Question 1

Cash is an example of a liquid financial asset.

Accepted Answer

A) True 
 B)False

Question 2

If banks hold excess reserves whereas before they did not, the money multiplier:

Accepted Answer

A) will become larger. 
B) will become smaller. 
C) will be unaffected. 
D) might increase or might decrease. 
A) will become larger. 
B) will become smaller. 
C) will be unaffected. 
D) might increase or might decrease.

Question 3

Modern bankers:

Accepted Answer

A) focus on asset management. 
B) focus on liability management. 
C) focus on both asset management and liability management. 
D) are unconcerned with asset and liability management and instead are concerned with how to make money. 
A) focus on asset management. 
B) focus on liability management. 
C) focus on both asset management and liability management. 
D) are unconcerned with asset and liability management and instead are concerned with how to make money.

Question 4

Two bonds, one a 30-year bond and the other a 1-year bond, have the same interest rate. If the interest rate in the economy falls, the value of the:

Accepted Answer

A) long-term bond rises by more than the value of the short-term bond rises. 
B) short-term bond rises by more than the value of the long-term bond rises. 
C) long-term bond falls by more than the value of the short-term bond falls. 
D) short-term bond falls by more than the value of the long-term bond falls. 
A) long-term bond rises by more than the value of the short-term bond rises. 
B) short-term bond rises by more than the value of the long-term bond rises. 
C) long-term bond falls by more than the value of the short-term bond falls. 
D) short-term bond falls by more than the value of the long-term bond falls.

Question 5

A story often told about the emergence of banks is that banks first emerged from the activities of goldsmiths,who stored gold for a fee.Briefly describe this story.

Accepted Answer

Before banks existed,money consisted of

Question 6

When a bank makes a loan, the money supply:

Accepted Answer

A) does not increase. 
B) decreases. 
C) increases. 
D) may increase or decrease depending on how the loan is used. 
A) does not increase. 
B) decreases. 
C) increases. 
D) may increase or decrease depending on how the loan is used.

Question 7

Credit cards are:

Accepted Answer

A) financial assets for the holder. 
B) financial assets for the issuer. 
C) financial liabilities for the issuer. 
D) neither financial liabilities nor financial assets. 
A) financial assets for the holder. 
B) financial assets for the issuer. 
C) financial liabilities for the issuer. 
D) neither financial liabilities nor financial assets.

Question 8

Asset management refers to:

Accepted Answer

A) a bank's handling of how much interest it pays on deposits. 
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 payable. 
A) a bank's handling of how much interest it pays on deposits. 
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 payable.

Question 9

A financial asset is liquid:

Accepted Answer

A) if it can be carried easily from one place to another. 
B) if it can be readily exchanged for another asset or good. 
C) only if it takes the form of cash. 
D) if it is held by the public and earning interest. 
A) if it can be carried easily from one place to another. 
B) if it can be readily exchanged for another asset or good. 
C) only if it takes the form of cash. 
D) if it is held by the public and earning interest.

Question 10

The amount of money ultimately created per dollar deposited when people hold no cash is found using the:

Accepted Answer

A) money demand ratio. 
B) excess reserve ratio. 
C) required reserve ratio. 
D) money multiplier. 
A) money demand ratio. 
B) excess reserve ratio. 
C) required reserve ratio. 
D) money multiplier.

Question 11

The reason why the banking system can increase checkable deposits by a multiple of initial deposits is that:

Accepted Answer

A) the banking system must keep reserves equal to 100 percent of its checkable deposits. 
B) the central bank follows policies that prevent reserves from falling below the level required by law. 
C) reserves lost by any particular bank are gained by the Federal Reserve Bank. 
D) borrowers often spend most of a loan which is then deposited. 
A) the banking system must keep reserves equal to 100 percent of its checkable deposits. 
B) the central bank follows policies that prevent reserves from falling below the level required by law. 
C) reserves lost by any particular bank are gained by the Federal Reserve Bank. 
D) borrowers often spend most of a loan which is then deposited.

