Question 1

Systemic risks would be most prevalent at larger banks like Bank of America and Citibank.

Accepted Answer

A) True 
 B)False

Question 2

If you have a checking account at a local bank, your bank account there is a(n)

Accepted Answer

A)  asset to the bank and an asset to you. 
B)  liability of the bank and a liability of yours. 
C)  liability of the bank and an asset to you. 
D)  asset to the bank and a liability of yours. 
A)  asset to the bank and an asset to you. 
B)  liability of the bank and a liability of yours. 
C)  liability of the bank and an asset to you. 
D)  asset to the bank and a liability of yours.

Question 3

In order for barter trades to occur, there must be a

Accepted Answer

A)  singularity of interests. 
B)  bargaining intermediary. 
C)  double coincidence of wants. 
D)  sufficient supply of cash. 
A)  singularity of interests. 
B)  bargaining intermediary. 
C)  double coincidence of wants. 
D)  sufficient supply of cash.

Question 4

In what sense can it be said that money is a social invention? How does a barter system of trade compare to the invention of money?

Accepted Answer

Money is a social invention in the sense

Question 5

Which of the following is a drawback of FDIC insurance?

Accepted Answer

A)  It leads to excess industry profits. 
B)  It has failed to arrest the trend of bank failures. 
C)  It leads to the problem of moral hazard. 
D)  It undercuts private insurance companies. 
A)  It leads to excess industry profits. 
B)  It has failed to arrest the trend of bank failures. 
C)  It leads to the problem of moral hazard. 
D)  It undercuts private insurance companies.

Question 6

Government regulations to insure the safety of bank deposits and to control the money supply include

Accepted Answer

A)  limitations on the types and quantities of assets in which banks may invest. 
B)  elimination of the need for required reserves. 
C)  setting interest rate ceilings on savings and money market deposit accounts. 
D)  All of the above are correct. 
A)  limitations on the types and quantities of assets in which banks may invest. 
B)  elimination of the need for required reserves. 
C)  setting interest rate ceilings on savings and money market deposit accounts. 
D)  All of the above are correct.

Question 7

The banking industry is heavily regulated because

Accepted Answer

A)  banking is a monopoly industry. 
B)  most banks are owned by government agencies. 
C)  bankers do what is best for their stockholders, not necessarily what is best for the economy. 
D)  All of the above are correct. 
A)  banking is a monopoly industry. 
B)  most banks are owned by government agencies. 
C)  bankers do what is best for their stockholders, not necessarily what is best for the economy. 
D)  All of the above are correct.

Question 8

The required reserve ratio is 10 percent, but banks actually keep 20 percent on reserve.The actual money multiplier will be

Accepted Answer

A)  10. 
B)  9. 
C)  5. 
D)  2. 
E)  1. 
A)  10. 
B)  9. 
C)  5. 
D)  2. 
E)  1.

Question 9

Barter is a system of

Accepted Answer

A)  trade without the use of money. 
B)  trading one good for another. 
C)  the double coincidence of wants. 
D)  All of the above are correct. 
A)  trade without the use of money. 
B)  trading one good for another. 
C)  the double coincidence of wants. 
D)  All of the above are correct.

Question 10

A principal disadvantage of conventional checking accounts compared to money market mutual funds is that checking accounts

Accepted Answer

A)  are less liquid. 
B)  often do not pay interest. 
C)  cannot be used as a store of value. 
D)  are not insured by deposit insurance. 
A)  are less liquid. 
B)  often do not pay interest. 
C)  cannot be used as a store of value. 
D)  are not insured by deposit insurance.

Question 11

The composition of M2 as of April 2010 includes saving deposits at savings banks and credit unions.

Accepted Answer

A) True 
 B)False

Question 12

One intention of deposit insurance is to reduce the danger of

Accepted Answer

A)  excess lending. 
B)  excess profits. 
C)  risky lending. 
D)  bank runs. 
E)  All of the above are correct. 
A)  excess lending. 
B)  excess profits. 
C)  risky lending. 
D)  bank runs. 
E)  All of the above are correct.

Question 13

The balance sheet of a solvent bank will show

Accepted Answer

A)  assets = liabilities - net worth. 
B)  assets = liabilities + net worth. 
C)  net worth = assets + liabilities. 
D)  liabilities = assets + net worth. 
A)  assets = liabilities - net worth. 
B)  assets = liabilities + net worth. 
C)  net worth = assets + liabilities. 
D)  liabilities = assets + net worth.

