Question 1

At this point the two banks together have created additional demand deposits of

Accepted Answer

A)  $8,750. 
B)  $10,000. 
C)  $17,500. 
D)  $70,000. 
E)  $80,000. 
A)  $8,750. 
B)  $10,000. 
C)  $17,500. 
D)  $70,000. 
E)  $80,000. A

Question 2

Our money supply,narrowly defined,consists of

Accepted Answer

A)  currency, checking accounts, savings accounts, and money market mutual funds. 
B)  money created by the commercial banks. 
C)  coins, currency, demand deposits, and other checkable deposits. 
D)  cash, checks, and near money. 
E)  coins, paper money, all checkable deposits, and gold. 
A)  currency, checking accounts, savings accounts, and money market mutual funds. 
B)  money created by the commercial banks. 
C)  coins, currency, demand deposits, and other checkable deposits. 
D)  cash, checks, and near money. 
E)  coins, paper money, all checkable deposits, and gold. C

Question 3

Fiat money is any money that

Accepted Answer

A)  exists in the form of coin or currency. 
B)  is issued by the Federal Reserve. 
C)  has a greater face value than its purchasing power. 
D)  is money because the government says so and the people accept it. 
E)  earns interest when deposited in banks. 
A)  exists in the form of coin or currency. 
B)  is issued by the Federal Reserve. 
C)  has a greater face value than its purchasing power. 
D)  is money because the government says so and the people accept it. 
E)  earns interest when deposited in banks. D

Question 4

The basic distinction between M1 and M2 is that

Accepted Answer

A)  M2 excludes all checkable deposits. 
B)  M1 is the money supply broadly defined to include large certificates of deposit. 
C)  M2 is the money supply expressed in current dollars, whereas M1 is expressed in constant dollars. 
D)  M1 includes credit card balances on bank-issued credit cards. 
E)  M2 equals M1 plus savings, small time deposits, money market mutual fund balances, and money market deposit accounts. 
A)  M2 excludes all checkable deposits. 
B)  M1 is the money supply broadly defined to include large certificates of deposit. 
C)  M2 is the money supply expressed in current dollars, whereas M1 is expressed in constant dollars. 
D)  M1 includes credit card balances on bank-issued credit cards. 
E)  M2 equals M1 plus savings, small time deposits, money market mutual fund balances, and money market deposit accounts.

Question 5

The sum of coins,currency,and checkable deposits is called

Accepted Answer

A)  national income. 
B)  nominal GDP. 
C)  fractional reserves. 
D)  M1. 
E)  cash. 
A)  national income. 
B)  nominal GDP. 
C)  fractional reserves. 
D)  M1. 
E)  cash.

Question 6

Bank B may now safely increase its loans by a maximum of

Accepted Answer

A)  $1,094. 
B)  $7,656. 
C)  $8,750. 
D)  $10,000. 
E)  $15,312. 
A)  $1,094. 
B)  $7,656. 
C)  $8,750. 
D)  $10,000. 
E)  $15,312.

Question 7

The need for barter is eliminated when money is used as a

Accepted Answer

A)  medium of exchange. 
B)  measure of the price level. 
C)  standard of value. 
D)  hoard of wealth. 
E)  store of value. 
A)  medium of exchange. 
B)  measure of the price level. 
C)  standard of value. 
D)  hoard of wealth. 
E)  store of value.

Question 8

When money serves as a common denominator for measuring the exchange rates among goods and services,it performs as a

Accepted Answer

A)  medium of exchange. 
B)  store of value. 
C)  standard of value. 
D)  measure of fiat. 
E)  standard of intrinsic worth. 
A)  medium of exchange. 
B)  store of value. 
C)  standard of value. 
D)  measure of fiat. 
E)  standard of intrinsic worth.

Question 9

In general,commercial banks receive their higher interest rates from

Accepted Answer

A)  service charges on demand deposits. 
B)  loans that have a greater degree of risk. 
C)  the federal funds market. 
D)  foreclosures. 
E)  capital gains in the stock market. 
A)  service charges on demand deposits. 
B)  loans that have a greater degree of risk. 
C)  the federal funds market. 
D)  foreclosures. 
E)  capital gains in the stock market.

