Question 1

Money is almost always used to quote prices.This illustrates the function of money as a

Accepted Answer

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

Question 2

The M2 definition of the money supply is based on the concept that

Accepted Answer

A)  M₁ is a small number, and should be increased in size. 
B)  many types of deposits can be used as both payments and stores of value. 
C)  checking deposits are used for payments, and therefore, not part of M₁. 
D)  cash is not used for the majority of payments. 
A)  M₁ is a small number, and should be increased in size. 
B)  many types of deposits can be used as both payments and stores of value. 
C)  checking deposits are used for payments, and therefore, not part of M₁. 
D)  cash is not used for the majority of payments.

Question 3

Under the modern system of fractional reserve banking, banks

Accepted Answer

A)  keep cash reserves equal to only a fraction of their deposit liabilities. 
B)  loan out their excess reserves at interest, which is the key to their profitability. 
C)  are always potentially vulnerable to runs. 
D)  All of the above are correct. 
A)  keep cash reserves equal to only a fraction of their deposit liabilities. 
B)  loan out their excess reserves at interest, which is the key to their profitability. 
C)  are always potentially vulnerable to runs. 
D)  All of the above are correct.

Question 4

A liability to a bank is

Accepted Answer

A)  something that the bank owns. 
B)  something that the bank owes. 
C)  something a customer owes the bank. 
D)  the value of bank buildings and hardware. 
A)  something that the bank owns. 
B)  something that the bank owes. 
C)  something a customer owes the bank. 
D)  the value of bank buildings and hardware.

Question 5

A run on a bank may occur if

Accepted Answer

A)  depositors withdraw some funds to invest in the stock market. 
B)  required reserves are increased. 
C)  interest rates are raised. 
D)  depositors lose confidence in the bank and attempt to withdraw all their funds. 
E)  All of the above are correct. 
A)  depositors withdraw some funds to invest in the stock market. 
B)  required reserves are increased. 
C)  interest rates are raised. 
D)  depositors lose confidence in the bank and attempt to withdraw all their funds. 
E)  All of the above are correct.

Question 6

During the 2007-2009 financial crisis, the U.S.government decided that Lehman Brothers was not too big to fail and that AIG was too big to fail.

Accepted Answer

A) True 
 B)False

Question 7

Unlike recent events in England, the United States has no recent history of bank failures.

Accepted Answer

A) True 
 B)False

Question 8

The money creation formula is oversimplified because it assumes that

Accepted Answer

A)  every recipient of a bank loan will redeposit the proceeds in another bank. 
B)  loan recipients will not take any of the proceeds in cash. 
C)  every bank lends out all excess reserves. 
D)  All of the above are correct. 
A)  every recipient of a bank loan will redeposit the proceeds in another bank. 
B)  loan recipients will not take any of the proceeds in cash. 
C)  every bank lends out all excess reserves. 
D)  All of the above are correct.

Question 9

The value of the deposit multiplier is increased if individuals hold all their money in cash.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following are included in the M2 definition of the money supply?

Accepted Answer

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

Question 11

The value of the deposit multiplier is 1 divided by the required reserve ratio.

Accepted Answer

A) True 
 B)False

Question 12

Money that is backed solely by a government decree is referred to as fiat money.

Accepted Answer

A) True 
 B)False

Question 13

Bank failures in the U.S.

Accepted Answer

A)  occurred frequently through the 1960s and declined since then. 
B)  occurred infrequently through the 1960s and have become more common since then. 
C)  occurred frequently through the 1930s, declined after that time, and became more common in 2008. 
D)  occurred infrequently through the 1930s, increased after that time, and became less common in 2008. 
A)  occurred frequently through the 1960s and declined since then. 
B)  occurred infrequently through the 1960s and have become more common since then. 
C)  occurred frequently through the 1930s, declined after that time, and became more common in 2008. 
D)  occurred infrequently through the 1930s, increased after that time, and became less common in 2008.

Question 14

Agraria sends wheat to Cyberia in exchange for computers and technology goods.This is an example of

Accepted Answer

A)  unidirectional trade. 
B)  joint venture. 
C)  barter. 
D)  monetary exchange. 
A)  unidirectional trade. 
B)  joint venture. 
C)  barter. 
D)  monetary exchange.

Question 15

Net worth increases in the same proportion as liabilities increase.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following was true regarding sub-prime mortgages that were popular in 2005-2006?

Accepted Answer

A)  More than 90% of these loans were made by regulated banks. 
B)  Bankers expected higher default rates on these loans. 
C)  They were generally fixed rate loans. 
D)  all of the above 
A)  More than 90% of these loans were made by regulated banks. 
B)  Bankers expected higher default rates on these loans. 
C)  They were generally fixed rate loans. 
D)  all of the above

Question 17

Which of the following assets is most liquid?

Accepted Answer

A)  short-term government bonds 
B)  savings accounts 
C)  checking accounts 
D)  currency and coins 
A)  short-term government bonds 
B)  savings accounts 
C)  checking accounts 
D)  currency and coins

Question 18

Which of the following is included in M₁?

Accepted Answer

A)  savings accounts 
B)  money market deposit accounts 
C)  money market mutual funds 
D)  travelers' checks 
E)  None of the above are included. 
A)  savings accounts 
B)  money market deposit accounts 
C)  money market mutual funds 
D)  travelers' checks 
E)  None of the above are included.

Question 19

Recently, the financial crisis led to a bank run in

Accepted Answer

A)  Brazil. 
B)  Germany and France. 
C)  Japan. 
D)  England. 
A)  Brazil. 
B)  Germany and France. 
C)  Japan. 
D)  England.

Question 20

The money multiplier yielded by the deposit creation formula assumes that

Accepted Answer

A)  banks hold no excess reserves. 
B)  banks hold excess reserves. 
C)  recipients of loans take some of the proceeds in cash. 
D)  recipients of loans do not redeposit their funds in other banks. 
A)  banks hold no excess reserves. 
B)  banks hold excess reserves. 
C)  recipients of loans take some of the proceeds in cash. 
D)  recipients of loans do not redeposit their funds in other banks.

Exam 29: Money and the Banking System

Money is almost always used to quote prices.This illustrates the function of money as a

The M2 definition of the money supply is based on the concept that

Under the modern system of fractional reserve banking, banks

A liability to a bank is

A run on a bank may occur if

During the 2007-2009 financial crisis, the U.S.government decided that Lehman Brothers was not too big to fail and that AIG was too big to fail.

Unlike recent events in England, the United States has no recent history of bank failures.

The money creation formula is oversimplified because it assumes that

The value of the deposit multiplier is increased if individuals hold all their money in cash.

Which of the following are included in the M2 definition of the money supply?

The value of the deposit multiplier is 1 divided by the required reserve ratio.

Money that is backed solely by a government decree is referred to as fiat money.

Bank failures in the U.S.

Agraria sends wheat to Cyberia in exchange for computers and technology goods.This is an example of

Net worth increases in the same proportion as liabilities increase.

Which of the following was true regarding sub-prime mortgages that were popular in 2005-2006?

Which of the following assets is most liquid?

Which of the following is included in M₁?

Recently, the financial crisis led to a bank run in

The money multiplier yielded by the deposit creation formula assumes that

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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