Question 1

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 2

The banking system of the United States is a fractional reserve system. What dangers does this pose for the safety of the banking system?

Accepted Answer

Fractional reserve banking means that ea

Question 3

Which of the following assets is most liquid?

Accepted Answer

A)  Short-term government bonds 
B)  Savings accounts 
C)  Checking accounts 
D)  Currency and coins 
A)  Short-term government bonds 
B)  Savings accounts 
C)  Checking accounts 
D)  Currency and coins

Question 4

Which of the following statements is correct?

Accepted Answer

A)  From the bank's point of view, loans to customers are assets of the bank. 
B)  From the bank's point of view, loans to customers are liabilities of the bank. 
C)  From the customer's point of view, loans to customers are assets of the customer. 
D)  From the customer's point of view, loans to customers are liabilities of the customer. 
E)  a and b only
F) a and d only 
A)  From the bank's point of view, loans to customers are assets of the bank. 
B)  From the bank's point of view, loans to customers are liabilities of the bank. 
C)  From the customer's point of view, loans to customers are assets of the customer. 
D)  From the customer's point of view, loans to customers are liabilities of the customer. 
E)  a and b only
F) a and d only

Question 5

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 6

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 7

The maximum increase in the money supply possible from a deposit of $D into the banking system where R is the reserve requirement is

Accepted Answer

A)  (1 / R )( D − R ). 
B)  R × D . 
C)  (1 / R )(1 − R ) D . 
D)  (1 / R ) D . 
A)  (1 / R )( D − R ). 
B)  R × D . 
C)  (1 / R )(1 − R ) D . 
D)  (1 / R ) D .

Question 8

A major problem with commodity money is that, to be useful, money must be

Accepted Answer

A)  divisible. 
B)  storable. 
C)  portable. 
D)  All of these responses are correct. 
A)  divisible. 
B)  storable. 
C)  portable. 
D)  All of these responses are correct.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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 11

The "efficiency of the payments mechanism" refers to

Accepted Answer

A)  the ease and speed of exchanging money for goods and services. 
B)  how fast member banks replenish required reserves. 
C)  how fast banks pay interest on deposit accounts. 
D)  how fast countries pay off foreign debts. 
A)  the ease and speed of exchanging money for goods and services. 
B)  how fast member banks replenish required reserves. 
C)  how fast banks pay interest on deposit accounts. 
D)  how fast countries pay off foreign debts.

Question 12

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 13

What may limit the size of the money supply expansion to an amount less than indicated by the oversimplified deposit-creation formula?

Accepted Answer

The oversimplified deposit-creation form

Question 14

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 15

During the 2007-2009 financial crisis, the U.S. government decided that Lehman Brothers was not too big to fail and that AIG was too big to fail.

Accepted Answer

A) True 
 B)False

Question 16

In what sense can it be said that money is a social invention? How does a barter system of trade compare to the invention of money?

Accepted Answer

Money is a social invention in the sense

Question 17

____ is an object in use as a medium of exchange, but which also has a substantial value in alternative uses.

Accepted Answer

A)  IOU 
B)  Commodity money 
C)  Fiat money 
D)  Deposit certificate 
A)  IOU 
B)  Commodity money 
C)  Fiat money 
D)  Deposit certificate

Question 18

Although a variety of commodities have been used as money, the most commonly used have been

Accepted Answer

A)  stones and cattle. 
B)  shells and beads. 
C)  gold and silver. 
D)  cigarettes and candy bars. 
A)  stones and cattle. 
B)  shells and beads. 
C)  gold and silver. 
D)  cigarettes and candy bars.

Question 19

A system that guarantees that depositors will not lose money even if the bank goes bankrupt is known as

Accepted Answer

A)  deposit insurance. 
B)  banking regulation.. 
C)  reserve. 
D)  None of the above is correct. 
A)  deposit insurance. 
B)  banking regulation.. 
C)  reserve. 
D)  None of the above is correct.

Question 20

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.

Exam 28: Money and the Banking System

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

The banking system of the United States is a fractional reserve system. What dangers does this pose for the safety of the banking system?

Which of the following assets is most liquid?

Which of the following statements is correct?

Which of the following is a bank liability?

Money market mutual funds are accounts that are

The maximum increase in the money supply possible from a deposit of $D into the banking system where R is the reserve requirement is

A major problem with commodity money is that, to be useful, money must be

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

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

The "efficiency of the payments mechanism" refers to

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

What may limit the size of the money supply expansion to an amount less than indicated by the oversimplified deposit-creation formula?

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

During the 2007-2009 financial crisis, the U.S. government decided that Lehman Brothers was not too big to fail and that AIG was too big to fail.

In what sense can it be said that money is a social invention? How does a barter system of trade compare to the invention of money?

____ is an object in use as a medium of exchange, but which also has a substantial value in alternative uses.

Although a variety of commodities have been used as money, the most commonly used have been

A system that guarantees that depositors will not lose money even if the bank goes bankrupt is known as

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

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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