Question 1

Money market mutual funds are accounts that are

Accepted Answer

A)  usually offered by banks. 
B)  do not pay interest income. 
C)  insured by the federal government. 
D)  usually offered by brokerage and insurance firms. 
A)  usually offered by banks. 
B)  do not pay interest income. 
C)  insured by the federal government. 
D)  usually offered by brokerage and insurance firms.

Question 2

The concept of money as a "unit of account" involves the use of money to

Accepted Answer

A)  speed transactions. 
B)  reduce shopping time. 
C)  protect against inflation. 
D)  quote prices. 
A)  speed transactions. 
B)  reduce shopping time. 
C)  protect against inflation. 
D)  quote prices.

Question 3

The objective of bank management is to

Accepted Answer

A)  maximize stockholders' profits by making risky investments and giving loans to borrowers who will pay the highest interest rates. 
B)  refuse to make risky loans and make loans only to the safest borrowers. 
C)  invest in U.S.government securities and make loans only to established businesses. 
D)  strike the appropriate balance between the attraction of bank profits and the need for bank safety. 
A)  maximize stockholders' profits by making risky investments and giving loans to borrowers who will pay the highest interest rates. 
B)  refuse to make risky loans and make loans only to the safest borrowers. 
C)  invest in U.S.government securities and make loans only to established businesses. 
D)  strike the appropriate balance between the attraction of bank profits and the need for bank safety.

Question 4

When a banker accepts a deposit of $1,000 in cash and puts $200 aside as required reserves and then makes a loan of $800 to a new borrower, this set of transactions

Accepted Answer

A)  decreases the money supply by $1,000. 
B)  decreases the money supply by $200. 
C)  does not change the money supply. 
D)  increases the money supply by $200. 
E)  increases the money supply by $800. 
A)  decreases the money supply by $1,000. 
B)  decreases the money supply by $200. 
C)  does not change the money supply. 
D)  increases the money supply by $200. 
E)  increases the money supply by $800.

Question 5

Identify the basis on which you measure the liquidity of an asset.

Accepted Answer

A)  Its value. 
B)  Its future earning potential. 
C)  Its convertibility into cash. 
D)  Its ability to act as a perfect store of value. 
A)  Its value. 
B)  Its future earning potential. 
C)  Its convertibility into cash. 
D)  Its ability to act as a perfect store of value.

Question 6

Fiat money is money

Accepted Answer

A)  backed by land. 
B)  backed by gold or silver. 
C)  that can be converted to gold or silver. 
D)  because a government says it is. 
A)  backed by land. 
B)  backed by gold or silver. 
C)  that can be converted to gold or silver. 
D)  because a government says it is.

Question 7

The new $20 bills are being introduced by the U.S.Treasury primarily to diminish

Accepted Answer

A)  inflation. 
B)  poverty. 
C)  counterfeiting. 
D)  bank failures. 
A)  inflation. 
B)  poverty. 
C)  counterfeiting. 
D)  bank failures.

Question 8

Which of the following is included in M₁?

Accepted Answer

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

Question 9

If the banking system has $5 million in excess reserves, and the required reserve ratio is 25 percent, what is the maximum amount by which the money supply can be increased?

Accepted Answer

A)  $25 million 
B)  $20 million 
C)  $5 million 
D)  $2.5 million 
A)  $25 million 
B)  $20 million 
C)  $5 million 
D)  $2.5 million

Question 10

The fractional reserve system of banking evolved because

Accepted Answer

A)  goldsmiths did not have safes large enough to hold all their gold deposits. 
B)  there was always a dire need for additional money. 
C)  goldsmiths knew that on any given day, only a few depositors would come to claim their deposits. 
D)  goldsmiths knew that they would not be prosecuted for lending out money they did not have. 
A)  goldsmiths did not have safes large enough to hold all their gold deposits. 
B)  there was always a dire need for additional money. 
C)  goldsmiths knew that on any given day, only a few depositors would come to claim their deposits. 
D)  goldsmiths knew that they would not be prosecuted for lending out money they did not have.

Question 11

The amount of money held in checking accounts is significantly greater than money in the form of currency.

Accepted Answer

A) True 
 B)False

Question 12

The "efficiency of the payments mechanism" refers to

Accepted Answer

A)  the ease and speed of exchanging money for goods and services. 
B)  how fast member banks replenish required reserves. 
C)  how fast banks pay interest on deposit accounts. 
D)  how fast countries pay off foreign debts. 
A)  the ease and speed of exchanging money for goods and services. 
B)  how fast member banks replenish required reserves. 
C)  how fast banks pay interest on deposit accounts. 
D)  how fast countries pay off foreign debts.

