Question 1

Money fails to act as a store of value when:

Accepted Answer

A)  it is no longer backed by gold. 
B)  the inflation rate is very high. 
C)  the goods produced in an economy are indivisible. 
D)  the economy goes into a recession. 
E)  coins are replaced by paper money. 
A)  it is no longer backed by gold. 
B)  the inflation rate is very high. 
C)  the goods produced in an economy are indivisible. 
D)  the economy goes into a recession. 
E)  coins are replaced by paper money. B

Question 2

Suppose that Mr. Chopp withdraws $500 from his checking account. If the reserve requirement is 5 percent, what will be the maximum potential change in the money supply forthcoming from Mr. Chopp's transaction?

Accepted Answer

A)  $10,000 
B)  $500 
C)  $0 
D)  -$500 
E)  -$10,000 
A)  $10,000 
B)  $500 
C)  $0 
D)  -$500 
E)  -$10,000 E

Question 3

A $1,000 price tag on a stereo system is an example of money as a unit of account.

Accepted Answer

A) True 
 B)False  True

Question 4

The thrift institutions:

Accepted Answer

A)  were nonprofit banking institutions. 
B)  were owned by the Federal Reserve. 
C)  historically offered only savings accounts, not checking accounts. 
D)  controlled the U.S. monetary policy prior to the establishment of the Federal Reserve. 
E)  were monitored by the Federal Deposit Insurance Corporation. 
A)  were nonprofit banking institutions. 
B)  were owned by the Federal Reserve. 
C)  historically offered only savings accounts, not checking accounts. 
D)  controlled the U.S. monetary policy prior to the establishment of the Federal Reserve. 
E)  were monitored by the Federal Deposit Insurance Corporation.

Question 5

Assume that the reserve requirement is 25 percent and that the amount of checkable deposits in Federal Bank is $200. If the bank has loaned out $120, then the bank's excess reserves must equal:

Accepted Answer

A)  $0. 
B)  $25. 
C)  $30. 
D)  $80. 
E)  $225. 
A)  $0. 
B)  $25. 
C)  $30. 
D)  $80. 
E)  $225.

Question 6

The use of money as a medium of exchange requires a double coincidence of wants.

Accepted Answer

A) True 
 B)False

Question 7

A Eurodollar loan is a(n):

Accepted Answer

A)  ECU-denominated loan issued by a U.S. bank. 
B)  dollar-denominated loan payable to a European bank. 
C)  ECU-denominated loan that is subject to banking regulations in both the United States and Europe. 
D)  dollar-denominated loan issued outside the U.S. domestic banking system. 
E)  loan by the European Community to the U.S. government. 
A)  ECU-denominated loan issued by a U.S. bank. 
B)  dollar-denominated loan payable to a European bank. 
C)  ECU-denominated loan that is subject to banking regulations in both the United States and Europe. 
D)  dollar-denominated loan issued outside the U.S. domestic banking system. 
E)  loan by the European Community to the U.S. government.

Question 8

Which of the following is true of unit banking?

Accepted Answer

A)  It is the dominant form of banking in the United Sates. 
B)  It occurs when national banks open interstate branch offices. 
C)  It implies that every financial institution should maintain its account with the Federal Reserve. 
D)  It occurs when a bank is not allowed to operate in more than one location. 
E)  It refers to the monopolization of the banking industry. 
A)  It is the dominant form of banking in the United Sates. 
B)  It occurs when national banks open interstate branch offices. 
C)  It implies that every financial institution should maintain its account with the Federal Reserve. 
D)  It occurs when a bank is not allowed to operate in more than one location. 
E)  It refers to the monopolization of the banking industry.

Question 9

The reciprocal of the reserve requirement is called the:

Accepted Answer

A)  spending multiplier. 
B)  tax multiplier. 
C)  lending multiplier. 
D)  deposit expansion multiplier. 
E)  excess reserve multiplier. 
A)  spending multiplier. 
B)  tax multiplier. 
C)  lending multiplier. 
D)  deposit expansion multiplier. 
E)  excess reserve multiplier.

Question 10

U.S. bank notes have no intrinsic value and yet are widely accepted as a medium of exchange. This is a result of:

Accepted Answer

A)  Gresham's law. 
B)  the use of money as a store of value. 
C)  the fiduciary monetary system. 
D)  the valuation of currency as commodity money. 
E)  the gold and silver reserves of the Federal government that backs the currency. 
A)  Gresham's law. 
B)  the use of money as a store of value. 
C)  the fiduciary monetary system. 
D)  the valuation of currency as commodity money. 
E)  the gold and silver reserves of the Federal government that backs the currency.

