Question 1

In addition to fiscal policy, the other main tool used to affect aggregate demand is

Accepted Answer

A)  trade policy. 
B)  industrial policy. 
C)  planning policy. 
D)  monetary policy. 
A)  trade policy. 
B)  industrial policy. 
C)  planning policy. 
D)  monetary policy.

Question 2

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 3

If people begin to hold more cash, the money-multiplier process will

Accepted Answer

A)  increase in intensity. 
B)  remain the same. 
C)  decrease in actual size. 
D)  cause larger amounts of excess reserves. 
A)  increase in intensity. 
B)  remain the same. 
C)  decrease in actual size. 
D)  cause larger amounts of excess reserves.

Question 4

A banker motivated by profit maximization may make decisions that destabilize the banking system.

Accepted Answer

A) True 
 B)False

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

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

Accepted Answer

A) True 
 B)False

Question 7

Systemic risks inhere mainly in the largest financial institutions.

Accepted Answer

A) True 
 B)False

Question 8

Required reserves of banks are a fixed percentage of their

Accepted Answer

A)  loans. 
B)  assets. 
C)  deposits. 
D)  All of these responses are correct. 
A)  loans. 
B)  assets. 
C)  deposits. 
D)  All of these responses are correct.

Question 9

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.

Question 10

Which of the following is included in the M2 definition of the money supply?

Accepted Answer

A)  Cash and currency 
B)  Checkable deposits 
C)  Money market deposit accounts 
D)  Money market mutual funds 
E)  All of these responses are correct. 
A)  Cash and currency 
B)  Checkable deposits 
C)  Money market deposit accounts 
D)  Money market mutual funds 
E)  All of these responses are correct.

Question 11

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 12

The money-creation formula is oversimplified because it assumes that

Accepted Answer

A)  every recipient of a bank loan will redeposit the proceeds in another bank. 
B)  loan recipients will not take any of the proceeds in cash. 
C)  every bank lends out all excess reserves. 
D)  All of these responses are correct. 
A)  every recipient of a bank loan will redeposit the proceeds in another bank. 
B)  loan recipients will not take any of the proceeds in cash. 
C)  every bank lends out all excess reserves. 
D)  All of these responses are correct.

Question 13

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.

Question 14

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 15

The most common form of trading goods for goods is

Accepted Answer

A)  bilateral trade. 
B)  government commodity distribution. 
C)  status-based trades. 
D)  barter. 
E)  payments in kind. 
A)  bilateral trade. 
B)  government commodity distribution. 
C)  status-based trades. 
D)  barter. 
E)  payments in kind.

Question 16

Bankers' decisions on how much to hold in reserves influence the supply of money.

Accepted Answer

A) True 
 B)False

Question 17

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 18

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 19

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 20

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.

Exam 28: Money and the Banking System

In addition to fiscal policy, the other main tool used to affect aggregate demand is

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

If people begin to hold more cash, the money-multiplier process will

A banker motivated by profit maximization may make decisions that destabilize the banking system.

The principal innovation that increases the safety of bank deposits is

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

Systemic risks inhere mainly in the largest financial institutions.

Required reserves of banks are a fixed percentage of their

The net worth of a bank is

Which of the following is included in the M2 definition of the money supply?

Recently, the financial crisis led to a bank run in

The money-creation formula is oversimplified because it assumes that

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

Liquidity refers to the

The most common form of trading goods for goods is

Bankers' decisions on how much to hold in reserves influence the supply of money.

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

Under fractional reserve banking system, banks

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

Bank failures in the United States occurred

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

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 Us Economy

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