Question 1

Banks that are managed in a very safe and conservative manner can be expected to earn

Accepted Answer

A)  high, steady profits. 
B)  high but volatile profits. 
C)  low and consistent profits. 
D)  low profits with occasional major losses. 
A)  high, steady profits. 
B)  high but volatile profits. 
C)  low and consistent profits. 
D)  low profits with occasional major losses. C

Question 2

Price levels rarely remain the same.This implies that

Accepted Answer

A)  money is an excellent medium of exchange. 
B)  money is divisible. 
C)  money is a good medium for measuring value. 
D)  money is an imperfect medium for storing value. 
A)  money is an excellent medium of exchange. 
B)  money is divisible. 
C)  money is a good medium for measuring value. 
D)  money is an imperfect medium for storing value. D

Question 3

The one disadvantage of paper money is that it is easier to

Accepted Answer

A)  duplicate and counterfeit. 
B)  carry. 
C)  divide. 
D)  store and use at a later time. 
A)  duplicate and counterfeit. 
B)  carry. 
C)  divide. 
D)  store and use at a later time. A

Question 4

Fiat money is

Accepted Answer

A)  always backed by gold or silver. 
B)  useful in buying Italian cars. 
C)  only backed by government decree. 
D)  not as liquid as precious metals. 
A)  always backed by gold or silver. 
B)  useful in buying Italian cars. 
C)  only backed by government decree. 
D)  not as liquid as precious metals.

Question 5

If the reserve requirement is 20 percent and a new deposit of $10,000 in cash is made by a customer to their checking account, by how much are excess reserves increased?

Accepted Answer

A)  $10,000 
B)  $8,000 
C)  $4,000 
D)  $2,000 
A)  $10,000 
B)  $8,000 
C)  $4,000 
D)  $2,000

Question 6

Which of the following is an example of money serving as a medium of exchange?

Accepted Answer

A)  Richard puts money into a piggy bank. 
B)  Ellen deposits cash into a money market account. 
C)  Sean puts a new $20 bill into his currency collection. 
D)  Marian buys a carbo-loaded drink before a marathon. 
A)  Richard puts money into a piggy bank. 
B)  Ellen deposits cash into a money market account. 
C)  Sean puts a new $20 bill into his currency collection. 
D)  Marian buys a carbo-loaded drink before a marathon.

Question 7

Discuss some of the government regulations designed to ensure depositors' safety and to control the money supply.

Accepted Answer

Deposit insurance: The principal innovat

Question 8

The government banking regulation that places an upper limit on the money supply is

Accepted Answer

A)  deposit insurance by the FDIC. 
B)  reserve requirements on bank deposits. 
C)  periodic bank examinations and audits. 
D)  limitations on the types of assets that a bank may own. 
A)  deposit insurance by the FDIC. 
B)  reserve requirements on bank deposits. 
C)  periodic bank examinations and audits. 
D)  limitations on the types of assets that a bank may own.

Question 9

It is imperative that banks maintain a reputation for safety in order that

Accepted Answer

A)  regulators can reduce their efforts. 
B)  bank runs can be reduced or prevented. 
C)  customers will not be afraid to ask for loans. 
D)  stockholders can earn a high rate of return. 
A)  regulators can reduce their efforts. 
B)  bank runs can be reduced or prevented. 
C)  customers will not be afraid to ask for loans. 
D)  stockholders can earn a high rate of return.

Question 10

If fears of a terrorist attack are widespread and people lose faith in money, the economy could revert to a system of

Accepted Answer

A)  cash and checks. 
B)  double-entry bookkeeping. 
C)  barter. 
D)  financial intermediaries. 
A)  cash and checks. 
B)  double-entry bookkeeping. 
C)  barter. 
D)  financial intermediaries.

Question 11

The primary purpose of bank regulation is to

Accepted Answer

A)  assure that banks do not get into financial trouble. 
B)  assure that banks lend to needy persons and businesses. 
C)  assure that banks maintain a minimum level of profits. 
D)  guarantee bank profitability and prevent stockholder losses. 
A)  assure that banks do not get into financial trouble. 
B)  assure that banks lend to needy persons and businesses. 
C)  assure that banks maintain a minimum level of profits. 
D)  guarantee bank profitability and prevent stockholder losses.

