Question 1

The net worth of a bank is defined as the difference between

Accepted Answer

A)  income and expenses. 
B)  assets and liabilities. 
C)  loans and deposits. 
D)  loans and reserves. 
A)  income and expenses. 
B)  assets and liabilities. 
C)  loans and deposits. 
D)  loans and reserves.

Question 2

As of December 2010, the largest single component of M₁ consists of

Accepted Answer

A)  checkable deposits at banks. 
B)  money market mutual funds. 
C)  savings deposits. 
D)  currency. 
A)  checkable deposits at banks. 
B)  money market mutual funds. 
C)  savings deposits. 
D)  currency.

Question 3

Liquidity refers to the

Accepted Answer

A)  rapidity with which money flows through the economy. 
B)  ease with which an asset can be converted into cash. 
C)  ease with which banks move funds from checking to savings accounts. 
D)  All of the above are correct. 
A)  rapidity with which money flows through the economy. 
B)  ease with which an asset can be converted into cash. 
C)  ease with which banks move funds from checking to savings accounts. 
D)  All of the above are correct.

Question 4

One principle that nearly all economists agree on when defining money is that it should be

Accepted Answer

A)  spendable. 
B)  liquid. 
C)  accepted as payment. 
D)  easily transferable. 
E)  All of the above are correct. 
A)  spendable. 
B)  liquid. 
C)  accepted as payment. 
D)  easily transferable. 
E)  All of the above are correct.

Question 5

A bank run involves a large inflow of money into commercial banks.

Accepted Answer

A) True 
 B)False

Question 6

Currently in the United States, money is backed by

Accepted Answer

A)  silver in the IMF vaults. 
B)  Federal Reserve notes in banks. 
C)  gold in Fort Knox. 
D)  everyone's willingness to accept it. 
A)  silver in the IMF vaults. 
B)  Federal Reserve notes in banks. 
C)  gold in Fort Knox. 
D)  everyone's willingness to accept it.

Question 7

The net worth of a bank is

Accepted Answer

A)  equal to the value of assets. 
B)  equal to the value of deposits. 
C)  equal to the value of liabilities. 
D)  the value of assets less liabilities. 
E)  the value of loans and securities. 
A)  equal to the value of assets. 
B)  equal to the value of deposits. 
C)  equal to the value of liabilities. 
D)  the value of assets less liabilities. 
E)  the value of loans and securities.

Question 8

In addition to fiscal policy, the other main tool used to affect aggregate demand is

Accepted Answer

A)  trade policy. 
B)  industrial policy. 
C)  planning policy. 
D)  monetary policy. 
A)  trade policy. 
B)  industrial policy. 
C)  planning policy. 
D)  monetary policy.

Question 9

Which of the following was a result of the Dodd-Frank Act?

Accepted Answer

A)  restricted bank activities 
B)  established a new consumer protection agency 
C)  tougher regulations for banks 
D)  All of the above 
A)  restricted bank activities 
B)  established a new consumer protection agency 
C)  tougher regulations for banks 
D)  All of the above

Question 10

Gold and silver have historically been the most common form of commodity money.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following definitions of the money supply is the least liquid?

Accepted Answer

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

Question 12

Do bankers create money?

Accepted Answer

A)  No, they cannot do this as private businesses. 
B)  No, they are prevented by federal law. 
C)  Yes, through multiple deposit creation. 
D)  Yes, by opening checking accounts for customers. 
A)  No, they cannot do this as private businesses. 
B)  No, they are prevented by federal law. 
C)  Yes, through multiple deposit creation. 
D)  Yes, by opening checking accounts for customers.

Question 13

Which of the following would be an asset to a bank?

Accepted Answer

A)  cash in the vault 
B)  a loan to a university student 
C)  a government security 
D)  All of the above are correct. 
A)  cash in the vault 
B)  a loan to a university student 
C)  a government security 
D)  All of the above are correct.

Question 14

Banks try to keep their excess reserves at a maximum in order to maximize profits.

Accepted Answer

A) True 
 B)False

Question 15

The primary benefit of a monetary system of exchange compared to a barter system is the increased

Accepted Answer

A)  ability to record transactions. 
B)  time necessary to find trading partners. 
C)  time devoted to shopping. 
D)  efficiency in arranging transactions. 
A)  ability to record transactions. 
B)  time necessary to find trading partners. 
C)  time devoted to shopping. 
D)  efficiency in arranging transactions.

Question 16

When you pay for some purchase with a check, cash must be transferred to another account to pay for the check.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following would be a liability to a bank?

Accepted Answer

A)  cash in the vault 
B)  a loan to a new business 
C)  a checking account of a professor 
D)  All of the above are correct. 
A)  cash in the vault 
B)  a loan to a new business 
C)  a checking account of a professor 
D)  All of the above are correct.

Question 18

It is necessary for the Federal Reserve to regulate the money supply because

Accepted Answer

A)  banks tend to act in a counter-cyclical manner with regard to the money supply. 
B)  banks are not profit-oriented, and tend to be unresponsive to the needs of business. 
C)  left to itself, the banking system will create a gyrating money supply that will be destabilizing. 
D)  left to itself, the banking system will not be able to increase or decrease the money supply. 
A)  banks tend to act in a counter-cyclical manner with regard to the money supply. 
B)  banks are not profit-oriented, and tend to be unresponsive to the needs of business. 
C)  left to itself, the banking system will create a gyrating money supply that will be destabilizing. 
D)  left to itself, the banking system will not be able to increase or decrease the money supply.

Question 19

A single bank is limited in its ability to create money because

Accepted Answer

A)  loan recipients usually take the proceeds of the loan in cash. 
B)  the FDIC will not permit it to create money unless the loans are guaranteed by the federal government. 
C)  the money loaned will probably be deposited in another bank. 
D)  federal legislation prohibits banks from creating money except to finance international trade. 
A)  loan recipients usually take the proceeds of the loan in cash. 
B)  the FDIC will not permit it to create money unless the loans are guaranteed by the federal government. 
C)  the money loaned will probably be deposited in another bank. 
D)  federal legislation prohibits banks from creating money except to finance international trade.

Question 20

Some bank regulation limits the types of assets that banks may own.The intent of this regulation is to

Accepted Answer

A)  protect banks from competition. 
B)  provide banks with a minimum level of profits. 
C)  limit the level of bank profits. 
D)  maintain bank safety. 
E)  All of the above are correct. 
A)  protect banks from competition. 
B)  provide banks with a minimum level of profits. 
C)  limit the level of bank profits. 
D)  maintain bank safety. 
E)  All of the above are correct.

Exam 29: Money and the Banking System

The net worth of a bank is defined as the difference between

As of December 2010, the largest single component of M₁ consists of

Liquidity refers to the

One principle that nearly all economists agree on when defining money is that it should be

A bank run involves a large inflow of money into commercial banks.

Currently in the United States, money is backed by

The net worth of a bank is

In addition to fiscal policy, the other main tool used to affect aggregate demand is

Which of the following was a result of the Dodd-Frank Act?

Gold and silver have historically been the most common form of commodity money.

Which of the following definitions of the money supply is the least liquid?

Do bankers create money?

Which of the following would be an asset to a bank?

Banks try to keep their excess reserves at a maximum in order to maximize profits.

The primary benefit of a monetary system of exchange compared to a barter system is the increased

When you pay for some purchase with a check, cash must be transferred to another account to pay for the check.

Which of the following would be a liability to a bank?

It is necessary for the Federal Reserve to regulate the money supply because

A single bank is limited in its ability to create money because

Some bank regulation limits the types of assets that banks may own.The intent of this regulation is 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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