Question 1

Describe the circumstances under which the M1 money supply could fall while the M2 money supply remains constant at the same time.

Accepted Answer

In order for the M1 money supply to fall

Question 2

Demand deposits are checking accounts that pay no interest.

Accepted Answer

A) True 
 B)False

Question 3

The dollar amount of reserves a bank must hold is equal to the required reserve ratio times the bank's

Accepted Answer

A) checkable deposits. 
B) total liabilities. 
C) total assets. 
D) sum of the bank's savings and checkable deposits. 
A) checkable deposits. 
B) total liabilities. 
C) total assets. 
D) sum of the bank's savings and checkable deposits.

Question 4

To a bank, reserves are classified as

Accepted Answer

A) an asset. 
B) a liability. 
C) equity 
D) a liability or an asset 
A) an asset. 
B) a liability. 
C) equity 
D) a liability or an asset

Question 5

Exchanges take less time in a barter economy than in a money economy because a double coincidence of wants is necessary for a money economy.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is true?

Accepted Answer

A) Reserves = required reserves - excess reserves. 
B) Reserves - required reserves = excess reserves. 
C) Reserves = required reserves + excess reserves. 
D) b and c 
E) a and b 
A) Reserves = required reserves - excess reserves. 
B) Reserves - required reserves = excess reserves. 
C) Reserves = required reserves + excess reserves. 
D) b and c 
E) a and b

Question 7

Money's basic advantage as compared to barter is that

Accepted Answer

A) everybody has money but not everyone has the opportunity to barter. 
B) a money system relies on a double coincidence of wants. 
C) money reduces transaction costs. 
D) money is the only medium you can use to store your wealth. 
A) everybody has money but not everyone has the opportunity to barter. 
B) a money system relies on a double coincidence of wants. 
C) money reduces transaction costs. 
D) money is the only medium you can use to store your wealth.

Question 8

Bank deposits at the Federal Reserve = $40 billion, vault cash = $2 billion, the required reserve ratio = 0.10, and total checkable deposits = $400 billion. It follows that required reserves equal __________ billion, (total) reserves equal __________ billion and excess reserves equal __________ billion.

Accepted Answer

A) $42; $42; $2 
B) $42; $40; $2 
C) $2; $40; $38 
D) $38; $40; $2 
E) $40; $42; $2 
A) $42; $42; $2 
B) $42; $40; $2 
C) $2; $40; $38 
D) $38; $40; $2 
E) $40; $42; $2

Question 9

Bank A has checkable deposits of $800,000 and total reserves of $200,000. If the required reserve ratio is 0.11, the bank has required reserves of

Accepted Answer

A) $600,000. 
B) $88,000. 
C) $112,000. 
D) $22,000. 
A) $600,000. 
B) $88,000. 
C) $112,000. 
D) $22,000.

Question 10

The Fed pays banks interest on bank deposits held on reserve at the Fed.

Accepted Answer

A) True 
 B)False

Question 11

Required reserves are a set percentage of total reserves that must be held in cash in a bank's vault or in the bank's reserve account at the Fed.

Accepted Answer

A) True 
 B)False

Question 12

A financial system is a means of bringing together savers and borrowers.

Accepted Answer

A) True 
 B)False

Question 13

Money evolved out of the self-interested actions of

Accepted Answer

A) economists. 
B) governments. 
C) a few kings and queens. 
D) individuals. 
A) economists. 
B) governments. 
C) a few kings and queens. 
D) individuals.

Question 14

​
Exhibit 12-4
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​
​
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​
-Refer to Exhibit 12-4. If Bank XYZ's assets rise by 4 percent and its liabilities rise by 2 percent, by what percentage would its bank capital change compared to its original bank capital (i.e. compared to the value originally in blank (A)), ceteris paribus?

Accepted Answer

A) 2 percent 
B) 3 percent 
C) 9.1 percent 
D) 6 percent 
E) There is not enough information provided to answer this question. 
A) 2 percent 
B) 3 percent 
C) 9.1 percent 
D) 6 percent 
E) There is not enough information provided to answer this question.

Question 15

If excess reserves are $10 million, (total) reserves are $14 million, and the required reserve ratio is 10%, then required reserves equal ________________ and checkable deposits equal ____________________.

Accepted Answer

A) $4 million; $40 million 
B) $40 million; $4 million 
C) $24 million; $240 million 
D) $7 million; $70 million 
A) $4 million; $40 million 
B) $40 million; $4 million 
C) $24 million; $240 million 
D) $7 million; $70 million

Question 16

Moral hazard occurs when the parties on once side of the market, who have information not known to others, self select in a way that adversely affects the parties on the other side of the market.

Accepted Answer

A) True 
 B)False

Question 17

The existence and use of the Internet has lowered the transaction costs of making some exchanges.

Accepted Answer

A) True 
 B)False

Question 18

Describe the differences between M1 and M2.

Accepted Answer

M1 is the narrow definition of the money

Question 19

Which of the following is not a component of M1?

Accepted Answer

A) currency held outside banks 
B) traveler's checks 
C) savings deposits 
D) checkable deposits 
A) currency held outside banks 
B) traveler's checks 
C) savings deposits 
D) checkable deposits

Question 20

A savings deposit is a type of

Accepted Answer

A) time deposit that is payable on demand. 
B) time deposit that earns interest and allows the depositor to write checks payable to other persons. 
C) time deposit that does not earn interest but does offer limited check-writing services. 
D) interest-earning account at a bank or thrift institution in which funds can be withdrawn at any time without a penalty payment. 
E) checkable deposit that also pays interest. 
A) time deposit that is payable on demand. 
B) time deposit that earns interest and allows the depositor to write checks payable to other persons. 
C) time deposit that does not earn interest but does offer limited check-writing services. 
D) interest-earning account at a bank or thrift institution in which funds can be withdrawn at any time without a penalty payment. 
E) checkable deposit that also pays interest.

Exam 12: Money Banking and the Financial System

Describe the circumstances under which the M1 money supply could fall while the M2 money supply remains constant at the same time.

Demand deposits are checking accounts that pay no interest.

The dollar amount of reserves a bank must hold is equal to the required reserve ratio times the bank's

To a bank, reserves are classified as

Exchanges take less time in a barter economy than in a money economy because a double coincidence of wants is necessary for a money economy.

Which of the following is true?

Money's basic advantage as compared to barter is that

Bank A has checkable deposits of $800,000 and total reserves of $200,000. If the required reserve ratio is 0.11, the bank has required reserves of

The Fed pays banks interest on bank deposits held on reserve at the Fed.

Required reserves are a set percentage of total reserves that must be held in cash in a bank's vault or in the bank's reserve account at the Fed.

A financial system is a means of bringing together savers and borrowers.

Money evolved out of the self-interested actions of

​ Exhibit 12-4 ​ ​ ​ ​ ​ -Refer to Exhibit 12-4. If Bank XYZ's assets rise by 4 percent and its liabilities rise by 2 percent, by what percentage would its bank capital change compared to its original bank capital (i.e. compared to the value originally in blank (A)), ceteris paribus?

If excess reserves are $10 million, (total) reserves are $14 million, and the required reserve ratio is 10%, then required reserves equal ________________ and checkable deposits equal ____________________.

Moral hazard occurs when the parties on once side of the market, who have information not known to others, self select in a way that adversely affects the parties on the other side of the market.

The existence and use of the Internet has lowered the transaction costs of making some exchanges.

Describe the differences between M1 and M2.

Which of the following is not a component of M1?

A savings deposit is a type of

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand Theory

Prices Free Controlled and Relative

Supply Demand and Price Applications

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Keynesian Macroeconomics and Economic Instability a Critique of the Self Regulating Economy

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Exhibit 12-4 -Refer to Exhibit 12-4. If Bank XYZ's assets rise by 4 percent and its liabilities rise by 2 percent, by what percentage would its bank capital change compared to its original bank capital (i.e. compared to the value originally in blank (A)), ceteris paribus?

If excess reserves are $10 million, (total) reserves are $14 million, and the required reserve ratio is 10%, then required reserves equal and checkable deposits equal ____.