Question 1

A property of an asset that makes it desirable for use as a means of settling debts maturing in the future 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 2

Which of the following has been a problem faced by the FDIC in its provision of federal deposit insurance?

Accepted Answer

A) moral hazard arising from the tendency for the highest-risk banks to be those most interested in obtaining deposit insurance in the first place 
B) adverse selection arising from the tendency for banks to take on more risk after they receive deposit insurance 
C) moral hazard arising from the tendency for banks to take on more risk after they receive deposit insurance 
D) a relatively low number of bank failures each year, which has reduced the need for deposit insurance 
A) moral hazard arising from the tendency for the highest-risk banks to be those most interested in obtaining deposit insurance in the first place 
B) adverse selection arising from the tendency for banks to take on more risk after they receive deposit insurance 
C) moral hazard arising from the tendency for banks to take on more risk after they receive deposit insurance 
D) a relatively low number of bank failures each year, which has reduced the need for deposit insurance

Question 3

Why is money as a medium of exchange important in an economy?

Accepted Answer

Money permits more specialization and re

Question 4

Assuming a reserve ratio of 10 percent, if a bank receives $100,000 in deposits how much can the bank loan out?

Accepted Answer

A) $90,000 
B) $100,000 
C) $110,000 
D) $10,000 
A) $90,000 
B) $100,000 
C) $110,000 
D) $10,000

Question 5

The possibility that a borrower might engage in riskier behavior after a loan is made is called

Accepted Answer

A) adverse selection. 
B) liability aversion. 
C) moral hazard. 
D) the risk of default. 
A) adverse selection. 
B) liability aversion. 
C) moral hazard. 
D) the risk of default.

Question 6

Which of the following statements is/are correct?
I. Depository institution managers undertake riskier actions than they otherwise would because of the existence of deposit insurance.
II. Because of the existence of deposit insurance, depositors in savings and loans and other banks have little incentive to investigate the financial stability of these institutions.

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 7

Any asset that sellers will accept as payment 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 8

A monetary system is preferable over the barter system because of the problems associated with

Accepted Answer

A) cash leakages. 
B) the double coincidence of wants. 
C) the law of diminishing marginal utility. 
D) the law of increasing relative costs. 
A) cash leakages. 
B) the double coincidence of wants. 
C) the law of diminishing marginal utility. 
D) the law of increasing relative costs.

Question 9

The concept of holding reserves, such as gold, that are less than the value of the total deposits

Accepted Answer

A) is known as fractional reserve banking. 
B) has been illegal since the passage of the Financial Services Modernization Act of 1999. 
C) is known as non-credit banking. 
D) None of the above are correct. 
A) is known as fractional reserve banking. 
B) has been illegal since the passage of the Financial Services Modernization Act of 1999. 
C) is known as non-credit banking. 
D) None of the above are correct.

Question 10

An individual who desires the most liquid asset possible will hold

Accepted Answer

A) currency. 
B) a savings account. 
C) checkable deposits at a bank. 
D) U.S. government bonds. 
A) currency. 
B) a savings account. 
C) checkable deposits at a bank. 
D) U.S. government bonds.

Question 11

Small-denomination time deposits are less than

Accepted Answer

A) $1 million. 
B) $100,000. 
C) $10,000. 
D) $1,000. 
A) $1 million. 
B) $100,000. 
C) $10,000. 
D) $1,000.

Question 12

According to the text, the actual M1 multiplier in the U.S. today is

Accepted Answer

A) between 0 and 1. 
B) between 1.5 and 2.0. 
C) negative. 
D) over 10. 
A) between 0 and 1. 
B) between 1.5 and 2.0. 
C) negative. 
D) over 10.

Question 13

When banks reduce the reserve ratio, the potential money multiplier

Accepted Answer

A) increases. 
B) decreases. 
C) remains unchanged. 
D) sometimes increases, and sometimes decreases depending on the rate of inflation. 
A) increases. 
B) decreases. 
C) remains unchanged. 
D) sometimes increases, and sometimes decreases depending on the rate of inflation.

Question 14

Suppose you are offered a new smartphone in exchange for thirty hours of your work in your friend's garden. This is an example of

Accepted Answer

A) money as a medium of exchange. 
B) money as a store of value. 
C) barter. 
D) money as a standard of deferred payment. 
A) money as a medium of exchange. 
B) money as a store of value. 
C) barter. 
D) money as a standard of deferred payment.

