Question 1

The net worth of a bank

Accepted Answer

A)  determines the level of bank loans possible. 
B)  is determined by subtracting liabilities from assets. 
C)  is determined by subtracting assets from liabilities. 
D)  can never be a negative value. 
A)  determines the level of bank loans possible. 
B)  is determined by subtracting liabilities from assets. 
C)  is determined by subtracting assets from liabilities. 
D)  can never be a negative value.

Question 2

Which of the following is a reason that banks are so heavily regulated?

Accepted Answer

A)  Governments are concerned about the safety of deposits. 
B)  The industry is a principal determinant of aggregate demand. 
C)  Bank failures are contagious. 
D)  All of these responses are correct. 
A)  Governments are concerned about the safety of deposits. 
B)  The industry is a principal determinant of aggregate demand. 
C)  Bank failures are contagious. 
D)  All of these responses are correct.

Question 3

One inconvenience of commodity money is the need for

Accepted Answer

A)  money to be divisible. 
B)  uniform quality. 
C)  portability. 
D)  All of these responses are correct. 
A)  money to be divisible. 
B)  uniform quality. 
C)  portability. 
D)  All of these responses are correct.

Question 4

One reason why gold and silver have served as money is that they

Accepted Answer

A)  are easy to produce. 
B)  are easy to duplicate. 
C)  are durable. 
D)  All of these responses are correct. 
A)  are easy to produce. 
B)  are easy to duplicate. 
C)  are durable. 
D)  All of these responses are correct.

Question 5

Money multiplier is the amount of money the banking system generates with each dollar of reserves.

Accepted Answer

A) True 
 B)False

Question 6

The money-multiplier process is based on the principle of fractional reserve banking.

Accepted Answer

A) True 
 B)False

Question 7

Fiat money is money by government decree.

Accepted Answer

A) True 
 B)False

Question 8

The major contribution of goldsmiths to the development of modern banking was

Accepted Answer

A)  local banking. 
B)  market banking. 
C)  fractional reserve banking. 
D)  gold standard banking. 
A)  local banking. 
B)  market banking. 
C)  fractional reserve banking. 
D)  gold standard banking.

Question 9

The required reserve ratio is 10 percent, but banks actually keep 20 percent on reserve. The actual money multiplier will be

Accepted Answer

A)  10 
B)  9 
C)  5 
D)  2 
E)  1 
A)  10 
B)  9 
C)  5 
D)  2 
E)  1

Question 10

Credit cards

Accepted Answer

A)  defer payments. 
B)  are a store of value. . 
C)  have led to a wider use of currency. 
D)  All of these responses are correct. 
A)  defer payments. 
B)  are a store of value. . 
C)  have led to a wider use of currency. 
D)  All of these responses are correct.

Question 11

M2 consists of M1 plus savings deposits, small time deposits, money market mutual funds, and a few minor categories.

Accepted Answer

A) True 
 B)False

Question 12

If the reserve ratio is 4 percent, then the money multiplier is

Accepted Answer

A)  25 
B)  20 
C)  4 
D)  None of the above is correct. 
A)  25 
B)  20 
C)  4 
D)  None of the above is correct.

Question 13

Money is an imperfect store of value when

Accepted Answer

A)  the rate of inflation is high. 
B)  the unemployment rate is high. 
C)  gold prices are falling. 
D)  businesses are failing due to bankruptcy. 
A)  the rate of inflation is high. 
B)  the unemployment rate is high. 
C)  gold prices are falling. 
D)  businesses are failing due to bankruptcy.

Question 14

One conceptual problem in assigning assets to M1, M2, and so on, is

Accepted Answer

A)  distinguishing money from "near monies." 
B)  the problem of measuring asset size. 
C)  the need to agree on a unit of account. 
D)  the different size of financial assets. 
A)  distinguishing money from "near monies." 
B)  the problem of measuring asset size. 
C)  the need to agree on a unit of account. 
D)  the different size of financial assets.

Question 15

Bankers have a reputation for conservatism in politics, dress, and business affairs. Is there an economic rationale for this conservatism? Explain.

Accepted Answer

There is an economic rationale for this

Question 16

A store of value is the function of money when used to transfer purchasing power to the future.

Accepted Answer

A) True 
 B)False

Question 17

What is a barter system? The drawbacks of this system are as follows:

Accepted Answer

Barter is a type of trade in which goods

Question 18

The primary purpose of bank regulation is to

Accepted Answer

A)  assure that banks do not get into financial trouble. 
B)  assure that banks lend to needy persons and businesses. 
C)  assure that banks maintain a minimum level of profits. 
D)  guarantee bank profitability and prevent stockholder losses. 
A)  assure that banks do not get into financial trouble. 
B)  assure that banks lend to needy persons and businesses. 
C)  assure that banks maintain a minimum level of profits. 
D)  guarantee bank profitability and prevent stockholder losses.

Question 19

Many economists believe that savings accounts should be added to M1 because they

Accepted Answer

A)  are larger in size than conventional checking accounts. 
B)  pay larger interest than checking accounts. 
C)  can be transferred quickly into checkable accounts. 
D)  are also insured by the federal government. 
A)  are larger in size than conventional checking accounts. 
B)  pay larger interest than checking accounts. 
C)  can be transferred quickly into checkable accounts. 
D)  are also insured by the federal government.

Question 20

Which of the following is the term used to describe a failing bank selling off a substantial amount of assets in a short time period in order to remain solvent?

Accepted Answer

A)  Fire sale 
B)  Short sale 
C)  Long sale 
D)  Liquidity sale 
A)  Fire sale 
B)  Short sale 
C)  Long sale 
D)  Liquidity sale

Exam 28: Money and the Banking System

The net worth of a bank

Which of the following is a reason that banks are so heavily regulated?

One inconvenience of commodity money is the need for

One reason why gold and silver have served as money is that they

Money multiplier is the amount of money the banking system generates with each dollar of reserves.

The money-multiplier process is based on the principle of fractional reserve banking.

Fiat money is money by government decree.

The major contribution of goldsmiths to the development of modern banking was

The required reserve ratio is 10 percent, but banks actually keep 20 percent on reserve. The actual money multiplier will be

Credit cards

M2 consists of M1 plus savings deposits, small time deposits, money market mutual funds, and a few minor categories.

If the reserve ratio is 4 percent, then the money multiplier is

Money is an imperfect store of value when

One conceptual problem in assigning assets to M1, M2, and so on, is

Bankers have a reputation for conservatism in politics, dress, and business affairs. Is there an economic rationale for this conservatism? Explain.

A store of value is the function of money when used to transfer purchasing power to the future.

What is a barter system? The drawbacks of this system are as follows:

The primary purpose of bank regulation is to

Many economists believe that savings accounts should be added to M1 because they

Which of the following is the term used to describe a failing bank selling off a substantial amount of assets in a short time period in order to remain solvent?

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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