Question 1

Discuss some of the government regulations designed to ensure depositors' safety and to control the money supply.

Accepted Answer

Deposit insurance: The principal innovat

Question 2

As of December 31, 2010, the assets listed on the balance sheet of Bank A were $1.5 million in cash reserves and $6 million in outstanding loans to its customers. Its liabilities totaled $6.5 million in checking deposits. What was the bank's net worth on that date?

Accepted Answer

A)  $1 million 
B)  $4.5 million 
C)  $5 million 
D)  $14 million 
E)  Zero 
A)  $1 million 
B)  $4.5 million 
C)  $5 million 
D)  $14 million 
E)  Zero

Question 3

"Near monies" are

Accepted Answer

A)  stocks, bonds, and real estate. 
B)  U.S. notes and Federal Reserve notes. 
C)  included in the M1 definition of the money supply. 
D)  liquid assets that are close substitutes for money. 
E)  All of these responses are correct. 
A)  stocks, bonds, and real estate. 
B)  U.S. notes and Federal Reserve notes. 
C)  included in the M1 definition of the money supply. 
D)  liquid assets that are close substitutes for money. 
E)  All of these responses are correct.

Question 4

Gold, silver, and cigarettes in a prisoner of war are all examples of commodity money.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following definitions of the money supply includes only the most liquid forms of money?

Accepted Answer

A)  M1 
B)  M2 
C)  Savings deposits 
D)  Money market mutual deposits 
A)  M1 
B)  M2 
C)  Savings deposits 
D)  Money market mutual deposits

Question 6

Fractional reserve banking began as a search for

Accepted Answer

A)  a different metallic monetary system. 
B)  additional sources of gold. 
C)  different types of borrowers. 
D)  additional profits. 
A)  a different metallic monetary system. 
B)  additional sources of gold. 
C)  different types of borrowers. 
D)  additional profits.

Question 7

During a period of economic depression, such as has existed for a long period in Japan, a profit-oriented bank will act in such a way that

Accepted Answer

A)  dampens the fluctuations. 
B)  makes the depression worse. 
C)  is neutral with respect to the fluctuations. 
D)  is counter-cyclical and stabilizing. 
A)  dampens the fluctuations. 
B)  makes the depression worse. 
C)  is neutral with respect to the fluctuations. 
D)  is counter-cyclical and stabilizing.

Question 8

The banking system receives a new cash deposit of $250,000. Total deposits eventually rise by $1 million. The value of the reserve ratio is

Accepted Answer

A)  25 
B)  4 
C)  0.50. 
D)  0.25. 
E)  0.20. 
A)  25 
B)  4 
C)  0.50. 
D)  0.25. 
E)  0.20.

Question 9

When a banker accepts a deposit of $1,000 in cash and puts $200 aside as required reserves and then makes a loan of $800 to a new borrower, this set of transactions

Accepted Answer

A)  decreases the money supply by $1,000. 
B)  decreases the money supply by $200. 
C)  does not change the money supply. 
D)  increases the money supply by $200. 
E)  increases the money supply by $800. 
A)  decreases the money supply by $1,000. 
B)  decreases the money supply by $200. 
C)  does not change the money supply. 
D)  increases the money supply by $200. 
E)  increases the money supply by $800.

Question 10

The value of the deposit multiplier is 1 divided by the required reserve ratio.

Accepted Answer

A) True 
 B)False

Question 11

Why are the following included in the broader definition of supply known as M2? 
(a) money market deposit accounts 
(b) money market mutual funds 
(c) savings accounts

Accepted Answer

(a) Money market deposit accounts: They

Question 12

If banks decide to hold excess reserves, the multiple expansion of bank deposits will be limited.

Accepted Answer

A) True 
 B)False

Question 13

The FDIC

Accepted Answer

A)  insures most bank deposits for up to $250,000. 
B)  eliminates the need for bank depositors to run to their bank when they hear bad news about the bank. 
C)  has been credited with reducing the number of bank failures since 1933. 
D)  All of these responses are correct. 
A)  insures most bank deposits for up to $250,000. 
B)  eliminates the need for bank depositors to run to their bank when they hear bad news about the bank. 
C)  has been credited with reducing the number of bank failures since 1933. 
D)  All of these responses are correct.

Question 14

The balance sheet of a solvent bank will show

Accepted Answer

A)  assets = liabilities − net worth. 
B)  assets = liabilities + net worth. 
C)  net worth = assets + liabilities. 
D)  liabilities = assets + net worth. 
A)  assets = liabilities − net worth. 
B)  assets = liabilities + net worth. 
C)  net worth = assets + liabilities. 
D)  liabilities = assets + net worth.

