Question 1

Identify the basis on which you measure the liquidity of an asset.

Accepted Answer

A)  Its value. 
B)  Its future earning potential. 
C)  Its convertibility into cash. 
D)  Its ability to act as a perfect store of value. 
A)  Its value. 
B)  Its future earning potential. 
C)  Its convertibility into cash. 
D)  Its ability to act as a perfect store of value.

Question 2

Which of the following would be a liability to a bank?

Accepted Answer

A)  Cash in the vault 
B)  A loan to a new business 
C)  A checking account of a professor 
D)  All of these responses are correct. 
A)  Cash in the vault 
B)  A loan to a new business 
C)  A checking account of a professor 
D)  All of these responses are correct.

Question 3

With the invention of banking, one important aspect of money was that

Accepted Answer

A)  banks have some discretion over the money supply. 
B)  banks have complete control over the money supply. 
C)  governments lost all control over the money supply. 
D)  individuals have no discretion over the money supply. 
A)  banks have some discretion over the money supply. 
B)  banks have complete control over the money supply. 
C)  governments lost all control over the money supply. 
D)  individuals have no discretion over the money supply.

Question 4

The largest portion of the M1 money supply consists of

Accepted Answer

A)  coins in circulation. 
B)  paper currency in circulation. 
C)  savings deposits at credit unions. 
D)  checkable deposits. 
A)  coins in circulation. 
B)  paper currency in circulation. 
C)  savings deposits at credit unions. 
D)  checkable deposits.

Question 5

If depositors become worried about the safety of their deposit accounts, they may trigger a

Accepted Answer

A)  deposit surplus. 
B)  bank run. 
C)  fiscal policy crisis. 
D)  required reserve increase. 
A)  deposit surplus. 
B)  bank run. 
C)  fiscal policy crisis. 
D)  required reserve increase.

Question 6

Explain the "too big to fail" doctrine.

Accepted Answer

During a financial crisis, some financia

Question 7

Due to the private nature of bank ownership, there is often a difference between bankers' goals and macroeconomic objectives.

Accepted Answer

A) True 
 B)False

Question 8

The government regulates the banking industry by

Accepted Answer

A)  conducting frequent audits and examinations. 
B)  limiting the kinds of assets that a bank may own. 
C)  limiting the quantity of some kinds of assets that a bank may own. 
D)  All of these responses are correct. 
A)  conducting frequent audits and examinations. 
B)  limiting the kinds of assets that a bank may own. 
C)  limiting the quantity of some kinds of assets that a bank may own. 
D)  All of these responses are correct.

Question 9

Inflation increases the use of money as a store of value.

Accepted Answer

A) True 
 B)False

Question 10

The fractional reserve system of banking evolved because

Accepted Answer

A)  goldsmiths did not have safes large enough to hold all their gold deposits. 
B)  there was always a dire need for additional money. 
C)  goldsmiths knew that on any given day, only a few depositors would come to claim their deposits. 
D)  goldsmiths knew that they would not be prosecuted for lending out money they did not have. 
A)  goldsmiths did not have safes large enough to hold all their gold deposits. 
B)  there was always a dire need for additional money. 
C)  goldsmiths knew that on any given day, only a few depositors would come to claim their deposits. 
D)  goldsmiths knew that they would not be prosecuted for lending out money they did not have.

Question 11

Do bankers create money?

Accepted Answer

A)  No, they cannot do this as private businesses. 
B)  No, they are prevented by federal law. 
C)  Yes, they create money through multiple deposit creation. 
D)  Yes, they create money by opening checking accounts for customers. 
A)  No, they cannot do this as private businesses. 
B)  No, they are prevented by federal law. 
C)  Yes, they create money through multiple deposit creation. 
D)  Yes, they create money by opening checking accounts for customers.

Question 12

Which of the following would be an asset to a bank?

Accepted Answer

A)  Cash in the vault 
B)  A loan to a university student 
C)  A government security 
D)  All of these responses are correct. 
A)  Cash in the vault 
B)  A loan to a university student 
C)  A government security 
D)  All of these responses are correct.

Question 13

A single bank is limited in its ability to create money because

Accepted Answer

A)  loan recipients usually take the proceeds of the loan in cash. 
B)  the FDIC will not permit it to create money unless the loans are guaranteed by the federal government. 
C)  the money loaned will probably be deposited in another bank. 
D)  federal legislation prohibits banks from creating money except to finance international trade. 
A)  loan recipients usually take the proceeds of the loan in cash. 
B)  the FDIC will not permit it to create money unless the loans are guaranteed by the federal government. 
C)  the money loaned will probably be deposited in another bank. 
D)  federal legislation prohibits banks from creating money except to finance international trade.

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

The narrowest definition of the money supply (M1) includes

Accepted Answer

A)  cash and travelers' checks. 
B)  cash, travelers' checks, and savings account balances. 
C)  cash, checking account balances, and travelers' checks. 
D)  cash, bank deposits, and money market accounts. 
A)  cash and travelers' checks. 
B)  cash, travelers' checks, and savings account balances. 
C)  cash, checking account balances, and travelers' checks. 
D)  cash, bank deposits, and money market accounts.

Question 16

Modern paper money is fiat money because it is backed only by the faith the holder has in the government that issued it.

Accepted Answer

A) True 
 B)False

Question 17

If you have a checking account at Citibank, the account is a liability of the bank.

Accepted Answer

A) True 
 B)False

Question 18

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 19

Paper money in the United States is

Accepted Answer

A)  backed by gold in Fort Knox. 
B)  partially backed by gold and silver. 
C)  entirely fiat money. 
D)  fully convertible into gold at fixed prices. 
A)  backed by gold in Fort Knox. 
B)  partially backed by gold and silver. 
C)  entirely fiat money. 
D)  fully convertible into gold at fixed prices.

Question 20

Most checkable deposits are insured up to $250,000 by

Accepted Answer

A)  state banking commissions. 
B)  the Federal Reserve Board. 
C)  the U.S. Department of the Treasury. 
D)  the Federal Deposit Insurance Corporation. 
A)  state banking commissions. 
B)  the Federal Reserve Board. 
C)  the U.S. Department of the Treasury. 
D)  the Federal Deposit Insurance Corporation.

Exam 28: Money and the Banking System

Identify the basis on which you measure the liquidity of an asset.

Which of the following would be a liability to a bank?

With the invention of banking, one important aspect of money was that

The largest portion of the M1 money supply consists of

If depositors become worried about the safety of their deposit accounts, they may trigger a

Explain the "too big to fail" doctrine.

Due to the private nature of bank ownership, there is often a difference between bankers' goals and macroeconomic objectives.

The government regulates the banking industry by

Inflation increases the use of money as a store of value.

The fractional reserve system of banking evolved because

Do bankers create money?

Which of the following would be an asset to a bank?

A single bank is limited in its ability to create money because

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

The narrowest definition of the money supply (M1) includes

Modern paper money is fiat money because it is backed only by the faith the holder has in the government that issued it.

If you have a checking account at Citibank, the account is a liability of the bank.

Excess reserves are put to use by a bank when it

Paper money in the United States is

Most checkable deposits are insured up to $250,000 by

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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