Question 1

The value of the deposit multiplier is increased if individuals hold all their money in cash.

Accepted Answer

A) True 
 B)False

Question 2

A major problem with commodity money is that, to be useful, money must be

Accepted Answer

A) divisible. 
B) storable. 
C) portable. 
D) All of these responses are correct. 
A) divisible. 
B) storable. 
C) portable. 
D) All of these responses are correct.

Question 3

The basic equation for a bank's balance sheet is ____.

Accepted Answer

A) assets = liabilities − net worth 
B) net worth = assets − liabilities 
C) net worth = assets + liabilities 
D) liabilities = net worth + assets 
A) assets = liabilities − net worth 
B) net worth = assets − liabilities 
C) net worth = assets + liabilities 
D) liabilities = net worth + assets

Question 4

With the invention of banking, one important aspect of money was that

Accepted Answer

A) banks have some discretion over the money supply. 
B) banks have complete control over the money supply. 
C) governments lost all control over the money supply. 
D) individuals have no discretion over the money supply. 
A) banks have some discretion over the money supply. 
B) banks have complete control over the money supply. 
C) governments lost all control over the money supply. 
D) individuals have no discretion over the money supply.

Question 5

Moral hazard is the idea that when people are insured against the consequences of a risk, they will engage in risker behavior.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is included in M1?

Accepted Answer

A) Savings accounts 
B) Money market deposit accounts 
C) Money market mutual funds 
D) Travelers' checks 
E) None of the above is included. 
A) Savings accounts 
B) Money market deposit accounts 
C) Money market mutual funds 
D) Travelers' checks 
E) None of the above is included.

Question 7

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 8

The money-creation formula is oversimplified because it assumes that

Accepted Answer

A) every recipient of a bank loan will redeposit the proceeds in another bank. 
B) loan recipients will not take any of the proceeds in cash. 
C) every bank lends out all excess reserves. 
D) All of these responses are correct. 
A) every recipient of a bank loan will redeposit the proceeds in another bank. 
B) loan recipients will not take any of the proceeds in cash. 
C) every bank lends out all excess reserves. 
D) All of these responses are correct.

Question 9

The type of currency in circulation in the modern U.S.economy is almost entirely

Accepted Answer

A) commodity money. 
B) metallic money. 
C) fiat money. 
D) silver certificates. 
A) commodity money. 
B) metallic money. 
C) fiat money. 
D) silver certificates.

Question 10

What may limit the size of the money supply expansion to an amount less than indicated by the oversimplified deposit-creation formula?

Accepted Answer

The oversimplified deposit-creation form

Question 11

The money-creation process generated by an injection of reserves stops when

Accepted Answer

A) people deposit their loans into other banks. 
B) reserve requirements are raised. 
C) the increase in required reserves equals the size of the injection. 
D) bankers begin to fear runs and stop making loans. 
A) people deposit their loans into other banks. 
B) reserve requirements are raised. 
C) the increase in required reserves equals the size of the injection. 
D) bankers begin to fear runs and stop making loans.

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

One reason why gold and silver have served as money is that they

Accepted Answer

A) are easy to produce. 
B) are easy to duplicate. 
C) are durable. 
D) All of these responses are correct. 
A) are easy to produce. 
B) are easy to duplicate. 
C) are durable. 
D) All of these responses are correct.

Question 14

Which of the following is an example of money serving as a medium of exchange?

Accepted Answer

A) Richard puts money into a piggy bank. 
B) Ellen deposits cash into a money market account. 
C) Sean puts a new $20 bill into his currency collection. 
D) Marian buys a carbo-loaded drink before a marathon. 
A) Richard puts money into a piggy bank. 
B) Ellen deposits cash into a money market account. 
C) Sean puts a new $20 bill into his currency collection. 
D) Marian buys a carbo-loaded drink before a marathon.

Question 15

In a fractional reserve banking system,

Accepted Answer

A) the fraction of deposits that must be held is determined by the required reserve ratio. 
B) the required reserve ratio is set by the Federal Reserve System. 
C) banks hold reserves equal to only a fraction of their deposits. 
D) All of these responses are correct. 
A) the fraction of deposits that must be held is determined by the required reserve ratio. 
B) the required reserve ratio is set by the Federal Reserve System. 
C) banks hold reserves equal to only a fraction of their deposits. 
D) All of these responses are correct.

Question 16

If the banking system has $5 million in excess reserves and the required reserve ratio is 25 percent, what is the maximum amount by which the money supply can be increased?

Accepted Answer

A) $25 million 
B) $20 million 
C) $5 million 
D) $2.5 million 
A) $25 million 
B) $20 million 
C) $5 million 
D) $2.5 million

Question 17

Which of the following is included in the M2 definition of the money supply?

Accepted Answer

A) Cash and currency 
B) Checkable deposits 
C) Money market deposit accounts 
D) Money market mutual funds 
E) All of these responses are correct. 
A) Cash and currency 
B) Checkable deposits 
C) Money market deposit accounts 
D) Money market mutual funds 
E) All of these responses are correct.

Question 18

Banks create wealth when they lend their excess reserves.

Accepted Answer

A) True 
 B)False

Question 19

Credit cards are

Accepted Answer

A) included in M1 but not M2. 
B) included in M1 and M2. 
C) included in M2 but not M1. 
D) not included in any measure of the money supply. 
A) included in M1 but not M2. 
B) included in M1 and M2. 
C) included in M2 but not M1. 
D) not included in any measure of the money supply.

Question 20

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

Accepted Answer

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

Exam 28: Money and the Banking System

The value of the deposit multiplier is increased if individuals hold all their money in cash.

A major problem with commodity money is that, to be useful, money must be

The basic equation for a bank's balance sheet is ____.

With the invention of banking, one important aspect of money was that

Moral hazard is the idea that when people are insured against the consequences of a risk, they will engage in risker behavior.

Which of the following is included in M1?

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

The money-creation formula is oversimplified because it assumes that

The type of currency in circulation in the modern U.S.economy is almost entirely

What may limit the size of the money supply expansion to an amount less than indicated by the oversimplified deposit-creation formula?

The money-creation process generated by an injection of reserves stops when

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

One reason why gold and silver have served as money is that they

Which of the following is an example of money serving as a medium of exchange?

In a fractional reserve banking system,

If the banking system has $5 million in excess reserves and the required reserve ratio is 25 percent, what is the maximum amount by which the money supply can be increased?

Which of the following is included in the M2 definition of the money supply?

Banks create wealth when they lend their excess reserves.

Credit cards are

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

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

Which of the following is included in M₁?

Which of the following is included in the M₂ definition of the money supply?