Question 1

The reciprocal of the reserve requirement is called the:

Accepted Answer

A)  spending multiplier. 
B)  tax multiplier. 
C)  lending multiplier. 
D)  deposit expansion multiplier. 
E)  excess reserve multiplier. 
A)  spending multiplier. 
B)  tax multiplier. 
C)  lending multiplier. 
D)  deposit expansion multiplier. 
E)  excess reserve multiplier.

Question 2

An increase in the amount of currency held by the public will raise the value of the deposit expansion multiplier.

Accepted Answer

A) True 
 B)False

Question 3

The money-creating ability of the banking system may be lowered by:

Accepted Answer

A)  a decrease in the cash balances that people wish to hold. 
B)  a fall in the overall rate of inflation. 
C)  an increase in the excess reserves. 
D)  an increase in total deposits. 
E)  an increase in the reserve requirement. 
A)  a decrease in the cash balances that people wish to hold. 
B)  a fall in the overall rate of inflation. 
C)  an increase in the excess reserves. 
D)  an increase in total deposits. 
E)  an increase in the reserve requirement.

Question 4

_____ are accounts at the U.S. commercial banks that combine an interest-bearing savings account with a noninterest bearing checking account.

Accepted Answer

A)  Automatic transfer system accounts 
B)  Negotiable orders of withdrawal 
C)  Eurodollar deposits 
D)  Certificates of deposit 
E)  Credit union share draft accounts 
A)  Automatic transfer system accounts 
B)  Negotiable orders of withdrawal 
C)  Eurodollar deposits 
D)  Certificates of deposit 
E)  Credit union share draft accounts

Question 5

If the deposit expansion multiplier is 20, what is the reserve requirement in the banking system?

Accepted Answer

A)  20 percent 
B)  50 percent 
C)  2 percent 
D)  5 percent 
E)  10 percent 
A)  20 percent 
B)  50 percent 
C)  2 percent 
D)  5 percent 
E)  10 percent

Question 6

The Gramm-Leach-Bliley Act (GLBA), passed by the U.S. Congress in the year 1999, allows commercial banks to:

Accepted Answer

A)  operate in all foreign countries. 
B)  open new branches in Cuba. 
C)  expand their business into other areas of finance, including insurance and selling securities. 
D)  raise reserve requirements for other financial institutions. 
E)  eliminate unit banking. 
A)  operate in all foreign countries. 
B)  open new branches in Cuba. 
C)  expand their business into other areas of finance, including insurance and selling securities. 
D)  raise reserve requirements for other financial institutions. 
E)  eliminate unit banking.

Question 7

The table given below shows the components of money supply in an economy.?
  
-Refer to Table 12.1 and calculate the value of M2.

Accepted Answer

A)  $1,145 
B)  $1,325 
C)  $1,750 
D)  $2,550 
E)  $2,815 
A)  $1,145 
B)  $1,325 
C)  $1,750 
D)  $2,550 
E)  $2,815

Question 8

The maximum money that can be created by the entire banking system is equal to a multiple of its excess reserves.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following assets would be considered least liquid?

Accepted Answer

A)  A silver coin 
B)  An antique automobile 
C)  A U.S. savings bond 
D)  A debit card 
E)  A certificate of deposit 
A)  A silver coin 
B)  An antique automobile 
C)  A U.S. savings bond 
D)  A debit card 
E)  A certificate of deposit

Question 10

Because a bank pays a lower interest rate on deposits than it charges on loans, it cannot fail.

Accepted Answer

A) True 
 B)False

Question 11

Saltbricks will be considered as money if they are generally acceptable to sellers in exchange for goods and services.

Accepted Answer

A) True 
 B)False

Question 12

Suppose that Mr. Chopp withdraws $500 from his checking account. If the reserve requirement is 5 percent, what will be the maximum potential change in the money supply forthcoming from Mr. Chopp's transaction?

Accepted Answer

A)  $10,000 
B)  $500 
C)  $0 
D)  -$500 
E)  -$10,000 
A)  $10,000 
B)  $500 
C)  $0 
D)  -$500 
E)  -$10,000

Question 13

Which of the following is true of other checkable deposits?

Accepted Answer

A)  They are checking account deposits at commercial banks and do not pay any interest. 
B)  They are accounts at financial institutions that pay interest and give the depositor check-writing privileges. 
C)  They comprise solely of demand deposits at mutual savings banks. 
D)  They are not included in the M1 money supply. 
E)  They are savings deposits that earn interest at savings and loan associations. 
A)  They are checking account deposits at commercial banks and do not pay any interest. 
B)  They are accounts at financial institutions that pay interest and give the depositor check-writing privileges. 
C)  They comprise solely of demand deposits at mutual savings banks. 
D)  They are not included in the M1 money supply. 
E)  They are savings deposits that earn interest at savings and loan associations.

Question 14

An increase in the reserve requirement from 20 percent to 25 percent is most likely to:

Accepted Answer

A)  reduce total deposits in the banking system. 
B)  reduce excess reserves and the deposit expansion multiplier. 
C)  increase the money supply. 
D)  reduce the amount of reserves required. 
E)  increase total deposits and the deposit expansion multiplier. 
A)  reduce total deposits in the banking system. 
B)  reduce excess reserves and the deposit expansion multiplier. 
C)  increase the money supply. 
D)  reduce the amount of reserves required. 
E)  increase total deposits and the deposit expansion multiplier.

