Question 1

Price levels rarely remain the same. This implies that money is

Accepted Answer

A)  an excellent medium of exchange. 
B)  divisible. 
C)  a good medium for measuring value. 
D)  an imperfect medium for storing value. 
A)  an excellent medium of exchange. 
B)  divisible. 
C)  a good medium for measuring value. 
D)  an imperfect medium for storing value.

Question 2

In a market system, the most dangerous types of bankruptcies involve

Accepted Answer

A)  industrial monopolies. 
B)  multinational firms. 
C)  employment agencies. 
D)  financial institutions. 
A)  industrial monopolies. 
B)  multinational firms. 
C)  employment agencies. 
D)  financial institutions.

Question 3

If fears of a terrorist attack are widespread and people lose faith in money, the economy could revert to a system of

Accepted Answer

A)  cash and checks. 
B)  double-entry bookkeeping. 
C)  barter. 
D)  financial intermediaries. 
A)  cash and checks. 
B)  double-entry bookkeeping. 
C)  barter. 
D)  financial intermediaries.

Question 4

The oversimplified money multiplier formula, when the required reserve ratio is m , is

Accepted Answer

A)  change in money supply = change in reserves × m . 
B)  change in money supply = (1 / m ) / change in reserves. 
C)  change in money supply = (1 / m ) × change in reserves. 
D)  change in money supply = m / change in reserves. 
A)  change in money supply = change in reserves × m . 
B)  change in money supply = (1 / m ) / change in reserves. 
C)  change in money supply = (1 / m ) × change in reserves. 
D)  change in money supply = m / change in reserves.

Question 5

Fiat money is

Accepted Answer

A)  always backed by gold or silver. 
B)  useful in buying Italian cars. 
C)  only backed by government decree. 
D)  not as liquid as precious metals. 
A)  always backed by gold or silver. 
B)  useful in buying Italian cars. 
C)  only backed by government decree. 
D)  not as liquid as precious metals.

Question 6

One difference between the assets included in M1 and those added to calculate M2 is that items in M1 are

Accepted Answer

A)  better stores of value than those added to compute M2. 
B)  more liquid than those added to compute M2. 
C)  less liquid than those added to compute M2. 
D)  larger than those added to compute M2. 
A)  better stores of value than those added to compute M2. 
B)  more liquid than those added to compute M2. 
C)  less liquid than those added to compute M2. 
D)  larger than those added to compute M2.

Question 7

Credit cards are part of the M2 money supply and are valued at the maximum credit limit of the cardholder.

Accepted Answer

A) True 
 B)False

Question 8

As a general rule, you would be unwise to keep a deposit at an FDIC-insured bank in an amount greater than

Accepted Answer

A)  20 percent of the bank's reserves. 
B)  $1,000,000. 
C)  $250,000. 
D)  an infinite amount; there is no limit. 
A)  20 percent of the bank's reserves. 
B)  $1,000,000. 
C)  $250,000. 
D)  an infinite amount; there is no limit.

Question 9

If bankers decide to keep a lower fraction of deposits on reserve, the money supply will

Accepted Answer

A)  decrease. 
B)  increase. 
C)  remain unchanged. 
D)  move more quickly through the economy. 
A)  decrease. 
B)  increase. 
C)  remain unchanged. 
D)  move more quickly through the economy.

Question 10

Why are credit cards not considered part of the money supply?

Accepted Answer

Credit cards lengthen the period of time

Question 11

Moral hazard is the idea that when people are insured against the consequences of a risk, they will engage in risker behavior.

Accepted Answer

A) True 
 B)False

Question 12

A credit card is a form of money.

Accepted Answer

A) True 
 B)False

Question 13

When people trade goods for money, money is being used as a medium of exchange.

Accepted Answer

A) True 
 B)False

Question 14

Banks create wealth when they lend their excess reserves.

Accepted Answer

A) True 
 B)False

Question 15

Bankers must always trade off

Accepted Answer

A)  honesty and dishonesty. 
B)  stocks and loans. 
C)  prudence and profits. 
D)  gold and cash. 
E)  All of these responses are correct. 
A)  honesty and dishonesty. 
B)  stocks and loans. 
C)  prudence and profits. 
D)  gold and cash. 
E)  All of these responses are correct.

Question 16

The new $20 bills are being introduced by the U.S. Treasury primarily to diminish

Accepted Answer

A)  inflation. 
B)  poverty. 
C)  counterfeiting. 
D)  bank failures. 
A)  inflation. 
B)  poverty. 
C)  counterfeiting. 
D)  bank failures.

Question 17

A run on a bank may occur if

Accepted Answer

A)  depositors withdraw some funds to invest in the stock market. 
B)  required reserves are increased. 
C)  interest rates are raised. 
D)  depositors lose confidence in the bank and attempt to withdraw all their funds. 
E)  All of these responses are correct. 
A)  depositors withdraw some funds to invest in the stock market. 
B)  required reserves are increased. 
C)  interest rates are raised. 
D)  depositors lose confidence in the bank and attempt to withdraw all their funds. 
E)  All of these responses are correct.

Question 18

Which of the following is included in M1?

Accepted Answer

A)  Savings accounts 
B)  Money market deposit accounts 
C)  Money market mutual funds 
D)  Travelers' checks 
E)  None of the above is included. 
A)  Savings accounts 
B)  Money market deposit accounts 
C)  Money market mutual funds 
D)  Travelers' checks 
E)  None of the above is included.

Question 19

Fractional reserve banking has three crucial features: bank profitability, bank discretion over the money supply, and bank exposure to runs.

Accepted Answer

A) True 
 B)False

Question 20

The type of currency in circulation in the modern U.S. economy is almost entirely

Accepted Answer

A)  commodity money. 
B)  metallic money. 
C)  fiat money. 
D)  silver certificates. 
A)  commodity money. 
B)  metallic money. 
C)  fiat money. 
D)  silver certificates.

Exam 28: Money and the Banking System

Price levels rarely remain the same. This implies that money is

In a market system, the most dangerous types of bankruptcies involve

If fears of a terrorist attack are widespread and people lose faith in money, the economy could revert to a system of

The oversimplified money multiplier formula, when the required reserve ratio is m , is

Fiat money is

One difference between the assets included in M1 and those added to calculate M2 is that items in M1 are

Credit cards are part of the M2 money supply and are valued at the maximum credit limit of the cardholder.

As a general rule, you would be unwise to keep a deposit at an FDIC-insured bank in an amount greater than

If bankers decide to keep a lower fraction of deposits on reserve, the money supply will

Why are credit cards not considered part of the money supply?

Moral hazard is the idea that when people are insured against the consequences of a risk, they will engage in risker behavior.

A credit card is a form of money.

When people trade goods for money, money is being used as a medium of exchange.

Banks create wealth when they lend their excess reserves.

Bankers must always trade off

The new $20 bills are being introduced by the U.S. Treasury primarily to diminish

A run on a bank may occur if

Which of the following is included in M1?

Fractional reserve banking has three crucial features: bank profitability, bank discretion over the money supply, and bank exposure to runs.

The type of currency in circulation in the modern U.S. economy is almost entirely

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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