Question 1

Many economists believe that the difference between savings accounts and checking accounts is disappearing.

Accepted Answer

A) True 
 B)False

Question 2

The Federal Deposit Insurance Corporation insures

Accepted Answer

A) savings accounts against unlawful transfer into checking accounts. 
B) bank deposits against the failure of an individual bank. 
C) that the bank will maintain sufficient required reserves. 
D) bank buildings and property against fire and theft. 
A) savings accounts against unlawful transfer into checking accounts. 
B) bank deposits against the failure of an individual bank. 
C) that the bank will maintain sufficient required reserves. 
D) bank buildings and property against fire and theft.

Question 3

Banks will keep excess reserves when:​

Accepted Answer

A) ​they do not foresee profitable opportunities to make loans 
B) ​business conditions generally are depressed 
C) ​they do not foresee opportunities to make secure loans 
D) ​All of the above are correct. 
A) ​they do not foresee profitable opportunities to make loans 
B) ​business conditions generally are depressed 
C) ​they do not foresee opportunities to make secure loans 
D) ​All of the above are correct.

Question 4

The maximum increase in the money supply possible from a deposit of $D into the banking system where R is the reserve requirement is

Accepted Answer

A) (1/R)(D − R). 
B) R × D. 
C) (1/R)(1 − R)D. 
D) (1/R)D. 
A) (1/R)(D − R). 
B) R × D. 
C) (1/R)(1 − R)D. 
D) (1/R)D.

Question 5

The deposit creation formula can be defined as

Accepted Answer

A) one minus the required reserve ratio. 
B) the same as the GDP income multiplier. 
C) the reciprocal of the required reserve ratio. 
D) one plus the required reserve ratio. 
A) one minus the required reserve ratio. 
B) the same as the GDP income multiplier. 
C) the reciprocal of the required reserve ratio. 
D) one plus the required reserve ratio.

Question 6

Explain why monetary policy is needed specifically with regard to the existence of excess reserves.Compare and contrast the effectiveness of monetary policy during the Great Depression and the Great Recession?

Accepted Answer

During a recession, banks will maintain

Question 7

Banks try to keep their excess reserves at a maximum in order to maximize profits.

Accepted Answer

A) True 
 B)False

Question 8

A banker operating under a system of fractional reserves

Accepted Answer

A) is exposed to potential bank runs. 
B) must keep a prudent level of reserves. 
C) must lend money carefully. 
D) All of the above are correct. 
A) is exposed to potential bank runs. 
B) must keep a prudent level of reserves. 
C) must lend money carefully. 
D) All of the above are correct.

Question 9

Are funds available on a credit card included in a definition of the money supply?

Accepted Answer

A) Yes, because these funds can be used to pay for goods and services. 
B) Yes, because these funds are included in M2. 
C) No, because these funds are hard to measure total credit card spending. 
D) No, because these funds are not a store of value. 
A) Yes, because these funds can be used to pay for goods and services. 
B) Yes, because these funds are included in M2. 
C) No, because these funds are hard to measure total credit card spending. 
D) No, because these funds are not a store of value.

Question 10

Although a variety of commodities have been used as money, the most commonly used have been

Accepted Answer

A) stones and cattle. 
B) shells and beads. 
C) gold and silver. 
D) cigarettes and candy bars. 
A) stones and cattle. 
B) shells and beads. 
C) gold and silver. 
D) cigarettes and candy bars.

Question 11

Which of the following are reasons that banks are so heavily regulated?

Accepted Answer

A) Governments are concerned about the safety of deposits. 
B) The industry is a principal determinant of aggregate demand. 
C) Bank failures are contagious. 
D) All of the above are correct. 
A) Governments are concerned about the safety of deposits. 
B) The industry is a principal determinant of aggregate demand. 
C) Bank failures are contagious. 
D) All of the above are correct.

Question 12

Bank runs are "contagious" in that they often spread to other banks.

