Question 1

In general,financial institutions

Accepted Answer

A)  exclude those businesses that lend to the public. 
B)  act as intermediaries between savers and investors. 
C)  number fewer than a thousand in the United States. 
D)  hold reserves equal to the value of checkable deposits. 
E)  operate as nonprofit institutions for the public good. 
A)  exclude those businesses that lend to the public. 
B)  act as intermediaries between savers and investors. 
C)  number fewer than a thousand in the United States. 
D)  hold reserves equal to the value of checkable deposits. 
E)  operate as nonprofit institutions for the public good.

Question 2

The security holdings of 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 3

Bank A now loans out the maximum it can to Mr.Smith.Compared to its position just after the deposit of $10,000 in newly printed currency,bank A now has

Accepted Answer

A)  demand deposits up by an additional $10,000. 
B)  reserves up by an additional $1,250. 
C)  assets up by an additional $10,000. 
D)  loans and investments up by $8,750. 
E)  net worth up by an additional $1,250. 
A)  demand deposits up by an additional $10,000. 
B)  reserves up by an additional $1,250. 
C)  assets up by an additional $10,000. 
D)  loans and investments up by $8,750. 
E)  net worth up by an additional $1,250.

Question 4

Public confidence in the commercial banking system has been strengthened by

Accepted Answer

A)  the requirement that commercial banks use their reserves mainly to buy government bonds. 
B)  bank practices that maintain cash reserves equal to 50 percent of demand deposit liabilities. 
C)  the fact that all commercial banks are members of the Federal Reserve System. 
D)  the over 15 percent spread between interest paid to depositors and interest earned on loans. 
E)  the existence of almost universal insurance on deposits up to $250,000. 
A)  the requirement that commercial banks use their reserves mainly to buy government bonds. 
B)  bank practices that maintain cash reserves equal to 50 percent of demand deposit liabilities. 
C)  the fact that all commercial banks are members of the Federal Reserve System. 
D)  the over 15 percent spread between interest paid to depositors and interest earned on loans. 
E)  the existence of almost universal insurance on deposits up to $250,000.

Question 5

When money is held to make future purchases,it serves as a

Accepted Answer

A)  medium of exchange. 
B)  store of value. 
C)  standard of value. 
D)  price index. 
E)  required reserve. 
A)  medium of exchange. 
B)  store of value. 
C)  standard of value. 
D)  price index. 
E)  required reserve.

Question 6

A bank participates in the creation of money when it

Accepted Answer

A)  adds to its required reserves. 
B)  receives a deposit of currency. 
C)  raises its interest rates. 
D)  becomes a member of the Federal Reserve System. 
E)  lends its excess reserves. 
A)  adds to its required reserves. 
B)  receives a deposit of currency. 
C)  raises its interest rates. 
D)  becomes a member of the Federal Reserve System. 
E)  lends its excess reserves.

Question 7

Banks make their profits mainly by

Accepted Answer

A)  charging customers for their services. 
B)  earning more interest on loans than they pay out on deposits. 
C)  investing in the stock market. 
D)  foreclosing on mortgages and other overdue loans. 
E)  creating money to lend to households and businesses. 
A)  charging customers for their services. 
B)  earning more interest on loans than they pay out on deposits. 
C)  investing in the stock market. 
D)  foreclosing on mortgages and other overdue loans. 
E)  creating money to lend to households and businesses.

Question 8

Over the past 50 years,the U.S.money supply has

Accepted Answer

A)  increased every year, despite federal efforts to hold it in check. 
B)  increased in some years but has tended to shrink overall. 
C)  generally increased, although not at a constant rate. 
D)  not changed; although the amount of money in circulation has varied, the actual money supply has not grown or shrunk. 
E)  fallen. 
A)  increased every year, despite federal efforts to hold it in check. 
B)  increased in some years but has tended to shrink overall. 
C)  generally increased, although not at a constant rate. 
D)  not changed; although the amount of money in circulation has varied, the actual money supply has not grown or shrunk. 
E)  fallen.

Question 9

The bank practice of lending money and therefore holding less cash than what is owed its depositors is called ________ banking.

Accepted Answer

A)  fractional-reserve 
B)  Federal Reserve 
C)  cash flow 
D)  creative 
E)  deposit ratio 
A)  fractional-reserve 
B)  Federal Reserve 
C)  cash flow 
D)  creative 
E)  deposit ratio

Question 10

The greater the ________,the greater the extent to which the banking system can expand the money supply.

Accepted Answer

A)  legal reserve requirements 
B)  amount of reserves the public removes from the banking system in form of cash 
C)  willingness of banks to hold excess reserves 
D)  reciprocal of the required ratio of reserves to deposits 
E)  number of independent banks in the system 
A)  legal reserve requirements 
B)  amount of reserves the public removes from the banking system in form of cash 
C)  willingness of banks to hold excess reserves 
D)  reciprocal of the required ratio of reserves to deposits 
E)  number of independent banks in the system

Question 11

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:
  
-Bank X has legal reserve requirements of

Accepted Answer

A)  $3,000,000. 
B)  $2,000,000. 
C)  $1,667,000. 
D)  $1,000,000. 
E)  $0. 
A)  $3,000,000. 
B)  $2,000,000. 
C)  $1,667,000. 
D)  $1,000,000. 
E)  $0.

Question 12

To ensure the acceptability of money,a government must

Accepted Answer

A)  back it with gold or silver. 
B)  create enough of it so people can purchase all the goods they want and need. 
C)  limit its quantity relative to output. 
D)  prevent the public from holding it for extended periods. 
E)  ensure its supply keeps pace with inflation. 
A)  back it with gold or silver. 
B)  create enough of it so people can purchase all the goods they want and need. 
C)  limit its quantity relative to output. 
D)  prevent the public from holding it for extended periods. 
E)  ensure its supply keeps pace with inflation.