Question 15

Banks that operate under Islamic law are no longer considered intermediaries between borrowers and lenders because they are not allowed to charge interest.

Accepted Answer

A) True 
 B)False

Question 16

If the reserve requirement is 33.3 percent, what is the approximate value of deposit expansion multiplier?

Accepted Answer

A)  3.33 
B)  3 
C)  0.33 
D)  0.667 
E)  1.5 
A)  3.33 
B)  3 
C)  0.33 
D)  0.667 
E)  1.5

Question 17

The balance sheet of a depository institution lists:

Accepted Answer

A)  loans to private individuals as assets. 
B)  excess reserves as liabilities. 
C)  checkable deposits as liabilities. 
D)  required reserves as liabilities. 
E)  loans from the central bank as assets. 
A)  loans to private individuals as assets. 
B)  excess reserves as liabilities. 
C)  checkable deposits as liabilities. 
D)  required reserves as liabilities. 
E)  loans from the central bank as assets.

Question 18

Other things equal, when U.S. money moves to other countries to take advantage of better foreign investment opportunities, then:

Accepted Answer

A)  the U.S. money supply will increase. 
B)  the reserve requirement for U.S. banks will rise. 
C)  the U.S. money supply will decrease. 
D)  U.S. banks will have excess reserves to loan out. 
E)  the effect of the U.S. deposit expansion multiplier will be increased. 
A)  the U.S. money supply will increase. 
B)  the reserve requirement for U.S. banks will rise. 
C)  the U.S. money supply will decrease. 
D)  U.S. banks will have excess reserves to loan out. 
E)  the effect of the U.S. deposit expansion multiplier will be increased.

Question 19

The use of foreign money instead of domestic money when the domestic economy has a high rate of inflation is called _____.

Accepted Answer

A)  currency depreciation 
B)  currency substitution 
C)  capital flight 
D)  currency devaluation 
E)  currency trade 
A)  currency depreciation 
B)  currency substitution 
C)  capital flight 
D)  currency devaluation 
E)  currency trade

Question 20

A depository institution's profit is derived from the difference between:

Accepted Answer

A)  the interest rate it receives on loans and the rate it receives on investments in government securities. 
B)  the interest rate it pays on deposits and the rate it receives on loans. 
C)  its primary deposit and its derivative deposit. 
D)  its assets and its liabilities. 
E)  the interest rate it receives on domestic loans and the rate it receives on Eurodollar loans. 
A)  the interest rate it receives on loans and the rate it receives on investments in government securities. 
B)  the interest rate it pays on deposits and the rate it receives on loans. 
C)  its primary deposit and its derivative deposit. 
D)  its assets and its liabilities. 
E)  the interest rate it receives on domestic loans and the rate it receives on Eurodollar loans.

Exam 12: Money and Banking

The reciprocal of the reserve requirement is called the:

An increase in the amount of currency held by the public will raise the value of the deposit expansion multiplier.

The money-creating ability of the banking system may be lowered by:

_____ are accounts at the U.S. commercial banks that combine an interest-bearing savings account with a noninterest bearing checking account.

If the deposit expansion multiplier is 20, what is the reserve requirement in the banking system?

The Gramm-Leach-Bliley Act (GLBA), passed by the U.S. Congress in the year 1999, allows commercial banks to:

The table given below shows the components of money supply in an economy.? -Refer to Table 12.1 and calculate the value of M2.

The maximum money that can be created by the entire banking system is equal to a multiple of its excess reserves.

Which of the following assets would be considered least liquid?

Because a bank pays a lower interest rate on deposits than it charges on loans, it cannot fail.

Saltbricks will be considered as money if they are generally acceptable to sellers in exchange for goods and services.

Suppose that Mr. Chopp withdraws $500 from his checking account. If the reserve requirement is 5 percent, what will be the maximum potential change in the money supply forthcoming from Mr. Chopp's transaction?

Which of the following is true of other checkable deposits?

An increase in the reserve requirement from 20 percent to 25 percent is most likely to:

Banks that operate under Islamic law are no longer considered intermediaries between borrowers and lenders because they are not allowed to charge interest.

If the reserve requirement is 33.3 percent, what is the approximate value of deposit expansion multiplier?

The balance sheet of a depository institution lists:

Other things equal, when U.S. money moves to other countries to take advantage of better foreign investment opportunities, then:

The use of foreign money instead of domestic money when the domestic economy has a high rate of inflation is called _____.

A depository institution's profit is derived from the difference between:

The Wealth of Nations: Ownership and Economic Freedom

Scarcity and Opportunity Costs

The Market and Price System

The Aggregate Economy

National Income Accounting

An Introduction to the Foreign Exchapterange Market and the Balance of Payments

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Aggregate Expenditures

Income and Expenditures Equilibrium

Fiscal Policy

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

Economic Growth

Development Economics

Globalization

World Trade Equilibrium

International Trade Restrictions

Exchapterange Rates and Financial Links Between Countries

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