Question 1

Reserves equal bank deposits at the Fed plus vault cash.

Accepted Answer

A) True 
 B)False  True

Question 2

M2 is comprised of

Accepted Answer

A) small-denomination time deposits + savings deposits + money market accounts. 
B) small-denomination time deposits + credit cards + money market accounts + gold deposits. 
C) M1 + small-denomination time deposits + savings deposits + retail money market mutual funds. 
D) M1 + small denomination time deposits + credit cards + money market accounts. 
A) small-denomination time deposits + savings deposits + money market accounts. 
B) small-denomination time deposits + credit cards + money market accounts + gold deposits. 
C) M1 + small-denomination time deposits + savings deposits + retail money market mutual funds. 
D) M1 + small denomination time deposits + credit cards + money market accounts. C

Question 3

Barter is

Accepted Answer

A) the exchange of money for goods and then the exchange of those goods for money. 
B) the exchange of money for money, or the exchange of money for stocks and bonds. 
C) the exchange of goods and services for goods and services without the use of money. 
D) any exchange, with or without the use of money, in which the participants negotiate (or barter) the price of the goods to be exchanged. 
A) the exchange of money for goods and then the exchange of those goods for money. 
B) the exchange of money for money, or the exchange of money for stocks and bonds. 
C) the exchange of goods and services for goods and services without the use of money. 
D) any exchange, with or without the use of money, in which the participants negotiate (or barter) the price of the goods to be exchanged. C

Question 4

A bank's assets are $670 million and its liabilities are $490 million, which means that the bank's net worth (bank capital) is ____________________. If the bank's assets rise by 6% at the same time that its liabilities rise by 4%, the bank's new net worth will then be _______________.

Accepted Answer

A) $1,160 million; $168.8 million 
B) $180 million; $168.8 million 
C) $100 million; $104 million 
D) $580 million; $160.5 million 
A) $1,160 million; $168.8 million 
B) $180 million; $168.8 million 
C) $100 million; $104 million 
D) $580 million; $160.5 million

Question 5

If checkable deposits in Bank A total $300 million and the required reserve ratio is 10 percent, then required reserves at Bank A equal

Accepted Answer

A) $3.0 million. 
B) $30.0 million. 
C) $3.3 million. 
D) $300,000 
A) $3.0 million. 
B) $30.0 million. 
C) $3.3 million. 
D) $300,000

Question 6

"Barter" implies that

Accepted Answer

A) to get one good or service, an individual offers another. 
B) to get one good or service, an individual offers money. 
C) to get a check, an individual offers a good or service. 
D) different kinds of money are exchanged for each other. 
E) none of the above 
A) to get one good or service, an individual offers another. 
B) to get one good or service, an individual offers money. 
C) to get a check, an individual offers a good or service. 
D) different kinds of money are exchanged for each other. 
E) none of the above

Question 7

Fractional reserve banking is a term used to describe a banking system whereby

Accepted Answer

A) individual banks share a fraction of the total funds deposited in the whole banking system. 
B) banks are required to quote interest rates in fractions. 
C) banks hold reserves equal to only a fraction of their deposit liabilities. 
D) banks hold reserves equal to a multiple of their deposit liabilities; that is, fractional in this case really means multiple. 
E) banks are required to maintain a certain fraction of their deposits in the form of checkable deposits, a certain fraction of their deposits in the form of savings deposits, etc. 
A) individual banks share a fraction of the total funds deposited in the whole banking system. 
B) banks are required to quote interest rates in fractions. 
C) banks hold reserves equal to only a fraction of their deposit liabilities. 
D) banks hold reserves equal to a multiple of their deposit liabilities; that is, fractional in this case really means multiple. 
E) banks are required to maintain a certain fraction of their deposits in the form of checkable deposits, a certain fraction of their deposits in the form of savings deposits, etc.

Question 8

Which of the following statements is false?

Accepted Answer

A) Currency is money, but money is more than just currency. 
B) M1 is a component of M2. 
C) Retail money market mutual funds are part of M2, but institutional money market mutual funds are not. 
D) Credit cards are money since they are widely accepted for purposes of exchange. 
E) Money reduces the transaction costs of making exchanges. 
A) Currency is money, but money is more than just currency. 
B) M1 is a component of M2. 
C) Retail money market mutual funds are part of M2, but institutional money market mutual funds are not. 
D) Credit cards are money since they are widely accepted for purposes of exchange. 
E) Money reduces the transaction costs of making exchanges.

Question 9

In the history of banking, warehouse receipts refer to receipts

Accepted Answer

A) that goldsmiths once issued acknowledging that they held a customer's gold. 
B) for storing furniture in a warehouse. 
C) goldsmiths issued to each other when they borrowed gold. 
D) for storing food and other perishables in a warehouse. 
A) that goldsmiths once issued acknowledging that they held a customer's gold. 
B) for storing furniture in a warehouse. 
C) goldsmiths issued to each other when they borrowed gold. 
D) for storing food and other perishables in a warehouse.

Question 10

If peanuts were widely accepted for purposes of exchange, then

Accepted Answer

A) peanuts would be money. 
B) peanuts would be less valuable than they are currently. 
C) we would observe people using peanuts to purchase cars. 
D) a and c 
E) a and b 
A) peanuts would be money. 
B) peanuts would be less valuable than they are currently. 
C) we would observe people using peanuts to purchase cars. 
D) a and c 
E) a and b

Question 11

Which of the following words are synonyms for the word "money"?

