Question 1

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 2

If the required reserve ratio is 10 percent and a bank receives a deposit of $1,000, how much may the bank loan out?

Accepted Answer

A) $100 
B) $200 
C) $900 
D) $300 
A) $100 
B) $200 
C) $900 
D) $300

Question 3

Explain the "too big to fail" doctrine.

Accepted Answer

During a financial crisis, some financia

Question 4

Price levels rarely remain the same.This implies that money is

Accepted Answer

A) an excellent medium of exchange. 
B) divisible. 
C) a good medium for measuring value. 
D) an imperfect medium for storing value. 
A) an excellent medium of exchange. 
B) divisible. 
C) a good medium for measuring value. 
D) an imperfect medium for storing value.

Question 5

During a period of economic depression, such as has existed for a long period in Japan, a profit-oriented bank will act in such a way that

Accepted Answer

A) dampens the fluctuations. 
B) makes the depression worse. 
C) is neutral with respect to the fluctuations. 
D) is counter-cyclical and stabilizing. 
A) dampens the fluctuations. 
B) makes the depression worse. 
C) is neutral with respect to the fluctuations. 
D) is counter-cyclical and stabilizing.

Question 6

A bank run involves a large flow of money

Accepted Answer

A) into bank depositors' accounts. 
B) into checking and savings accounts. 
C) out of depositors' accounts. 
D) out of individuals' cash reserves into money market funds. 
A) into bank depositors' accounts. 
B) into checking and savings accounts. 
C) out of depositors' accounts. 
D) out of individuals' cash reserves into money market funds.

Question 7

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

Question 8

A banker motivated by profit maximization may make decisions that destabilize the banking system.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is included in M1?

Accepted Answer

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

Question 10

Which of the following assets is most liquid?

Accepted Answer

A) Short-term government bonds 
B) Savings accounts 
C) Checking accounts 
D) Currency and coins 
A) Short-term government bonds 
B) Savings accounts 
C) Checking accounts 
D) Currency and coins

Question 11

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 12

When people trade goods for money, money is being used as a medium of exchange.

Accepted Answer

A) True 
 B)False

Question 13

If fears of a terrorist attack are widespread and people lose faith in money, the economy could revert to a system of

Accepted Answer

A) cash and checks. 
B) double-entry bookkeeping. 
C) barter. 
D) financial intermediaries. 
A) cash and checks. 
B) double-entry bookkeeping. 
C) barter. 
D) financial intermediaries.

Question 14

The fractional reserve system of banking evolved because

Accepted Answer

A) goldsmiths did not have safes large enough to hold all their gold deposits. 
B) there was always a dire need for additional money. 
C) goldsmiths knew that on any given day, only a few depositors would come to claim their deposits. 
D) goldsmiths knew that they would not be prosecuted for lending out money they did not have. 
A) goldsmiths did not have safes large enough to hold all their gold deposits. 
B) there was always a dire need for additional money. 
C) goldsmiths knew that on any given day, only a few depositors would come to claim their deposits. 
D) goldsmiths knew that they would not be prosecuted for lending out money they did not have.

Question 15

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 16

Money's principal function is to serve as a

Accepted Answer

A) standard for making loans. 
B) standard for credit reporting. 
C) medium of exchange. 
D) method for storing wealth. 
A) standard for making loans. 
B) standard for credit reporting. 
C) medium of exchange. 
D) method for storing wealth.

Question 17

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 18

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

Question 19

On the Micronesian island of Yap, the money that is primarily used as currency is

Accepted Answer

A) paper money. 
B) wheels made of stone. 
C) gold. 
D) shells and gems. 
A) paper money. 
B) wheels made of stone. 
C) gold. 
D) shells and gems.

Question 20

What is the criticism leveled against deposit insurance by the FDIC?

Accepted Answer

Depositors who are freed from any risk o

Exam 28: Money and the Banking System

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?

If the required reserve ratio is 10 percent and a bank receives a deposit of $1,000, how much may the bank loan out?

Explain the "too big to fail" doctrine.

Price levels rarely remain the same.This implies that money is

During a period of economic depression, such as has existed for a long period in Japan, a profit-oriented bank will act in such a way that

A bank run involves a large flow of money

Barter is a system of

A banker motivated by profit maximization may make decisions that destabilize the banking system.

Which of the following is included in M1?

Which of the following assets is most liquid?

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

When people trade goods for money, money is being used as a medium of exchange.

If fears of a terrorist attack are widespread and people lose faith in money, the economy could revert to a system of

The fractional reserve system of banking evolved because

The occurrence of bank failures in the United States

Money's principal function is to serve as a

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

One intention of deposit insurance is to reduce the danger of

On the Micronesian island of Yap, the money that is primarily used as currency is

What is the criticism leveled against deposit insurance by the FDIC?

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?