Question 1

Agraria uses bushels of wheat to quote prices. In this case, bushels of wheat act as a

Accepted Answer

A)  medium of exchange. 
B)  store of value. 
C)  commodity value. 
D)  unit of account. 
A)  medium of exchange. 
B)  store of value. 
C)  commodity value. 
D)  unit of account.

Question 2

Credit cards are

Accepted Answer

A)  included in M1 but not M2. 
B)  included in M1 and M2. 
C)  included in M2 but not M1. 
D)  not included in any measure of the money supply. 
A)  included in M1 but not M2. 
B)  included in M1 and M2. 
C)  included in M2 but not M1. 
D)  not included in any measure of the money supply.

Question 3

The increase in bank supervision in the United States in the 1980s and early 1990s was due to an increase in bank

Accepted Answer

A)  profits. 
B)  ownership of common stocks. 
C)  failures. 
D)  deposits and loans. 
A)  profits. 
B)  ownership of common stocks. 
C)  failures. 
D)  deposits and loans.

Question 4

Which of the following is not included in the M1 definition of the money supply?

Accepted Answer

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

Question 5

One intention of deposit insurance is to reduce the danger of

Accepted Answer

A)  excess lending. 
B)  excess profits. 
C)  risky lending. 
D)  bank runs. 
E)  All of these responses are correct. 
A)  excess lending. 
B)  excess profits. 
C)  risky lending. 
D)  bank runs. 
E)  All of these responses are correct.

Question 6

As the reserve ratio increases, the money multiplier

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 7

A bank run involves a large flow of money

Accepted Answer

A)  into bank depositors' accounts. 
B)  into checking and savings accounts. 
C)  out of depositors' accounts. 
D)  out of individuals' cash reserves into money market funds. 
A)  into bank depositors' accounts. 
B)  into checking and savings accounts. 
C)  out of depositors' accounts. 
D)  out of individuals' cash reserves into money market funds.

Question 8

The amount of money held in checking accounts is significantly greater than money in the form of currency.

Accepted Answer

A) True 
 B)False

Question 9

Milly Miser removes $250,000 from her mattress and opens a checking account. This single transaction immediately increases the money supply by

Accepted Answer

A)  $250,000. 
B)  $50,000. 
C)  $0. 
D)  −$250,000. 
A)  $250,000. 
B)  $50,000. 
C)  $0. 
D)  −$250,000.

Question 10

A "near money" is an asset that can be

Accepted Answer

A)  indistinguishable from commodity money. 
B)  spent easily. 
C)  a close substitute for money. 
D)  only issued by a bank. 
A)  indistinguishable from commodity money. 
B)  spent easily. 
C)  a close substitute for money. 
D)  only issued by a bank.

Question 11

What is the criticism leveled against deposit insurance by the FDIC?

Accepted Answer

Depositors who are freed from any risk o

Question 12

Liquidity can be defined as the

Accepted Answer

A)  cash value of money. 
B)  value of money adjusted for inflation. 
C)  value of fiat money when used for spending. 
D)  ease with which an asset can be converted to a spendable asset. 
A)  cash value of money. 
B)  value of money adjusted for inflation. 
C)  value of fiat money when used for spending. 
D)  ease with which an asset can be converted to a spendable asset.

Question 13

A liability to a bank is

Accepted Answer

A)  something that the bank owns. 
B)  something that the bank owes. 
C)  something a customer owes the bank. 
D)  the value of bank buildings and hardware. 
A)  something that the bank owns. 
B)  something that the bank owes. 
C)  something a customer owes the bank. 
D)  the value of bank buildings and hardware.

Question 14

Bank runs are "contagious" in that they often spread to other banks.

Accepted Answer

A) True 
 B)False

Question 15

An increase in the reserve ratio would tend to

Accepted Answer

A)  increase excess reserves and raise the money multiplier. 
B)  decrease excess reserves and decrease the money multiplier. 
C)  increase excess reserves and decrease the money multiplier. 
D)  decrease excess reserves and raise the money multiplier. 
A)  increase excess reserves and raise the money multiplier. 
B)  decrease excess reserves and decrease the money multiplier. 
C)  increase excess reserves and decrease the money multiplier. 
D)  decrease excess reserves and raise the money multiplier.

