Question 1

Banks do not need to keep all of their deposits on hand as reserves because

Accepted Answer

A) only a fraction of deposits are withdrawn at any one time. 
B) FDIC protects banks from excessive withdrawal demands. 
C) there is too much risk of bank robberies. 
D) they can always generate new reserves through the money creation process. 
A) only a fraction of deposits are withdrawn at any one time. 
B) FDIC protects banks from excessive withdrawal demands. 
C) there is too much risk of bank robberies. 
D) they can always generate new reserves through the money creation process.

Question 2

Checkable deposit account balances are

Accepted Answer

A) counted in the calculation of the money supply. 
B) part of M2 but not part of M1. 
C) considered credit, but not money. 
D) only a small component of the money supply. 
A) counted in the calculation of the money supply. 
B) part of M2 but not part of M1. 
C) considered credit, but not money. 
D) only a small component of the money supply.

Question 3

The function that banks perform by obtaining funds from households, businesses, and governments and lending these funds to other households, businesses, and governments is known as

Accepted Answer

A) financial intermediation. 
B) lending intermediation. 
C) fiscal intermediation. 
D) liquidity intermediation. 
A) financial intermediation. 
B) lending intermediation. 
C) fiscal intermediation. 
D) liquidity intermediation.

Question 4

For the past several decades, the U.S. M1 multiplier has been between

Accepted Answer

A) 1.0 and 2.0. 
B) 2.5 and 3.0. 
C) 3.0 and 6.0. 
D) 6.5 and 10.0. 
A) 1.0 and 2.0. 
B) 2.5 and 3.0. 
C) 3.0 and 6.0. 
D) 6.5 and 10.0.

Question 5

Suppose you borrow $1,000 from your bank to pay for a bike. This is an example of

Accepted Answer

A) direct financing. 
B) indirect financing. 
C) moral hazard. 
D) transaction costs. 
A) direct financing. 
B) indirect financing. 
C) moral hazard. 
D) transaction costs.

Question 6

All of the following are functions of the Federal Reserve System EXCEPT

Accepted Answer

A) to provide loans to developing countries. 
B) to supply the economy with fiduciary currency. 
C) to hold depository institutions' reserves. 
D) to act as the government's fiscal agent. 
A) to provide loans to developing countries. 
B) to supply the economy with fiduciary currency. 
C) to hold depository institutions' reserves. 
D) to act as the government's fiscal agent.

Question 7

Money as a medium of exchange I. Facilitates the exchange of goods
II. Reduces the incentive to barter

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 8

Due to the existence of the FDIC, banks

Accepted Answer

A) may make riskier loans knowing that their depositors are insured. 
B) have not changed their behavior even with the existence of insurance. 
C) become more cautious in making loans. 
D) are no longer concerned about net worth. 
A) may make riskier loans knowing that their depositors are insured. 
B) have not changed their behavior even with the existence of insurance. 
C) become more cautious in making loans. 
D) are no longer concerned about net worth.

Question 9

A fractional reserve banking system is a system whereby

Accepted Answer

A) banks keep at least 100 percent of their deposits on hand as reserves. 
B) banks keep only a fraction of their deposits on hand as reserves. 
C) a central bank tells all banks what fraction of the population they can serve. 
D) banks specialize so that one type of bank handles one kind of deposit and another type of bank handles another type of deposit. 
A) banks keep at least 100 percent of their deposits on hand as reserves. 
B) banks keep only a fraction of their deposits on hand as reserves. 
C) a central bank tells all banks what fraction of the population they can serve. 
D) banks specialize so that one type of bank handles one kind of deposit and another type of bank handles another type of deposit.

Question 10

The U.S. central bank performs all the following roles for the nation EXCEPT

Accepted Answer

A) performing banking functions for their nations' governments. 
B) lending funds directly to the public. 
C) providing financial services for private banks. 
D) conducting their nations' monetary policies. 
A) performing banking functions for their nations' governments. 
B) lending funds directly to the public. 
C) providing financial services for private banks. 
D) conducting their nations' monetary policies.

Question 11

Suppose your $50,000 certificate of deposit matures and you transfer the funds to your checking account. This causes

Accepted Answer

A) M1 to decrease by $50,000 and M2 to increase by $50,000. 
B) M1 to increase by $50,000 and M2 to remain the same. 
C) both M1 and M2 to increase by $50,000. 
D) no change to either M1 or M2. 
A) M1 to decrease by $50,000 and M2 to increase by $50,000. 
B) M1 to increase by $50,000 and M2 to remain the same. 
C) both M1 and M2 to increase by $50,000. 
D) no change to either M1 or M2.

Question 12

Which of the following is NOT part of M1 but is included in M2?

Accepted Answer

A) currency 
B) small-denomination certificates of deposits 
C) traveler's checks 
D) cash 
A) currency 
B) small-denomination certificates of deposits 
C) traveler's checks 
D) cash

Question 13

A corporate bond is not as liquid as cash because the bond

Accepted Answer

A) cannot be converted to spendable dollars either until it matures or is sold to another investor. 
B) can be exchanged only for the goods or services produced by the company that issued the bond. 
C) must be exchanged for a stock certificate before it can be converted to spendable funds. 
D) represents an exchange for gold only. 
A) cannot be converted to spendable dollars either until it matures or is sold to another investor. 
B) can be exchanged only for the goods or services produced by the company that issued the bond. 
C) must be exchanged for a stock certificate before it can be converted to spendable funds. 
D) represents an exchange for gold only.