Accepted Answer

A) "income" 
B) "wealth" 
C) "credit" 
D) all of the above are synonyms for the word "money" 
E) none of the above 
A) "income" 
B) "wealth" 
C) "credit" 
D) all of the above are synonyms for the word "money" 
E) none of the above

Question 12

The potential buyer of a house has less information about the house than the seller of the house. This is a case of

Accepted Answer

A) externality information. 
B) free ridership. 
C) asymmetric information. 
D) biased information. 
E) a public good not being a private good. 
A) externality information. 
B) free ridership. 
C) asymmetric information. 
D) biased information. 
E) a public good not being a private good.

Question 13

___________________ is a method of transferring money whereby funds are loaned and borrowed through a financial intermediary.

Accepted Answer

A) Adverse selection 
B) Asymmetric information 
C) Indirect finance 
D) Direct finance 
A) Adverse selection 
B) Asymmetric information 
C) Indirect finance 
D) Direct finance

Question 14

The store of value function of money refers to the ability of money to

Accepted Answer

A) facilitate the exchange of goods and services. 
B) maintain its value over time. 
C) express relative scarcity. 
D) earn interest over time. 
E) increase its value over time. 
A) facilitate the exchange of goods and services. 
B) maintain its value over time. 
C) express relative scarcity. 
D) earn interest over time. 
E) increase its value over time.

Question 15

In which setting are the transaction costs of making an exchange likely to be the highest?

Accepted Answer

A) buying cereal at the grocery store 
B) buying a house 
C) buying a computer over the Internet 
D) buying stock in a company 
E) buying a Big Mac at McDonald's 
A) buying cereal at the grocery store 
B) buying a house 
C) buying a computer over the Internet 
D) buying stock in a company 
E) buying a Big Mac at McDonald's

Question 16

Bank A has $25,500 in required reserves. The required reserve ratio is 10 percent. Bank A has checkable deposits of

Accepted Answer

A) $2,550. 
B) $255,000. 
C) $2,550,000. 
D) $25,500. 
A) $2,550. 
B) $255,000. 
C) $2,550,000. 
D) $25,500.

Question 17

A bank has $7 million in checkable deposits and $1.2 million in total reserves. If the required reserve ratio is 10 percent, then the bank has

Accepted Answer

A) required reserves of $700,000. 
B) excess reserves of $500,000. 
C) excess reserves of $1,080,000. 
D) required reserves of $120,000. 
E) a and b 
A) required reserves of $700,000. 
B) excess reserves of $500,000. 
C) excess reserves of $1,080,000. 
D) required reserves of $120,000. 
E) a and b

Question 18

According to the textbook, The Wonderful Wizard of Oz is alleged to be a story about

Accepted Answer

A) the California gold strikes of 1849. 
B) the end of the gold standard in 1934. 
C) the presidential election of 1896. 
D) the financial panic of 1907. 
A) the California gold strikes of 1849. 
B) the end of the gold standard in 1934. 
C) the presidential election of 1896. 
D) the financial panic of 1907.

Question 19

In the Yap civilization of the South Pacific prior to 1920, large, heavy stones in the shape of a wheel were used as money. Which function of money was probably least served by this form of money?

Accepted Answer

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

Question 20

Saying that it takes twice as many dollars to buy one ticket for a concert than two tickets for a movie refers to the use of money as a

Accepted Answer

A) medium of exchange. 
B) unit of account. 
C) store of value. 
D) means of achieving the double coincidence of wants. 
A) medium of exchange. 
B) unit of account. 
C) store of value. 
D) means of achieving the double coincidence of wants.

Exam 12: Money Banking and the Financial System

Reserves equal bank deposits at the Fed plus vault cash.

M2 is comprised of

Barter is

A bank's assets are $670 million and its liabilities are $490 million, which means that the bank's net worth (bank capital) is ____________________. If the bank's assets rise by 6% at the same time that its liabilities rise by 4%, the bank's new net worth will then be _______________.

If checkable deposits in Bank A total $300 million and the required reserve ratio is 10 percent, then required reserves at Bank A equal

"Barter" implies that

Fractional reserve banking is a term used to describe a banking system whereby

Which of the following statements is false?

In the history of banking, warehouse receipts refer to receipts

If peanuts were widely accepted for purposes of exchange, then

Which of the following words are synonyms for the word "money"?

The potential buyer of a house has less information about the house than the seller of the house. This is a case of

___________________ is a method of transferring money whereby funds are loaned and borrowed through a financial intermediary.

The store of value function of money refers to the ability of money to

In which setting are the transaction costs of making an exchange likely to be the highest?

Bank A has $25,500 in required reserves. The required reserve ratio is 10 percent. Bank A has checkable deposits of

A bank has $7 million in checkable deposits and $1.2 million in total reserves. If the required reserve ratio is 10 percent, then the bank has

According to the textbook, The Wonderful Wizard of Oz is alleged to be a story about

In the Yap civilization of the South Pacific prior to 1920, large, heavy stones in the shape of a wheel were used as money. Which function of money was probably least served by this form of money?

Saying that it takes twice as many dollars to buy one ticket for a concert than two tickets for a movie refers to the use of money as a

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A bank's assets are $670 million and its liabilities are $490 million, which means that the bank's net worth (bank capital) is ______. If the bank's assets rise by 6% at the same time that its liabilities rise by 4%, the bank's new net worth will then be _.