Question 1

A contraction of the money supply would have no effect on a recession.

Accepted Answer

A) True 
 B)False

Question 2

Nowadays, most observers believe that monetary policy

Accepted Answer

A) is less important than fiscal policy. 
B) is more important than fiscal policy. 
C) and fiscal policy are equally important. 
D) and fiscal policy are both unimportant. 
A) is less important than fiscal policy. 
B) is more important than fiscal policy. 
C) and fiscal policy are equally important. 
D) and fiscal policy are both unimportant.

Question 3

Explain the "too big to fail" doctrine.

Accepted Answer

During a financial crisis, some financia

Question 4

One principle that nearly all economists agree on when defining money is that it should be

Accepted Answer

A) spendable. 
B) liquid. 
C) accepted as payment. 
D) easily transferable. 
E) All of the above are correct. 
A) spendable. 
B) liquid. 
C) accepted as payment. 
D) easily transferable. 
E) All of the above are correct.

Question 5

A single bank is limited in its ability to create money because

Accepted Answer

A) loan recipients usually take the proceeds of the loan in cash. 
B) the FDIC will not permit it to create money unless the loans are guaranteed by the federal government. 
C) the money loaned will probably be deposited in another bank. 
D) federal legislation prohibits banks from creating money except to finance international trade. 
A) loan recipients usually take the proceeds of the loan in cash. 
B) the FDIC will not permit it to create money unless the loans are guaranteed by the federal government. 
C) the money loaned will probably be deposited in another bank. 
D) federal legislation prohibits banks from creating money except to finance international trade.

Question 6

Money as defined by M1 includes

Accepted Answer

A) coins. 
B) paper money. 
C) checking deposits. 
D) travelers' checks. 
E) All of the above are correct. 
A) coins. 
B) paper money. 
C) checking deposits. 
D) travelers' checks. 
E) All of the above are correct.

Question 7

A bank run involves a large inflow of money into commercial banks.

Accepted Answer

A) True 
 B)False

Question 8

The major contribution of goldsmiths to the development of modern banking was

Accepted Answer

A) local banking. 
B) market banking. 
C) fractional reserve banking. 
D) gold standard banking. 
A) local banking. 
B) market banking. 
C) fractional reserve banking. 
D) gold standard banking.

Question 9

During the financial crisis of 2007-2009, the U.S.government determined that

Accepted Answer

A) AIG was too big to fail but Lehman Brothers was not. 
B) Lehman Brothers was too big to fail but AIG was not. 
C) both Lehman Brothers and AIG were too big to fail. 
D) neither Lehman Brothers nor AIG were too big to fail. 
A) AIG was too big to fail but Lehman Brothers was not. 
B) Lehman Brothers was too big to fail but AIG was not. 
C) both Lehman Brothers and AIG were too big to fail. 
D) neither Lehman Brothers nor AIG were too big to fail.

Question 10

Money is an imperfect store of value when

Accepted Answer

A) the rate of inflation is high. 
B) the unemployment rate is high. 
C) gold prices are falling. 
D) businesses are failing due to bankruptcy. 
A) the rate of inflation is high. 
B) the unemployment rate is high. 
C) gold prices are falling. 
D) businesses are failing due to bankruptcy.

Question 11

Liquidity refers to the ability of an asset to hold its value in periods of inflation.

Accepted Answer

A) True 
 B)False

Question 12

Modern paper money is fiat money because it is backed only by the faith the holder has in the government that issued it.

Accepted Answer

A) True 
 B)False

Question 13

Money's principal function is to serve as a

Accepted Answer

A) standard for making loans. 
B) standard for credit reporting. 
C) medium of exchange. 
D) method for storing wealth. 
A) standard for making loans. 
B) standard for credit reporting. 
C) medium of exchange. 
D) method for storing wealth.

Question 14

Fractional reserve banking began as a result of the search for additional profits.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following would be an asset to a bank?

Accepted Answer

A) cash in the vault 
B) a loan to a university student 
C) a government security 
D) All of the above are correct. 
A) cash in the vault 
B) a loan to a university student 
C) a government security 
D) All of the above are correct.

Question 16

With the invention of banking, one important aspect of money was that

Accepted Answer

A) banks have some discretion over the money supply. 
B) banks have complete control over the money supply. 
C) governments lost all control over the money supply. 
D) individuals have no discretion over the money supply. 
A) banks have some discretion over the money supply. 
B) banks have complete control over the money supply. 
C) governments lost all control over the money supply. 
D) individuals have no discretion over the money supply.

Question 17

Liquidity refers to the

Accepted Answer

A) rapidity with which money flows through the economy. 
B) ease with which an asset can be converted into cash. 
C) ease with which banks move funds from checking to savings accounts. 
D) All of the above are correct. 
A) rapidity with which money flows through the economy. 
B) ease with which an asset can be converted into cash. 
C) ease with which banks move funds from checking to savings accounts. 
D) All of the above are correct.

Question 18

Which of the following definitions of the money supply is the least liquid?

Accepted Answer

A) M1 
B) M2 
C) M3 
D) L 
A) M1 
B) M2 
C) M3 
D) L

Question 19

Banks are required to keep a minimum level of reserves on hand.The intent of this regulation is

Accepted Answer

A) monetary control rather than bank safety. 
B) bank safety in case of bank runs. 
C) maintenance of bank profits. 
D) limiting the level of bank profits. 
A) monetary control rather than bank safety. 
B) bank safety in case of bank runs. 
C) maintenance of bank profits. 
D) limiting the level of bank profits.

Question 20

Under the modern system of fractional reserve banking, banks

Accepted Answer

A) keep cash reserves equal to only a fraction of their deposit liabilities. 
B) loan out their excess reserves at interest, which is the key to their profitability. 
C) are always potentially vulnerable to runs. 
D) All of the above are correct. 
A) keep cash reserves equal to only a fraction of their deposit liabilities. 
B) loan out their excess reserves at interest, which is the key to their profitability. 
C) are always potentially vulnerable to runs. 
D) All of the above are correct.

Exam 29: Money and the Banking System

A contraction of the money supply would have no effect on a recession.

Nowadays, most observers believe that monetary policy

Explain the "too big to fail" doctrine.

One principle that nearly all economists agree on when defining money is that it should be

A single bank is limited in its ability to create money because

Money as defined by M1 includes

A bank run involves a large inflow of money into commercial banks.

The major contribution of goldsmiths to the development of modern banking was

During the financial crisis of 2007-2009, the U.S.government determined that

Money is an imperfect store of value when

Liquidity refers to the ability of an asset to hold its value in periods of inflation.

Modern paper money is fiat money because it is backed only by the faith the holder has in the government that issued it.

Money's principal function is to serve as a

Fractional reserve banking began as a result of the search for additional profits.

Which of the following would be an asset to a bank?

With the invention of banking, one important aspect of money was that

Liquidity refers to the

Which of the following definitions of the money supply is the least liquid?

Banks are required to keep a minimum level of reserves on hand.The intent of this regulation is

Under the modern system of fractional reserve banking, banks

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