Question 1

When a bank buys a bond from the Fed

Accepted Answer

A) its liabilities decrease. 
B) its liabilities increase. 
C) its reserves initially decrease. 
D) its reserves initially increase. 
A) its liabilities decrease. 
B) its liabilities increase. 
C) its reserves initially decrease. 
D) its reserves initially increase.

Question 2

Suppose a person deposits a paycheck in a bank. The transaction deposits are money, so has the money supply increased?
 Explain.

Accepted Answer

No. The check was drawn on the

Question 3

Which one of the following statements is TRUE?

Accepted Answer

A) Not all forms of currency are accepted equally well by the public as a medium of exchange. 
B) Checkable and debitable account balances are not money, but currency is. 
C) Checkable and debitable accounts are considered money by law in only 15 states. 
D) The value of the dollar rises along with the increases in the consumer price index. 
A) Not all forms of currency are accepted equally well by the public as a medium of exchange. 
B) Checkable and debitable account balances are not money, but currency is. 
C) Checkable and debitable accounts are considered money by law in only 15 states. 
D) The value of the dollar rises along with the increases in the consumer price index.

Question 4

The difference between assets and liabilities is

Accepted Answer

A) a sweep account. 
B) a balance sheet. 
C) net worth. 
D) legal reserves. 
A) a sweep account. 
B) a balance sheet. 
C) net worth. 
D) legal reserves.

Question 5

Which of the following is the most liquid?

Accepted Answer

A) certificate of deposit 
B) cash 
C) checkable and debitable account 
D) stocks and bonds 
A) certificate of deposit 
B) cash 
C) checkable and debitable account 
D) stocks and bonds

Question 6

A measure by which prices are expressed is a(n)

Accepted Answer

A) medium of exchange. 
B) unit of accounting. 
C) store of value. 
D) standard of deferred payment. 
A) medium of exchange. 
B) unit of accounting. 
C) store of value. 
D) standard of deferred payment.

Question 7

Which of the following is NOT a reason that people tend to deposit their funds with banks rather than lend their funds directly to other individuals?

Accepted Answer

A) adverse selection problems 
B) asymmetric information problems 
C) moral hazard problems 
D) liquidity problems 
A) adverse selection problems 
B) asymmetric information problems 
C) moral hazard problems 
D) liquidity problems

Question 8

When we examine the U.S. money supply, the smallest component of M1 is

Accepted Answer

A) currency and coins. 
B) transaction deposits. 
C) certificates of deposit. 
D) traveler's checks. 
A) currency and coins. 
B) transaction deposits. 
C) certificates of deposit. 
D) traveler's checks.

Question 9

Which of the following is a correct reason for stating that the United States has a fiduciary monetary system?
I. Our money is convertible to a fixed amount of silver or gold.
II. Our money has a predictable value.

Accepted Answer

A) I only 
B) II only 
C) Both I and II 
D) Neither I nor II 
A) I only 
B) II only 
C) Both I and II 
D) Neither I nor II

Question 10

Even when people know the purchasing power of the currency is declining, they continue to use the currency because

Accepted Answer

A) they have no other choice. 
B) its value is holding better than any other asset. 
C) its value is still predictable. 
D) it still has some intrinsic value. 
A) they have no other choice. 
B) its value is holding better than any other asset. 
C) its value is still predictable. 
D) it still has some intrinsic value.

Question 11

If the reserve ratio is 25 percent, the maximum potential money multiplier is

Accepted Answer

A) 1. 
B) 4. 
C) 8. 
D) 25. 
A) 1. 
B) 4. 
C) 8. 
D) 25.

Question 12

When the Federal Reserve sells a government security to a bond dealer, which transmits payment from a transactions deposit account at a bank

Accepted Answer

A) the cash of the Federal Reserve will decrease. 
B) the net worth of the commercial bank will decrease. 
C) the loans of the commercial bank will increase. 
D) the money supply will decrease. 
A) the cash of the Federal Reserve will decrease. 
B) the net worth of the commercial bank will decrease. 
C) the loans of the commercial bank will increase. 
D) the money supply will decrease.

Question 13

The M2 money supply is equal to the M1 money supply plus

Accepted Answer

A) small time deposits, savings deposits, and retail money market mutual fund shares. 
B) all credit card balances and retail money market mutual fund shares. 
C) large time deposits and retail money market mutual fund shares. 
D) every account held by commercial banks. 
A) small time deposits, savings deposits, and retail money market mutual fund shares. 
B) all credit card balances and retail money market mutual fund shares. 
C) large time deposits and retail money market mutual fund shares. 
D) every account held by commercial banks.

Question 14

Given a required reserve ratio of 20 percent, a commercial bank that has received a new deposit of $100 can make additional loans of

Accepted Answer

A) $0. 
B) $20. 
C) $80. 
D) $400. 
A) $0. 
B) $20. 
C) $80. 
D) $400.

Question 15

Jane has just deposited $2,000 in her checking account. She knows that the bank will keep part of these funds on hand and loan out the rest. This is an example of

Accepted Answer

A) the Federal Reserve System. 
B) a sweep account. 
C) fractional reserve banking. 
D) excess reserves. 
A) the Federal Reserve System. 
B) a sweep account. 
C) fractional reserve banking. 
D) excess reserves.

