Question 1

The main advantage of money market deposit accounts over traditional checking accounts is the ease of check writing.

Accepted Answer

A) True 
 B)False

Question 2

The official definition of the money supply that includes coins, paper money, travelers' checks, conventional checking accounts, and other checkable deposits at banks and savings institutions is called ____.

Accepted Answer

A)  M₁ 
B)  M2 
C)  M3 
D)  L 
A)  M₁ 
B)  M2 
C)  M3 
D)  L

Question 3

Banks are required to keep a minimum level of reserves on hand.The intent of this regulation is

Accepted Answer

A)  monetary control rather than bank safety. 
B)  bank safety in case of bank runs. 
C)  maintenance of bank profits. 
D)  limiting the level of bank profits. 
A)  monetary control rather than bank safety. 
B)  bank safety in case of bank runs. 
C)  maintenance of bank profits. 
D)  limiting the level of bank profits.

Question 4

If you have a checking account at Citibank, the account is a liability of the bank.

Accepted Answer

A) True 
 B)False

Question 5

In an economic system with privately owned, profit-maximizing banks, there will always be a difference between

Accepted Answer

A)  private profits and social profits. 
B)  bank profits and other corporate profits. 
C)  bank profits and macroeconomic objectives. 
D)  bank profits and government profits. 
A)  private profits and social profits. 
B)  bank profits and other corporate profits. 
C)  bank profits and macroeconomic objectives. 
D)  bank profits and government profits.

Question 6

The early goldsmiths issued money in the form of

Accepted Answer

A)  coins made from gold in their safes. 
B)  receipts for the acceptance of gold deposits. 
C)  gold fragments left over from the production of jewelry. 
D)  fully backed gold certificates. 
A)  coins made from gold in their safes. 
B)  receipts for the acceptance of gold deposits. 
C)  gold fragments left over from the production of jewelry. 
D)  fully backed gold certificates.

Question 7

In the modern U.S.economy, most transactions are made with

Accepted Answer

A)  cash. 
B)  gold and silver. 
C)  credit cards. 
D)  checking deposits. 
A)  cash. 
B)  gold and silver. 
C)  credit cards. 
D)  checking deposits.

Question 8

In a monetary system, people will exchange a good for

Accepted Answer

A)  another good. 
B)  a service. 
C)  money. 
D)  gold or other precious metals. 
A)  another good. 
B)  a service. 
C)  money. 
D)  gold or other precious metals.

Question 9

Most observers nowadays see monetary policy as much less important than fiscal policy.

Accepted Answer

A) True 
 B)False

Question 10

Explain the "too big to fail" doctrine.

Accepted Answer

During a financial crisis, some financia

Question 11

The money multiplier process is based on the principle of fractional reserve banking.

Accepted Answer

A) True 
 B)False

Question 12

Bankers' business decisions effect the money supply because bankers

Accepted Answer

A)  are respected men and women. 
B)  have the ability to create money. 
C)  use a special accounting system developed by the Federal Reserve Board. 
D)  All of the above are correct. 
A)  are respected men and women. 
B)  have the ability to create money. 
C)  use a special accounting system developed by the Federal Reserve Board. 
D)  All of the above are correct.

Question 13

"Near monies" are

Accepted Answer

A)  stocks, bonds, and real estate. 
B)  U.S.notes and Federal Reserve notes. 
C)  included in the M₁ definition of the money supply. 
D)  liquid assets that are close substitutes for money. 
E)  All of the above are correct. 
A)  stocks, bonds, and real estate. 
B)  U.S.notes and Federal Reserve notes. 
C)  included in the M₁ definition of the money supply. 
D)  liquid assets that are close substitutes for money. 
E)  All of the above are correct.

Question 14

Most banks in the United States are owned by the government and operate as nonprofit institutions.

Accepted Answer

A) True 
 B)False

Question 15

Money is an imperfect store of value when

Accepted Answer

A)  the rate of inflation is high. 
B)  the unemployment rate is high. 
C)  gold prices are falling. 
D)  businesses are failing due to bankruptcy. 
A)  the rate of inflation is high. 
B)  the unemployment rate is high. 
C)  gold prices are falling. 
D)  businesses are failing due to bankruptcy.

Question 16

If bankers decide to keep a lower fraction of deposits on reserve, the money supply will

Accepted Answer

A)  decrease. 
B)  increase. 
C)  remain unchanged. 
D)  move more quickly through the economy. 
A)  decrease. 
B)  increase. 
C)  remain unchanged. 
D)  move more quickly through the economy.

Question 17

Fiat money has value because it

Accepted Answer

A)  is backed by gold. 
B)  can be used to buy goods and services. 
C)  can be exchanged for precious metals at a fixed price. 
D)  can be divided into smaller units. 
E)  All of the above are correct. 
A)  is backed by gold. 
B)  can be used to buy goods and services. 
C)  can be exchanged for precious metals at a fixed price. 
D)  can be divided into smaller units. 
E)  All of the above are correct.

Question 18

One inconvenience of commodity money is the need for

Accepted Answer

A)  money to be divisible. 
B)  uniform quality. 
C)  portability. 
D)  All of the above are correct. 
A)  money to be divisible. 
B)  uniform quality. 
C)  portability. 
D)  All of the above are correct.

Question 19

If the required reserve ratio, m, is 20 percent, then the oversimplified money multiplier is

Accepted Answer

A)  10. 
B)  5. 
C)  4. 
D)  2. 
A)  10. 
B)  5. 
C)  4. 
D)  2.

Question 20

Which of the following observations is not true?

Accepted Answer

A)  Money is divisible. 
B)  The value of money never remains the same. 
C)  Money has an intrinsic value. 
D)  Money is the most liquid form of asset. 
A)  Money is divisible. 
B)  The value of money never remains the same. 
C)  Money has an intrinsic value. 
D)  Money is the most liquid form of asset.

Exam 29: Money and the Banking System

The main advantage of money market deposit accounts over traditional checking accounts is the ease of check writing.

The official definition of the money supply that includes coins, paper money, travelers' checks, conventional checking accounts, and other checkable deposits at banks and savings institutions is called ____.

Banks are required to keep a minimum level of reserves on hand.The intent of this regulation is

If you have a checking account at Citibank, the account is a liability of the bank.

In an economic system with privately owned, profit-maximizing banks, there will always be a difference between

The early goldsmiths issued money in the form of

In the modern U.S.economy, most transactions are made with

In a monetary system, people will exchange a good for

Most observers nowadays see monetary policy as much less important than fiscal policy.

Explain the "too big to fail" doctrine.

The money multiplier process is based on the principle of fractional reserve banking.

Bankers' business decisions effect the money supply because bankers

"Near monies" are

Most banks in the United States are owned by the government and operate as nonprofit institutions.

Money is an imperfect store of value when

If bankers decide to keep a lower fraction of deposits on reserve, the money supply will

Fiat money has value because it

One inconvenience of commodity money is the need for

If the required reserve ratio, m, is 20 percent, then the oversimplified money multiplier is

Which of the following observations is not true?

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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