Question 1

When you have $1,000 in a savings account at a bank:

Accepted Answer

A) the bank holds a financial asset of $1,000 and you hold a financial liability of $1,000. 
B) the bank holds a financial liability of $1,000 and you hold a financial asset of $1,000. 
C) both you and the bank now have a financial asset of $1,000. 
D) both you and the bank now have a financial liability of $1,000. 
A) the bank holds a financial asset of $1,000 and you hold a financial liability of $1,000. 
B) the bank holds a financial liability of $1,000 and you hold a financial asset of $1,000. 
C) both you and the bank now have a financial asset of $1,000. 
D) both you and the bank now have a financial liability of $1,000.

Question 2

The chief difference between the M1 and M2 measures of the money supply is:

Accepted Answer

A) the supply of M1 exceeds the supply of M2. 
B) M2 excludes currency. 
C) M1 is a broader, more comprehensive measure. 
D) M2 includes assets with a lower liquidity than those in M1. 
A) the supply of M1 exceeds the supply of M2. 
B) M2 excludes currency. 
C) M1 is a broader, more comprehensive measure. 
D) M2 includes assets with a lower liquidity than those in M1.

Question 3

If people held all their money as cash:

Accepted Answer

A) money would no longer be a financial liability of the Fed. 
B) money would lose its value as a store of wealth. 
C) banks would still be able to create money by making loans. 
D) banks could not create money. 
A) money would no longer be a financial liability of the Fed. 
B) money would lose its value as a store of wealth. 
C) banks would still be able to create money by making loans. 
D) banks could not create money.

Question 4

Why is it difficult for policy makers to rely on the theoretical discussion of the money multiplier to target the money supply?

Accepted Answer

A) The equation of exchange has been proven to be wrong. 
B) The use of quantitative easing has made it impossible to accurately determine the money supply. 
C) The amount of excess reserves and cash in the system varies. 
D) There is no good measure of reserves in the economy. 
A) The equation of exchange has been proven to be wrong. 
B) The use of quantitative easing has made it impossible to accurately determine the money supply. 
C) The amount of excess reserves and cash in the system varies. 
D) There is no good measure of reserves in the economy.

Question 5

A bank's required reserves are:

Accepted Answer

A) a financial asset for the Fed. 
B) a financial liability for the bank. 
C) counted as money. 
D) a financial liability for the Fed. 
A) a financial asset for the Fed. 
B) a financial liability for the bank. 
C) counted as money. 
D) a financial liability for the Fed.

Question 6

When you deposit $200 in your savings account with the objective of withdrawing it later to buy a video game that is about to be offered in the market in the near future, then the $200 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 7

The winner of the Mega Millions lottery game can choose to accept a one-time payout of $163.68 million or receive $11 million per year for 20 years. Using the tables shown and assuming the interest rate is 3 percent, the state: $\begin{array}{|r|l|}
\hline\begin{array}{c}
 \text { Annuity Table } \
 \text {  (value now of \$1 Per year To be } \
 \text {  received for x-years) } \
\begin{array}{c|c|c|c}
\hline {\text { Year }} & \mathbf{3 \%} & \mathbf{4 \%} & \mathbf{6 \%} \
\hline 10 & 8.53 & 8.11 & 7.36 \
\hline 15 & 11.94 & 11.12 & 9.71 \
\hline 20 & 14.88 & 13.59 & 11.47 \
\hline 30 & 19.60 & 17.29 & 13.76 \
\hline
\end{array}
\end{array}& \begin{array}{c}
 \text { Present Value Table } \
 \text { (Value now to \$ 1 to be received} \
 \text {   x-years un the future) } \
\begin{array}{c|c|c|c}
\hline \text { Year } & \mathbf{3} \% & \mathbf{4 \%} & \mathbf{6 \%} \
\hline 10 & 0.74 & 0.68 & 0.53 \
\hline 15 & 0.64 & 0.56 & 0.42 \
\hline 20 & 0.55 & 0.46 & 0.31 \
\hline 30 & 0.41 & 0.31 & 0.17 \
\hline
\end{array}
\end{array}\
\hline
\end{array}$

Accepted Answer

A) prefers to pay the lump sum because it saves about $100 million. 
B) probably does not care-it has set the lump sum equal to the present value of the payments over time. 
C) prefers to pay over time because it will save money. 
D) probably does not know which is better because the two cannot be compared. 
A) prefers to pay the lump sum because it saves about $100 million. 
B) probably does not care-it has set the lump sum equal to the present value of the payments over time. 
C) prefers to pay over time because it will save money. 
D) probably does not know which is better because the two cannot be compared.

Question 8

Savings and money market accounts are not included in:

Accepted Answer

A) M1. 
B) M2. 
C) M3. 
D) L. 
A) M1. 
B) M2. 
C) M3. 
D) L.

Question 9

If a central bank increases the money supply,and in the process generates fear of a country defaulting on its bonds,what would happen to the interest rate?

Accepted Answer

It is unclear what will happen to the in

Question 10

Which of the following will be affected if consumers take money out of checking accounts to pay their credit cards?

