Question 1

Bankers must always trade off

Accepted Answer

A) honesty and dishonesty. 
B) stocks and loans. 
C) prudence and profits. 
D) gold and cash. 
E) All of these responses are correct. 
A) honesty and dishonesty. 
B) stocks and loans. 
C) prudence and profits. 
D) gold and cash. 
E) All of these responses are correct.

Question 2

Fiat money has value because it

Accepted Answer

A) is backed by gold. 
B) can be used to buy goods and services. 
C) can be exchanged for precious metals at a fixed price. 
D) can be divided into smaller units. 
E) All of these responses are correct. 
A) is backed by gold. 
B) can be used to buy goods and services. 
C) can be exchanged for precious metals at a fixed price. 
D) can be divided into smaller units. 
E) All of these responses are correct.

Question 3

The concept of money as a "unit of account" involves the use of money to

Accepted Answer

A) speed transactions. 
B) reduce shopping time. 
C) protect against inflation. 
D) quote prices. 
A) speed transactions. 
B) reduce shopping time. 
C) protect against inflation. 
D) quote prices.

Question 4

Money as defined by M1 includes

Accepted Answer

A) coins. 
B) paper money. 
C) checking deposits. 
D) travelers' checks. 
E) All of these responses are correct. 
A) coins. 
B) paper money. 
C) checking deposits. 
D) travelers' checks. 
E) All of these responses are correct.

Question 5

In a market system, the most dangerous types of bankruptcies involve

Accepted Answer

A) industrial monopolies. 
B) multinational firms. 
C) employment agencies. 
D) financial institutions. 
A) industrial monopolies. 
B) multinational firms. 
C) employment agencies. 
D) financial institutions.

Question 6

As the reserve ratio increases, the money multiplier

Accepted Answer

A) increases. 
B) decreases. 
C) does not change. 
D) None of the above is correct.. 
A) increases. 
B) decreases. 
C) does not change. 
D) None of the above is correct..

Question 7

What is fiat money? Why is fiat money important in the United States today?

Accepted Answer

Fiat (from the Latin for "Let it be done

Question 8

Any reserves held by a bank above the amount of minimum legal reserves are called

Accepted Answer

A) total reserves. 
B) required reserves. 
C) fiat money. 
D) excess reserves. 
A) total reserves. 
B) required reserves. 
C) fiat money. 
D) excess reserves.

Question 9

Under the modern system of fractional reserve banking, banks

Accepted Answer

A) keep cash reserves equal to only a fraction of their deposit liabilities. 
B) loan out their excess reserves at interest, which is the key to their profitability. 
C) are always potentially vulnerable to runs. 
D) All of these responses are correct. 
A) keep cash reserves equal to only a fraction of their deposit liabilities. 
B) loan out their excess reserves at interest, which is the key to their profitability. 
C) are always potentially vulnerable to runs. 
D) All of these responses are correct.

Question 10

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

Question 11

Inflation increases the use of money as a store of value.

Accepted Answer

A) True 
 B)False

Question 12

The deposit-creation formula can be defined as

Accepted Answer

A) one minus the required reserve ratio. 
B) the same as the GDP income multiplier. 
C) the reciprocal of the required reserve ratio. 
D) one plus the required reserve ratio. 
A) one minus the required reserve ratio. 
B) the same as the GDP income multiplier. 
C) the reciprocal of the required reserve ratio. 
D) one plus the required reserve ratio.

Question 13

Gold, silver, and cigarettes in a prisoner of war are all examples of commodity money.

Accepted Answer

A) True 
 B)False

Question 14

Bank regulators are concerned about the safety of depositors because

Accepted Answer

A) bank failures were common throughout most of the U.S.history and have even occurred in recent decades. 
B) in the absence of federal insurance, depositors would lose their money if a bank failed. 
C) nervous depositors may rush to withdraw their accounts and produce a "run" that could threaten even a sound bank. 
D) All of these responses are correct. 
A) bank failures were common throughout most of the U.S.history and have even occurred in recent decades. 
B) in the absence of federal insurance, depositors would lose their money if a bank failed. 
C) nervous depositors may rush to withdraw their accounts and produce a "run" that could threaten even a sound bank. 
D) All of these responses are correct.

Question 15

The value of the deposit multiplier is 1 divided by the required reserve ratio.

Accepted Answer

A) True 
 B)False

Question 16

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 17

The new $20 bills are being introduced by the U.S.Treasury primarily to diminish

Accepted Answer

A) inflation. 
B) poverty. 
C) counterfeiting. 
D) bank failures. 
A) inflation. 
B) poverty. 
C) counterfeiting. 
D) bank failures.

Question 18

The banking system of the United States is a fractional reserve system.What dangers does this pose for the safety of the banking system?

Accepted Answer

Fractional reserve banking means that ea

Question 19

An important effect of fractional reserve banking is that bankers have

Accepted Answer

A) little control over total reserves. 
B) total control over the amount of lending in the economy. 
C) no control over the amount of reserves in the banking system. 
D) some discretion over the money supply. 
A) little control over total reserves. 
B) total control over the amount of lending in the economy. 
C) no control over the amount of reserves in the banking system. 
D) some discretion over the money supply.

Question 20

Which of the following is the term used to describe a failing bank selling off a substantial amount of assets in a short time period in order to remain solvent?

Accepted Answer

A) Fire sale 
B) Short sale 
C) Long sale 
D) Liquidity sale 
A) Fire sale 
B) Short sale 
C) Long sale 
D) Liquidity sale

Exam 28: Money and the Banking System

Bankers must always trade off

Fiat money has value because it

The concept of money as a "unit of account" involves the use of money to

Money as defined by M1 includes

In a market system, the most dangerous types of bankruptcies involve

As the reserve ratio increases, the money multiplier

What is fiat money? Why is fiat money important in the United States today?

Any reserves held by a bank above the amount of minimum legal reserves are called

Under the modern system of fractional reserve banking, banks

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

Inflation increases the use of money as a store of value.

The deposit-creation formula can be defined as

Gold, silver, and cigarettes in a prisoner of war are all examples of commodity money.

Bank regulators are concerned about the safety of depositors because

The value of the deposit multiplier is 1 divided by the required reserve ratio.

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

The new $20 bills are being introduced by the U.S.Treasury primarily to diminish

The banking system of the United States is a fractional reserve system.What dangers does this pose for the safety of the banking system?

An important effect of fractional reserve banking is that bankers have

Which of the following is the term used to describe a failing bank selling off a substantial amount of assets in a short time period in order to remain solvent?

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

Money as defined by M₁ includes