Question 1

Liquidity refers to the

Accepted Answer

A) rapidity with which money flows through the economy. 
B) ease with which an asset can be converted into cash. 
C) ease with which banks move funds from checking to savings accounts. 
D) All of these responses are correct. 
A) rapidity with which money flows through the economy. 
B) ease with which an asset can be converted into cash. 
C) ease with which banks move funds from checking to savings accounts. 
D) All of these responses are correct.

Question 2

Excess reserves make a bank less vulnerable to runs, but bankers do not like to hold excess reserves because holding excess reserves

Accepted Answer

A) are disliked by depositors. 
B) means lower profits for banks. 
C) are discouraged by government regulators. 
D) All of these responses are correct. 
A) are disliked by depositors. 
B) means lower profits for banks. 
C) are discouraged by government regulators. 
D) All of these responses are correct.

Question 3

Which of the following was true regarding subprime mortgages that were popular in 2005-2006?

Accepted Answer

A) More than 90 percent of these loans were made by regulated banks. 
B) Bankers expected higher default rates on these loans. 
C) They were generally fixed rate loans. 
D) All of these responses are correct. 
A) More than 90 percent of these loans were made by regulated banks. 
B) Bankers expected higher default rates on these loans. 
C) They were generally fixed rate loans. 
D) All of these responses are correct.

Question 4

Recently, the financial crisis led to a bank run in

Accepted Answer

A) Brazil. 
B) Germany and France. 
C) Japan. 
D) England. 
A) Brazil. 
B) Germany and France. 
C) Japan. 
D) England.

Question 5

A liability to a bank is

Accepted Answer

A) something that the bank owns. 
B) something that the bank owes. 
C) something a customer owes the bank. 
D) the value of bank buildings and hardware. 
A) something that the bank owns. 
B) something that the bank owes. 
C) something a customer owes the bank. 
D) the value of bank buildings and hardware.

Question 6

In which of the following monetary aggregates are Treasury Bills included?

Accepted Answer

A) M1 only 
B) M2 only 
C) Both M1 and M2 
D) Neither M1 nor M2 
A) M1 only 
B) M2 only 
C) Both M1 and M2 
D) Neither M1 nor M2

Question 7

As of December 2010, the largest single component of M2 consists of

Accepted Answer

A) checkable deposits at banks. 
B) cash, coins, and other currency. 
C) savings deposits. 
D) gold and silver in commodity accounts. 
A) checkable deposits at banks. 
B) cash, coins, and other currency. 
C) savings deposits. 
D) gold and silver in commodity accounts.

Question 8

Nowadays, most observers believe that monetary policy

Accepted Answer

A) is less important than fiscal policy. 
B) is more important than fiscal policy. 
C) and fiscal policy are equally important. 
D) and fiscal policy are both unimportant. 
A) is less important than fiscal policy. 
B) is more important than fiscal policy. 
C) and fiscal policy are equally important. 
D) and fiscal policy are both unimportant.

Question 9

The M2 definition of the money supply is based on the concept that

Accepted Answer

A) M1 is a small number and should be increased in size. 
B) many types of deposits can be used as both payments and stores of value. 
C) checking deposits are used for payments, and therefore, not part of M1. 
D) cash is not used for the majority of payments. 
A) M1 is a small number and should be increased in size. 
B) many types of deposits can be used as both payments and stores of value. 
C) checking deposits are used for payments, and therefore, not part of M1. 
D) cash is not used for the majority of payments.

Question 10

Which of the following is a bank liability?

Accepted Answer

A) Cash in the vault 
B) Loans made to customers 
C) Money market deposit accounts 
D) Bank computers 
E) All of these responses are correct. 
A) Cash in the vault 
B) Loans made to customers 
C) Money market deposit accounts 
D) Bank computers 
E) All of these responses are correct.

Question 11

Money market mutual funds are accounts that are

Accepted Answer

A) usually offered by banks. 
B) do not pay interest income. 
C) insured by the federal government. 
D) usually offered by brokerage and insurance firms. 
A) usually offered by banks. 
B) do not pay interest income. 
C) insured by the federal government. 
D) usually offered by brokerage and insurance firms.

Question 12

Bank failures in the United States occurred

Accepted Answer

A) frequently through the 1960s and declined since then. 
B) infrequently through the 1960s and have become more common since then. 
C) frequently through the 1930s, declined after that time, and became more common in 2008. 
D) infrequently through the 1930s, increased after that time, and became less common in 2008. 
A) frequently through the 1960s and declined since then. 
B) infrequently through the 1960s and have become more common since then. 
C) frequently through the 1930s, declined after that time, and became more common in 2008. 
D) infrequently through the 1930s, increased after that time, and became less common in 2008.

Question 13

Fiat money is

Accepted Answer

A) always backed by gold or silver. 
B) useful in buying Italian cars. 
C) only backed by government decree. 
D) not as liquid as precious metals. 
A) always backed by gold or silver. 
B) useful in buying Italian cars. 
C) only backed by government decree. 
D) not as liquid as precious metals.

Question 14

If depositors become worried about the safety of their deposit accounts, they may trigger a

Accepted Answer

A) deposit surplus. 
B) bank run. 
C) fiscal policy crisis. 
D) required reserve increase. 
A) deposit surplus. 
B) bank run. 
C) fiscal policy crisis. 
D) required reserve increase.

Question 15

The largest portion of the M1 money supply consists of

Accepted Answer

A) coins in circulation. 
B) paper currency in circulation. 
C) savings deposits at credit unions. 
D) checkable deposits. 
A) coins in circulation. 
B) paper currency in circulation. 
C) savings deposits at credit unions. 
D) checkable deposits.

Question 16

A store of value is the function of money when used to transfer purchasing power to the future.

Accepted Answer

A) True 
 B)False

Question 17

Many economists believe that savings accounts should be added to M1 because they

Accepted Answer

A) are larger in size than conventional checking accounts. 
B) pay larger interest than checking accounts. 
C) can be transferred quickly into checkable accounts. 
D) are also insured by the federal government. 
A) are larger in size than conventional checking accounts. 
B) pay larger interest than checking accounts. 
C) can be transferred quickly into checkable accounts. 
D) are also insured by the federal government.

Question 18

Why are checking account balances included in the M1 definition of the money supply?

Accepted Answer

A) Checking account balances are a traditional form of money that predates paper money. 
B) Checking account balances are used to make so many payments. 
C) Checking account balances are backed by gold and silver. 
D) Checking account balances pay interest. 
A) Checking account balances are a traditional form of money that predates paper money. 
B) Checking account balances are used to make so many payments. 
C) Checking account balances are backed by gold and silver. 
D) Checking account balances pay interest.

Question 19

Banks that are managed in a very safe and conservative manner can be expected to earn

Accepted Answer

A) high, steady profits. 
B) high but volatile profits. 
C) low and consistent profits. 
D) low profits with occasional major losses. 
A) high, steady profits. 
B) high but volatile profits. 
C) low and consistent profits. 
D) low profits with occasional major losses.

Question 20

Most banks in the United States are owned by the government and operate as nonprofit institutions.

Accepted Answer

A) True 
 B)False

Exam 28: Money and the Banking System

Liquidity refers to the

Excess reserves make a bank less vulnerable to runs, but bankers do not like to hold excess reserves because holding excess reserves

Which of the following was true regarding subprime mortgages that were popular in 2005-2006?

Recently, the financial crisis led to a bank run in

A liability to a bank is

In which of the following monetary aggregates are Treasury Bills included?

As of December 2010, the largest single component of M2 consists of

Nowadays, most observers believe that monetary policy

The M2 definition of the money supply is based on the concept that

Which of the following is a bank liability?

Money market mutual funds are accounts that are

Bank failures in the United States occurred

Fiat money is

If depositors become worried about the safety of their deposit accounts, they may trigger a

The largest portion of the M1 money supply consists of

A store of value is the function of money when used to transfer purchasing power to the future.

Many economists believe that savings accounts should be added to M1 because they

Why are checking account balances included in the M1 definition of the money supply?

Banks that are managed in a very safe and conservative manner can be expected to earn

Most banks in the United States are owned by the government and operate as nonprofit institutions.

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

As of December 2010, the largest single component of M₂ consists of

The M₂ definition of the money supply is based on the concept that

The largest portion of the M₁ money supply consists of

Many economists believe that savings accounts should be added to M₁ because they

Why are checking account balances included in the M₁ definition of the money supply?