Question 1

The banking system of the United States is a fractional reserve system.What dangers does this pose for the safety of the banking system?

Accepted Answer

Fractional reserve banking means that ea

Question 2

The type of currency in circulation in the modern U.S.economy is almost entirely

Accepted Answer

A) commodity money. 
B) metallic money. 
C) fiat money. 
D) silver certificates. 
A) commodity money. 
B) metallic money. 
C) fiat money. 
D) silver certificates.

Question 3

What is fiat money?
 Why is fiat money important in the United States today?

Accepted Answer

Fiat (from the Latin for "Let it be done

Question 4

One advantage of a money system compared to a barter system is that

Accepted Answer

A) barter never works. 
B) money creates the need for banks. 
C) money is more efficient. 
D) everyone has money. 
A) barter never works. 
B) money creates the need for banks. 
C) money is more efficient. 
D) everyone has money.

Question 5

The lion's share of purchases and transactions in the U.S.economy are made with coins and paper money.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following was true regarding sub-prime mortgages that were popular in 2005-2006?

Accepted Answer

A) More than 90% of these loans were made by regulated banks. 
B) Bankers expected higher default rates on these loans. 
C) They were generally fixed rate loans. 
D) all of the above 
A) More than 90% of these loans were made by regulated banks. 
B) Bankers expected higher default rates on these loans. 
C) They were generally fixed rate loans. 
D) all of the above

Question 7

Milly Miser removes $250,000 from her mattress and opens a checking account.This single transaction immediately increases the money supply by

Accepted Answer

A) $250,000. 
B) $50,000. 
C) $0. 
D) −$250,000. 
A) $250,000. 
B) $50,000. 
C) $0. 
D) −$250,000.

Question 8

The official definition of the money supply that includes coins, paper money, travelers' checks, conventional checking accounts, and other checkable deposits at banks and savings institutions is called ____.

Accepted Answer

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

Question 9

Which of the following is an example of money serving as a medium of exchange?

Accepted Answer

A) Richard puts money into a piggy bank. 
B) Ellen deposits cash into a money market account. 
C) Sean puts a new $20 bill into his currency collection. 
D) Marian buys a carbo-loaded drink before a marathon. 
A) Richard puts money into a piggy bank. 
B) Ellen deposits cash into a money market account. 
C) Sean puts a new $20 bill into his currency collection. 
D) Marian buys a carbo-loaded drink before a marathon.

Question 10

When banking first began, it could be said that paper money was in reality

Accepted Answer

A) worthless. 
B) receipts. 
C) government money. 
D) fiat money. 
A) worthless. 
B) receipts. 
C) government money. 
D) fiat money.

Question 11

Which of the following is a drawback of FDIC insurance?

Accepted Answer

A) It leads to excess industry profits. 
B) It has failed to arrest the trend of bank failures. 
C) It leads to the problem of moral hazard. 
D) It undercuts private insurance companies. 
A) It leads to excess industry profits. 
B) It has failed to arrest the trend of bank failures. 
C) It leads to the problem of moral hazard. 
D) It undercuts private insurance companies.

Question 12

One aspect of bank accounting is that many liabilities of banks are

Accepted Answer

A) assets of other persons and businesses in the economy. 
B) also liabilities of other persons and businesses in the economy. 
C) not matched by liabilities of most other banks. 
D) not actually owed to any other person or business in the economy. 
A) assets of other persons and businesses in the economy. 
B) also liabilities of other persons and businesses in the economy. 
C) not matched by liabilities of most other banks. 
D) not actually owed to any other person or business in the economy.

Question 13

Which of the following is a bank liability?

Accepted Answer

A) cash in the vault 
B) loans made to customers 
C) money market deposit accounts 
D) bank computers 
E) All of the above are correct. 
A) cash in the vault 
B) loans made to customers 
C) money market deposit accounts 
D) bank computers 
E) All of the above are correct.

Question 14

As a general rule, you would be unwise to keep a deposit at an FDIC-insured bank in an amount greater than

Accepted Answer

A) 20 percent of the bank's reserves. 
B) $1,000,000. 
C) $250,000. 
D) an infinite amount; there is no limit. 
A) 20 percent of the bank's reserves. 
B) $1,000,000. 
C) $250,000. 
D) an infinite amount; there is no limit.

Question 15

Banking under a system of fractional reserves is a(n)

Accepted Answer

A) inherently risky business that is unsafe regardless of bank management. 
B) inherently risky business that is relatively safe under prudent management. 
C) fairly safe business unless management is irresponsible. 
D) fairly safe business with no unusual risks. 
A) inherently risky business that is unsafe regardless of bank management. 
B) inherently risky business that is relatively safe under prudent management. 
C) fairly safe business unless management is irresponsible. 
D) fairly safe business with no unusual risks.

Question 16

"Near monies" are

Accepted Answer

A) stocks, bonds, and real estate. 
B) U.S.notes and Federal Reserve notes. 
C) included in the M1 definition of the money supply. 
D) liquid assets that are close substitutes for money. 
E) All of the above are correct. 
A) stocks, bonds, and real estate. 
B) U.S.notes and Federal Reserve notes. 
C) included in the M1 definition of the money supply. 
D) liquid assets that are close substitutes for money. 
E) All of the above are correct.

Question 17

Which of the following might limit the money creation process to an amount less than the potential amount?

Accepted Answer

A) bank pursuit of profits 
B) public holding some cash 
C) business demand for loan 
D) increased use of credit cards 
A) bank pursuit of profits 
B) public holding some cash 
C) business demand for loan 
D) increased use of credit cards

Question 18

If you have a checking account at Citibank, the account is a liability of the bank.

Accepted Answer

A) True 
 B)False

Question 19

The new $20 bills were designed with features to make counterfeiting more difficult.

Accepted Answer

A) True 
 B)False

Question 20

A banker motivated by profit maximization may make decisions that destabilize the banking system.

Accepted Answer

A) True 
 B)False

Exam 29: Money and the Banking System

The banking system of the United States is a fractional reserve system.What dangers does this pose for the safety of the banking system?

The type of currency in circulation in the modern U.S.economy is almost entirely

What is fiat money? Why is fiat money important in the United States today?

One advantage of a money system compared to a barter system is that

The lion's share of purchases and transactions in the U.S.economy are made with coins and paper money.

Which of the following was true regarding sub-prime mortgages that were popular in 2005-2006?

Milly Miser removes $250,000 from her mattress and opens a checking account.This single transaction immediately increases the money supply by

The official definition of the money supply that includes coins, paper money, travelers' checks, conventional checking accounts, and other checkable deposits at banks and savings institutions is called ____.

Which of the following is an example of money serving as a medium of exchange?

When banking first began, it could be said that paper money was in reality

Which of the following is a drawback of FDIC insurance?

One aspect of bank accounting is that many liabilities of banks are

Which of the following is a bank liability?

As a general rule, you would be unwise to keep a deposit at an FDIC-insured bank in an amount greater than

Banking under a system of fractional reserves is a(n)

"Near monies" are

Which of the following might limit the money creation process to an amount less than the potential amount?

If you have a checking account at Citibank, the account is a liability of the bank.

The new $20 bills were designed with features to make counterfeiting more difficult.

A banker motivated by profit maximization may make decisions that destabilize the banking system.

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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