Question 11

An increase in the reserve requirement from 20 percent to 25 percent is most likely to:

Accepted Answer

A)  reduce total deposits in the banking system. 
B)  reduce excess reserves and the deposit expansion multiplier. 
C)  increase the money supply. 
D)  reduce the amount of reserves required. 
E)  increase total deposits and the deposit expansion multiplier. 
A)  reduce total deposits in the banking system. 
B)  reduce excess reserves and the deposit expansion multiplier. 
C)  increase the money supply. 
D)  reduce the amount of reserves required. 
E)  increase total deposits and the deposit expansion multiplier.

Question 12

Which of the following is a reason why the Japanese yen is considered money?

Accepted Answer

A)  It is generally accepted as a medium of exchange in all countries of the world. 
B)  Its value over the years has varied significantly. 
C)  Goods in Japan are priced in terms of the yen, the most liquid asset of the economy. 
D)  It is backed by silver. 
E)  It is an asset that lacks liquidity. 
A)  It is generally accepted as a medium of exchange in all countries of the world. 
B)  Its value over the years has varied significantly. 
C)  Goods in Japan are priced in terms of the yen, the most liquid asset of the economy. 
D)  It is backed by silver. 
E)  It is an asset that lacks liquidity.

Question 13

The table given below records the amount of new deposits, the value of required reserves, and total amount loaned out by Banks 1, 2, and 3.
Table 12.3
 $\begin{array}{l}
\begin{array}{|c|c|c|c|}
\hline \text { Bank } & \text { New Deposit } & \begin{array}{c}
\text { Required } \
\text { Reserves }
\end{array} & \text { Loans } \
\hline \text { Bank 1 } & \$ 10,000 & \$ 1,000 & \$ 9,000 \
\hline \text { Bank 2 } & \$ 9,000 & \$ 900 & \$ 8,100 \
\hline \text { Bank 3 } & \$ 8,100 & \$ 810 & \$ 7,290 \
\hline
\end{array}\
\text { *Assume all excess reserves are loaned out. }
\end{array}$
-Refer to Table 12.3. What is the reserve requirement?

Accepted Answer

A)  11 percent 
B)  90 percent 
C)  10 percent 
D)  9 percent 
E)  19 percent 
A)  11 percent 
B)  90 percent 
C)  10 percent 
D)  9 percent 
E)  19 percent

Question 14

In high-inflation countries, workers prefer to spend their income faster compared to low-inflation countries.

Accepted Answer

A) True 
 B)False

Question 15

In the United States, the reserve requirement is set by the:

Accepted Answer

A)  Bank of America. 
B)  federal government. 
C)  U.S. Treasury. 
D)  Federal Reserve Board. 
E)  Department of Commerce. 
A)  Bank of America. 
B)  federal government. 
C)  U.S. Treasury. 
D)  Federal Reserve Board. 
E)  Department of Commerce.

Question 16

In the United States, the different categories of money supply measurement are based on:

Accepted Answer

A)  the elasticity of money. 
B)  the liquidity of money. 
C)  the amount of purchasing power provided. 
D)  the reserve requirements in the banking system. 
E)  the velocity of money. 
A)  the elasticity of money. 
B)  the liquidity of money. 
C)  the amount of purchasing power provided. 
D)  the reserve requirements in the banking system. 
E)  the velocity of money.

Question 17

If a banking system receives an initial deposit of $150,000 and the reserve requirement is 40 percent, the total deposit in the banking system (including the initial deposit) can be expanded by _____.

Accepted Answer

A)  $375,000 
B)  $150,000 
C)  $60,000 
D)  $250,000 
E)  $450,000 
A)  $375,000 
B)  $150,000 
C)  $60,000 
D)  $250,000 
E)  $450,000

Question 18

A depository institution's profit is derived from the difference between:

Accepted Answer

A)  the interest rate it receives on loans and the rate it receives on investments in government securities. 
B)  the interest rate it pays on deposits and the rate it receives on loans. 
C)  its primary deposit and its derivative deposit. 
D)  its assets and its liabilities. 
E)  the interest rate it receives on domestic loans and the rate it receives on Eurodollar loans. 
A)  the interest rate it receives on loans and the rate it receives on investments in government securities. 
B)  the interest rate it pays on deposits and the rate it receives on loans. 
C)  its primary deposit and its derivative deposit. 
D)  its assets and its liabilities. 
E)  the interest rate it receives on domestic loans and the rate it receives on Eurodollar loans.

