Question 1

The FDIC

Accepted Answer

A) insures most bank deposits for up to $250,000. 
B) eliminates the need for bank depositors to run to their bank when they hear bad news about the bank. 
C) has been credited with reducing the number of bank failures since 1933. 
D) All of these responses are correct. 
A) insures most bank deposits for up to $250,000. 
B) eliminates the need for bank depositors to run to their bank when they hear bad news about the bank. 
C) has been credited with reducing the number of bank failures since 1933. 
D) All of these responses are correct.

Question 2

The narrowest definition of the money supply (M1) includes

Accepted Answer

A) cash and travelers' checks. 
B) cash, travelers' checks, and savings account balances. 
C) cash, checking account balances, and travelers' checks. 
D) cash, bank deposits, and money market accounts. 
A) cash and travelers' checks. 
B) cash, travelers' checks, and savings account balances. 
C) cash, checking account balances, and travelers' checks. 
D) cash, bank deposits, and money market accounts.

Question 3

One problem for economic stability is that in a period of inflation,

Accepted Answer

A) banks will be tempted to increase lending in order to increase profits. 
B) banks will be tempted to decrease lending in order to increase profits. 
C) profit-oriented banks will tend to hold excess reserves and decrease the money supply. 
D) deposits will decrease and banks will have to reduce lending. 
A) banks will be tempted to increase lending in order to increase profits. 
B) banks will be tempted to decrease lending in order to increase profits. 
C) profit-oriented banks will tend to hold excess reserves and decrease the money supply. 
D) deposits will decrease and banks will have to reduce lending.

Question 4

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 5

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 6

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 7

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 8

Fractional reserve banking began as a search for

Accepted Answer

A) a different metallic monetary system. 
B) additional sources of gold. 
C) different types of borrowers. 
D) additional profits. 
A) a different metallic monetary system. 
B) additional sources of gold. 
C) different types of borrowers. 
D) additional profits.

Question 9

One conceptual problem in assigning assets to M1, M2, and so on, 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 10

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 11

Bank runs are "contagious" in that they often spread to other banks.

Accepted Answer

A) True 
 B)False

Question 12

Why are credit cards not considered part of the money supply?

Accepted Answer

Credit cards lengthen the period of time

Question 13

The primary purpose of bank regulation is to

Accepted Answer

A) assure that banks do not get into financial trouble. 
B) assure that banks lend to needy persons and businesses. 
C) assure that banks maintain a minimum level of profits. 
D) guarantee bank profitability and prevent stockholder losses. 
A) assure that banks do not get into financial trouble. 
B) assure that banks lend to needy persons and businesses. 
C) assure that banks maintain a minimum level of profits. 
D) guarantee bank profitability and prevent stockholder losses.

Question 14

Fiat money is money by government decree.

Accepted Answer

A) True 
 B)False

Question 15

M2 consists of M1 plus savings deposits, small time deposits, money market mutual funds, and a few minor categories.

Accepted Answer

A) True 
 B)False

Question 16

The one disadvantage of paper money is that it is easier to

Accepted Answer

A) duplicate and counterfeit. 
B) carry. 
C) divide. 
D) store and use at a later time. 
A) duplicate and counterfeit. 
B) carry. 
C) divide. 
D) store and use at a later time.

Question 17

Which of the following is a drawback of FDIC insurance?

Accepted Answer

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

Question 18

If the reserve ratio is 4 percent, then the money multiplier is

Accepted Answer

A) 25 
B) 20 
C) 4 
D) None of the above is correct. 
A) 25 
B) 20 
C) 4 
D) None of the above is correct.

Question 19

The most common form of trading goods for goods is

Accepted Answer

A) bilateral trade. 
B) government commodity distribution. 
C) status-based trades. 
D) barter. 
E) payments in kind. 
A) bilateral trade. 
B) government commodity distribution. 
C) status-based trades. 
D) barter. 
E) payments in kind.

Question 20

Discuss some of the government regulations designed to ensure depositors' safety and to control the money supply.

Accepted Answer

Deposit insurance: The principal innovat

Exam 28: Money and the Banking System

The FDIC

The narrowest definition of the money supply (M1) includes

One problem for economic stability is that in a period of inflation,

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

Money is an imperfect store of value when

When a bank makes loans with excess reserves, it

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

Fractional reserve banking began as a search for

One conceptual problem in assigning assets to M1, M2, and so on, is

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

Bank runs are "contagious" in that they often spread to other banks.

Why are credit cards not considered part of the money supply?

The primary purpose of bank regulation is to

Fiat money is money by government decree.

M2 consists of M1 plus savings deposits, small time deposits, money market mutual funds, and a few minor categories.

The one disadvantage of paper money is that it is easier to

Which of the following is a drawback of FDIC insurance?

If the reserve ratio is 4 percent, then the money multiplier is

The most common form of trading goods for goods is

Discuss some of the government regulations designed to ensure depositors' safety and to control the money supply.

What Is Economics

The Economony: 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

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

The Economics of 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

Contemporary Issues in the Useconomy

Filters

The narrowest definition of the money supply (M₁) includes

One conceptual problem in assigning assets to M₁, M₂, and so on, is

M₂ consists of M₁ plus savings deposits, small time deposits, money market mutual funds, and a few minor categories.