Question 1

Unlike recent events in England, the United States has no recent history of bank failures.

Accepted Answer

A) True 
 B)False

Question 2

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 3

Which of the following types of money has intrinsic value?

Accepted Answer

A)  Commodity money 
B)  Fiat money 
C)  Both commodity and fiat money 
D)  None of the above is correct. 
A)  Commodity money 
B)  Fiat money 
C)  Both commodity and fiat money 
D)  None of the above is correct.

Question 4

A run on a bank occurs when many depositors withdraw cash from their accounts all at once.

Accepted Answer

A) True 
 B)False

Question 5

It is necessary for the Federal Reserve to regulate the money supply because

Accepted Answer

A)  banks tend to act in a counter-cyclical manner with regard to the money supply. 
B)  banks are not profit oriented and tend to be unresponsive to the needs of business. 
C)  left to itself, the banking system will create a gyrating money supply that will be destabilizing. 
D)  left to itself, the banking system will not be able to increase or decrease the money supply. 
A)  banks tend to act in a counter-cyclical manner with regard to the money supply. 
B)  banks are not profit oriented and tend to be unresponsive to the needs of business. 
C)  left to itself, the banking system will create a gyrating money supply that will be destabilizing. 
D)  left to itself, the banking system will not be able to increase or decrease the money supply.

Question 6

An asset of a bank is

Accepted Answer

A)  the value of money that is on deposit. 
B)  the amount a depositor may legally borrow. 
C)  something of value that the bank owes to a depositor. 
D)  something of value that a bank owns. 
A)  the value of money that is on deposit. 
B)  the amount a depositor may legally borrow. 
C)  something of value that the bank owes to a depositor. 
D)  something of value that a bank owns.

Question 7

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 8

Fiat money is money

Accepted Answer

A)  backed by land. 
B)  backed by gold or silver. 
C)  that can be converted to gold or silver. 
D)  because a government says it is. 
A)  backed by land. 
B)  backed by gold or silver. 
C)  that can be converted to gold or silver. 
D)  because a government says it is.

Question 9

The concept of money as a "unit of account" involves the use of money to

Accepted Answer

A)  speed transactions. 
B)  reduce shopping time. 
C)  protect against inflation. 
D)  quote prices. 
A)  speed transactions. 
B)  reduce shopping time. 
C)  protect against inflation. 
D)  quote prices.

Question 10

If you have a checking account at a local bank, your bank account there is a(n)

Accepted Answer

A)  asset to the bank and an asset to you. 
B)  liability of the bank and a liability of yours. 
C)  liability of the bank and an asset to you. 
D)  asset to the bank and a liability of yours. 
A)  asset to the bank and an asset to you. 
B)  liability of the bank and a liability of yours. 
C)  liability of the bank and an asset to you. 
D)  asset to the bank and a liability of yours.

Question 11

The primary feature of money is that it serves as

Accepted Answer

A)  barter value. 
B)  a medium of exchange. 
C)  intrinsic value. 
D)  commodity value. 
A)  barter value. 
B)  a medium of exchange. 
C)  intrinsic value. 
D)  commodity value.

Question 12

On the Micronesian island of Yap, the money that is primarily used as currency is

Accepted Answer

A)  paper money. 
B)  wheels made of stone. 
C)  gold. 
D)  shells and gems. 
A)  paper money. 
B)  wheels made of stone. 
C)  gold. 
D)  shells and gems.

Question 13

Money as defined by M1 includes

Accepted Answer

A)  coins. 
B)  paper money. 
C)  checking deposits. 
D)  travelers' checks. 
E)  All of these responses are correct. 
A)  coins. 
B)  paper money. 
C)  checking deposits. 
D)  travelers' checks. 
E)  All of these responses are correct.

Question 14

Banking under a system of fractional reserves is a(n)

Accepted Answer

A)  inherently risky business that is unsafe regardless of bank management. 
B)  inherently risky business that is relatively safe under prudent management. 
C)  fairly safe business unless management is irresponsible. 
D)  fairly safe business with no unusual risks. 
A)  inherently risky business that is unsafe regardless of bank management. 
B)  inherently risky business that is relatively safe under prudent management. 
C)  fairly safe business unless management is irresponsible. 
D)  fairly safe business with no unusual risks.

Question 15

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 16

The banking industry is heavily regulated because

Accepted Answer

A)  banking is a monopoly industry. 
B)  most banks are owned by government agencies. 
C)  bankers do what is best for their stockholders, not necessarily what is best for the economy. 
D)  All of these responses are correct. 
A)  banking is a monopoly industry. 
B)  most banks are owned by government agencies. 
C)  bankers do what is best for their stockholders, not necessarily what is best for the economy. 
D)  All of these responses are correct.

Question 17

One principle that nearly all economists agree on when defining money is that it should be

Accepted Answer

A)  spendable. 
B)  liquid. 
C)  accepted as payment. 
D)  easily transferable. 
E)  All of these responses are correct. 
A)  spendable. 
B)  liquid. 
C)  accepted as payment. 
D)  easily transferable. 
E)  All of these responses are correct.

Question 18

If the banking system has $5 million in excess reserves and the required reserve ratio is 25 percent, what is the maximum amount by which the money supply can be increased?

Accepted Answer

A)  $25 million 
B)  $20 million 
C)  $5 million 
D)  $2.5 million 
A)  $25 million 
B)  $20 million 
C)  $5 million 
D)  $2.5 million

Question 19

M1 consists of currency, demand deposits, traveler's checks, and other checkable deposits.

Accepted Answer

A) True 
 B)False

Question 20

Contraction of the money supply can aggravate a recession.

Accepted Answer

A) True 
 B)False

Exam 28: Money and the Banking System

Unlike recent events in England, the United States has no recent history of bank failures.

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

Which of the following types of money has intrinsic value?

A run on a bank occurs when many depositors withdraw cash from their accounts all at once.

It is necessary for the Federal Reserve to regulate the money supply because

An asset of a bank is

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

Fiat money is money

The concept of money as a "unit of account" involves the use of money to

If you have a checking account at a local bank, your bank account there is a(n)

The primary feature of money is that it serves as

On the Micronesian island of Yap, the money that is primarily used as currency is

Money as defined by M1 includes

Banking under a system of fractional reserves is a(n)

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?

The banking industry is heavily regulated because

One principle that nearly all economists agree on when defining money is that it should be

If the banking system has $5 million in excess reserves and the required reserve ratio is 25 percent, what is the maximum amount by which the money supply can be increased?

M1 consists of currency, demand deposits, traveler's checks, and other checkable deposits.

Contraction of the money supply can aggravate a recession.

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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