Question 1

The lion's share of purchases and transactions in the U.S.economy are made with coins and paper money.

Accepted Answer

A) True 
 B)False

Question 2

Fractional reserve banking has three crucial features: bank profitability, bank discretion over the money supply, and bank exposure to runs.

Accepted Answer

A) True 
 B)False

Question 3

An asset of a bank is

Accepted Answer

A)  the value of money that is on deposit. 
B)  the amount a depositor may legally borrow. 
C)  something of value that the bank owes to a depositor. 
D)  something of value that a bank owns. 
A)  the value of money that is on deposit. 
B)  the amount a depositor may legally borrow. 
C)  something of value that the bank owes to a depositor. 
D)  something of value that a bank owns.

Question 4

In comparison to commodity money, paper money

Accepted Answer

A)  is not portable. 
B)  has no intrinsic value. 
C)  is not divisible. 
D)  cannot be stored. 
E)  All of the above are correct. 
A)  is not portable. 
B)  has no intrinsic value. 
C)  is not divisible. 
D)  cannot be stored. 
E)  All of the above are correct.

Question 5

Modern paper money is fiat money because it is backed only by the faith the holder has in the government that issued it.

Accepted Answer

A) True 
 B)False

Question 6

Many economists believe that the difference between savings accounts and checking accounts is disappearing.

Accepted Answer

A) True 
 B)False

Question 7

Although a variety of commodities have been used as money, the most commonly used have been

Accepted Answer

A)  stones and cattle. 
B)  shells and beads. 
C)  gold and silver. 
D)  cigarettes and candy bars. 
A)  stones and cattle. 
B)  shells and beads. 
C)  gold and silver. 
D)  cigarettes and candy bars.

Question 8

Systemic risks are most likely to exist with regard to

Accepted Answer

A)  small governments. 
B)  large governments. 
C)  small financial institutions. 
D)  large financial institutions. 
A)  small governments. 
B)  large governments. 
C)  small financial institutions. 
D)  large financial institutions.

Question 9

Which of the following are reasons that banks are so heavily regulated?

Accepted Answer

A)  Governments are concerned about the safety of deposits. 
B)  The industry is a principal determinant of aggregate demand. 
C)  Bank failures are contagious. 
D)  All of the above are correct. 
A)  Governments are concerned about the safety of deposits. 
B)  The industry is a principal determinant of aggregate demand. 
C)  Bank failures are contagious. 
D)  All of the above are correct.

Question 10

Why are the following included in the broader definition of supply known as M2?
(a)money market deposit accounts
(b)money market mutual funds
(c)savings accounts

Accepted Answer

(a)Money market deposit accounts: They a

Question 11

One difference between the assets included in M₁ and those added to calculate M2 is that items in M₁ are

Accepted Answer

A)  better stores of value than those added to compute M2. 
B)  more liquid than those added to compute M2. 
C)  less liquid than those added to compute M2. 
D)  larger than those added to compute M2. 
A)  better stores of value than those added to compute M2. 
B)  more liquid than those added to compute M2. 
C)  less liquid than those added to compute M2. 
D)  larger than those added to compute M2.

Question 12

The narrowest definition of the money supply, including cash and checking deposits, is known as

Accepted Answer

A)  M₀. 
B)  M₁. 
C)  M payments. 
D)  currency. 
E)  real-value money. 
A)  M₀. 
B)  M₁. 
C)  M payments. 
D)  currency. 
E)  real-value money.

Question 13

If Ms.Anniston transfers $1,000 from her checking account to her money market account, then

Accepted Answer

A)  M₁ falls and M2 remains the same. 
B)  M₁ falls and M2 rises. 
C)  both M₁ and M2 rise. 
D)  M₁ remains the same and M2 rises. 
A)  M₁ falls and M2 remains the same. 
B)  M₁ falls and M2 rises. 
C)  both M₁ and M2 rise. 
D)  M₁ remains the same and M2 rises.

Question 14

Inflation increases the use of money as a store of value.

Accepted Answer

A) True 
 B)False

Question 15

In a market system, the most dangerous types of bankruptcies involve

Accepted Answer

A)  industrial monopolies. 
B)  multinational firms. 
C)  employment agencies. 
D)  financial institutions. 
A)  industrial monopolies. 
B)  multinational firms. 
C)  employment agencies. 
D)  financial institutions.

Question 16

A banker operating under a system of fractional reserves

Accepted Answer

A)  is exposed to potential bank runs. 
B)  must keep a prudent level of reserves. 
C)  must lend money carefully. 
D)  All of the above are correct. 
A)  is exposed to potential bank runs. 
B)  must keep a prudent level of reserves. 
C)  must lend money carefully. 
D)  All of the above are correct.

Question 17

The banking system receives a new cash deposit of $250,000.Total deposits eventually rise by $1 million.The value of the reserve ratio is

Accepted Answer

A)  25. 
B)  4. 
C)  0.50. 
D)  0.25. 
E)  0.20. 
A)  25. 
B)  4. 
C)  0.50. 
D)  0.25. 
E)  0.20.

Question 18

Milly Miser removes $250,000 from her mattress and opens a checking account.This single transaction immediately increases the money supply by

Accepted Answer

A)  $250,000. 
B)  $50,000. 
C)  $0. 
D)  -$250,000. 
A)  $250,000. 
B)  $50,000. 
C)  $0. 
D)  -$250,000.

Question 19

On which of the following assets are you most likely to earn interest income?

Accepted Answer

A)  cash and currency 
B)  checkable deposits 
C)  money market deposit accounts 
D)  gold and other precious metals 
E)  All of the above are correct. 
A)  cash and currency 
B)  checkable deposits 
C)  money market deposit accounts 
D)  gold and other precious metals 
E)  All of the above are correct.

Question 20

Bankers have a reputation for conservatism in politics, dress, and business affairs.Is there an economic rationale for this conservatism? Explain.

Accepted Answer

There is an economic rationale for this

Exam 29: Money and the Banking System

The lion's share of purchases and transactions in the U.S.economy are made with coins and paper money.

Fractional reserve banking has three crucial features: bank profitability, bank discretion over the money supply, and bank exposure to runs.

An asset of a bank is

In comparison to commodity money, paper money

Modern paper money is fiat money because it is backed only by the faith the holder has in the government that issued it.

Many economists believe that the difference between savings accounts and checking accounts is disappearing.

Although a variety of commodities have been used as money, the most commonly used have been

Systemic risks are most likely to exist with regard to

Which of the following are reasons that banks are so heavily regulated?

Why are the following included in the broader definition of supply known as M2? (a)money market deposit accounts (b)money market mutual funds (c)savings accounts

One difference between the assets included in M₁ and those added to calculate M2 is that items in M₁ are

The narrowest definition of the money supply, including cash and checking deposits, is known as

If Ms.Anniston transfers $1,000 from her checking account to her money market account, then

Inflation increases the use of money as a store of value.

In a market system, the most dangerous types of bankruptcies involve

A banker operating under a system of fractional reserves

The banking system receives a new cash deposit of $250,000.Total deposits eventually rise by $1 million.The value of the reserve ratio is

Milly Miser removes $250,000 from her mattress and opens a checking account.This single transaction immediately increases the money supply by

On which of the following assets are you most likely to earn interest income?

Bankers have a reputation for conservatism in politics, dress, and business affairs.Is there an economic rationale for this conservatism? Explain.

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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