Question 1

Bank regulation exists because public authorities are convinced that

Accepted Answer

A) the balance between public interest and safety does not affect profitability, and should be removed from the hands of managers. 
B) the balance between bank profitability and public interest cannot be handled with legislation, but can be handled with regulation. 
C) the balance between bank profitability and safety cannot be left to profit-maximizing managers. 
D) the balance between bank safety and public interest can best be obtained by reliance on the market. 
A) the balance between public interest and safety does not affect profitability, and should be removed from the hands of managers. 
B) the balance between bank profitability and public interest cannot be handled with legislation, but can be handled with regulation. 
C) the balance between bank profitability and safety cannot be left to profit-maximizing managers. 
D) the balance between bank safety and public interest can best be obtained by reliance on the market.

Question 2

If the required reserve ratio, m, is 20 percent, then the oversimplified money multiplier is

Accepted Answer

A) 10. 
B) 5. 
C) 4. 
D) 2. 
A) 10. 
B) 5. 
C) 4. 
D) 2.

Question 3

The early goldsmiths issued money in the form of

Accepted Answer

A) coins made from gold in their safes. 
B) receipts for the acceptance of gold deposits. 
C) gold fragments left over from the production of jewelry. 
D) fully backed gold certificates. 
A) coins made from gold in their safes. 
B) receipts for the acceptance of gold deposits. 
C) gold fragments left over from the production of jewelry. 
D) fully backed gold certificates.

Question 4

Most observers nowadays see monetary policy as much less important than fiscal policy.

Accepted Answer

A) True 
 B)False

Question 5

The concept of money as a "unit of account" involves the use of money to

Accepted Answer

A) speed transactions. 
B) reduce shopping time. 
C) protect against inflation. 
D) quote prices. 
A) speed transactions. 
B) reduce shopping time. 
C) protect against inflation. 
D) quote prices.

Question 6

Which of the following assets is most liquid?

Accepted Answer

A) short-term government bonds 
B) savings accounts 
C) checking accounts 
D) currency and coins 
A) short-term government bonds 
B) savings accounts 
C) checking accounts 
D) currency and coins

Question 7

When you pay for some purchase with a check, cash must be transferred to another account to pay for the check.

Accepted Answer

A) True 
 B)False

Question 8

Currently in the United States, money is backed by

Accepted Answer

A) silver in the IMF vaults. 
B) Federal Reserve notes in banks. 
C) gold in Fort Knox. 
D) everyone's willingness to accept it. 
A) silver in the IMF vaults. 
B) Federal Reserve notes in banks. 
C) gold in Fort Knox. 
D) everyone's willingness to accept it.

Question 9

The Ponderosa Bank receives a new deposit of $2,500.The reserves requirement is 20 percent.How much can this bank loan out as a result of this deposit?

Accepted Answer

A) $25,000 
B) $12,500 
C) $3,125 
D) $2,000 
E) $500 
A) $25,000 
B) $12,500 
C) $3,125 
D) $2,000 
E) $500

Question 10

In an economic system with privately owned, profit-maximizing banks, there will always be a difference between

Accepted Answer

A) private profits and social profits. 
B) bank profits and other corporate profits. 
C) bank profits and macroeconomic objectives. 
D) bank profits and government profits. 
A) private profits and social profits. 
B) bank profits and other corporate profits. 
C) bank profits and macroeconomic objectives. 
D) bank profits and government profits.

Question 11

The composition of M2 as of December 2010 includes saving deposits at savings banks and credit unions.

Accepted Answer

A) True 
 B)False

Question 12

In what sense can it be said that money is a social invention?
 How does a barter system of trade compare to the invention of money?

Accepted Answer

Money is a social invention in the sense

Question 13

Any reserves held by a bank above the amount of minimum legal reserves are called

Accepted Answer

A) total reserves. 
B) required reserves. 
C) fiat money. 
D) excess reserves. 
A) total reserves. 
B) required reserves. 
C) fiat money. 
D) excess reserves.