Question 16

If the required reserve ratio is 10 percent and a bank receives a deposit of $1,000, how much may the bank loan out?

Accepted Answer

A)  $100 
B)  $200 
C)  $900 
D)  $300 
A)  $100 
B)  $200 
C)  $900 
D)  $300

Question 17

Under the modern system of fractional reserve banking, banks

Accepted Answer

A)  keep cash reserves equal to only a fraction of their deposit liabilities. 
B)  loan out their excess reserves at interest, which is the key to their profitability. 
C)  are always potentially vulnerable to runs. 
D)  All of these responses are correct. 
A)  keep cash reserves equal to only a fraction of their deposit liabilities. 
B)  loan out their excess reserves at interest, which is the key to their profitability. 
C)  are always potentially vulnerable to runs. 
D)  All of these responses are correct.

Question 18

If a bank has $1,000,000 in reserves and checking deposits of $3,000,000, what is the bank's reserve position if the required reserve ratio is 20 percent?

Accepted Answer

A)  The bank has $500,000 of required reserves and $500,000 of excess reserves. 
B)  The bank has $600,000 of required reserves and $400,000 of excess reserves. 
C)  The bank has $400,000 of required reserves and $600,000 of excess reserves. 
D)  The bank has $200,000 of required reserves and $800,000 of excess reserves. 
A)  The bank has $500,000 of required reserves and $500,000 of excess reserves. 
B)  The bank has $600,000 of required reserves and $400,000 of excess reserves. 
C)  The bank has $400,000 of required reserves and $600,000 of excess reserves. 
D)  The bank has $200,000 of required reserves and $800,000 of excess reserves.

Question 19

One problem for economic stability is that in a period of inflation,

Accepted Answer

A)  banks will be tempted to increase lending in order to increase profits. 
B)  banks will be tempted to decrease lending in order to increase profits. 
C)  profit-oriented banks will tend to hold excess reserves and decrease the money supply. 
D)  deposits will decrease and banks will have to reduce lending. 
A)  banks will be tempted to increase lending in order to increase profits. 
B)  banks will be tempted to decrease lending in order to increase profits. 
C)  profit-oriented banks will tend to hold excess reserves and decrease the money supply. 
D)  deposits will decrease and banks will have to reduce lending.

Question 20

An asset that can be converted quickly into cash at a low transaction cost is known as

Accepted Answer

A)  a liquid asset. 
B)  deposits. 
C)  credit card 
D)  None of the above is correct. 
A)  a liquid asset. 
B)  deposits. 
C)  credit card 
D)  None of the above is correct.

Exam 28: Money and the Banking System

Agraria uses bushels of wheat to quote prices. In this case, bushels of wheat act as a

Credit cards are

The increase in bank supervision in the United States in the 1980s and early 1990s was due to an increase in bank

Which of the following is not included in the M1 definition of the money supply?

One intention of deposit insurance is to reduce the danger of

As the reserve ratio increases, the money multiplier

A bank run involves a large flow of money

The amount of money held in checking accounts is significantly greater than money in the form of currency.

Milly Miser removes $250,000 from her mattress and opens a checking account. This single transaction immediately increases the money supply by

A "near money" is an asset that can be

What is the criticism leveled against deposit insurance by the FDIC?

Liquidity can be defined as the

A liability to a bank is

Bank runs are "contagious" in that they often spread to other banks.

An increase in the reserve ratio would tend to

If the required reserve ratio is 10 percent and a bank receives a deposit of $1,000, how much may the bank loan out?

Under the modern system of fractional reserve banking, banks

If a bank has $1,000,000 in reserves and checking deposits of $3,000,000, what is the bank's reserve position if the required reserve ratio is 20 percent?

One problem for economic stability is that in a period of inflation,

An asset that can be converted quickly into cash at a low transaction cost is known as

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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