reserves:

All of the following are reasons why people hold cash money except:

Which of the following components is not included in the M2 definition of money?

What are three reasons people hold money? Be sure to mention the three motives.

Liability management refers to:

Real assets are created by:

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 decreased to 3 percent. You are holding a bond that is:

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

Filters

Which of the following is included in the M₁ definition of money?

Which of the following components is not included in the M₂ definition of money?