Question 13

In the U.S.economy,a major deterrent to bank runs is

Accepted Answer

A)  the fact that most banks keep 50 percent of their deposits as reserves. 
B)  government ownership of commercial banks. 
C)  the stock of gold owned by the government. 
D)  the ability of commercial banks to create money when needed. 
E)  the FDIC. 
A)  the fact that most banks keep 50 percent of their deposits as reserves. 
B)  government ownership of commercial banks. 
C)  the stock of gold owned by the government. 
D)  the ability of commercial banks to create money when needed. 
E)  the FDIC.

Question 14

Most economists today agree that a situation like the Panic of 1907 is unlikely to recur because

Accepted Answer

A)  of better bank management; unwise investments are very rare. 
B)  our economy is no longer as dependent on the banking system as in the past. 
C)  most people entrust only a small percentage of their money to banks. 
D)  Congress has removed the burden of public regulation, freeing banks to be more profitable. 
E)  government oversight and deposit insurance have given people more faith in banks than they used to have. 
A)  of better bank management; unwise investments are very rare. 
B)  our economy is no longer as dependent on the banking system as in the past. 
C)  most people entrust only a small percentage of their money to banks. 
D)  Congress has removed the burden of public regulation, freeing banks to be more profitable. 
E)  government oversight and deposit insurance have given people more faith in banks than they used to have.

Question 15

The basic principle behind fractional-reserve banking is that

Accepted Answer

A)  on a daily basis new deposits tend to equal withdrawals. 
B)  loans and investments are made with funds advanced by bank owners. 
C)  banks hold reserves either in the form of cash or deposits with the Federal Reserve banks. 
D)  a bank's assets are equal to its liabilities plus net worth. 
E)  there is a legal limit on the amount of reserves banks must retain against their loans. 
A)  on a daily basis new deposits tend to equal withdrawals. 
B)  loans and investments are made with funds advanced by bank owners. 
C)  banks hold reserves either in the form of cash or deposits with the Federal Reserve banks. 
D)  a bank's assets are equal to its liabilities plus net worth. 
E)  there is a legal limit on the amount of reserves banks must retain against their loans.

Question 16

Any definition of the money supply must be

Accepted Answer

A)  legally established by the Federal Reserve System in conjunction with Congress. 
B)  arbitrary because many assets exhibit the properties of money. 
C)  agreed on by a majority vote of economists. 
D)  determined by the price level. 
E)  determined by the bullion content of an asset. 
A)  legally established by the Federal Reserve System in conjunction with Congress. 
B)  arbitrary because many assets exhibit the properties of money. 
C)  agreed on by a majority vote of economists. 
D)  determined by the price level. 
E)  determined by the bullion content of an asset.

Question 17

The process of cumulative expansion of demand deposits assumes that no depositor withdraws cash from the banking system.If some do,when the required reserve ratio is 25 percent and no bank keeps excess reserves,a deposit of $10,000 in newly printed money will lead to an increase in the money supply of

Accepted Answer

A)  less than $30,000. 
B)  $30,000. 
C)  $40,000. 
D)  $50,000. 
E)  $60,000. 
A)  less than $30,000. 
B)  $30,000. 
C)  $40,000. 
D)  $50,000. 
E)  $60,000.

Question 18

In the absence of fractional-reserve banking practices,commercial banks would

Accepted Answer

A)  be less safe as places to keep money. 
B)  have more money available to be put to work on behalf of business firms. 
C)  charge depositors higher fees for keeping deposits. 
D)  be considered as nonprofit organizations. 
E)  need to borrow money if a run occurred. 
A)  be less safe as places to keep money. 
B)  have more money available to be put to work on behalf of business firms. 
C)  charge depositors higher fees for keeping deposits. 
D)  be considered as nonprofit organizations. 
E)  need to borrow money if a run occurred.

Question 19

All of the following fit the narrow definition of money EXCEPT

Accepted Answer

A)  savings accounts. 
B)  demand deposit accounts. 
C)  coins. 
D)  currency. 
E)  NOW accounts. 
A)  savings accounts. 
B)  demand deposit accounts. 
C)  coins. 
D)  currency. 
E)  NOW accounts.

Question 20

The following question are based on the following changes in the balance sheet of Nowhere National Bank.
 
-Which letter best indicates the balance sheet of Nowhere National Bank at the instant a new deposit is made?

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

In general,financial institutions

The security holdings of a commercial bank are considered part of the bank's

Bank A now loans out the maximum it can to Mr.Smith.Compared to its position just after the deposit of $10,000 in newly printed currency,bank A now has

Public confidence in the commercial banking system has been strengthened by

When money is held to make future purchases,it serves as a

A bank participates in the creation of money when it

Banks make their profits mainly by

Over the past 50 years,the U.S.money supply has

The bank practice of lending money and therefore holding less cash than what is owed its depositors is called ________ banking.

The greater the ________,the greater the extent to which the banking system can expand the money supply.

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: -Bank X has legal reserve requirements of

To ensure the acceptability of money,a government must

In the U.S.economy,a major deterrent to bank runs is

Most economists today agree that a situation like the Panic of 1907 is unlikely to recur because

The basic principle behind fractional-reserve banking is that

Any definition of the money supply must be

In the absence of fractional-reserve banking practices,commercial banks would

All of the following fit the narrow definition of money EXCEPT

The following question are based on the following changes in the balance sheet of Nowhere National Bank. -Which letter best indicates the balance sheet of Nowhere National Bank at the instant a new deposit is made?

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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