Accepted Answer

A) True 
 B)False

Question 13

It is imperative that banks maintain a reputation for safety in order that

Accepted Answer

A) regulators can reduce their efforts. 
B) bank runs can be reduced or prevented. 
C) customers will not be afraid to ask for loans. 
D) stockholders can earn a high rate of return. 
A) regulators can reduce their efforts. 
B) bank runs can be reduced or prevented. 
C) customers will not be afraid to ask for loans. 
D) stockholders can earn a high rate of return.

Question 14

The M2 definition of the money supply is based on the concept that

Accepted Answer

A) M1 is a small number, and should be increased in size. 
B) many types of deposits can be used as both payments and stores of value. 
C) checking deposits are used for payments, and therefore, not part of M1. 
D) cash is not used for the majority of payments. 
A) M1 is a small number, and should be increased in size. 
B) many types of deposits can be used as both payments and stores of value. 
C) checking deposits are used for payments, and therefore, not part of M1. 
D) cash is not used for the majority of payments.

Question 15

A major problem with a commodity money is that, to be useful, money must be

Accepted Answer

A) divisible. 
B) storable. 
C) portable. 
D) All of the above are correct. 
A) divisible. 
B) storable. 
C) portable. 
D) All of the above are correct.

Question 16

Systemic risks would be most prevalent at larger banks like Bank of America and Citibank.

Accepted Answer

A) True 
 B)False

Question 17

Why are credit cards not considered part of the money supply?

Accepted Answer

Credit cards lengthen the period of time

Question 18

An increase in the reserve ratio would tend to

Accepted Answer

A) increase excess reserves and raise the money multiplier. 
B) decrease excess reserves and decrease the money multiplier. 
C) increase excess reserves and decrease the money multiplier. 
D) decrease excess reserves and raise the money multiplier. 
A) increase excess reserves and raise the money multiplier. 
B) decrease excess reserves and decrease the money multiplier. 
C) increase excess reserves and decrease the money multiplier. 
D) decrease excess reserves and raise the money multiplier.

Question 19

Bank regulators are concerned about the safety of depositors because

Accepted Answer

A) bank failures were common throughout most of U.S.history and have even occurred in recent decades. 
B) in the absence of federal insurance, depositors would lose their money if a bank failed. 
C) nervous depositors may rush to withdraw their accounts and produce a "run" that could threaten even a sound bank. 
D) All of the above are correct. 
A) bank failures were common throughout most of U.S.history and have even occurred in recent decades. 
B) in the absence of federal insurance, depositors would lose their money if a bank failed. 
C) nervous depositors may rush to withdraw their accounts and produce a "run" that could threaten even a sound bank. 
D) All of the above are correct.

Question 20

Bankers have a reputation for conservatism in politics, dress, and business affairs.Is there an economic rationale for this conservatism?
 Explain.

Accepted Answer

There is an economic rationale for this

Exam 29: Money and the Banking System

Many economists believe that the difference between savings accounts and checking accounts is disappearing.

The Federal Deposit Insurance Corporation insures

Banks will keep excess reserves when:​

The maximum increase in the money supply possible from a deposit of $D into the banking system where R is the reserve requirement is

The deposit creation formula can be defined as

Explain why monetary policy is needed specifically with regard to the existence of excess reserves.Compare and contrast the effectiveness of monetary policy during the Great Depression and the Great Recession?

Banks try to keep their excess reserves at a maximum in order to maximize profits.

A banker operating under a system of fractional reserves

Are funds available on a credit card included in a definition of the money supply?

Although a variety of commodities have been used as money, the most commonly used have been

Which of the following are reasons that banks are so heavily regulated?

Bank runs are "contagious" in that they often spread to other banks.

It is imperative that banks maintain a reputation for safety in order that

The M2 definition of the money supply is based on the concept that

A major problem with a commodity money is that, to be useful, money must be

Systemic risks would be most prevalent at larger banks like Bank of America and Citibank.

Why are credit cards not considered part of the money supply?

An increase in the reserve ratio would tend to

Bank regulators are concerned about the safety of depositors because

Bankers have a reputation for conservatism in politics, dress, and business affairs.Is there an economic rationale for this conservatism? Explain.

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

Filters

Banks will keep excess reserves when: