Question 1

What allows a Federal Reserve note to function as money?

Accepted Answer

A) Regulation 
B) Government 
C) Social convention 
D) Banks 
A) Regulation 
B) Government 
C) Social convention 
D) Banks

Question 2

The short-term interest rate is determined in the:

Accepted Answer

A) loanable funds market. 
B) stock market. 
C) exchange rate market. 
D) money market. 
A) loanable funds market. 
B) stock market. 
C) exchange rate market. 
D) money market.

Question 3

When money is held as an asset, it is serving as a:

Accepted Answer

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

Question 4

When the interest rate rises, people are:

Accepted Answer

A) less likely to save, that is, sell a financial asset. 
B) more likely to save, that is, sell a financial asset. 
C) less likely to save, that is, purchase a financial asset. 
D) more likely to save, that is, purchase a financial asset. 
A) less likely to save, that is, sell a financial asset. 
B) more likely to save, that is, sell a financial asset. 
C) less likely to save, that is, purchase a financial asset. 
D) more likely to save, that is, purchase a financial asset.

Question 5

In pre-colonial Central America, the cocoa seed served as a medium of exchange. The use of cocoa seed for transactions was possible because it was:

Accepted Answer

A) not heavy and bulky. 
B) generally accepted among the native Indians. 
C) also suitable for eating. 
D) easy to grow. 
A) not heavy and bulky. 
B) generally accepted among the native Indians. 
C) also suitable for eating. 
D) easy to grow.

Question 6

In an advertisement for credit cards, the statement is made, "Think of a credit card as smart money." An economist's reaction to this would be that a credit card is:

Accepted Answer

A) not money. 
B) dumb money. 
C) simply money. 
D) actually better than money. 
A) not money. 
B) dumb money. 
C) simply money. 
D) actually better than money.

Question 7

Holding money for the speculative motive is holding cash for unexpected events.

Accepted Answer

A) True 
 B)False

Question 8

The higher the reserve ratio, the:

Accepted Answer

A) greater the money multiplier. 
B) more money will be created. 
C) smaller the money multiplier. 
D) greater the level of required reserves. 
A) greater the money multiplier. 
B) more money will be created. 
C) smaller the money multiplier. 
D) greater the level of required reserves.

Question 9

Why do people often hold money instead of bonds?

Accepted Answer

A) Money is less liquid than bonds. 
B) Money is needed for transactions. 
C) Bonds pay interest. 
D) Of the two, only money is a store of wealth. 
A) Money is less liquid than bonds. 
B) Money is needed for transactions. 
C) Bonds pay interest. 
D) Of the two, only money is a store of wealth.

Question 10

Early medieval bankers were similar to modern bankers in that they:

Accepted Answer

A) would also lend a portion of the deposits. 
B) could not create money. 
C) took deposits in gold. 
D) were not subject to any regulation. 
A) would also lend a portion of the deposits. 
B) could not create money. 
C) took deposits in gold. 
D) were not subject to any regulation.

Question 11

When interest rates rise, bond prices:

Accepted Answer

A) rise. 
B) fall. 
C) do not change. 
D) could either rise or fall. 
A) rise. 
B) fall. 
C) do not change. 
D) could either rise or fall.

Question 12

After the beginning of the 2008 recession, excess reserves rose significantly. This increase most likely:

Accepted Answer

A) decreased the money supply. 
B) did not affect the money supply. 
C) increased the money supply. 
D) had an unpredictable effect on the money supply. 
A) decreased the money supply. 
B) did not affect the money supply. 
C) increased the money supply. 
D) had an unpredictable effect on the money supply.

Question 13

Explain how banks create money.Compare the effect on the money supply of accepting a cash deposit with that of making a loan.

Accepted Answer

Banks create money because a bank's liab

Question 14

As the reserve ratio goes up, the money multiplier goes:

Accepted Answer

A) up, and more money will be created. 
B) down, and less money will be created. 
C) up, and less money will be created. 
D) down, and more money will be created. 
A) up, and more money will be created. 
B) down, and less money will be created. 
C) up, and less money will be created. 
D) down, and more money will be created.

Question 15

Suppose the required reserve ratio is 0.20. Total bank deposits are $200 million and the bank holds $50 million in reserves. How much more money could the bank create if it does not hold excess reserves?

Accepted Answer

A) $5 million 
B) $25 million 
C) $30 million 
D) $50 million 
A) $5 million 
B) $25 million 
C) $30 million 
D) $50 million

Question 16

What is money? What are the three functions of money?

Accepted Answer

Money is a highly liquid financial asset

Question 17

The Federal Reserve Bank is the U.S. central bank:

Accepted Answer

A) whose liabilities serve as cash in the United States. 
B) whose assets serve as cash in the United States. 
C) who holds, in reserve, all financial assets of banks. 
D) who holds, in reserve, all financial liabilities of banks. 
A) whose liabilities serve as cash in the United States. 
B) whose assets serve as cash in the United States. 
C) who holds, in reserve, all financial assets of banks. 
D) who holds, in reserve, all financial liabilities of banks.

Question 18

What is the function of risk premium?

Accepted Answer

A) To make sure that the value of the bond rises with inflation. 
B) To compensate bondholders for the chance the borrower will not repay the loan. 
C) To distinguish short from long-term bonds. 
D) To raise the return to holding government bonds. 
A) To make sure that the value of the bond rises with inflation. 
B) To compensate bondholders for the chance the borrower will not repay the loan. 
C) To distinguish short from long-term bonds. 
D) To raise the return to holding government bonds.

Question 19

In a market economy, every real transaction has a corresponding:

Accepted Answer

A) financial transaction. 
B) financial liability. 
C) real liability. 
D) real asset. 
A) financial transaction. 
B) financial liability. 
C) real liability. 
D) real asset.

Question 20

As the interest rate increases, the present value of a payment received in the future:

Accepted Answer

A) increases. 
B) decreases. 
C) remains constant. 
D) may or may not change depending on other factors. 
A) increases. 
B) decreases. 
C) remains constant. 
D) may or may not change depending on other factors.

Exam 28: The Financial Sector and the Economy

What allows a Federal Reserve note to function as money?

The short-term interest rate is determined in the:

When money is held as an asset, it is serving as a:

When the interest rate rises, people are:

In pre-colonial Central America, the cocoa seed served as a medium of exchange. The use of cocoa seed for transactions was possible because it was:

In an advertisement for credit cards, the statement is made, "Think of a credit card as smart money." An economist's reaction to this would be that a credit card is:

Holding money for the speculative motive is holding cash for unexpected events.

The higher the reserve ratio, the:

Why do people often hold money instead of bonds?

Early medieval bankers were similar to modern bankers in that they:

When interest rates rise, bond prices:

After the beginning of the 2008 recession, excess reserves rose significantly. This increase most likely:

Explain how banks create money.Compare the effect on the money supply of accepting a cash deposit with that of making a loan.

As the reserve ratio goes up, the money multiplier goes:

Suppose the required reserve ratio is 0.20. Total bank deposits are $200 million and the bank holds $50 million in reserves. How much more money could the bank create if it does not hold excess reserves?

What is money? What are the three functions of money?

The Federal Reserve Bank is the U.S. central bank:

What is the function of risk premium?

In a market economy, every real transaction has a corresponding:

As the interest rate increases, the present value of a payment received in the future:

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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