Question 1

Identify the basis on which you measure the liquidity of an asset.

Accepted Answer

A) Its value. 
B) Its future earning potential. 
C) Its convertibility into cash. 
D) Its ability to act as a perfect store of value. 
A) Its value. 
B) Its future earning potential. 
C) Its convertibility into cash. 
D) Its ability to act as a perfect store of value. C

Question 2

In the modern U.S.economy, most transactions are made with

Accepted Answer

A) cash. 
B) gold and silver. 
C) credit cards. 
D) checking deposits. 
A) cash. 
B) gold and silver. 
C) credit cards. 
D) checking deposits. D

Question 3

The government banking regulation that places an upper limit on the money supply is

Accepted Answer

A) deposit insurance by the FDIC. 
B) reserve requirements on bank deposits. 
C) periodic bank examinations and audits. 
D) limitations on the types of assets that a bank may own. 
A) deposit insurance by the FDIC. 
B) reserve requirements on bank deposits. 
C) periodic bank examinations and audits. 
D) limitations on the types of assets that a bank may own. B

Question 4

The value of the deposit multiplier is increased if individuals hold all their money in cash.

Accepted Answer

A) True 
 B)False

Question 5

Agraria uses bushels of wheat to quote prices.In this case, bushels of wheat act as a

Accepted Answer

A) medium of exchange. 
B) store of value. 
C) commodity value. 
D) unit of account. 
A) medium of exchange. 
B) store of value. 
C) commodity value. 
D) unit of account.

Question 6

Which of the following are not included in the M1 definition of the money supply?

Accepted Answer

A) cash and currency 
B) checkable deposits 
C) money market deposit accounts 
D) All of the above are included. 
A) cash and currency 
B) checkable deposits 
C) money market deposit accounts 
D) All of the above are included.

Question 7

To a bank, an asset is an obligation that it owes to someone else.

Accepted Answer

A) True 
 B)False

Question 8

If the reserve requirement is 20 percent and a new deposit of $10,000 in cash is made by a customer to their checking account, by how much are excess reserves increased?

Accepted Answer

A) $10,000 
B) $8,000 
C) $4,000 
D) $2,000 
A) $10,000 
B) $8,000 
C) $4,000 
D) $2,000

Question 9

Money that is backed solely by a government decree is referred to as fiat money.

Accepted Answer

A) True 
 B)False

Question 10

If Ms.Anniston transfers $1,000 from her checking account to her money market account, then

Accepted Answer

A) M1 falls and M2 remains the same. 
B) M1 falls and M2 rises. 
C) both M1 and M2 rise. 
D) M1 remains the same and M2 rises. 
A) M1 falls and M2 remains the same. 
B) M1 falls and M2 rises. 
C) both M1 and M2 rise. 
D) M1 remains the same and M2 rises.

Question 11

The narrowest definition of the money supply, including cash and checking deposits, is known as

Accepted Answer

A) M0. 
B) M1. 
C) M payments. 
D) currency. 
E) real-value money. 
A) M0. 
B) M1. 
C) M payments. 
D) currency. 
E) real-value money.

Question 12

The occurrence of bank failures in the United States

Accepted Answer

A) ended after 1933 and the creation of the FDIC. 
B) increased dramatically during the Clinton administration. 
C) reappeared in intensity in the late 1990s and early 2000s. 
D) reappeared in the 1980s and early 1990s and again in 2006. 
A) ended after 1933 and the creation of the FDIC. 
B) increased dramatically during the Clinton administration. 
C) reappeared in intensity in the late 1990s and early 2000s. 
D) reappeared in the 1980s and early 1990s and again in 2006.

Question 13

The banking industry is heavily regulated because

Accepted Answer

A) banking is a monopoly industry. 
B) most banks are owned by government agencies. 
C) bankers do what is best for their stockholders, not necessarily what is best for the economy. 
D) All of the above are correct. 
A) banking is a monopoly industry. 
B) most banks are owned by government agencies. 
C) bankers do what is best for their stockholders, not necessarily what is best for the economy. 
D) All of the above are correct.

Question 14

The objective of bank management is to

Accepted Answer

A) maximize stockholders' profits by making risky investments and giving loans to borrowers who will pay the highest interest rates. 
B) refuse to make risky loans and make loans only to the safest borrowers. 
C) invest in U.S.government securities and make loans only to established businesses. 
D) strike the appropriate balance between the attraction of bank profits and the need for bank safety. 
A) maximize stockholders' profits by making risky investments and giving loans to borrowers who will pay the highest interest rates. 
B) refuse to make risky loans and make loans only to the safest borrowers. 
C) invest in U.S.government securities and make loans only to established businesses. 
D) strike the appropriate balance between the attraction of bank profits and the need for bank safety.