Question 14

The U.S. fiduciary monetary system

Accepted Answer

A) is the one agency responsible for providing coins and paper currency. 
B) is one where money is not convertible to a fixed quantity of gold. 
C) puts capital controls in place. 
D) controls the private banking system. 
A) is the one agency responsible for providing coins and paper currency. 
B) is one where money is not convertible to a fixed quantity of gold. 
C) puts capital controls in place. 
D) controls the private banking system.

Question 15

The Board of Governors of the Federal Reserve System is

Accepted Answer

A) appointed by the Congress. 
B) elected by the public. 
C) appointed by the President with approval of the U.S. Senate. 
D) elected by members of the American Banking Association. 
A) appointed by the Congress. 
B) elected by the public. 
C) appointed by the President with approval of the U.S. Senate. 
D) elected by members of the American Banking Association.

Question 16

Which of the following is NOT a potential problem due to federal depository insurance?

Accepted Answer

A) Banks have an incentive to make riskier loans than they would otherwise. 
B) Depositors have little incentive to monitor the behavior of the managers of the depository institutions. 
C) Depositors demand greater interest rates on their deposits to compensate them for the riskier behavior of the managers of the depository institutions. 
D) Lenders have less incentive to investigate the credit-worthiness of borrowers. 
A) Banks have an incentive to make riskier loans than they would otherwise. 
B) Depositors have little incentive to monitor the behavior of the managers of the depository institutions. 
C) Depositors demand greater interest rates on their deposits to compensate them for the riskier behavior of the managers of the depository institutions. 
D) Lenders have less incentive to investigate the credit-worthiness of borrowers.

Question 17

If you save $2,500 for a down payment on a new car, you are using money as

Accepted Answer

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

Question 18

The reserve ratio is 20 percent. A check for $1 million is deposited in Bank A, written on an account from Bank B. After the check clears what are the new excess reserves at Bank A, and by how much does the money supply change if all banks make loans so that they have zero excess reserves?

Accepted Answer

A) $200,000; $800,000 
B) $800,000; $1 million 
C) $800,000; $800,000 
D) $800,000; 0 
A) $200,000; $800,000 
B) $800,000; $1 million 
C) $800,000; $800,000 
D) $800,000; 0

Question 19

Traveler's check are

Accepted Answer

A) part of M1 only. 
B) part of M2 only. 
C) part of M1 and M2. 
D) not part of M1 or M2. 
A) part of M1 only. 
B) part of M2 only. 
C) part of M1 and M2. 
D) not part of M1 or M2.

Question 20

The narrowest definition of the money supply is

Accepted Answer

A) M1. 
B) M2. 
C) the difference between M2 and M1. 
D) the sum of M1 and M2. 
A) M1. 
B) M2. 
C) the difference between M2 and M1. 
D) the sum of M1 and M2.

Banks do not need to keep all of their deposits on hand as reserves because

Checkable deposit account balances are

The function that banks perform by obtaining funds from households, businesses, and governments and lending these funds to other households, businesses, and governments is known as

For the past several decades, the U.S. M1 multiplier has been between

Suppose you borrow $1,000 from your bank to pay for a bike. This is an example of

All of the following are functions of the Federal Reserve System EXCEPT

Money as a medium of exchange I. Facilitates the exchange of goods II. Reduces the incentive to barter

Due to the existence of the FDIC, banks

A fractional reserve banking system is a system whereby

The U.S. central bank performs all the following roles for the nation EXCEPT

Suppose your $50,000 certificate of deposit matures and you transfer the funds to your checking account. This causes

Which of the following is NOT part of M1 but is included in M2?

A corporate bond is not as liquid as cash because the bond

The U.S. fiduciary monetary system

The Board of Governors of the Federal Reserve System is

Which of the following is NOT a potential problem due to federal depository insurance?

If you save $2,500 for a down payment on a new car, you are using money as

The reserve ratio is 20 percent. A check for $1 million is deposited in Bank A, written on an account from Bank B. After the check clears what are the new excess reserves at Bank A, and by how much does the money supply change if all banks make loans so that they have zero excess reserves?

Traveler's check are

The narrowest definition of the money supply is

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

Banks do not need to keep all of their deposits on hand as reserves because

Checkable deposit account balances are

The function that banks perform by obtaining funds from households, businesses, and governments and lending these funds to other households, businesses, and governments is known as

For the past several decades, the U.S. M1 multiplier has been between

Suppose you borrow $1,000 from your bank to pay for a bike. This is an example of

All of the following are functions of the Federal Reserve System EXCEPT

Money as a medium of exchange I. Facilitates the exchange of goods II. Reduces the incentive to barter

Due to the existence of the FDIC, banks

A fractional reserve banking system is a system whereby

The U.S. central bank performs all the following roles for the nation EXCEPT

Suppose your $50,000 certificate of deposit matures and you transfer the funds to your checking account. This causes

Which of the following is NOT part of M1 but is included in M2?

A corporate bond is not as liquid as cash because the bond

The U.S. fiduciary monetary system

The Board of Governors of the Federal Reserve System is

Which of the following is NOT a potential problem due to federal depository insurance?

If you save $2,500 for a down payment on a new car, you are using money as

The reserve ratio is 20 percent. A check for $1 million is deposited in Bank A, written on an account from Bank B. After the check clears what are the new excess reserves at Bank A, and by how much does the money supply change if all banks make loans so that they have zero excess reserves?

Traveler's check are

The narrowest definition of the money supply is

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