Question 1

A characteristic typical of commercial banks is that

Accepted Answer

A)  depositors are completely protected, because every cent of their deposits is covered by the bank's reserves. 
B)  money put up by the owners is the main source of funds for making loans. 
C)  they lend short and borrow long. 
D)  they are more profitable as the percentage of demand deposits they keep as reserves rises. 
E)  a very large percentage of their liabilities must be paid on demand. 
A)  depositors are completely protected, because every cent of their deposits is covered by the bank's reserves. 
B)  money put up by the owners is the main source of funds for making loans. 
C)  they lend short and borrow long. 
D)  they are more profitable as the percentage of demand deposits they keep as reserves rises. 
E)  a very large percentage of their liabilities must be paid on demand.

Question 2

The liabilities of a commercial bank include

Accepted Answer

A)  loans. 
B)  time and demand deposits. 
C)  net worth. 
D)  deposits at the Federal Reserve Bank. 
E)  shares of stock. 
A)  loans. 
B)  time and demand deposits. 
C)  net worth. 
D)  deposits at the Federal Reserve Bank. 
E)  shares of stock.

Question 3

Some economists include time or savings deposits in the money supply because

Accepted Answer

A)  these deposits can be readily transformed into cash. 
B)  these deposits can be used as collateral for loans. 
C)  the value of time deposits is measured in dollars. 
D)  there is no difference between the various types of bank deposits. 
E)  savings and loan institutions have the same status as commercial banks. 
A)  these deposits can be readily transformed into cash. 
B)  these deposits can be used as collateral for loans. 
C)  the value of time deposits is measured in dollars. 
D)  there is no difference between the various types of bank deposits. 
E)  savings and loan institutions have the same status as commercial banks.

Question 4

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 after the proceeds of the loan have been spent by the borrower?

Accepted Answer

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

Question 5

Assets a government says are money and are accepted by the public as money are called ________ money.

Accepted Answer

A)  near 
B)  funny 
C)  sophisticated 
D)  nominal 
E)  fiat 
A)  near 
B)  funny 
C)  sophisticated 
D)  nominal 
E)  fiat

Question 6

The direct exchange of goods produced for goods consumed is called

Accepted Answer

A)  managed float. 
B)  appreciation. 
C)  fractional reserve banking. 
D)  fiduciary displacement. 
E)  bartering. 
A)  managed float. 
B)  appreciation. 
C)  fractional reserve banking. 
D)  fiduciary displacement. 
E)  bartering.

Question 7

One reason given for the collapse in the savings and loan industry in the late 1980s and early 1990s is

Accepted Answer

A)  the lack of government insurance on savings and loan deposits. 
B)  that savings and loan investments were limited to relatively low-yielding government bonds. 
C)  that the savings and loan banks required significant amounts of owner-provided funds to be profitable. 
D)  that their reserve requirements were greater than those for commercial banks. 
E)  that they made risky short-term loans during an era of financial deregulation and lax regulatory supervision. 
A)  the lack of government insurance on savings and loan deposits. 
B)  that savings and loan investments were limited to relatively low-yielding government bonds. 
C)  that the savings and loan banks required significant amounts of owner-provided funds to be profitable. 
D)  that their reserve requirements were greater than those for commercial banks. 
E)  that they made risky short-term loans during an era of financial deregulation and lax regulatory supervision.

Question 8

At the same time bank B,compared to its original position,has had its

Accepted Answer

A)  cash holdings increased by $8,750. 
B)  reserve requirements increased by $8,750. 
C)  reserves increased by $8,750. 
D)  net worth increased by $8,750. 
E)  loans increased by $8,750. 
A)  cash holdings increased by $8,750. 
B)  reserve requirements increased by $8,750. 
C)  reserves increased by $8,750. 
D)  net worth increased by $8,750. 
E)  loans increased by $8,750.

Question 9

The most important reason for having a legal reserve requirement is to

Accepted Answer

A)  ensure bank safety. 
B)  prevent banks from reaping tremendous profits as intermediaries. 
C)  keep currency in circulation. 
D)  control the money supply. 
E)  provide enough money to meet everyday needs, such as check cashing and savings withdrawals. 
A)  ensure bank safety. 
B)  prevent banks from reaping tremendous profits as intermediaries. 
C)  keep currency in circulation. 
D)  control the money supply. 
E)  provide enough money to meet everyday needs, such as check cashing and savings withdrawals.

Question 10

The following question are based on the following information: The country has a fractional-reserve banking system, required reserves are 12.5 percent of demand deposits, each bank initially has reserves exactly equal to the required amount, each wants to maintain this equality, and no person withdraws cash from the banking system.
-Suppose $10,000 in newly printed currency is deposited in a checking account in bank A.Bank A now has

Accepted Answer

A)  excess reserves of $10,000. 
B)  required reserves up by $10,000. 
C)  net worth up by $10,000. 
D)  demand deposits up by $10,000. 
E)  added $10,000 to the money supply. 
A)  excess reserves of $10,000. 
B)  required reserves up by $10,000. 
C)  net worth up by $10,000. 
D)  demand deposits up by $10,000. 
E)  added $10,000 to the money supply.

