Question 1

Under fractional reserve banking system, banks

Accepted Answer

A) hold more reserves than deposits. 
B) generally lend out majority of the funds deposited. 
C) cause the money supply to fall by lending out reserves. 
D) None of the above is correct. 
A) hold more reserves than deposits. 
B) generally lend out majority of the funds deposited. 
C) cause the money supply to fall by lending out reserves. 
D) None of the above is correct.

Question 2

The narrowest definition of the money supply, including cash and checking deposits, is known as

Accepted Answer

A) M0. 
B) M1. 
C) M payments. 
D) currency. 
E) real-value money. 
A) M0. 
B) M1. 
C) M payments. 
D) currency. 
E) real-value money.

Question 3

Why are the following included in the broader definition of supply known as M2?
(a) money market deposit accounts
(b) money market mutual funds
(c) savings accounts

Accepted Answer

(a) Money market deposit accounts: They

Question 4

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 5

The principal innovation that increases the safety of bank deposits is

Accepted Answer

A) computerized accounting systems. 
B) credit cards. 
C) automatic teller machines. 
D) deposit insurance. 
A) computerized accounting systems. 
B) credit cards. 
C) automatic teller machines. 
D) deposit insurance.

Question 6

What is a barter system? The drawbacks of this system are as follows:

Accepted Answer

Barter is a type of trade in which goods

Question 7

A run on a bank may occur if

Accepted Answer

A) depositors withdraw some funds to invest in the stock market. 
B) required reserves are increased. 
C) interest rates are raised. 
D) depositors lose confidence in the bank and attempt to withdraw all their funds. 
E) All of these responses are correct. 
A) depositors withdraw some funds to invest in the stock market. 
B) required reserves are increased. 
C) interest rates are raised. 
D) depositors lose confidence in the bank and attempt to withdraw all their funds. 
E) All of these responses are correct.

Question 8

Liquidity can be defined as the

Accepted Answer

A) cash value of money. 
B) value of money adjusted for inflation. 
C) value of fiat money when used for spending. 
D) ease with which an asset can be converted to a spendable asset. 
A) cash value of money. 
B) value of money adjusted for inflation. 
C) value of fiat money when used for spending. 
D) ease with which an asset can be converted to a spendable asset.

Question 9

Barter transactions involve a double coincidence of wants.

Accepted Answer

A) True 
 B)False

Question 10

A single bank is limited in its ability to create money because

Accepted Answer

A) loan recipients usually take the proceeds of the loan in cash. 
B) the FDIC will not permit it to create money unless the loans are guaranteed by the federal government. 
C) the money loaned will probably be deposited in another bank. 
D) federal legislation prohibits banks from creating money except to finance international trade. 
A) loan recipients usually take the proceeds of the loan in cash. 
B) the FDIC will not permit it to create money unless the loans are guaranteed by the federal government. 
C) the money loaned will probably be deposited in another bank. 
D) federal legislation prohibits banks from creating money except to finance international trade.

Question 11

The net worth of a bank

Accepted Answer

A) determines the level of bank loans possible. 
B) is determined by subtracting liabilities from assets. 
C) is determined by subtracting assets from liabilities. 
D) can never be a negative value. 
A) determines the level of bank loans possible. 
B) is determined by subtracting liabilities from assets. 
C) is determined by subtracting assets from liabilities. 
D) can never be a negative value.

Question 12

Although checking deposits are considered money, they are actually

Accepted Answer

A) fictitious numbers in persons' checkbooks. 
B) backed by commodities like gold. 
C) not very useful for making payments. 
D) bookkeeping entries in bank balance sheets. 
A) fictitious numbers in persons' checkbooks. 
B) backed by commodities like gold. 
C) not very useful for making payments. 
D) bookkeeping entries in bank balance sheets.

Question 13

Liquid assets that are close substitutes for money are known as

Accepted Answer

A) near moneys. 
B) far moneys 
C) deposits. 
D) None of the above is correct. 
A) near moneys. 
B) far moneys 
C) deposits. 
D) None of the above is correct.

Question 14

Modern paper money is fiat money because it is backed only by the faith the holder has in the government that issued it.

Accepted Answer

A) True 
 B)False

Question 15

Identify the basis on which you measure the liquidity of an asset.

Accepted Answer

A) Its value. 
B) Its future earning potential. 
C) Its convertibility into cash. 
D) Its ability to act as a perfect store of value. 
A) Its value. 
B) Its future earning potential. 
C) Its convertibility into cash. 
D) Its ability to act as a perfect store of value.

Question 16

The government regulates the banking industry by

Accepted Answer

A) conducting frequent audits and examinations. 
B) limiting the kinds of assets that a bank may own. 
C) limiting the quantity of some kinds of assets that a bank may own. 
D) All of these responses are correct. 
A) conducting frequent audits and examinations. 
B) limiting the kinds of assets that a bank may own. 
C) limiting the quantity of some kinds of assets that a bank may own. 
D) All of these responses are correct.

Question 17

Which of the following would be an asset to a bank?

Accepted Answer

A) Cash in the vault 
B) A loan to a university student 
C) A government security 
D) All of these responses are correct. 
A) Cash in the vault 
B) A loan to a university student 
C) A government security 
D) All of these responses are correct.

Question 18

The early goldsmiths issued money in the form of

Accepted Answer

A) coins made from gold in their safes. 
B) receipts for the acceptance of gold deposits. 
C) gold fragments left over from the production of jewelry. 
D) fully backed gold certificates. 
A) coins made from gold in their safes. 
B) receipts for the acceptance of gold deposits. 
C) gold fragments left over from the production of jewelry. 
D) fully backed gold certificates.

Question 19

Agraria sends wheat to Cyberia in exchange for computers and technology goods.This is an example of

Accepted Answer

A) unidirectional trade. 
B) joint venture. 
C) barter. 
D) monetary exchange. 
A) unidirectional trade. 
B) joint venture. 
C) barter. 
D) monetary exchange.

Question 20

The primary benefit of a monetary system of exchange compared to a barter system is the increased

Accepted Answer

A) ability to record transactions. 
B) time necessary to find trading partners. 
C) time devoted to shopping. 
D) efficiency in arranging transactions. 
A) ability to record transactions. 
B) time necessary to find trading partners. 
C) time devoted to shopping. 
D) efficiency in arranging transactions.

Exam 28: Money and the Banking System

Under fractional reserve banking system, banks

The narrowest definition of the money supply, including cash and checking deposits, is known as

Why are the following included in the broader definition of supply known as M2? (a) money market deposit accounts (b) money market mutual funds (c) savings accounts

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

The principal innovation that increases the safety of bank deposits is

What is a barter system? The drawbacks of this system are as follows:

A run on a bank may occur if

Liquidity can be defined as the

Barter transactions involve a double coincidence of wants.

A single bank is limited in its ability to create money because

The net worth of a bank

Although checking deposits are considered money, they are actually

Liquid assets that are close substitutes for money are known as

Modern paper money is fiat money because it is backed only by the faith the holder has in the government that issued it.

Identify the basis on which you measure the liquidity of an asset.

The government regulates the banking industry by

Which of the following would be an asset to a bank?

The early goldsmiths issued money in the form of

Agraria sends wheat to Cyberia in exchange for computers and technology goods.This is an example of

The primary benefit of a monetary system of exchange compared to a barter system is the increased

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

Why are the following included in the broader definition of supply known as M₂? (a) money market deposit accounts (b) money market mutual funds (c) savings accounts