Question 1

Which of the following constitutes a currency drain from the banking system?

Accepted Answer

A)  Purchase of government securities 
B)  New demand deposits 
C)  Banks lending out all excess reserves 
D)  A banking panic that leads to large withdrawals from banks 
E)  Lower required reserve holdings 
A)  Purchase of government securities 
B)  New demand deposits 
C)  Banks lending out all excess reserves 
D)  A banking panic that leads to large withdrawals from banks 
E)  Lower required reserve holdings

Question 2

Excess reserves are equal to:

Accepted Answer

A)  total reserves plus required reserves. 
B)  total reserves multiplied by required reserves. 
C)  total reserves minus loans. 
D)  total reserves minus required reserves. 
E)  required reserves minus loans. 
A)  total reserves plus required reserves. 
B)  total reserves multiplied by required reserves. 
C)  total reserves minus loans. 
D)  total reserves minus required reserves. 
E)  required reserves minus loans.

Question 3

What is the immediate effect when Bank A lends $1,000 to a local business?

Accepted Answer

A)  The money supply increases by $1,000. 
B)  The money supply decreases by $1,000. 
C)  Bank A's liability increases by $1,000. 
D)  Bank A's excess reserves increase by $1,000. 
E)  Bank A's demand deposits decrease by $1,000. 
A)  The money supply increases by $1,000. 
B)  The money supply decreases by $1,000. 
C)  Bank A's liability increases by $1,000. 
D)  Bank A's excess reserves increase by $1,000. 
E)  Bank A's demand deposits decrease by $1,000.

Question 4

-Refer to Table 12.2. If the reserve requirement is 12 percent and the bank receives a new deposit of $10,000, then required reserves will increase by _____.

Accepted Answer

A)  $3,600 
B)  $2,400 
C)  $2,600 
D)  $2,800 
E)  $1,200 
A)  $3,600 
B)  $2,400 
C)  $2,600 
D)  $2,800 
E)  $1,200

Question 5

Commodity money is money that:

Accepted Answer

A)  has no value as a commodity. 
B)  is not backed by gold or silver and is not a legal tender. 
C)  may go out of circulation with an increase in its intrinsic value. 
D)  always has a face value greater than the intrinsic value. 
E)  is solely used in barter exchanges. 
A)  has no value as a commodity. 
B)  is not backed by gold or silver and is not a legal tender. 
C)  may go out of circulation with an increase in its intrinsic value. 
D)  always has a face value greater than the intrinsic value. 
E)  is solely used in barter exchanges.

Question 6

Which of the following properties should a commodity have to be considered as money?

Accepted Answer

A)  It should be scarce and rare. 
B)  It should be perishable. 
C)  It should be indivisible. 
D)  It should be unpredictable in value. 
E)  It should be homogenous in nature. 
A)  It should be scarce and rare. 
B)  It should be perishable. 
C)  It should be indivisible. 
D)  It should be unpredictable in value. 
E)  It should be homogenous in nature.

Question 7

In the United States, the different categories of money supply measurement are based on:

Accepted Answer

A)  the elasticity of money. 
B)  the liquidity of money. 
C)  the amount of purchasing power. 
D)  the reserve requirements in the banking system. 
E)  the velocity of money. 
A)  the elasticity of money. 
B)  the liquidity of money. 
C)  the amount of purchasing power. 
D)  the reserve requirements in the banking system. 
E)  the velocity of money.

Question 8

Outstanding U.S. dollar-denominated travelers' checks issued by non-bank institutions are not counted as part of the M1 money supply.

Accepted Answer

A) True 
 B)False

Question 9

A $1,000 price tag on a stereo system is an example of money as a unit of account.

Accepted Answer

A) True 
 B)False

Question 10

Perishable goods such as tomatoes and milk are never used as a form of money, primarily because they cannot function as:

Accepted Answer

A)  a store of purchasing power. 
B)  a means of payment. 
C)  a standard of deferred payment. 
D)  a medium of exchange. 
E)  a unit of account. 
A)  a store of purchasing power. 
B)  a means of payment. 
C)  a standard of deferred payment. 
D)  a medium of exchange. 
E)  a unit of account.

Question 11

By Gresham's law, commodity money will always drive out fiduciary money.

Accepted Answer

A) True 
 B)False

Question 12

The use of money as a unit of account:

Accepted Answer

A)  discourages specialization and division of labor. 
B)  inhibits the exchange of goods and services. 
C)  makes it difficult to compare the relative values of goods and services. 
D)  lowers information costs relative to barter. 
E)  relies on the existence of a double coincidence of wants. 
A)  discourages specialization and division of labor. 
B)  inhibits the exchange of goods and services. 
C)  makes it difficult to compare the relative values of goods and services. 
D)  lowers information costs relative to barter. 
E)  relies on the existence of a double coincidence of wants.