Question 12

Fractional reserve banking began as a result of the search for additional profits.

Accepted Answer

A) True 
 B)False

Question 13

Banking under a fractional reserve system is inherently risky, but

Accepted Answer

A)  safe if banks are allowed to make profits. 
B)  regulation removes all danger of failures. 
C)  is always safely done with modern management. 
D)  is made safer with cautious and prudent management. 
A)  safe if banks are allowed to make profits. 
B)  regulation removes all danger of failures. 
C)  is always safely done with modern management. 
D)  is made safer with cautious and prudent management.

Question 14

The increase in bank supervision in the U.S.in the 1980s and early 1990s was due to an increase in bank

Accepted Answer

A)  profits. 
B)  ownership of common stocks. 
C)  failures. 
D)  deposits and loans. 
A)  profits. 
B)  ownership of common stocks. 
C)  failures. 
D)  deposits and loans.

Question 15

The government regulates the banking industry by

Accepted Answer

A)  conducting frequent audits and examinations. 
B)  limiting the kinds of assets that a bank may own. 
C)  limiting the quantity of some kinds of assets that a bank may own. 
D)  All of the above are correct. 
A)  conducting frequent audits and examinations. 
B)  limiting the kinds of assets that a bank may own. 
C)  limiting the quantity of some kinds of assets that a bank may own. 
D)  All of the above are correct.

Question 16

Bankers must always trade off

Accepted Answer

A)  honesty and dishonesty. 
B)  stocks and loans. 
C)  prudence and profits. 
D)  gold and cash. 
E)  All of the above are correct. 
A)  honesty and dishonesty. 
B)  stocks and loans. 
C)  prudence and profits. 
D)  gold and cash. 
E)  All of the above are correct.

Question 17

The only major disadvantage of paper money is that it is hard to divide into smaller denominations.

Accepted Answer

A) True 
 B)False

Question 18

The FDIC

Accepted Answer

A)  insures most bank deposits for up to $250,000. 
B)  eliminates the need for bank depositors to run to their bank when they hear bad news about the bank. 
C)  has been credited with reducing the number of bank failures since 1933. 
D)  All of the above are correct. 
A)  insures most bank deposits for up to $250,000. 
B)  eliminates the need for bank depositors to run to their bank when they hear bad news about the bank. 
C)  has been credited with reducing the number of bank failures since 1933. 
D)  All of the above are correct.

Question 19

What is a barter system? What are the drawbacks of this system?

Accepted Answer

Barter is a type of trade in which goods

Question 20

Money's principal function is to serve as a

Accepted Answer

A)  standard for making loans. 
B)  standard for credit reporting. 
C)  medium of exchange. 
D)  method for storing wealth. 
A)  standard for making loans. 
B)  standard for credit reporting. 
C)  medium of exchange. 
D)  method for storing wealth.

Exam 29: Money and the Banking System

Banks that are managed in a very safe and conservative manner can be expected to earn

Price levels rarely remain the same.This implies that

The one disadvantage of paper money is that it is easier to

Fiat money is

If the reserve requirement is 20 percent and a new deposit of $10,000 in cash is made by a customer to their checking account, by how much are excess reserves increased?

Which of the following is an example of money serving as a medium of exchange?

Discuss some of the government regulations designed to ensure depositors' safety and to control the money supply.

The government banking regulation that places an upper limit on the money supply is

It is imperative that banks maintain a reputation for safety in order that

If fears of a terrorist attack are widespread and people lose faith in money, the economy could revert to a system of

The primary purpose of bank regulation is to

Fractional reserve banking began as a result of the search for additional profits.

Banking under a fractional reserve system is inherently risky, but

The increase in bank supervision in the U.S.in the 1980s and early 1990s was due to an increase in bank

The government regulates the banking industry by

Bankers must always trade off

The only major disadvantage of paper money is that it is hard to divide into smaller denominations.

The FDIC

What is a barter system? What are the drawbacks of this system?

Money's principal function is to serve as a

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

The Firm and the Industry under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation?

Bringing in the Supply Side: Unemployment and Inflation?

Managing Aggregate Demand: Fiscal Policy

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder?

Exchange Rates and the Macroeconomy

Filters