Question 14

As a general rule, you would be unwise to keep a deposit at an FDIC-insured bank in an amount greater than

Accepted Answer

A)  20 percent of the bank's reserves. 
B)  $1,000,000. 
C)  $250,000. 
D)  an infinite amount; there is no limit. 
A)  20 percent of the bank's reserves. 
B)  $1,000,000. 
C)  $250,000. 
D)  an infinite amount; there is no limit.

Question 15

A "near money" is an asset that can be

Accepted Answer

A)  indistinguishable from commodity money. 
B)  spent easily. 
C)  a close substitute for money. 
D)  only issued by a bank. 
A)  indistinguishable from commodity money. 
B)  spent easily. 
C)  a close substitute for money. 
D)  only issued by a bank.

Question 16

One advantage of a money system compared to a barter system is that

Accepted Answer

A)  barter never works. 
B)  money creates the need for banks. 
C)  money is more efficient. 
D)  everyone has money. 
A)  barter never works. 
B)  money creates the need for banks. 
C)  money is more efficient. 
D)  everyone has money.

Question 17

The occurrence of bank failures in the United States

Accepted Answer

A)  ended after 1933 and the creation of the FDIC. 
B)  increased dramatically during the Clinton administration. 
C)  reappeared in intensity in the late 1990s and early 2000s. 
D)  reappeared in the 1980s and early 1990s and again in 2006. 
A)  ended after 1933 and the creation of the FDIC. 
B)  increased dramatically during the Clinton administration. 
C)  reappeared in intensity in the late 1990s and early 2000s. 
D)  reappeared in the 1980s and early 1990s and again in 2006.

Question 18

To a bank, an asset is an obligation that it owes to someone else.

Accepted Answer

A) True 
 B)False

Question 19

If a bank has $1,000,000 in reserves and checking deposits of $3,000,000, what is the bank's reserve position if the required reserve ratio is 20 percent?

Accepted Answer

A)  The bank has $500,000 of required reserves and $500,000 of excess reserves. 
B)  The bank has $600,000 of required reserves and $400,000 of excess reserves. 
C)  The bank has $400,000 of required reserves and $600,000 of excess reserves. 
D)  The bank has $200,000 of required reserves and $800,000 of excess reserves. 
A)  The bank has $500,000 of required reserves and $500,000 of excess reserves. 
B)  The bank has $600,000 of required reserves and $400,000 of excess reserves. 
C)  The bank has $400,000 of required reserves and $600,000 of excess reserves. 
D)  The bank has $200,000 of required reserves and $800,000 of excess reserves.

Question 20

Paper money has been in use since the

Accepted Answer

A)  Roman Empire. 
B)  eleventh century in China. 
C)  Civil War in the United States. 
D)  development of money-center banking in nineteenth-century London. 
A)  Roman Empire. 
B)  eleventh century in China. 
C)  Civil War in the United States. 
D)  development of money-center banking in nineteenth-century London.

Exam 29: Money and the Banking System

Systemic risks would be most prevalent at larger banks like Bank of America and Citibank.

If you have a checking account at a local bank, your bank account there is a(n)

In order for barter trades to occur, there must be a

In what sense can it be said that money is a social invention? How does a barter system of trade compare to the invention of money?

Which of the following is a drawback of FDIC insurance?

Government regulations to insure the safety of bank deposits and to control the money supply include

The banking industry is heavily regulated because

The required reserve ratio is 10 percent, but banks actually keep 20 percent on reserve.The actual money multiplier will be

Barter is a system of

A principal disadvantage of conventional checking accounts compared to money market mutual funds is that checking accounts

The composition of M2 as of April 2010 includes saving deposits at savings banks and credit unions.

One intention of deposit insurance is to reduce the danger of

The balance sheet of a solvent bank will show

As a general rule, you would be unwise to keep a deposit at an FDIC-insured bank in an amount greater than

A "near money" is an asset that can be

One advantage of a money system compared to a barter system is that

The occurrence of bank failures in the United States

To a bank, an asset is an obligation that it owes to someone else.

If a bank has $1,000,000 in reserves and checking deposits of $3,000,000, what is the bank's reserve position if the required reserve ratio is 20 percent?

Paper money has been in use since the

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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