Question 1

Which of the following definitions of the money supply includes only the most liquid forms of money?

Accepted Answer

A)  M₁ 
B)  M2 
C)  savings deposits. 
D)  money market mutual deposits. 
A)  M₁ 
B)  M2 
C)  savings deposits. 
D)  money market mutual deposits.

Question 2

Explain why monetary policy is needed specifically with regard to the existence of excess reserves.Compare and contrast the effectiveness of monetary policy during the Great Depression and the Great Recession?

Accepted Answer

During a recession, banks will maintain

Question 3

A major problem with a commodity money is that, to be useful, money must be

Accepted Answer

A)  divisible. 
B)  storable. 
C)  portable. 
D)  All of the above are correct. 
A)  divisible. 
B)  storable. 
C)  portable. 
D)  All of the above are correct.

Question 4

A bank run involves a large flow of money

Accepted Answer

A)  into bank depositors' accounts. 
B)  into checking and savings accounts. 
C)  out of depositors' accounts. 
D)  out of individuals' cash reserves into money market funds. 
A)  into bank depositors' accounts. 
B)  into checking and savings accounts. 
C)  out of depositors' accounts. 
D)  out of individuals' cash reserves into money market funds.

Question 5

What may limit the size of the money supply expansion to an amount less than indicated by the oversimplified deposit creation formula?

Accepted Answer

The oversimplified deposit creation form

Question 6

The new $20 bills were designed with features to make counterfeiting more difficult.

Accepted Answer

A) True 
 B)False

Question 7

Excess reserves make a bank less vulnerable to runs, but bankers do not like to hold excess reserves because holding excess reserves

Accepted Answer

A)  are disliked by depositors. 
B)  means lower profits for banks. 
C)  are discouraged by government regulators. 
D)  All of the above are correct. 
A)  are disliked by depositors. 
B)  means lower profits for banks. 
C)  are discouraged by government regulators. 
D)  All of the above are correct.

Question 8

During the financial crisis of 2007-2009, the U.S.government determined that

Accepted Answer

A)  AIG was too big to fail but Lehman Brothers was not. 
B)  Lehman Brothers was too big to fail but AIG was not. 
C)  both Lehman Brothers and AIG were too big to fail. 
D)  neither Lehman Brothers nor AIG were too big to fail. 
A)  AIG was too big to fail but Lehman Brothers was not. 
B)  Lehman Brothers was too big to fail but AIG was not. 
C)  both Lehman Brothers and AIG were too big to fail. 
D)  neither Lehman Brothers nor AIG were too big to fail.

Question 9

A banker motivated by profit maximization may make decisions that destabilize the banking system.

Accepted Answer

A) True 
 B)False

Question 10

With the invention of banking, one important aspect of money was that

Accepted Answer

A)  banks have some discretion over the money supply. 
B)  banks have complete control over the money supply. 
C)  governments lost all control over the money supply. 
D)  individuals have no discretion over the money supply. 
A)  banks have some discretion over the money supply. 
B)  banks have complete control over the money supply. 
C)  governments lost all control over the money supply. 
D)  individuals have no discretion over the money supply.

Question 11

The principal innovation that increases the safety of bank deposits is

Accepted Answer

A)  computerized accounting systems. 
B)  credit cards. 
C)  automatic teller machines. 
D)  deposit insurance. 
A)  computerized accounting systems. 
B)  credit cards. 
C)  automatic teller machines. 
D)  deposit insurance.

Question 12

Define the following terms and explain their importance to the study of macroeconomics:
a.money
b.M₁
c.near money
d.bank run

Accepted Answer

a.Money is the standard object used in t

Question 13

Which of the following are not included in the M₁ definition of the money supply?

Accepted Answer

A)  cash and currency 
B)  checkable deposits 
C)  money market deposit accounts 
D)  All of the above are included. 
A)  cash and currency 
B)  checkable deposits 
C)  money market deposit accounts 
D)  All of the above are included.

Question 14

Are funds available on a credit card included in a definition of the money supply?

Accepted Answer

A)  Yes, because these funds can be used to pay for goods and services. 
B)  Yes, because these funds are included in M2. 
C)  No, because these funds are hard to measure total credit card spending. 
D)  No, because these funds are not a store of value. 
A)  Yes, because these funds can be used to pay for goods and services. 
B)  Yes, because these funds are included in M2. 
C)  No, because these funds are hard to measure total credit card spending. 
D)  No, because these funds are not a store of value.

Question 15

Fractional reserve banking began as a search for

Accepted Answer

A)  a different metallic monetary system. 
B)  additional sources of gold. 
C)  different types of borrowers. 
D)  additional profits. 
A)  a different metallic monetary system. 
B)  additional sources of gold. 
C)  different types of borrowers. 
D)  additional profits.

Question 16

The banking system of the United States is a fractional reserve system.What dangers does this pose for the safety of the banking system?

Accepted Answer

Fractional reserve banking means that ea

Question 17

The basic equation for a bank's balance sheet is ____.

Accepted Answer

A)  assets = liabilities - net worth 
B)  net worth = assets - liabilities 
C)  net worth = assets + liabilities 
D)  liabilities = net worth + assets 
A)  assets = liabilities - net worth 
B)  net worth = assets - liabilities 
C)  net worth = assets + liabilities 
D)  liabilities = net worth + assets

Question 18

On the Micronesian island of Yap, the money that is primarily used as currency is

Accepted Answer

A)  paper money. 
B)  wheels made of stone. 
C)  gold. 
D)  shells and gems. 
A)  paper money. 
B)  wheels made of stone. 
C)  gold. 
D)  shells and gems.

Question 19

____ is an object in use as a medium of exchange, but which also has a substantial value in alternative uses.

Accepted Answer

A)  IOU 
B)  A commodity money 
C)  Fiat money 
D)  Deposit certificate 
A)  IOU 
B)  A commodity money 
C)  Fiat money 
D)  Deposit certificate

Exam 29: Money and the Banking System

Which of the following definitions of the money supply includes only the most liquid forms of money?

Explain why monetary policy is needed specifically with regard to the existence of excess reserves.Compare and contrast the effectiveness of monetary policy during the Great Depression and the Great Recession?

A major problem with a commodity money is that, to be useful, money must be

A bank run involves a large flow of money

What may limit the size of the money supply expansion to an amount less than indicated by the oversimplified deposit creation formula?

The new $20 bills were designed with features to make counterfeiting more difficult.

Excess reserves make a bank less vulnerable to runs, but bankers do not like to hold excess reserves because holding excess reserves

During the financial crisis of 2007-2009, the U.S.government determined that

A banker motivated by profit maximization may make decisions that destabilize the banking system.

With the invention of banking, one important aspect of money was that

The principal innovation that increases the safety of bank deposits is

Define the following terms and explain their importance to the study of macroeconomics: a.money b.M₁ c.near money d.bank run

Which of the following are not included in the M₁ definition of the money supply?

Are funds available on a credit card included in a definition of the money supply?

Fractional reserve banking began as a search for

The banking system of the United States is a fractional reserve system.What dangers does this pose for the safety of the banking system?

The basic equation for a bank's balance sheet is ____.

On the Micronesian island of Yap, the money that is primarily used as currency is

____ is an object in use as a medium of exchange, but which also has a substantial value in alternative uses.

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

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