Question 11

A bank's legal reserve requirements consist of

Accepted Answer

A)  the bank's holdings of cash and deposits with the Federal Reserve Bank. 
B)  the value of a bank's assets. 
C)  checkable deposits plus net worth. 
D)  the difference between bank assets and liabilities. 
E)  the sum of direct and indirect transfers plus deposits. 
A)  the bank's holdings of cash and deposits with the Federal Reserve Bank. 
B)  the value of a bank's assets. 
C)  checkable deposits plus net worth. 
D)  the difference between bank assets and liabilities. 
E)  the sum of direct and indirect transfers plus deposits.

Question 12

When currency is deposited into a demand deposit account

Accepted Answer

A)  it is a sign that a run on the bank has begun. 
B)  the money supply will fall. 
C)  the Federal Reserve System must borrow. 
D)  bank reserves increase. 
E)  it is no longer serving as a standard of value. 
A)  it is a sign that a run on the bank has begun. 
B)  the money supply will fall. 
C)  the Federal Reserve System must borrow. 
D)  bank reserves increase. 
E)  it is no longer serving as a standard of value.

Question 13

The Federal Reserve can set the required reserves for checkable deposits

Accepted Answer

A)  below 50 percent only if a majority of the governors agree. 
B)  above 3 percent only if five of seven governors agree. 
C)  at any level it deems necessary in extraordinary circumstances. 
D)  by majority vote between the limits of either 4 percent above or below the $1 in reserve per $6 in demand deposit average the Fed would like the bank to retain. 
E)  above what banks would normally require to meet day-to-day fluctuations in withdrawals if five of the seven governors agree. 
A)  below 50 percent only if a majority of the governors agree. 
B)  above 3 percent only if five of seven governors agree. 
C)  at any level it deems necessary in extraordinary circumstances. 
D)  by majority vote between the limits of either 4 percent above or below the $1 in reserve per $6 in demand deposit average the Fed would like the bank to retain. 
E)  above what banks would normally require to meet day-to-day fluctuations in withdrawals if five of the seven governors agree.

Question 14

The multiple by which the commercial banking system can expand the money supply is equal to the reciprocal of the

Accepted Answer

A)  marginal propensity to save. 
B)  discount rate. 
C)  rate of inflation. 
D)  rate of unemployment. 
E)  legal reserve ratio. 
A)  marginal propensity to save. 
B)  discount rate. 
C)  rate of inflation. 
D)  rate of unemployment. 
E)  legal reserve ratio.

Question 15

The largest component of the U.S.money supply,narrowly defined,is

Accepted Answer

A)  coins. 
B)  currency. 
C)  demand and other checkable deposits. 
D)  savings deposits. 
E)  credit cards. 
A)  coins. 
B)  currency. 
C)  demand and other checkable deposits. 
D)  savings deposits. 
E)  credit cards.

Question 16

The two major functions of commercial banks are to

Accepted Answer

A)  maintain checking accounts and lend money to individuals and firms. 
B)  print and circulate money and serve as lenders of last resort. 
C)  store gold and stabilize financial markets. 
D)  provide for-profit services such as money orders and traveler's checks and to store people's valuables. 
E)  supervise the financial activities of thrift institutions and maintain monetary stability. 
A)  maintain checking accounts and lend money to individuals and firms. 
B)  print and circulate money and serve as lenders of last resort. 
C)  store gold and stabilize financial markets. 
D)  provide for-profit services such as money orders and traveler's checks and to store people's valuables. 
E)  supervise the financial activities of thrift institutions and maintain monetary stability.

Question 17

A primary function of investment bankers is to

Accepted Answer

A)  help firms sell their securities to the public. 
B)  create money and promote economic growth. 
C)  pay interest and provide customers with economic security. 
D)  set interest rates and support the Federal Reserve. 
E)  collect taxes and hold government deposits. 
A)  help firms sell their securities to the public. 
B)  create money and promote economic growth. 
C)  pay interest and provide customers with economic security. 
D)  set interest rates and support the Federal Reserve. 
E)  collect taxes and hold government deposits.

Question 18

The following question are based on the following changes in the balance sheet of Nowhere National Bank.
 
-What was the bank's required ratio of reserves to deposits?

Accepted Answer

A)  10 percent 
B)  15 percent 
C)  16.67 percent 
D)  20 percent 
E)  25 percent 
A)  10 percent 
B)  15 percent 
C)  16.67 percent 
D)  20 percent 
E)  25 percent

Exam 20: Money and the Banking System

A characteristic typical of commercial banks is that

The liabilities of a commercial bank include

Some economists include time or savings deposits in the money supply because

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 after the proceeds of the loan have been spent by the borrower?

Assets a government says are money and are accepted by the public as money are called ________ money.

The direct exchange of goods produced for goods consumed is called

One reason given for the collapse in the savings and loan industry in the late 1980s and early 1990s is

At the same time bank B,compared to its original position,has had its

The most important reason for having a legal reserve requirement is to

A bank's legal reserve requirements consist of

When currency is deposited into a demand deposit account

The Federal Reserve can set the required reserves for checkable deposits

The multiple by which the commercial banking system can expand the money supply is equal to the reciprocal of the

The largest component of the U.S.money supply,narrowly defined,is

The two major functions of commercial banks are to

A primary function of investment bankers is to

The following question are based on the following changes in the balance sheet of Nowhere National Bank. -What was the bank's required ratio of reserves to deposits?

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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