Question 1

If you purchase a good on credit, you are:

Accepted Answer

A) exchanging a financial asset for another financial asset. 
B) incurring a real liability to acquire a real asset. 
C) incurring a financial liability to acquire a real asset. 
D) exchanging a financial liability for a real liability. 
A) exchanging a financial asset for another financial asset. 
B) incurring a real liability to acquire a real asset. 
C) incurring a financial liability to acquire a real asset. 
D) exchanging a financial liability for a real liability.

Question 2

If a bank deposit will double in value in 18 years, the rule of 72 implies that the interest rate on the deposit must equal is approximately:

Accepted Answer

A) 3 percent. 
B) 4 percent. 
C) 6 percent. 
D) 8 percent. 
A) 3 percent. 
B) 4 percent. 
C) 6 percent. 
D) 8 percent.

Question 3

Present value is a method of:

Accepted Answer

A) calculating the interest that will be earned on an asset. 
B) translating the current value of an asset into its future value. 
C) translating the future value of an asset into its current value. 
D) calculating the principal and interest payments on a loan. 
A) calculating the interest that will be earned on an asset. 
B) translating the current value of an asset into its future value. 
C) translating the future value of an asset into its current value. 
D) calculating the principal and interest payments on a loan.

Question 4

Assuming that the reserve ratio is 0.05 the money multiplier is:

Accepted Answer

A) 10. 
B) 20. 
C) 30. 
D) 40. 
A) 10. 
B) 20. 
C) 30. 
D) 40.

Question 5

Non-liquid assets could perform which of the following functions?

Accepted Answer

A) Medium of exchange 
B) Cash for transactions 
C) Store of value 
D) Trade without bartering 
A) Medium of exchange 
B) Cash for transactions 
C) Store of value 
D) Trade without bartering

Question 6

Given a required reserve ratio of 20 percent for all banks, total bank reserves of $300 billion could support maximum deposits of:

Accepted Answer

A) $60 billion. 
B) $1,200 billion. 
C) $1,500 billion. 
D) $2,000 billion. 
A) $60 billion. 
B) $1,200 billion. 
C) $1,500 billion. 
D) $2,000 billion.

Question 7

The financial liability that makes the real economy function smoothly for its liquidity and its acceptability is called:

Accepted Answer

A) bonds. 
B) money. 
C) mortgages. 
D) stocks. 
A) bonds. 
B) money. 
C) mortgages. 
D) stocks.

Question 8

A bank has a reserve requirement of 10 percent. This means that if a customer deposits $10,000, the bank may increase lending by:

Accepted Answer

A) $1,000. 
B) $9,000. 
C) $10,000. 
D) $11,000. 
A) $1,000. 
B) $9,000. 
C) $10,000. 
D) $11,000.

Question 9

M1 includes which of the following?

Accepted Answer

A) Time deposits 
B) Checking account deposits 
C) Gold certificates 
D) Money market mutual funds 
A) Time deposits 
B) Checking account deposits 
C) Gold certificates 
D) Money market mutual funds

Question 10

The financial sector makes the real sector in a modern economy possible.

Accepted Answer

A) True 
 B)False

Question 11

If a payment received two years from now has a present value of $200 and the annual interest rate on the payment is 5 percent, then the future value of the payment is:

Accepted Answer

A) $171.50. 
B) $190.50. 
C) $210.50. 
D) $220.50. 
A) $171.50. 
B) $190.50. 
C) $210.50. 
D) $220.50.

Question 12

Checking account deposits are classified as money because:

Accepted Answer

A) they earn interest income for the depositor. 
B) they are ultimately obligations of the Treasury. 
C) banks hold currency equal to their outstanding deposits. 
D) they can be readily used to make purchases and pay debts. 
A) they earn interest income for the depositor. 
B) they are ultimately obligations of the Treasury. 
C) banks hold currency equal to their outstanding deposits. 
D) they can be readily used to make purchases and pay debts.

Question 13

Which of the following is not a function of money?

Accepted Answer

A) Medium of exchange 
B) Unit of account 
C) Store of wealth 
D) Equity instrument 
A) Medium of exchange 
B) Unit of account 
C) Store of wealth 
D) Equity instrument

Question 14

If the reserve ratio is 0.10, the money multiplier is equal to 5.