Question 13

If depositors become worried about the safety of their deposit accounts, they may trigger a

Accepted Answer

A)  deposit surplus. 
B)  bank run. 
C)  fiscal policy crisis. 
D)  required reserve increase. 
A)  deposit surplus. 
B)  bank run. 
C)  fiscal policy crisis. 
D)  required reserve increase.

Question 14

In which of the following monetary aggregates are Treasury Bills included?

Accepted Answer

A)  M₁ only 
B)  M2 only 
C)  both M₁ and M2 
D)  neither M₁ nor M2 
A)  M₁ only 
B)  M2 only 
C)  both M₁ and M2 
D)  neither M₁ nor M2

Question 15

The narrowest definition of the money supply (M₁) includes

Accepted Answer

A)  cash and travelers' checks. 
B)  cash, travelers' checks, and savings account balances. 
C)  cash, checking account balances, and travelers' checks. 
D)  cash, bank deposits, and money market accounts. 
A)  cash and travelers' checks. 
B)  cash, travelers' checks, and savings account balances. 
C)  cash, checking account balances, and travelers' checks. 
D)  cash, bank deposits, and money market accounts.

Question 16

Any reserves held by a bank above the amount of minimum legal reserves are called

Accepted Answer

A)  total reserves. 
B)  required reserves. 
C)  fiat money. 
D)  excess reserves. 
A)  total reserves. 
B)  required reserves. 
C)  fiat money. 
D)  excess reserves.

Question 17

Banks try to keep their level of excess reserves low because

Accepted Answer

A)  the Fed charges a penalty for holdings of excess reserves. 
B)  they are concerned that the money multiplier will become too large. 
C)  they wish to maximize profits. 
D)  bank regulators levy fines on the amount of excess reserves. 
A)  the Fed charges a penalty for holdings of excess reserves. 
B)  they are concerned that the money multiplier will become too large. 
C)  they wish to maximize profits. 
D)  bank regulators levy fines on the amount of excess reserves.

Question 18

Which of the following might limit the money creation process to an amount less than the potential amount?

Accepted Answer

A)  bank pursuit of profits 
B)  public holding some cash 
C)  business demand for loan 
D)  increased use of credit cards 
A)  bank pursuit of profits 
B)  public holding some cash 
C)  business demand for loan 
D)  increased use of credit cards

Question 19

Money as defined by M₁ includes

Accepted Answer

A)  coins. 
B)  paper money. 
C)  checking deposits. 
D)  travelers' checks. 
E)  All of the above are correct. 
A)  coins. 
B)  paper money. 
C)  checking deposits. 
D)  travelers' checks. 
E)  All of the above are correct.

Question 20

The deposit creation formula can be defined as

Accepted Answer

A)  one minus the required reserve ratio. 
B)  the same as the GDP income multiplier. 
C)  the reciprocal of the required reserve ratio. 
D)  one plus the required reserve ratio. 
A)  one minus the required reserve ratio. 
B)  the same as the GDP income multiplier. 
C)  the reciprocal of the required reserve ratio. 
D)  one plus the required reserve ratio.

Exam 29: Money and the Banking System

Money market mutual funds are accounts that are

The concept of money as a "unit of account" involves the use of money to

The objective of bank management is to

When a banker accepts a deposit of $1,000 in cash and puts $200 aside as required reserves and then makes a loan of $800 to a new borrower, this set of transactions

Identify the basis on which you measure the liquidity of an asset.

Fiat money is money

The new $20 bills are being introduced by the U.S.Treasury primarily to diminish

Which of the following is included in M₁?

If the banking system has $5 million in excess reserves, and the required reserve ratio is 25 percent, what is the maximum amount by which the money supply can be increased?

The fractional reserve system of banking evolved because

The amount of money held in checking accounts is significantly greater than money in the form of currency.

The "efficiency of the payments mechanism" refers to

If depositors become worried about the safety of their deposit accounts, they may trigger a

In which of the following monetary aggregates are Treasury Bills included?

The narrowest definition of the money supply (M₁) includes

Any reserves held by a bank above the amount of minimum legal reserves are called

Banks try to keep their level of excess reserves low because

Which of the following might limit the money creation process to an amount less than the potential amount?

Money as defined by M₁ includes

The deposit creation formula can be defined as

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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