Question 14

Money market mutual funds are accounts that are

Accepted Answer

A) usually offered by banks. 
B) do not pay interest income. 
C) insured by the federal government. 
D) usually offered by brokerage and insurance firms. 
A) usually offered by banks. 
B) do not pay interest income. 
C) insured by the federal government. 
D) usually offered by brokerage and insurance firms.

Question 15

If you have a checking account at a local bank, your bank account there is a(n)

Accepted Answer

A) asset to the bank and an asset to you. 
B) liability of the bank and a liability of yours. 
C) liability of the bank and an asset to you. 
D) asset to the bank and a liability of yours. 
A) asset to the bank and an asset to you. 
B) liability of the bank and a liability of yours. 
C) liability of the bank and an asset to you. 
D) asset to the bank and a liability of yours.

Question 16

Which of the following definitions of the money supply includes only the most liquid forms of money?

Accepted Answer

A) M1 
B) M2 
C) savings deposits. 
D) money market mutual deposits. 
A) M1 
B) M2 
C) savings deposits. 
D) money market mutual deposits.

Question 17

If a bank has $1,000,000 in reserves and checking deposits of $3,000,000, what is the bank's reserve position if the required reserve ratio is 20 percent?

Accepted Answer

A) The bank has $500,000 of required reserves and $500,000 of excess reserves. 
B) The bank has $600,000 of required reserves and $400,000 of excess reserves. 
C) The bank has $400,000 of required reserves and $600,000 of excess reserves. 
D) The bank has $200,000 of required reserves and $800,000 of excess reserves. 
A) The bank has $500,000 of required reserves and $500,000 of excess reserves. 
B) The bank has $600,000 of required reserves and $400,000 of excess reserves. 
C) The bank has $400,000 of required reserves and $600,000 of excess reserves. 
D) The bank has $200,000 of required reserves and $800,000 of excess reserves.

Question 18

Unlike recent events in England, the United States has no recent history of bank failures.

Accepted Answer

A) True 
 B)False

Question 19

The net worth of a bank is

Accepted Answer

A) equal to the value of assets. 
B) equal to the value of deposits. 
C) equal to the value of liabilities. 
D) the value of assets less liabilities. 
E) the value of loans and securities. 
A) equal to the value of assets. 
B) equal to the value of deposits. 
C) equal to the value of liabilities. 
D) the value of assets less liabilities. 
E) the value of loans and securities.

Question 20

One difference between the assets included in M1 and those added to calculate M2 is that items in M1 are

Accepted Answer

A) better stores of value than those added to compute M2. 
B) more liquid than those added to compute M2. 
C) less liquid than those added to compute M2. 
D) larger than those added to compute M2. 
A) better stores of value than those added to compute M2. 
B) more liquid than those added to compute M2. 
C) less liquid than those added to compute M2. 
D) larger than those added to compute M2.

Exam 29: Money and the Banking System

Bank regulation exists because public authorities are convinced that

If the required reserve ratio, m, is 20 percent, then the oversimplified money multiplier is

The early goldsmiths issued money in the form of

Most observers nowadays see monetary policy as much less important than fiscal policy.

The concept of money as a "unit of account" involves the use of money to

Which of the following assets is most liquid?

When you pay for some purchase with a check, cash must be transferred to another account to pay for the check.

Currently in the United States, money is backed by

The Ponderosa Bank receives a new deposit of $2,500.The reserves requirement is 20 percent.How much can this bank loan out as a result of this deposit?

In an economic system with privately owned, profit-maximizing banks, there will always be a difference between

The composition of M2 as of December 2010 includes saving deposits at savings banks and credit unions.

In what sense can it be said that money is a social invention? How does a barter system of trade compare to the invention of money?

Any reserves held by a bank above the amount of minimum legal reserves are called

Money market mutual funds are accounts that are

If you have a checking account at a local bank, your bank account there is a(n)

Which of the following definitions of the money supply includes only the most liquid forms of money?

If a bank has $1,000,000 in reserves and checking deposits of $3,000,000, what is the bank's reserve position if the required reserve ratio is 20 percent?

Unlike recent events in England, the United States has no recent history of bank failures.

The net worth of a bank is

One difference between the assets included in M1 and those added to calculate M2 is that items in M1 are

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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