Question 1

The oversimplified money multiplier formula, when the required reserve ratio is m, is

Accepted Answer

A) change in money supply = change in reserves × m. 
B) change in money supply = (1/m) /change in reserves. 
C) change in money supply = (1/m) × change in reserves. 
D) change in money supply = m/change in reserves. 
A) change in money supply = change in reserves × m. 
B) change in money supply = (1/m) /change in reserves. 
C) change in money supply = (1/m) × change in reserves. 
D) change in money supply = m/change in reserves.

Question 2

Government regulations to insure the safety of bank deposits and to control the money supply include

Accepted Answer

A) limitations on the types and quantities of assets in which banks may invest. 
B) elimination of the need for required reserves. 
C) setting interest rate ceilings on savings and money market deposit accounts. 
D) All of the above are correct. 
A) limitations on the types and quantities of assets in which banks may invest. 
B) elimination of the need for required reserves. 
C) setting interest rate ceilings on savings and money market deposit accounts. 
D) All of the above are correct.

Question 3

Some bank regulation limits the types of assets that banks may own.The intent of this regulation is to

Accepted Answer

A) protect banks from competition. 
B) provide banks with a minimum level of profits. 
C) limit the level of bank profits. 
D) maintain bank safety. 
E) All of the above are correct. 
A) protect banks from competition. 
B) provide banks with a minimum level of profits. 
C) limit the level of bank profits. 
D) maintain bank safety. 
E) All of the above are correct.

Question 4

In a market system, the most dangerous types of bankruptcies involve

Accepted Answer

A) industrial monopolies. 
B) multinational firms. 
C) employment agencies. 
D) financial institutions. 
A) industrial monopolies. 
B) multinational firms. 
C) employment agencies. 
D) financial institutions.

Question 5

During a period of economic depression, such as has existed for a long period in Japan, a profit-oriented bank will act in such a way that

Accepted Answer

A) dampens the fluctuations. 
B) makes the depression worse. 
C) is neutral with respect to the fluctuations. 
D) is counter-cyclical and stabilizing. 
A) dampens the fluctuations. 
B) makes the depression worse. 
C) is neutral with respect to the fluctuations. 
D) is counter-cyclical and stabilizing.

Question 6

The net worth of a bank

Accepted Answer

A) determines the level of bank loans possible. 
B) is determined by subtracting liabilities from assets. 
C) is determined by subtracting assets from liabilities. 
D) can never be a negative value. 
A) determines the level of bank loans possible. 
B) is determined by subtracting liabilities from assets. 
C) is determined by subtracting assets from liabilities. 
D) can never be a negative value.

Question 7

The increase in bank supervision in the U.S.in the 1980s and early 1990s was due to an increase in bank

Accepted Answer

A) profits. 
B) ownership of common stocks. 
C) failures. 
D) deposits and loans. 
A) profits. 
B) ownership of common stocks. 
C) failures. 
D) deposits and loans.

Question 8

As of December 2010, the largest single component of M1 consists of

Accepted Answer

A) checkable deposits at banks. 
B) money market mutual funds. 
C) savings deposits. 
D) currency. 
A) checkable deposits at banks. 
B) money market mutual funds. 
C) savings deposits. 
D) currency.

Question 9

Most checkable deposits are insured up to $250,000 by

Accepted Answer

A) state banking commissions. 
B) the Federal Reserve Board. 
C) U.S.Department of the Treasury. 
D) the Federal Deposit Insurance Corporation. 
A) state banking commissions. 
B) the Federal Reserve Board. 
C) U.S.Department of the Treasury. 
D) the Federal Deposit Insurance Corporation.

Question 10

One intention of deposit insurance is to reduce the danger of

Accepted Answer

A) excess lending. 
B) excess profits. 
C) risky lending. 
D) bank runs. 
E) All of the above are correct. 
A) excess lending. 
B) excess profits. 
C) risky lending. 
D) bank runs. 
E) All of the above are correct.

Question 11

If people begin to hold more cash, the money multiplier process will

Accepted Answer

A) increase in intensity. 
B) remain the same. 
C) decrease in actual size. 
D) cause larger amounts of excess reserves. 
A) increase in intensity. 
B) remain the same. 
C) decrease in actual size. 
D) cause larger amounts of excess reserves.

Question 12

The net worth of a bank is defined as the difference between

Accepted Answer

A) income and expenses. 
B) assets and liabilities. 
C) loans and deposits. 
D) loans and reserves. 
A) income and expenses. 
B) assets and liabilities. 
C) loans and deposits. 
D) loans and reserves.

Question 13

The money multiplier yielded by the deposit creation formula assumes that

Accepted Answer

A) banks hold no excess reserves. 
B) banks hold excess reserves. 
C) recipients of loans take some of the proceeds in cash. 
D) recipients of loans do not redeposit their funds in other banks. 
A) banks hold no excess reserves. 
B) banks hold excess reserves. 
C) recipients of loans take some of the proceeds in cash. 
D) recipients of loans do not redeposit their funds in other banks.

Question 14

It is necessary for the Federal Reserve to regulate the money supply because

Accepted Answer

A) banks tend to act in a counter-cyclical manner with regard to the money supply. 
B) banks are not profit-oriented, and tend to be unresponsive to the needs of business. 
C) left to itself, the banking system will create a gyrating money supply that will be destabilizing. 
D) left to itself, the banking system will not be able to increase or decrease the money supply. 
A) banks tend to act in a counter-cyclical manner with regard to the money supply. 
B) banks are not profit-oriented, and tend to be unresponsive to the needs of business. 
C) left to itself, the banking system will create a gyrating money supply that will be destabilizing. 
D) left to itself, the banking system will not be able to increase or decrease the money supply.

Question 15

If fears of a terrorist attack are widespread and people lose faith in money, the economy could revert to a system of

Accepted Answer

A) cash and checks. 
B) double-entry bookkeeping. 
C) barter. 
D) financial intermediaries. 
A) cash and checks. 
B) double-entry bookkeeping. 
C) barter. 
D) financial intermediaries.

Question 16

Bankers' business decisions effect the money supply because bankers

Accepted Answer

A) are respected men and women. 
B) have the ability to create money. 
C) use a special accounting system developed by the Federal Reserve Board. 
D) All of the above are correct. 
A) are respected men and women. 
B) have the ability to create money. 
C) use a special accounting system developed by the Federal Reserve Board. 
D) All of the above are correct.

Question 17

One problem for economic stability is that in a period of inflation

Accepted Answer

A) banks will be tempted to increase lending in order to increase profits. 
B) banks will be tempted to decrease lending in order to increase profits. 
C) profit-oriented banks will tend to hold excess reserves and decrease the money supply. 
D) deposits will decrease and banks will have to reduce lending. 
A) banks will be tempted to increase lending in order to increase profits. 
B) banks will be tempted to decrease lending in order to increase profits. 
C) profit-oriented banks will tend to hold excess reserves and decrease the money supply. 
D) deposits will decrease and banks will have to reduce lending.

Question 18

Fiat money is

Accepted Answer

A) always backed by gold or silver. 
B) useful in buying Italian cars. 
C) only backed by government decree. 
D) not as liquid as precious metals. 
A) always backed by gold or silver. 
B) useful in buying Italian cars. 
C) only backed by government decree. 
D) not as liquid as precious metals.

Question 19

Most bank deposits in the United States are insured by the Federal Deposit Insurance Corporation (FDIC).

Accepted Answer

A) True 
 B)False

Question 20

____ is an object in use as a medium of exchange, but which also has a substantial value in alternative uses.

Accepted Answer

A) IOU 
B) A commodity money 
C) Fiat money 
D) Deposit certificate 
A) IOU 
B) A commodity money 
C) Fiat money 
D) Deposit certificate

Exam 29: Money and the Banking System

The oversimplified money multiplier formula, when the required reserve ratio is m, is

Government regulations to insure the safety of bank deposits and to control the money supply include

Some bank regulation limits the types of assets that banks may own.The intent of this regulation is to

In a market system, the most dangerous types of bankruptcies involve

During a period of economic depression, such as has existed for a long period in Japan, a profit-oriented bank will act in such a way that

The net worth of a bank

The increase in bank supervision in the U.S.in the 1980s and early 1990s was due to an increase in bank

As of December 2010, the largest single component of M1 consists of

Most checkable deposits are insured up to $250,000 by

One intention of deposit insurance is to reduce the danger of

If people begin to hold more cash, the money multiplier process will

The net worth of a bank is defined as the difference between

The money multiplier yielded by the deposit creation formula assumes that

It is necessary for the Federal Reserve to regulate the money supply because

If fears of a terrorist attack are widespread and people lose faith in money, the economy could revert to a system of

Bankers' business decisions effect the money supply because bankers

One problem for economic stability is that in a period of inflation

Fiat money is

Most bank deposits in the United States are insured by the Federal Deposit Insurance Corporation (FDIC).

____ is an object in use as a medium of exchange, but which also has a substantial value in alternative uses.

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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