Question 12

If the interest rate falls, the value of a fixed rate bond:

Accepted Answer

A) rises. 
B) falls. 
C) remains the same. 
D) cannot be determined as to whether it rises or falls. 
A) rises. 
B) falls. 
C) remains the same. 
D) cannot be determined as to whether it rises or falls.

Question 13

What are bank reserves? What is the reserve ratio?

Accepted Answer

Reserves are currency and deposits a ban

Question 14

If the required reserve ratio is 0.20, what is the maximum amount of money that can be created from a $5 million deposit in the banking system?

Accepted Answer

A) $5 million 
B) $20 million 
C) $25 million 
D) $50 million 
A) $5 million 
B) $20 million 
C) $25 million 
D) $50 million

Question 15

If I am worried about the price of assets such as bonds falling, I may be more inclined to hold money instead. You hold cash for the:

Accepted Answer

A) transactions motive. 
B) precautionary motive. 
C) speculative motive. 
D) impulsive motive. 
A) transactions motive. 
B) precautionary motive. 
C) speculative motive. 
D) impulsive motive.

Question 16

Define financial assets,and explain why every financial asset must correspond to a financial liability.

Accepted Answer

Financial assets,such as a savings depos

Question 17

Suppose that American Citizen Bank receives $10,000 in new money in the form of a checking account.Calculate the amount of money the banking system can create under each of the following scenarios:
(a)The reserve ratio is 10% .
(b)The reserve ratio is 20%.

Accepted Answer

(a)The total amount of new mon

Question 18

All M1 assets are included in M2.We will call those assets that are part of M2 but not part of M1,"M2 assets".You have just received $5,000 that you must hold as either an M1 asset or an M2 asset.What are the costs and benefits of holding the $5,000 as an M1 asset rather than as an M2 asset? Explain.

Accepted Answer

The main benefit of holding the entire $

Question 19

Economists use the terms save and invest in a way that is somewhat different from their common language usage.Explain the special meaning of these terms as used by economists.

Accepted Answer

As used by economists,the term save mean

Question 20

If the required reserve ratio is 0.10, what is the maximum amount of money that can be created from a $2 million deposit in the banking system?

Accepted Answer

A) $2 million 
B) $4 million 
C) $20 million 
D) $200 million 
A) $2 million 
B) $4 million 
C) $20 million 
D) $200 million

Exam 28: The Financial Sector and the Economy

Cash is an example of a liquid financial asset.

If banks hold excess reserves whereas before they did not, the money multiplier:

Modern bankers:

Two bonds, one a 30-year bond and the other a 1-year bond, have the same interest rate. If the interest rate in the economy falls, the value of the:

A story often told about the emergence of banks is that banks first emerged from the activities of goldsmiths,who stored gold for a fee.Briefly describe this story.

When a bank makes a loan, the money supply:

Credit cards are:

Asset management refers to:

A financial asset is liquid:

The amount of money ultimately created per dollar deposited when people hold no cash is found using the:

The reason why the banking system can increase checkable deposits by a multiple of initial deposits is that:

If the interest rate falls, the value of a fixed rate bond:

What are bank reserves? What is the reserve ratio?

If the required reserve ratio is 0.20, what is the maximum amount of money that can be created from a $5 million deposit in the banking system?

If I am worried about the price of assets such as bonds falling, I may be more inclined to hold money instead. You hold cash for the:

Define financial assets,and explain why every financial asset must correspond to a financial liability.

Suppose that American Citizen Bank receives $10,000 in new money in the form of a checking account.Calculate the amount of money the banking system can create under each of the following scenarios: (a)The reserve ratio is 10% . (b)The reserve ratio is 20%.

Economists use the terms save and invest in a way that is somewhat different from their common language usage.Explain the special meaning of these terms as used by economists.

If the required reserve ratio is 0.10, what is the maximum amount of money that can be created from a $2 million deposit in the banking system?

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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