Question 15

With fractional reserve banking

Accepted Answer

A) banks can not generate profits. 
B) monetary policy will be ineffective. 
C) banks retain only a portion of their deposits in their vaults or at Federal Reserve banks. 
D) banks can act as securities brokers. 
A) banks can not generate profits. 
B) monetary policy will be ineffective. 
C) banks retain only a portion of their deposits in their vaults or at Federal Reserve banks. 
D) banks can act as securities brokers.

Question 16

The direct exchange of goods and services for other goods and services is known as

Accepted Answer

A) primitive trade. 
B) nonmarket trade. 
C) barter. 
D) purchasing power parity. 
A) primitive trade. 
B) nonmarket trade. 
C) barter. 
D) purchasing power parity.

Question 17

Open market operations involve

Accepted Answer

A) the buying and selling of existing corporate bonds. 
B) the buying and selling of existing corporate stocks. 
C) the buying and selling of existing federal government bonds. 
D) the buying and selling of Federal Reserve bonds. 
A) the buying and selling of existing corporate bonds. 
B) the buying and selling of existing corporate stocks. 
C) the buying and selling of existing federal government bonds. 
D) the buying and selling of Federal Reserve bonds.

Question 18

The maximum potential money multiplier is equal to

Accepted Answer

A) the reserve ratio. 
B) the inverse of the required reserve ratio. 
C) one minus the reserve ratio 
D) the number of dollars on reserve. 
A) the reserve ratio. 
B) the inverse of the required reserve ratio. 
C) one minus the reserve ratio 
D) the number of dollars on reserve.

Question 19

Which of the following is TRUE of M2?

Accepted Answer

A) It is larger than M1. 
B) It excludes savings deposits. 
C) It does not include highly liquid components of the money supply. 
D) It is less than M1. 
A) It is larger than M1. 
B) It excludes savings deposits. 
C) It does not include highly liquid components of the money supply. 
D) It is less than M1.

Question 20

The Federal Reserve will engage in open market operations when

Accepted Answer

A) it wants to punish private banks because they are not keeping the required level of reserves. 
B) it wants to change the money supply. 
C) it wants to change the reserve ratio. 
D) it wants to increase the total amount of reserves since government securities are considered a reserve. 
A) it wants to punish private banks because they are not keeping the required level of reserves. 
B) it wants to change the money supply. 
C) it wants to change the reserve ratio. 
D) it wants to increase the total amount of reserves since government securities are considered a reserve.

A property of an asset that makes it desirable for use as a means of settling debts maturing in the future is a(n)

Which of the following has been a problem faced by the FDIC in its provision of federal deposit insurance?

Why is money as a medium of exchange important in an economy?

Assuming a reserve ratio of 10 percent, if a bank receives $100,000 in deposits how much can the bank loan out?

The possibility that a borrower might engage in riskier behavior after a loan is made is called

Any asset that sellers will accept as payment is a(n)

A monetary system is preferable over the barter system because of the problems associated with

The concept of holding reserves, such as gold, that are less than the value of the total deposits

An individual who desires the most liquid asset possible will hold

Small-denomination time deposits are less than

According to the text, the actual M1 multiplier in the U.S. today is

When banks reduce the reserve ratio, the potential money multiplier

Suppose you are offered a new smartphone in exchange for thirty hours of your work in your friend's garden. This is an example of

With fractional reserve banking

The direct exchange of goods and services for other goods and services is known as

Open market operations involve

The maximum potential money multiplier is equal to

Which of the following is TRUE of M2?

The Federal Reserve will engage in open market operations when

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

A property of an asset that makes it desirable for use as a means of settling debts maturing in the future is a(n)

Which of the following has been a problem faced by the FDIC in its provision of federal deposit insurance?

Why is money as a medium of exchange important in an economy?

Assuming a reserve ratio of 10 percent, if a bank receives $100,000 in deposits how much can the bank loan out?

The possibility that a borrower might engage in riskier behavior after a loan is made is called

Any asset that sellers will accept as payment is a(n)

A monetary system is preferable over the barter system because of the problems associated with

The concept of holding reserves, such as gold, that are less than the value of the total deposits

An individual who desires the most liquid asset possible will hold

Small-denomination time deposits are less than

According to the text, the actual M1 multiplier in the U.S. today is

When banks reduce the reserve ratio, the potential money multiplier

Suppose you are offered a new smartphone in exchange for thirty hours of your work in your friend's garden. This is an example of

With fractional reserve banking

The direct exchange of goods and services for other goods and services is known as

Open market operations involve

The maximum potential money multiplier is equal to

Which of the following is TRUE of M2?

The Federal Reserve will engage in open market operations when

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