Question 15

Which of the following is a drawback of FDIC insurance?

Accepted Answer

A)  FDIC insurance leads to excess industry profits. 
B)  FDIC insurance has failed to arrest the trend of bank failures. 
C)  FDIC insurance leads to the problem of moral hazard. 
D)  FDIC insurance undercuts private insurance companies. 
A)  FDIC insurance leads to excess industry profits. 
B)  FDIC insurance has failed to arrest the trend of bank failures. 
C)  FDIC insurance leads to the problem of moral hazard. 
D)  FDIC insurance undercuts private insurance companies.

Question 16

Savings deposits are included in

Accepted Answer

A)  M1 but not M2. 
B)  M2 but not M1. 
C)  M1 and M2. 
D)  None of the above is correct. 
A)  M1 but not M2. 
B)  M2 but not M1. 
C)  M1 and M2. 
D)  None of the above is correct.

Question 17

The moral hazard problem refers to

Accepted Answer

A)  difficulty banks have in satisfying the government's reserve requirement. 
B)  depositors making a run on the bank, even though the bank is insured. 
C)  banks taking on more risk in their lending because they know their depositors are insured. 
D)  banks issuing bank notes that compete with the government's currency. 
A)  difficulty banks have in satisfying the government's reserve requirement. 
B)  depositors making a run on the bank, even though the bank is insured. 
C)  banks taking on more risk in their lending because they know their depositors are insured. 
D)  banks issuing bank notes that compete with the government's currency.

Question 18

Nowadays, most observers believe that monetary policy

Accepted Answer

A)  is less important than fiscal policy. 
B)  is more important than fiscal policy. 
C)  and fiscal policy are equally important. 
D)  and fiscal policy are both unimportant. 
A)  is less important than fiscal policy. 
B)  is more important than fiscal policy. 
C)  and fiscal policy are equally important. 
D)  and fiscal policy are both unimportant.

Question 19

If checkable deposits in the first National Bank total $550 million and the required reserve ratio is 10 percent, then required reserves for first National Bank is

Accepted Answer

A)  $50 million. 
B)  $55 million. 
C)  $7 million. . 
D)  $10 million.. 
A)  $50 million. 
B)  $55 million. 
C)  $7 million. . 
D)  $10 million..

Question 20

If the reserve requirement is 20 percent and a new deposit of $10,000 in cash is made by a customer to their checking account, by how much are excess reserves increased?

Accepted Answer

A)  $10,000 
B)  $8,000 
C)  $4,000 
D)  $2,000 
A)  $10,000 
B)  $8,000 
C)  $4,000 
D)  $2,000

Exam 28: Money and the Banking System

Discuss some of the government regulations designed to ensure depositors' safety and to control the money supply.

As of December 31, 2010, the assets listed on the balance sheet of Bank A were $1.5 million in cash reserves and $6 million in outstanding loans to its customers. Its liabilities totaled $6.5 million in checking deposits. What was the bank's net worth on that date?

"Near monies" are

Gold, silver, and cigarettes in a prisoner of war are all examples of commodity money.

Which of the following definitions of the money supply includes only the most liquid forms of money?

Fractional reserve banking began as a search for

During a period of economic depression, such as has existed for a long period in Japan, a profit-oriented bank will act in such a way that

The banking system receives a new cash deposit of $250,000. Total deposits eventually rise by $1 million. The value of the reserve ratio is

When a banker accepts a deposit of $1,000 in cash and puts $200 aside as required reserves and then makes a loan of $800 to a new borrower, this set of transactions

The value of the deposit multiplier is 1 divided by the required reserve ratio.

Why are the following included in the broader definition of supply known as M2? (a) money market deposit accounts (b) money market mutual funds (c) savings accounts

If banks decide to hold excess reserves, the multiple expansion of bank deposits will be limited.

The FDIC

The balance sheet of a solvent bank will show

Which of the following is a drawback of FDIC insurance?

Savings deposits are included in

The moral hazard problem refers to

Nowadays, most observers believe that monetary policy

If checkable deposits in the first National Bank total $550 million and the required reserve ratio is 10 percent, then required reserves for first National Bank is

If the reserve requirement is 20 percent and a new deposit of $10,000 in cash is made by a customer to their checking account, by how much are excess reserves increased?

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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