Question 13

Prior to 1980, thrift institutions in the United States were allowed to offer checking accounts.

Accepted Answer

A) True 
 B)False

Question 14

-Refer to Table 12.2. Assume a reserve requirement of 10 percent. The maximum amount of new loans the bank could extend is _____.

Accepted Answer

A)  $500 
B)  $1,000 
C)  $2,000 
D)  $3,000 
E)  $4,000 
A)  $500 
B)  $1,000 
C)  $2,000 
D)  $3,000 
E)  $4,000

Question 15

U.S. bank notes have no intrinsic value and yet are widely accepted as a medium of exchange. This is a result of:

Accepted Answer

A)  Gresham's law. 
B)  the use of money as a store of value. 
C)  the fiduciary monetary system. 
D)  the valuation of currency as commodity money. 
E)  the gold and silver reserves of the Federal government that backs the currency. 
A)  Gresham's law. 
B)  the use of money as a store of value. 
C)  the fiduciary monetary system. 
D)  the valuation of currency as commodity money. 
E)  the gold and silver reserves of the Federal government that backs the currency.

Question 16

Suppose the National Bank has total cash reserves of $2,000 and has $5,000 in total deposits. If its total excess reserves are $1,250, then the reserve requirement is equal to:

Accepted Answer

A)  25 percent. 
B)  15 percent. 
C)  10 percent. 
D)  5 percent. 
E)  20 percent. 
A)  25 percent. 
B)  15 percent. 
C)  10 percent. 
D)  5 percent. 
E)  20 percent.

Question 17

The table given below shows the components of money supply in an economy.?
  
-Refer to Table 12.1 and calculate the value of M1.

Accepted Answer

A)  $550 million 
B)  $570 million 
C)  $780 million 
D)  $1,125 million 
E)  $1,145 million 
A)  $550 million 
B)  $570 million 
C)  $780 million 
D)  $1,125 million 
E)  $1,145 million

Question 18

In fractional reserve banking:

Accepted Answer

A)  bank assets are less than bank reserves. 
B)  only a fraction of total deposits are bank reserves. 
C)  only a fraction of required reserves are investor assets. 
D)  bank loans are less than bank reserves. 
E)  a fraction of bank reserves needs to be backed by gold. 
A)  bank assets are less than bank reserves. 
B)  only a fraction of total deposits are bank reserves. 
C)  only a fraction of required reserves are investor assets. 
D)  bank loans are less than bank reserves. 
E)  a fraction of bank reserves needs to be backed by gold.

Question 19

The main advantage of the Eurocurrency market is that investment funds cannot be subject to foreign government controls.

Accepted Answer

A) True 
 B)False

Question 20

The cash reserves held by banks that are illegal are called excess reserves.

Accepted Answer

A) True 
 B)False

Exam 12: Money and Banking

Which of the following constitutes a currency drain from the banking system?

Excess reserves are equal to:

What is the immediate effect when Bank A lends $1,000 to a local business?

-Refer to Table 12.2. If the reserve requirement is 12 percent and the bank receives a new deposit of $10,000, then required reserves will increase by _____.

Commodity money is money that:

Which of the following properties should a commodity have to be considered as money?

In the United States, the different categories of money supply measurement are based on:

Outstanding U.S. dollar-denominated travelers' checks issued by non-bank institutions are not counted as part of the M1 money supply.

A $1,000 price tag on a stereo system is an example of money as a unit of account.

Perishable goods such as tomatoes and milk are never used as a form of money, primarily because they cannot function as:

By Gresham's law, commodity money will always drive out fiduciary money.

The use of money as a unit of account:

Prior to 1980, thrift institutions in the United States were allowed to offer checking accounts.

-Refer to Table 12.2. Assume a reserve requirement of 10 percent. The maximum amount of new loans the bank could extend is _____.

U.S. bank notes have no intrinsic value and yet are widely accepted as a medium of exchange. This is a result of:

Suppose the National Bank has total cash reserves of $2,000 and has $5,000 in total deposits. If its total excess reserves are $1,250, then the reserve requirement is equal to:

The table given below shows the components of money supply in an economy.? -Refer to Table 12.1 and calculate the value of M1.

In fractional reserve banking:

The main advantage of the Eurocurrency market is that investment funds cannot be subject to foreign government controls.

The cash reserves held by banks that are illegal are called excess reserves.

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

Filters