Question 1

Bank regulators are concerned about the safety of depositors because

Accepted Answer

A)  bank failures were common throughout most of U.S.history and have even occurred in recent decades. 
B)  in the absence of federal insurance, depositors would lose their money if a bank failed. 
C)  nervous depositors may rush to withdraw their accounts and produce a "run" that could threaten even a sound bank. 
D)  All of the above are correct. 
A)  bank failures were common throughout most of U.S.history and have even occurred in recent decades. 
B)  in the absence of federal insurance, depositors would lose their money if a bank failed. 
C)  nervous depositors may rush to withdraw their accounts and produce a "run" that could threaten even a sound bank. 
D)  All of the above are correct.

Question 2

When people trade goods for money, money is being used as a medium of exchange.

Accepted Answer

A) True 
 B)False

Question 3

One reason why gold and silver have served as money is that they

Accepted Answer

A)  are easy to produce. 
B)  are easy to duplicate. 
C)  are durable. 
D)  All of the above are correct. 
A)  are easy to produce. 
B)  are easy to duplicate. 
C)  are durable. 
D)  All of the above are correct.

Question 4

Due to the private nature of bank ownership, there is often a difference between bankers' goals and macroeconomic objectives.

Accepted Answer

A) True 
 B)False

Question 5

Agraria uses bushels of wheat to quote prices.In this case, bushels of wheat act as a

Accepted Answer

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

Question 6

As of December 31, 2010, the assets listed on the balance sheet of Bank A were: $1.5 million in cash reserves, and $6 million in outstanding loans to its customers.Its liabilities totaled $6.5 million in checking deposits.What was the bank's net worth on that date?

Accepted Answer

A)  $1 million 
B)  $4.5 million 
C)  $5 million. 
D)  $14 million. 
E)  Zero 
A)  $1 million 
B)  $4.5 million 
C)  $5 million. 
D)  $14 million. 
E)  Zero

Question 7

One conceptual problem in assigning assets to M₁, M2, etc.is

Accepted Answer

A)  distinguishing money from "near monies." 
B)  the problem of measuring asset size. 
C)  the need to agree on a unit of account. 
D)  the different size of financial assets. 
A)  distinguishing money from "near monies." 
B)  the problem of measuring asset size. 
C)  the need to agree on a unit of account. 
D)  the different size of financial assets.

Question 8

Barter transactions typically take place between two individuals with the same goods to supply.

Accepted Answer

A) True 
 B)False

Question 9

An increase in the reserve ratio would tend to

Accepted Answer

A)  increase excess reserves and raise the money multiplier. 
B)  decrease excess reserves and decrease the money multiplier. 
C)  increase excess reserves and decrease the money multiplier. 
D)  decrease excess reserves and raise the money multiplier. 
A)  increase excess reserves and raise the money multiplier. 
B)  decrease excess reserves and decrease the money multiplier. 
C)  increase excess reserves and decrease the money multiplier. 
D)  decrease excess reserves and raise the money multiplier.

Question 10

The type of currency in circulation in the modern U.S.economy is almost entirely

Accepted Answer

A)  commodity money. 
B)  metallic money. 
C)  fiat money. 
D)  silver certificates. 
A)  commodity money. 
B)  metallic money. 
C)  fiat money. 
D)  silver certificates.

Question 11

The initial development of paper money began when people used ____ as payment for goods and services.

Accepted Answer

A)  credit cards 
B)  commodity money 
C)  goldsmith receipts 
D)  gold bullion 
E)  gold coins 
A)  credit cards 
B)  commodity money 
C)  goldsmith receipts 
D)  gold bullion 
E)  gold coins

Question 12

The U.S.government will probably return soon to a system of paper money backed by gold.

Accepted Answer

A) True 
 B)False

Question 13

On the Micronesian island of Yap, it is easier to make purchases with stone wheel currency than it is to make purchases with paper currency including the U.S.dollar.

Accepted Answer

A) True 
 B)False

Question 14

Barter transactions involve a double coincidence of wants.

Accepted Answer

A) True 
 B)False

Question 15

According to the convention followed in the text, "money" consists all of the following except

Accepted Answer

A)  coins. 
B)  credit cards. 
C)  checkable deposits. 
D)  paper money. 
A)  coins. 
B)  credit cards. 
C)  checkable deposits. 
D)  paper money.

Question 16

When a bank makes loans with excess reserves, it

Accepted Answer

A)  creates money. 
B)  destroys money. 
C)  alters the composition of M₁. 
D)  leaves the money supply unchanged. 
A)  creates money. 
B)  destroys money. 
C)  alters the composition of M₁. 
D)  leaves the money supply unchanged.

Question 17

What is fiat money? Why is fiat money important in the United States today?

Accepted Answer

Fiat (from the Latin for "Let it be done

Question 18

Liquidity can be defined as the

Accepted Answer

A)  cash value of money. 
B)  value of money adjusted for inflation. 
C)  value of fiat money when used for spending. 
D)  ease with which an asset can be converted to a spendable asset. 
A)  cash value of money. 
B)  value of money adjusted for inflation. 
C)  value of fiat money when used for spending. 
D)  ease with which an asset can be converted to a spendable asset.

Question 19

The net worth of a bank

Accepted Answer

A)  determines the level of bank loans possible. 
B)  is determined by subtracting liabilities from assets. 
C)  is determined by subtracting assets from liabilities. 
D)  can never be a negative value. 
A)  determines the level of bank loans possible. 
B)  is determined by subtracting liabilities from assets. 
C)  is determined by subtracting assets from liabilities. 
D)  can never be a negative value.

Question 20

The moral hazard problem refers to

Accepted Answer

A)  difficulty banks have in satisfying the government's reserve requirement. 
B)  depositors making a run on the bank, even though the bank is insured. 
C)  banks taking on more risk in their lending because they know their depositors are insured. 
D)  banks issuing bank notes that compete with the government's currency. 
A)  difficulty banks have in satisfying the government's reserve requirement. 
B)  depositors making a run on the bank, even though the bank is insured. 
C)  banks taking on more risk in their lending because they know their depositors are insured. 
D)  banks issuing bank notes that compete with the government's currency.

Exam 29: Money and the Banking System

Bank regulators are concerned about the safety of depositors because

When people trade goods for money, money is being used as a medium of exchange.

One reason why gold and silver have served as money is that they

Due to the private nature of bank ownership, there is often a difference between bankers' goals and macroeconomic objectives.

Agraria uses bushels of wheat to quote prices.In this case, bushels of wheat act as a

As of December 31, 2010, the assets listed on the balance sheet of Bank A were: $1.5 million in cash reserves, and $6 million in outstanding loans to its customers.Its liabilities totaled $6.5 million in checking deposits.What was the bank's net worth on that date?

One conceptual problem in assigning assets to M₁, M2, etc.is

Barter transactions typically take place between two individuals with the same goods to supply.

An increase in the reserve ratio would tend to

The type of currency in circulation in the modern U.S.economy is almost entirely

The initial development of paper money began when people used ____ as payment for goods and services.

The U.S.government will probably return soon to a system of paper money backed by gold.

On the Micronesian island of Yap, it is easier to make purchases with stone wheel currency than it is to make purchases with paper currency including the U.S.dollar.

Barter transactions involve a double coincidence of wants.

According to the convention followed in the text, "money" consists all of the following except

When a bank makes loans with excess reserves, it

What is fiat money? Why is fiat money important in the United States today?

Liquidity can be defined as the

The net worth of a bank

The moral hazard problem refers to

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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