Question 19

The higher the rate of inflation in Cuba, the greater the probability that Cuban residents will substitute U.S. currency for Cuban currency.

Accepted Answer

A) True 
 B)False

Question 20

The measure of the money supply that includes the fewest types of assets:

Accepted Answer

A)  is M4. 
B)  is M2. 
C)  is M3. 
D)  is M1. 
E)  are both M1 and M3. 
A)  is M4. 
B)  is M2. 
C)  is M3. 
D)  is M1. 
E)  are both M1 and M3.

Money fails to act as a store of value when:

Suppose that Mr. Chopp withdraws $500 from his checking account. If the reserve requirement is 5 percent, what will be the maximum potential change in the money supply forthcoming from Mr. Chopp's transaction?

A $1,000 price tag on a stereo system is an example of money as a unit of account.

The thrift institutions:

Assume that the reserve requirement is 25 percent and that the amount of checkable deposits in Federal Bank is $200. If the bank has loaned out $120, then the bank's excess reserves must equal:

The use of money as a medium of exchange requires a double coincidence of wants.

A Eurodollar loan is a(n):

Which of the following is true of unit banking?

The reciprocal of the reserve requirement is called the:

U.S. bank notes have no intrinsic value and yet are widely accepted as a medium of exchange. This is a result of:

An increase in the reserve requirement from 20 percent to 25 percent is most likely to:

Which of the following is a reason why the Japanese yen is considered money?

In high-inflation countries, workers prefer to spend their income faster compared to low-inflation countries.

In the United States, the reserve requirement is set by the:

In the United States, the different categories of money supply measurement are based on:

If a banking system receives an initial deposit of $150,000 and the reserve requirement is 40 percent, the total deposit in the banking system (including the initial deposit) can be expanded by _____.

A depository institution's profit is derived from the difference between:

The higher the rate of inflation in Cuba, the greater the probability that Cuban residents will substitute U.S. currency for Cuban currency.

The measure of the money supply that includes the fewest types of assets:

Economics: the World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

National Income Accounting

An Introduction to the Foreign Exchange Market and the Balance of Payments

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Aggregate Expenditures

Income and Expenditures Equilibrium

Fiscal Policy

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

Economic Growth

Development Economics

Globalization

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

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Exam 12: Money and Banking

Money fails to act as a store of value when:

Suppose that Mr. Chopp withdraws $500 from his checking account. If the reserve requirement is 5 percent, what will be the maximum potential change in the money supply forthcoming from Mr. Chopp's transaction?

A $1,000 price tag on a stereo system is an example of money as a unit of account.

The thrift institutions:

Assume that the reserve requirement is 25 percent and that the amount of checkable deposits in Federal Bank is $200. If the bank has loaned out $120, then the bank's excess reserves must equal:

The use of money as a medium of exchange requires a double coincidence of wants.

A Eurodollar loan is a(n):

Which of the following is true of unit banking?

The reciprocal of the reserve requirement is called the:

U.S. bank notes have no intrinsic value and yet are widely accepted as a medium of exchange. This is a result of:

An increase in the reserve requirement from 20 percent to 25 percent is most likely to:

Which of the following is a reason why the Japanese yen is considered money?

In high-inflation countries, workers prefer to spend their income faster compared to low-inflation countries.

In the United States, the reserve requirement is set by the:

In the United States, the different categories of money supply measurement are based on:

If a banking system receives an initial deposit of $150,000 and the reserve requirement is 40 percent, the total deposit in the banking system (including the initial deposit) can be expanded by _____.

A depository institution's profit is derived from the difference between:

The higher the rate of inflation in Cuba, the greater the probability that Cuban residents will substitute U.S. currency for Cuban currency.

The measure of the money supply that includes the fewest types of assets:

Economics: the World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

National Income Accounting

An Introduction to the Foreign Exchange Market and the Balance of Payments

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Aggregate Expenditures

Income and Expenditures Equilibrium

Fiscal Policy

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

Economic Growth

Development Economics

Globalization

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

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