Question 16

The Federal Reserve System has

Accepted Answer

A) 7 district banks. 
B) 12 district banks. 
C) 24 district banks. 
D) 50 district banks. 
A) 7 district banks. 
B) 12 district banks. 
C) 24 district banks. 
D) 50 district banks.

Question 17

The most important function of money is when money is used as a

Accepted Answer

A) medium of exchange. 
B) standard of deferred payment. 
C) unit of accounting. 
D) store of value. 
A) medium of exchange. 
B) standard of deferred payment. 
C) unit of accounting. 
D) store of value.

Question 18

A purchase of U.S. government securities by the Fed causes

Accepted Answer

A) an expansion of the money supply equal to the amount of the securities purchased. 
B) a contraction of the money supply equal to the amount of the securities purchased. 
C) an expansion of the money supply of more than the amount of the securities purchased. 
D) a contraction of the money supply of more than the amount of the securities purchased. 
A) an expansion of the money supply equal to the amount of the securities purchased. 
B) a contraction of the money supply equal to the amount of the securities purchased. 
C) an expansion of the money supply of more than the amount of the securities purchased. 
D) a contraction of the money supply of more than the amount of the securities purchased.

Question 19

Adverse selection refers to the

Accepted Answer

A) possibility that the borrower may engage in riskier behavior after the loan is obtained. 
B) likelihood that a potential borrower may use the funds that he receives for unworthy, high risk projects. 
C) possession of information by one party in a financial transaction not known by the other party. 
D) use of statistical discrimination in making loans. 
A) possibility that the borrower may engage in riskier behavior after the loan is obtained. 
B) likelihood that a potential borrower may use the funds that he receives for unworthy, high risk projects. 
C) possession of information by one party in a financial transaction not known by the other party. 
D) use of statistical discrimination in making loans.

Question 20

Even when a particular monetary asset is not performing one of the functions of money well, people still use the asset because

Accepted Answer

A) it is still easier than relying on barter. 
B) they have no choice. 
C) once an asset is defined as money it is always money. 
D) people expect money will come back at a later date. 
A) it is still easier than relying on barter. 
B) they have no choice. 
C) once an asset is defined as money it is always money. 
D) people expect money will come back at a later date.

When a bank buys a bond from the Fed

Suppose a person deposits a paycheck in a bank. The transaction deposits are money, so has the money supply increased? Explain.

Which one of the following statements is TRUE?

The difference between assets and liabilities is

Which of the following is the most liquid?

A measure by which prices are expressed is a(n)

Which of the following is NOT a reason that people tend to deposit their funds with banks rather than lend their funds directly to other individuals?

When we examine the U.S. money supply, the smallest component of M1 is

Which of the following is a correct reason for stating that the United States has a fiduciary monetary system? I. Our money is convertible to a fixed amount of silver or gold. II. Our money has a predictable value.

Even when people know the purchasing power of the currency is declining, they continue to use the currency because

If the reserve ratio is 25 percent, the maximum potential money multiplier is

When the Federal Reserve sells a government security to a bond dealer, which transmits payment from a transactions deposit account at a bank

The M2 money supply is equal to the M1 money supply plus

Given a required reserve ratio of 20 percent, a commercial bank that has received a new deposit of $100 can make additional loans of

Jane has just deposited $2,000 in her checking account. She knows that the bank will keep part of these funds on hand and loan out the rest. This is an example of

The Federal Reserve System has

The most important function of money is when money is used as a

A purchase of U.S. government securities by the Fed causes

Adverse selection refers to the

Even when a particular monetary asset is not performing one of the functions of money well, people still use the asset because

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters

Exam 14: Money Banking and Central Banking

When a bank buys a bond from the Fed

Suppose a person deposits a paycheck in a bank. The transaction deposits are money, so has the money supply increased? Explain.

Which one of the following statements is TRUE?

The difference between assets and liabilities is

Which of the following is the most liquid?

A measure by which prices are expressed is a(n)

Which of the following is NOT a reason that people tend to deposit their funds with banks rather than lend their funds directly to other individuals?

When we examine the U.S. money supply, the smallest component of M1 is

Which of the following is a correct reason for stating that the United States has a fiduciary monetary system? I. Our money is convertible to a fixed amount of silver or gold. II. Our money has a predictable value.

Even when people know the purchasing power of the currency is declining, they continue to use the currency because

If the reserve ratio is 25 percent, the maximum potential money multiplier is

When the Federal Reserve sells a government security to a bond dealer, which transmits payment from a transactions deposit account at a bank

The M2 money supply is equal to the M1 money supply plus

Given a required reserve ratio of 20 percent, a commercial bank that has received a new deposit of $100 can make additional loans of

Jane has just deposited $2,000 in her checking account. She knows that the bank will keep part of these funds on hand and loan out the rest. This is an example of

The Federal Reserve System has

The most important function of money is when money is used as a

A purchase of U.S. government securities by the Fed causes

Adverse selection refers to the

Even when a particular monetary asset is not performing one of the functions of money well, people still use the asset because

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters