Question 1

A principal disadvantage of conventional checking accounts compared to money market mutual funds is that checking accounts

Accepted Answer

A) are less liquid. 
B) often do not pay interest. 
C) cannot be used as a store of value. 
D) are not insured by deposit insurance. 
A) are less liquid. 
B) often do not pay interest. 
C) cannot be used as a store of value. 
D) are not insured by deposit insurance.

Question 2

During the financial crisis of 2007-2009, the U.S.government determined that

Accepted Answer

A) AIG was too big to fail but Lehman Brothers was not. 
B) Lehman Brothers was too big to fail but AIG was not. 
C) both Lehman Brothers and AIG were too big to fail. 
D) neither Lehman Brothers nor AIG were too big to fail. 
A) AIG was too big to fail but Lehman Brothers was not. 
B) Lehman Brothers was too big to fail but AIG was not. 
C) both Lehman Brothers and AIG were too big to fail. 
D) neither Lehman Brothers nor AIG were too big to fail.

Question 3

Banks try to keep their level of excess reserves low because

Accepted Answer

A) the Fed charges a penalty for holdings of excess reserves. 
B) they are concerned that the money multiplier will become too large. 
C) they wish to maximize profits. 
D) bank regulators levy fines on the amount of excess reserves. 
A) the Fed charges a penalty for holdings of excess reserves. 
B) they are concerned that the money multiplier will become too large. 
C) they wish to maximize profits. 
D) bank regulators levy fines on the amount of excess reserves.

Question 4

Systemic risks are most likely to exist with regard to

Accepted Answer

A) small governments. 
B) large governments. 
C) small financial institutions. 
D) large financial institutions. 
A) small governments. 
B) large governments. 
C) small financial institutions. 
D) large financial institutions.

Question 5

Excess reserves are put to use by a bank when it

Accepted Answer

A) puts cash in the vault to back existing loans. 
B) pays off the mortgage on its building. 
C) sells government securities. 
D) makes loans to its customers. 
A) puts cash in the vault to back existing loans. 
B) pays off the mortgage on its building. 
C) sells government securities. 
D) makes loans to its customers.

Question 6

The distinction between M1 and M2 is based on

Accepted Answer

A) portability-the ease with which an asset can be moved. 
B) divisibility-the ease with which an asset can be used to make smaller payments. 
C) liquidity-the ease with which an asset can be converted into cash. 
D) storability-how long an asset will retain its value. 
A) portability-the ease with which an asset can be moved. 
B) divisibility-the ease with which an asset can be used to make smaller payments. 
C) liquidity-the ease with which an asset can be converted into cash. 
D) storability-how long an asset will retain its value.

Question 7

Money that is backed solely by a government decree is referred to as fiat money.

Accepted Answer

A) True 
 B)False

Question 8

The M1 money supply is composed of

Accepted Answer

A) currency, demand deposits, traveler's checks, and other checkable accounts. 
B) currency, demand deposits, savings deposits, money market mutual funds, and small time deposits. 
C) currency, government bonds, gold certificates, and coins. 
D) None of the above is correct. 
A) currency, demand deposits, traveler's checks, and other checkable accounts. 
B) currency, demand deposits, savings deposits, money market mutual funds, and small time deposits. 
C) currency, government bonds, gold certificates, and coins. 
D) None of the above is correct.

Question 9

Fractional reserve banking has three crucial features: bank profitability, bank discretion over the money supply, and bank exposure to runs.

Accepted Answer

A) True 
 B)False

Question 10

Money is almost always used to quote prices.This illustrates the function of money as a

Accepted Answer

A) medium of exchange. 
B) store of value. 
C) unit of account. 
D) commodity value. 
A) medium of exchange. 
B) store of value. 
C) unit of account. 
D) commodity value.

Question 11

Credit cards

Accepted Answer

A) defer payments. 
B) are a store of value.. 
C) have led to a wider use of currency. 
D) All of these responses are correct. 
A) defer payments. 
B) are a store of value.. 
C) have led to a wider use of currency. 
D) All of these responses are correct.

Question 12

Explain why monetary policy is needed specifically with regard to the existence of excess reserves.Compare and contrast the effectiveness of monetary policy during the Great Depression and the Great Recession?

Accepted Answer

During a recession, banks will maintain

Question 13

Money only consists of coins, paper money, and checkable deposits.

Accepted Answer

A) True 
 B)False

Question 14

When a bank loans out $1,000, the money supply

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 15

A unit of account is the function of money when used as a yardstick to post prices and record debts.

Accepted Answer

A) True 
 B)False

Question 16

The increase in bank supervision in the United States in the 1980s and early 1990s was due to an increase in bank

Accepted Answer

A) profits. 
B) ownership of common stocks. 
C) failures. 
D) deposits and loans. 
A) profits. 
B) ownership of common stocks. 
C) failures. 
D) deposits and loans.

Question 17

An increase in the reserve ratio would tend to

Accepted Answer

A) increase excess reserves and raise the money multiplier. 
B) decrease excess reserves and decrease the money multiplier. 
C) increase excess reserves and decrease the money multiplier. 
D) decrease excess reserves and raise the money multiplier. 
A) increase excess reserves and raise the money multiplier. 
B) decrease excess reserves and decrease the money multiplier. 
C) increase excess reserves and decrease the money multiplier. 
D) decrease excess reserves and raise the money multiplier.

Question 18

If the required reserve ratio, m, is 20 percent, then the oversimplified money multiplier is

Accepted Answer

A) 10 
B) 5 
C) 4 
D) 2 
A) 10 
B) 5 
C) 4 
D) 2

Question 19

Which of the following definitions of the money supply includes only the most liquid forms of money?

Accepted Answer

A) M1 
B) M2 
C) Savings deposits 
D) Money market mutual deposits 
A) M1 
B) M2 
C) Savings deposits 
D) Money market mutual deposits

Question 20

The net worth of a bank is

Accepted Answer

A) equal to the value of assets. 
B) equal to the value of deposits. 
C) equal to the value of liabilities. 
D) the value of assets less liabilities. 
E) the value of loans and securities. 
A) equal to the value of assets. 
B) equal to the value of deposits. 
C) equal to the value of liabilities. 
D) the value of assets less liabilities. 
E) the value of loans and securities.

Exam 28: Money and the Banking System

A principal disadvantage of conventional checking accounts compared to money market mutual funds is that checking accounts

During the financial crisis of 2007-2009, the U.S.government determined that

Banks try to keep their level of excess reserves low because

Systemic risks are most likely to exist with regard to

Excess reserves are put to use by a bank when it

The distinction between M1 and M2 is based on

Money that is backed solely by a government decree is referred to as fiat money.

The M1 money supply is composed of

Fractional reserve banking has three crucial features: bank profitability, bank discretion over the money supply, and bank exposure to runs.

Money is almost always used to quote prices.This illustrates the function of money as a

Credit cards

Explain why monetary policy is needed specifically with regard to the existence of excess reserves.Compare and contrast the effectiveness of monetary policy during the Great Depression and the Great Recession?

Money only consists of coins, paper money, and checkable deposits.

When a bank loans out $1,000, the money supply

A unit of account is the function of money when used as a yardstick to post prices and record debts.

The increase in bank supervision in the United States in the 1980s and early 1990s was due to an increase in bank

An increase in the reserve ratio would tend to

If the required reserve ratio, m, is 20 percent, then the oversimplified money multiplier is

Which of the following definitions of the money supply includes only the most liquid forms of money?

The net worth of a bank is

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

The distinction between M₁ and M₂ is based on

The M₁ money supply is composed of