Question 15

Which of the following is included in M1?

Accepted Answer

A) savings accounts 
B) money market deposit accounts 
C) money market mutual funds 
D) certificates of deposit 
E) None of the above are included. 
A) savings accounts 
B) money market deposit accounts 
C) money market mutual funds 
D) certificates of deposit 
E) None of the above are included.

Question 16

Agraria sends wheat to Cyberia in exchange for computers and technology goods.This is an example of

Accepted Answer

A) unidirectional trade. 
B) joint venture. 
C) barter. 
D) monetary exchange. 
A) unidirectional trade. 
B) joint venture. 
C) barter. 
D) monetary exchange.

Question 17

The required reserve ratio is 10 percent, but banks actually keep 20 percent on reserve.The actual money multiplier will be

Accepted Answer

A) 10. 
B) 9. 
C) 5. 
D) 2. 
E) 1. 
A) 10. 
B) 9. 
C) 5. 
D) 2. 
E) 1.

Question 18

Banks try to keep their level of excess reserves low because

Accepted Answer

A) the Fed charges a penalty for holdings of excess reserves. 
B) they are concerned that the money multiplier will become too large. 
C) they wish to maximize profits. 
D) bank regulators levy fines on the amount of excess reserves. 
A) the Fed charges a penalty for holdings of excess reserves. 
B) they are concerned that the money multiplier will become too large. 
C) they wish to maximize profits. 
D) bank regulators levy fines on the amount of excess reserves.

Question 19

The fractional reserve system of banking evolved because

Accepted Answer

A) goldsmiths did not have safes large enough to hold all their gold deposits. 
B) there was always a dire need for additional money. 
C) goldsmiths knew that on any given day, only a few depositors would come to claim their deposits. 
D) goldsmiths knew that they would not be prosecuted for lending out money they did not have. 
A) goldsmiths did not have safes large enough to hold all their gold deposits. 
B) there was always a dire need for additional money. 
C) goldsmiths knew that on any given day, only a few depositors would come to claim their deposits. 
D) goldsmiths knew that they would not be prosecuted for lending out money they did not have.

Question 20

Do bankers create money?

Accepted Answer

A) No, they cannot do this as private businesses. 
B) No, they are prevented by federal law. 
C) Yes, through multiple deposit creation. 
D) Yes, by opening checking accounts for customers. 
A) No, they cannot do this as private businesses. 
B) No, they are prevented by federal law. 
C) Yes, through multiple deposit creation. 
D) Yes, by opening checking accounts for customers.

Exam 29: Money and the Banking System

Identify the basis on which you measure the liquidity of an asset.

In the modern U.S.economy, most transactions are made with

The government banking regulation that places an upper limit on the money supply is

The value of the deposit multiplier is increased if individuals hold all their money in cash.

Agraria uses bushels of wheat to quote prices.In this case, bushels of wheat act as a

Which of the following are not included in the M1 definition of the money supply?

To a bank, an asset is an obligation that it owes to someone else.

If the reserve requirement is 20 percent and a new deposit of $10,000 in cash is made by a customer to their checking account, by how much are excess reserves increased?

Money that is backed solely by a government decree is referred to as fiat money.

If Ms.Anniston transfers $1,000 from her checking account to her money market account, then

The narrowest definition of the money supply, including cash and checking deposits, is known as

The occurrence of bank failures in the United States

The banking industry is heavily regulated because

The objective of bank management is to

Which of the following is included in M1?

Agraria sends wheat to Cyberia in exchange for computers and technology goods.This is an example of

The required reserve ratio is 10 percent, but banks actually keep 20 percent on reserve.The actual money multiplier will be

Banks try to keep their level of excess reserves low because

The fractional reserve system of banking evolved because

Do bankers create money?

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: the Importance of Marginal Analysis

Securities: Business Finance and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets: the Price System

The Shortcomings of Free Markets

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

Is Useconomic Leadership Threatened

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation

Bringing in the Supply Side: Unemployment and Inflation

Managing Aggregate Demand: Fiscal Policy

Monetary Policy: Conventional and Unconventional

He Financial Crisis and the Great Recession

The Debate Over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off Between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder

Exchange Rates and the Macroeconomy

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