Question 1

Asymmetric information in financial markets exists when:

Accepted Answer

A) borrowers reveal their financial details to banks before borrowing funds. 
B) borrowers know more about their ability to repay loans than lenders do. 
C) lenders know more about borrowers than borrowers know about themselves. 
D) borrowers pay off a loan before it is due. 
E) borrowers and lenders have equal information about borrower creditworthiness. 
A) borrowers reveal their financial details to banks before borrowing funds. 
B) borrowers know more about their ability to repay loans than lenders do. 
C) lenders know more about borrowers than borrowers know about themselves. 
D) borrowers pay off a loan before it is due. 
E) borrowers and lenders have equal information about borrower creditworthiness.

Question 2

Money supply would expand if people chose to hold borrowed funds in cash rather than in checking accounts.

Accepted Answer

A) True 
 B)False

Question 3

If a bank receives $1,000 in currency as a new deposit,its ability to make loans increases by $1,000.

Accepted Answer

A) True 
 B)False

Question 4

A bank can legally hold reserves as:

Accepted Answer

A) gold and coins. 
B) gold and checks. 
C) cash in its vault and non-interest-bearing reserve deposits at the Fed. 
D) gold and non-interest-bearing reserve deposits at the Fed. 
E) U.S.government securities and coins. 
A) gold and coins. 
B) gold and checks. 
C) cash in its vault and non-interest-bearing reserve deposits at the Fed. 
D) gold and non-interest-bearing reserve deposits at the Fed. 
E) U.S.government securities and coins.

Question 5

Suppose a bank lends you $1,000 to purchase a car.Which of the following correctly represents the changes in the bank's balance sheet before you spend the money?

Accepted Answer

A) Assets: loans,+$1,000;Liabilities and net worth: checking deposits,+$1,000 
B) Assets: loans,-$1,000,checking deposits,+$1,000;Liabilities and net worth: no change 
C) Assets: loans,+$1,000,checking deposits,-$1,000;Liabilities and net worth: no change 
D) Assets: checking deposits,+$1,000;Liabilities and net worth: loans,+$1,000 
E) Assets: checking deposits,+$1,000;Liabilities and net worth: loans,-$1,000 
A) Assets: loans,+$1,000;Liabilities and net worth: checking deposits,+$1,000 
B) Assets: loans,-$1,000,checking deposits,+$1,000;Liabilities and net worth: no change 
C) Assets: loans,+$1,000,checking deposits,-$1,000;Liabilities and net worth: no change 
D) Assets: checking deposits,+$1,000;Liabilities and net worth: loans,+$1,000 
E) Assets: checking deposits,+$1,000;Liabilities and net worth: loans,-$1,000

Question 6

Which of the following is a disadvantage of using debit cards?

Accepted Answer

A) Debit cards are unsafe for use. 
B) Debit cards do not provide a grace period between a purchase and required payment. 
C) Debit cards delay payments. 
D) Debit cards are not not easy to use. 
E) Debit cards make purchases more expensive than they actually are. 
A) Debit cards are unsafe for use. 
B) Debit cards do not provide a grace period between a purchase and required payment. 
C) Debit cards delay payments. 
D) Debit cards are not not easy to use. 
E) Debit cards make purchases more expensive than they actually are.

Question 7

When the Fed buys U.S.government securities from a member bank,_____.

Accepted Answer

A) there is a decrease in its assets 
B) there is an increase in its assets 
C) there is a decrease in its liabilities 
D) there is an increase in its liabilities 
E) its total assets and liabilities remain unchanged 
A) there is a decrease in its assets 
B) there is an increase in its assets 
C) there is a decrease in its liabilities 
D) there is an increase in its liabilities 
E) its total assets and liabilities remain unchanged

Question 8

Usually,a commercial bank's depositors and its owners are the same individuals.

Accepted Answer

A) True 
 B)False

Question 9

In the United States,paper money is redeemable for gold.

Accepted Answer

A) True 
 B)False

Question 10

The Fed relies primarily on the discount rate to control the money supply.

Accepted Answer

A) True 
 B)False

Question 11

A bank finds itself short of required reserves and therefore borrows from another commercial bank.The interest rate on this loan is:

Accepted Answer

A) zero. 
B) the prime rate. 
C) the discount rate. 
D) the federal funds rate. 
E) the required reserve ratio. 
A) zero. 
B) the prime rate. 
C) the discount rate. 
D) the federal funds rate. 
E) the required reserve ratio.

Question 12

When a customer deposits $100 into a checking account,it:

Accepted Answer

A) increases the bank's liabilities only. 
B) decreases the bank's liabilities only. 
C) increases the bank's assets only. 
D) decreases both the bank's liabilities and its assets. 
E) increases both the bank's liabilities and its assets. 
A) increases the bank's liabilities only. 
B) decreases the bank's liabilities only. 
C) increases the bank's assets only. 
D) decreases both the bank's liabilities and its assets. 
E) increases both the bank's liabilities and its assets.

Question 13

Suppose the required reserve ratio is 0.2 and the Fed buys $100,000 in government securities from Big Bank.The commercial banking system creates _____ as a result of this initial injection by the Fed.

Accepted Answer

A) $1,000,000 
B) $500,000 
C) $100,000 
D) $80,000 
E) $200,000 
A) $1,000,000 
B) $500,000 
C) $100,000 
D) $80,000 
E) $200,000

Question 14

The table below shows the balance sheet of Eubank.If the interest rate on loans is 10 percent,the annual cost to Eubank of holding excess reserves is:
Table 14.1
?
EUBANK
?
$$\begin{array} { | l | r | r | r | } 
\hline \text { Assets } &  { \text { Liabilities and Net Worth } } & \
\hline & & & \
\hline \text { Deposits at the Fed } & \$ 40,000 & \text { Checkable deposits } & \$ 500,000 \
\hline \text { Cash } & \$ 10,000 & \text { Net Worth } & \$ 20,000 \
\hline \text { Loans } & \$ 300,000 & & \
\hline \text { Securities } & \$ 150,000 & & \
\hline \text { Fed Stock } & \$ 20,000 & & \
\hline
\end{array}$$

Accepted Answer

A) 10 percent of $500,000. 
B) 10 percent of net worth. 
C) 10 percent of excess reserves. 
D) $10,000. 
E) 0. 
A) 10 percent of $500,000. 
B) 10 percent of net worth. 
C) 10 percent of excess reserves. 
D) $10,000. 
E) 0.

Question 15

If the Fed decreases the required reserve ratio at a time when banks are holding no excess reserves,the Fed is:

Accepted Answer

A) forcing banks to increase the money supply. 
B) forcing banks to decrease the money supply. 
C) making it possible for banks to increase the money supply but not forcing them to do so. 
D) making it possible for banks to decrease the money supply but not forcing them to do so. 
E) conducting open market operations but not changing the money supply. 
A) forcing banks to increase the money supply. 
B) forcing banks to decrease the money supply. 
C) making it possible for banks to increase the money supply but not forcing them to do so. 
D) making it possible for banks to decrease the money supply but not forcing them to do so. 
E) conducting open market operations but not changing the money supply.

Question 16

Banks help to overcome the problem of asymmetric information by:

Accepted Answer

A) lending to a single rich borrower and not diversifying their portfolio. 
B) acquiring expertise in evaluating the credit histories of borrowers. 
C) threatening borrowers. 
D) offering only one type of loan. 
E) providing information to lenders. 
A) lending to a single rich borrower and not diversifying their portfolio. 
B) acquiring expertise in evaluating the credit histories of borrowers. 
C) threatening borrowers. 
D) offering only one type of loan. 
E) providing information to lenders.

Question 17

If a bank has $6,000 in checkable deposits and the required reserve ratio is 0.2,then the bank can lend:

Accepted Answer

A) $4,000. 
B) $16,000. 
C) no more than $4,800. 
D) no less than $3,000. 
E) $1,000. 
A) $4,000. 
B) $16,000. 
C) no more than $4,800. 
D) no less than $3,000. 
E) $1,000.

Question 18

The table below shows the balance sheet of Countybank.If the required reserve ratio is 10 percent,this bank alone can now increase its lending by _____.
Table 14.2
?
COUNTYBANK
?
$\begin{array}{|l|l|l|l|}
\hline\text { Assets } && \text { Liabilities and Net Worth } \
\hline & & \
\hline \text { Cash } & \$ 1,000 & \text { Checkable deposits }&\$1,000\\hline
\end{array}$

Accepted Answer

A) $1,000 
B) $10,000 
C) $0 
D) $90 
E) $900 
A) $1,000 
B) $10,000 
C) $0 
D) $90 
E) $900

Question 19

Which of the following is not an activity of the Fed?

Accepted Answer

A) Making loans to the public 
B) Clearing banks' checks 
C) Lending funds to the Federal government 
D) Purchasing U.S.government securities 
E) Holding deposits of the U.S.Treasury 
A) Making loans to the public 
B) Clearing banks' checks 
C) Lending funds to the Federal government 
D) Purchasing U.S.government securities 
E) Holding deposits of the U.S.Treasury

Question 20

The immediate effect of a bank's purchase of U.S.government securities from the Fed is a(n):

Accepted Answer

A) decrease in the bank's assets. 
B) increase in the bank's assets. 
C) decrease in the Fed's assets. 
D) increase in the Fed's assets. 
E) decrease in both the bank's and the Fed's assets. 
A) decrease in the bank's assets. 
B) increase in the bank's assets. 
C) decrease in the Fed's assets. 
D) increase in the Fed's assets. 
E) decrease in both the bank's and the Fed's assets.

Asymmetric information in financial markets exists when:

Money supply would expand if people chose to hold borrowed funds in cash rather than in checking accounts.

If a bank receives $1,000 in currency as a new deposit,its ability to make loans increases by $1,000.

A bank can legally hold reserves as:

Suppose a bank lends you $1,000 to purchase a car.Which of the following correctly represents the changes in the bank's balance sheet before you spend the money?

Which of the following is a disadvantage of using debit cards?

When the Fed buys U.S.government securities from a member bank,_____.

Usually,a commercial bank's depositors and its owners are the same individuals.

In the United States,paper money is redeemable for gold.

The Fed relies primarily on the discount rate to control the money supply.

A bank finds itself short of required reserves and therefore borrows from another commercial bank.The interest rate on this loan is:

When a customer deposits $100 into a checking account,it:

Suppose the required reserve ratio is 0.2 and the Fed buys $100,000 in government securities from Big Bank.The commercial banking system creates _____ as a result of this initial injection by the Fed.

If the Fed decreases the required reserve ratio at a time when banks are holding no excess reserves,the Fed is:

Banks help to overcome the problem of asymmetric information by:

If a bank has $6,000 in checkable deposits and the required reserve ratio is 0.2,then the bank can lend:

The table below shows the balance sheet of Countybank.If the required reserve ratio is 10 percent,this bank alone can now increase its lending by _____. Table 14.2 ? COUNTYBANK ? Assets Liabilities and Net Worth Cash \ 1,000 Checkable deposits \1 ,000

Which of the following is not an activity of the Fed?

The immediate effect of a bank's purchase of U.S.government securities from the Fed is a(n):

The Art and Science of Economic Analysis

Some Tools of Economic Analysis

Economic Decision Makers

Demand, Supply, and Markets

Introduction to Macroeconomics

Tracking the U S Economy

Unemployment and Inflation

Us Productivity and Growth

Aggregate Demand

Aggregate Supply

Fiscal Policy

Federal Budgets and Public Policy

Money and the Financial System

Monetary Theory and Policy

The Policy Debate: Active or Passive

International Trade

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Exam 14: Banking and the Money Supply

Asymmetric information in financial markets exists when:

Money supply would expand if people chose to hold borrowed funds in cash rather than in checking accounts.

If a bank receives $1,000 in currency as a new deposit,its ability to make loans increases by $1,000.

A bank can legally hold reserves as:

Suppose a bank lends you $1,000 to purchase a car.Which of the following correctly represents the changes in the bank's balance sheet before you spend the money?

Which of the following is a disadvantage of using debit cards?

When the Fed buys U.S.government securities from a member bank,_____.

Usually,a commercial bank's depositors and its owners are the same individuals.

In the United States,paper money is redeemable for gold.

The Fed relies primarily on the discount rate to control the money supply.

A bank finds itself short of required reserves and therefore borrows from another commercial bank.The interest rate on this loan is:

When a customer deposits $100 into a checking account,it:

Suppose the required reserve ratio is 0.2 and the Fed buys $100,000 in government securities from Big Bank.The commercial banking system creates _____ as a result of this initial injection by the Fed.

If the Fed decreases the required reserve ratio at a time when banks are holding no excess reserves,the Fed is:

Banks help to overcome the problem of asymmetric information by:

If a bank has $6,000 in checkable deposits and the required reserve ratio is 0.2,then the bank can lend:

The table below shows the balance sheet of Countybank.If the required reserve ratio is 10 percent,this bank alone can now increase its lending by _____. Table 14.2 ? COUNTYBANK ? Assets Liabilities and Net Worth Cash \ 1,000 Checkable deposits \1 ,000

Which of the following is not an activity of the Fed?

The immediate effect of a bank's purchase of U.S.government securities from the Fed is a(n):

The Art and Science of Economic Analysis

Some Tools of Economic Analysis

Economic Decision Makers

Demand, Supply, and Markets

Introduction to Macroeconomics

Tracking the U S Economy

Unemployment and Inflation

Us Productivity and Growth

Aggregate Demand

Aggregate Supply

Fiscal Policy

Federal Budgets and Public Policy

Money and the Financial System

Monetary Theory and Policy

The Policy Debate: Active or Passive

International Trade

International Finance

Economic Development

Filters