Accepted Answer

A) True 
 B)False

Question 15

During periods of high inflation, money becomes:

Accepted Answer

A) more useful as a unit of account. 
B) more useful as a store of value. 
C) more useful as a medium of exchange. 
D) less useful as a unit of account. 
A) more useful as a unit of account. 
B) more useful as a store of value. 
C) more useful as a medium of exchange. 
D) less useful as a unit of account.

Question 16

The key to understanding the money creation process is the fact that:

Accepted Answer

A) whenever banks create financial assets for themselves, they create financial liabilities for individuals, and those financial liabilities are considered money. 
B) whenever banks create financial liabilities for themselves, they create financial assets for individuals, and those financial assets are considered money. 
C) banks are able to print dollar bills and add these to circulation whenever they extend loans. 
D) since the money supply excludes cash but includes checking account deposits, money is created whenever individuals deposit cash into a checking account. 
A) whenever banks create financial assets for themselves, they create financial liabilities for individuals, and those financial liabilities are considered money. 
B) whenever banks create financial liabilities for themselves, they create financial assets for individuals, and those financial assets are considered money. 
C) banks are able to print dollar bills and add these to circulation whenever they extend loans. 
D) since the money supply excludes cash but includes checking account deposits, money is created whenever individuals deposit cash into a checking account.

Question 17

After there has been a change in bank reserves, the multiplier process continues until:

Accepted Answer

A) required reserves are the same for all banks. 
B) each bank holds its desired reserve-to-deposit ratio. 
C) banks start to extend new loans. 
D) the Fed runs out of government securities. 
A) required reserves are the same for all banks. 
B) each bank holds its desired reserve-to-deposit ratio. 
C) banks start to extend new loans. 
D) the Fed runs out of government securities.

Question 18

In the real world, policy makers apply the money multiplier to reserves to predict the amount of money in the economy.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following do policy makers tend to target when setting monetary policy?

Accepted Answer

A) Money supply 
B) Interest rates 
C) Reserves 
D) Exchange rates 
A) Money supply 
B) Interest rates 
C) Reserves 
D) Exchange rates

Question 20

You own 100 shares of stock that are earning $2 per share per year. According to market analysts, the stock is expected to continue to earn $2 long into the future. Using the annuity rule, and assuming an interest rate of 6.5 percent, it follows that the present value of these 100 shares is:

Accepted Answer

A) $30.77. 
B) $307.79. 
C) $3,076.92. 
D) $30,076.92. 
A) $30.77. 
B) $307.79. 
C) $3,076.92. 
D) $30,076.92.

Exam 28: The Financial Sector and the Economy

If you purchase a good on credit, you are:

If a bank deposit will double in value in 18 years, the rule of 72 implies that the interest rate on the deposit must equal is approximately:

Present value is a method of:

Assuming that the reserve ratio is 0.05 the money multiplier is:

Non-liquid assets could perform which of the following functions?

Given a required reserve ratio of 20 percent for all banks, total bank reserves of $300 billion could support maximum deposits of:

The financial liability that makes the real economy function smoothly for its liquidity and its acceptability is called:

A bank has a reserve requirement of 10 percent. This means that if a customer deposits $10,000, the bank may increase lending by:

M1 includes which of the following?

The financial sector makes the real sector in a modern economy possible.

If a payment received two years from now has a present value of $200 and the annual interest rate on the payment is 5 percent, then the future value of the payment is:

Checking account deposits are classified as money because:

Which of the following is not a function of money?

If the reserve ratio is 0.10, the money multiplier is equal to 5.

During periods of high inflation, money becomes:

The key to understanding the money creation process is the fact that:

After there has been a change in bank reserves, the multiplier process continues until:

In the real world, policy makers apply the money multiplier to reserves to predict the amount of money in the economy.

Which of the following do policy makers tend to target when setting monetary policy?

You own 100 shares of stock that are earning $2 per share per year. According to market analysts, the stock is expected to continue to earn $2 long into the future. Using the annuity rule, and assuming an interest rate of 6.5 percent, it follows that the present value of these 100 shares 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

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