Accepted Answer

A) M1 
B) M2 
C) M3 
D) L 
A) M1 
B) M2 
C) M3 
D) L

Question 11

The M1 measure of money includes which of the following?

Accepted Answer

A) Currency in circulation 
B) Interest payments 
C) Savings account deposits 
D) Excess reserves 
A) Currency in circulation 
B) Interest payments 
C) Savings account deposits 
D) Excess reserves

Question 12

The financial sector is very important to the economy.

Accepted Answer

A) True 
 B)False

Question 13

If the reserves in U.S. banks totaled $8,000 and total deposits were $100,000, the banking system's reserve ratio would be:

Accepted Answer

A) 0.08. 
B) 0.10. 
C) 0.80 
D) 0.92 
A) 0.08. 
B) 0.10. 
C) 0.80 
D) 0.92

Question 14

A bank's financial success depends on how well it accomplishes its two main tasks: asset management and liability management.Briefly explain what these two terms mean in the context of bank management.

Accepted Answer

Asset management refers to how well the

Question 15

You are holding two bonds;one matures in 1 year and the other matures in 30 years.What do you expect to happen to the price of each bond when the interest rate rises? For which bond will the effect of a change in interest rates be greater?

Accepted Answer

The price of both bonds is expected to d

Question 16

The formula for the money multiplier is:

Accepted Answer

A) 1/e where e is the excess reserve ratio. 
B) 1/r where r is the reserve ratio. 
C) 1(1 − r)where r is the required reserve ratio 
D) 1/c where c is the ratio of cash people hold to deposits. 
A) 1/e where e is the excess reserve ratio. 
B) 1/r where r is the reserve ratio. 
C) 1(1 − r)where r is the required reserve ratio 
D) 1/c where c is the ratio of cash people hold to deposits.

Question 17

In Book 23 of Homer's Iliad are these words: "The winner was to acquire a fire-straddling tripod valued at twelve oxen by the Akhaians. As for the loser, in their midst Akhilleus placed a woman versatile at crafts, whose value was four oxen." What does this passage tell us about economics in the Iliad?

Accepted Answer

A) Oxen were used as the unit of account. 
B) Oxen were used as the medium of exchange. 
C) Oxen were the best way to store wealth. 
D) Oxen were used as legal tender. 
A) Oxen were used as the unit of account. 
B) Oxen were used as the medium of exchange. 
C) Oxen were the best way to store wealth. 
D) Oxen were used as legal tender.

Question 18

Which of the following is not one of the functions of money?

Accepted Answer

A) Medium of exchange 
B) Unit of account 
C) Standard of well-being 
D) Store of wealth 
A) Medium of exchange 
B) Unit of account 
C) Standard of well-being 
D) Store of wealth

Question 19

Calculate the money multiplier and the money supply from the following reserve requirements and deposits in the system.
(a)reserve ratio = 5%;deposits = $10,000
(b)reserve ratio = 10%;deposits = $10,000
(c)reserve ratio = 10%;deposits = $20,000

Accepted Answer

Simple money multiplier:
(a)simple money

Question 20

What is the relationship between the real side of the economy (economic activity that results in the creation of real assets)and the financial side of the economy (economic activity that results in the production of financial assets)? Your discussion should cover the following points: How does the production of real assets differ from the production of financial assets? Does the creation of financial assets really contribute to overall economic productivity? Do financial assets make a country richer or poorer? What role do financial assets serve (if any)in facilitating the production of real assets?

Accepted Answer

Real assets are created by real economic

Exam 28: The Financial Sector and the Economy

When you have $1,000 in a savings account at a bank:

The chief difference between the M1 and M2 measures of the money supply is:

If people held all their money as cash:

Why is it difficult for policy makers to rely on the theoretical discussion of the money multiplier to target the money supply?

A bank's required reserves are:

When you deposit $200 in your savings account with the objective of withdrawing it later to buy a video game that is about to be offered in the market in the near future, then the $200 is serving which function?

Savings and money market accounts are not included in:

If a central bank increases the money supply,and in the process generates fear of a country defaulting on its bonds,what would happen to the interest rate?

Which of the following will be affected if consumers take money out of checking accounts to pay their credit cards?

The M1 measure of money includes which of the following?

The financial sector is very important to the economy.

If the reserves in U.S. banks totaled $8,000 and total deposits were $100,000, the banking system's reserve ratio would be:

A bank's financial success depends on how well it accomplishes its two main tasks: asset management and liability management.Briefly explain what these two terms mean in the context of bank management.

You are holding two bonds;one matures in 1 year and the other matures in 30 years.What do you expect to happen to the price of each bond when the interest rate rises? For which bond will the effect of a change in interest rates be greater?

The formula for the money multiplier is:

Which of the following is not one of the functions of money?

Calculate the money multiplier and the money supply from the following reserve requirements and deposits in the system. (a)reserve ratio = 5%;deposits = $10,000 (b)reserve ratio = 10%;deposits = $10,000 (c)reserve ratio = 10%;deposits = $20,000

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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