Question 10

To say that all U.S.currency is presently fiat money means that

Accepted Answer

A)  it is money by government decree. 
B)  its metallic value exceeds its face value. 
C)  the government will redeem that money with gold. 
D)  money serves as a store of value. 
E)  currency is the only asset that can serve as money. 
A)  it is money by government decree. 
B)  its metallic value exceeds its face value. 
C)  the government will redeem that money with gold. 
D)  money serves as a store of value. 
E)  currency is the only asset that can serve as money.

Question 11

Checking deposits are considered a form of money because

Accepted Answer

A)  any bank asset is considered money. 
B)  checking deposits are as large as the sum total of coins and currency. 
C)  they are used in calculating national expenditures. 
D)  they are assets of the Federal Reserve System. 
E)  they are generally accepted and serve the same functions as coins and currency. 
A)  any bank asset is considered money. 
B)  checking deposits are as large as the sum total of coins and currency. 
C)  they are used in calculating national expenditures. 
D)  they are assets of the Federal Reserve System. 
E)  they are generally accepted and serve the same functions as coins and currency.

Question 12

The Fed can set the ratio of legally required reserves between the limits of 8 and 14 percent on checkable deposits.Hence,the maximum multiple by which the banking system could theoretically expand a dollar of excess reserves would vary between

Accepted Answer

A)  2 and 3. 
B)  5 and 6. 
C)  8 and 14. 
D)  12 and 7. 
E)  14 and 6. 
A)  2 and 3. 
B)  5 and 6. 
C)  8 and 14. 
D)  12 and 7. 
E)  14 and 6.

Question 13

Demand deposits in a commercial bank are considered part of the bank's

Accepted Answer

A)  assets. 
B)  liabilities. 
C)  net exposure. 
D)  ordinary ratio. 
E)  fractional multiplier. 
A)  assets. 
B)  liabilities. 
C)  net exposure. 
D)  ordinary ratio. 
E)  fractional multiplier.

Question 14

The assets of a commercial bank include

Accepted Answer

A)  net worth. 
B)  demand deposits. 
C)  loans. 
D)  time deposits. 
E)  savings accounts. 
A)  net worth. 
B)  demand deposits. 
C)  loans. 
D)  time deposits. 
E)  savings accounts.

Question 15

The following question refer to the table that follows. Assume that there is a fractional-reserve banking system, that the legal reserve requirements are 10 percent, and that the balance sheet for Bank X is as follows:
  
-If Bank X safely increases its loans

Accepted Answer

A)  the country's money supply is unaffected. 
B)  the bank's net worth is immediately increased. 
C)  both its demand deposit liabilities and its assets will be temporarily increased by the amount of the loan. 
D)  only its demand deposit liabilities will be increased. 
E)  its demand deposit liabilities will be increased by some multiple of the loan. 
A)  the country's money supply is unaffected. 
B)  the bank's net worth is immediately increased. 
C)  both its demand deposit liabilities and its assets will be temporarily increased by the amount of the loan. 
D)  only its demand deposit liabilities will be increased. 
E)  its demand deposit liabilities will be increased by some multiple of the loan.

Question 16

Since World War II,the M1 (narrowly defined)money supply has

Accepted Answer

A)  decreased steadily. 
B)  remained unchanged on balance but differed from year to year. 
C)  increased at a constant yearly rate. 
D)  increased at an average rate of 5 to 10 percent per year. 
E)  increased at an average yearly rate of above 10 percent. 
A)  decreased steadily. 
B)  remained unchanged on balance but differed from year to year. 
C)  increased at a constant yearly rate. 
D)  increased at an average rate of 5 to 10 percent per year. 
E)  increased at an average yearly rate of above 10 percent.

Question 17

Currency withdrawals from the banking system

Accepted Answer

A)  expand the money supply. 
B)  increase bank reserves by an equal amount. 
C)  reduce the legally required ratio of reserves to deposits. 
D)  reduce the amount of demand deposits the banking system can create. 
E)  leave the amount of legally required reserves held with the Fed unchanged. 
A)  expand the money supply. 
B)  increase bank reserves by an equal amount. 
C)  reduce the legally required ratio of reserves to deposits. 
D)  reduce the amount of demand deposits the banking system can create. 
E)  leave the amount of legally required reserves held with the Fed unchanged.

Question 18

The money supply,broadly defined,is distinguished from the money supply,narrowly defined,in that the former includes

Accepted Answer

A)  checking accounts. 
B)  some deposit accounts that are not as easy to use for purchases. 
C)  items of greater value. 
D)  U.S. government bonds. 
E)  precious metals. 
A)  checking accounts. 
B)  some deposit accounts that are not as easy to use for purchases. 
C)  items of greater value. 
D)  U.S. government bonds. 
E)  precious metals.

Question 19

If the required ratio of reserves to deposits is r,then for every $1 in excess reserves,the banking system can potentially increase the money supply by

Accepted Answer

A)  r. 
B)  1 + r. 
C)  1/r. 
D)  1/(1 - r). 
E)  (1 - r)/r. 
A)  r. 
B)  1 + r. 
C)  1/r. 
D)  1/(1 - r). 
E)  (1 - r)/r.

Question 20

The following question are based on the following changes in the balance sheet of Nowhere National Bank.
 
-Which letter best indicates the change in the balance sheet of this bank after completion of a loan?

Accepted Answer

A)  a 
B)  b 
C)  c 
D)  d 
E)  e 
A)  a 
B)  b 
C)  c 
D)  d 
E)  e

Exam 20: Money and the Banking System

At this point the two banks together have created additional demand deposits of

Our money supply,narrowly defined,consists of

Fiat money is any money that

The basic distinction between M1 and M2 is that

The sum of coins,currency,and checkable deposits is called

Bank B may now safely increase its loans by a maximum of

The need for barter is eliminated when money is used as a

When money serves as a common denominator for measuring the exchange rates among goods and services,it performs as a

In general,commercial banks receive their higher interest rates from

To say that all U.S.currency is presently fiat money means that

Checking deposits are considered a form of money because

The Fed can set the ratio of legally required reserves between the limits of 8 and 14 percent on checkable deposits.Hence,the maximum multiple by which the banking system could theoretically expand a dollar of excess reserves would vary between

Demand deposits in a commercial bank are considered part of the bank's

The assets of a commercial bank include

The following question refer to the table that follows. Assume that there is a fractional-reserve banking system, that the legal reserve requirements are 10 percent, and that the balance sheet for Bank X is as follows: -If Bank X safely increases its loans

Since World War II,the M1 (narrowly defined)money supply has

Currency withdrawals from the banking system

The money supply,broadly defined,is distinguished from the money supply,narrowly defined,in that the former includes

If the required ratio of reserves to deposits is r,then for every $1 in excess reserves,the banking system can potentially increase the money supply by

The following question are based on the following changes in the balance sheet of Nowhere National Bank. -Which letter best indicates the change in the balance sheet of this bank after completion of a loan?

What is Economics

Markets and Prices

The Business Firm: Organization,motivation,and Optimal Input Decisions

Getting Behind the Demand and Supply Curves

Market Demand and Price Elasticity

Economic Efficiency,market Supply,and Perfect Competition

Monopoly and Its Regulation

Monopolistic Competition,oligopoly,and Antitrust Policy

Pollution and the Environment

The Supply and Demand for Labor

Interest,rent,and Profit

Poverty,income Inequality,and Discrimination

Economic Growth

Public Goods and the Role of the Government

National Income and Product

Business Fluctuations and Unemployment

The Determination of National Output and the Keynesian Multiplier

Fiscal Policy and National Output

Inflation

The Federal Reserve and Monetary Policy

Supply Shocks and Inflation

Productivity,growth,and Technology Policy

Surpluses,deficits,public Debt,and the Federal Budget

Monetary Policy,interest Rates,and Economic Activity

Controversies Over Stabilization Policy

International Trade

Exchange Rates and the Balance of Payments

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