Question 1

To be accepted as money, an item must perform all of the following functions EXCEPT

Accepted Answer

A) serve as a store of value. 
B) be easily reproduced. 
C) be a medium of exchange. 
D) serve as a standard of deferred payment. 
A) serve as a store of value. 
B) be easily reproduced. 
C) be a medium of exchange. 
D) serve as a standard of deferred payment.

Question 2

The FDIC helps prevent

Accepted Answer

A) risky behavior on the part of bankers. 
B) inflation. 
C) bank runs. 
D) risky behavior on the part of depositors. 
A) risky behavior on the part of bankers. 
B) inflation. 
C) bank runs. 
D) risky behavior on the part of depositors.

Question 3

Fractional reserve banking is a system in which

Accepted Answer

A) depository institutions pay a fraction of advertised interest rates. 
B) a fraction of banking services must be provided by depository institutions. 
C) depository institutions hold a fraction of total deposits in reserve. 
D) the money supply is a set fraction of the U.S. gold reserves. 
A) depository institutions pay a fraction of advertised interest rates. 
B) a fraction of banking services must be provided by depository institutions. 
C) depository institutions hold a fraction of total deposits in reserve. 
D) the money supply is a set fraction of the U.S. gold reserves.

Question 4

The reserve ratio is 20 percent. The Fed buys $1 million in government securities from a bond dealer by transmitting the funds to the dealer's deposit account at Bank A. Bank A makes the maximum loan possible to a construction company, which buys materials with the loan. The check is deposited in Bank B, which loans out all it can to a car dealership. To this point, the money supply has increased by

Accepted Answer

A) $1 million. 
B) $1.8 million. 
C) $2.44 million. 
D) $3 million. 
A) $1 million. 
B) $1.8 million. 
C) $2.44 million. 
D) $3 million.

Question 5

The opportunity cost of holding money is measured by

Accepted Answer

A) a dollar. 
B) the price of government bonds. 
C) the interest yield that could have been earned by holding some other asset. 
D) the liquidity of interest-bearing assets. 
A) a dollar. 
B) the price of government bonds. 
C) the interest yield that could have been earned by holding some other asset. 
D) the liquidity of interest-bearing assets.

Question 6

The financial institutions in our banking system are all in the business of transferring funds from savers to investors. This process is known as

Accepted Answer

A) lobbying. 
B) parachuting. 
C) money laundering. 
D) financial intermediation. 
A) lobbying. 
B) parachuting. 
C) money laundering. 
D) financial intermediation.

Question 7

Which of the following is included in M2?
I. money market mutual funds
II. small-denomination certificates of deposit

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

The Federal Deposit Insurance Corporation insures

Accepted Answer

A) banks against lawsuits. 
B) the federal funds market. 
C) the deposits held in member banks. 
D) the deposits held in the Fed. 
A) banks against lawsuits. 
B) the federal funds market. 
C) the deposits held in member banks. 
D) the deposits held in the Fed.

Question 9

When a bank sells a bond to 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 10

Suppose that the Fed purchases $1,000,000 worth of bonds and that the reserve ratio is 25 percent. Then, the maximum potential expansion of deposits is

Accepted Answer

A) $4,000,000. 
B) $10,000,000. 
C) $400,000. 
D) $25,000,000. 
A) $4,000,000. 
B) $10,000,000. 
C) $400,000. 
D) $25,000,000.

Question 11

The use of money as a medium of exchange I. lowers transaction costs.
II. permits more specialization.

Accepted Answer

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

Question 12

The term "fiduciary" comes from the Latin fiducia, which means

Accepted Answer

A) value. 
B) gold. 
C) money. 
D) trust or confidence. 
A) value. 
B) gold. 
C) money. 
D) trust or confidence.

Question 13

The most important function of the Fed is to

Accepted Answer

A) provide a system for collecting and clearing checks. 
B) collect taxes. 
C) support the federal government's deficit spending by buying government securities. 
D) regulate the money supply. 
A) provide a system for collecting and clearing checks. 
B) collect taxes. 
C) support the federal government's deficit spending by buying government securities. 
D) regulate the money supply.

Question 14

Which of the following is NOT included in the MZM definition of money?

Accepted Answer

A) currency. 
B) money market funds. 
C) travelers checks. 
D) small-denomination time deposits. 
A) currency. 
B) money market funds. 
C) travelers checks. 
D) small-denomination time deposits.

Question 15

To increase the money supply

Accepted Answer

A) the Federal Reserve should sell government securities. 
B) the commercial banks should reduce their loans. 
C) the Federal Reserve should buy government securities. 
D) the Federal Reserve should reduce its loans to banks. 
A) the Federal Reserve should sell government securities. 
B) the commercial banks should reduce their loans. 
C) the Federal Reserve should buy government securities. 
D) the Federal Reserve should reduce its loans to banks.

Question 16

When you buy a taco for breakfast, you are using money as a

Accepted Answer

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

Question 17

The Fed buys securities and gives a bond dealer a check for the amount. After the check has cleared

Accepted Answer

A) reserves remain unchanged because the increase of reserves at the dealer's bank are offset by an increase in reserves at the Fed. 
B) reserves have fallen by the amount of the check because the Fed clears the check by reducing the bank's deposits at the Fed. 
C) reserves have risen by the amount of the check because the Fed clears the check by increasing the amount of the bank's deposits with the Fed. 
D) reserves have fallen by the amount of the reserves times the reserve ratio and the money supply increases by the difference between the amount of the check and the increase in the reserves. 
A) reserves remain unchanged because the increase of reserves at the dealer's bank are offset by an increase in reserves at the Fed. 
B) reserves have fallen by the amount of the check because the Fed clears the check by reducing the bank's deposits at the Fed. 
C) reserves have risen by the amount of the check because the Fed clears the check by increasing the amount of the bank's deposits with the Fed. 
D) reserves have fallen by the amount of the reserves times the reserve ratio and the money supply increases by the difference between the amount of the check and the increase in the reserves.

Question 18

Depository institutions must

Accepted Answer

A) use and pay for the services of the Federal Reserve System. 
B) set their interest rates according to schedules established by the Federal Reserve System. 
C) keep a certain percentage of their deposits as reserves. 
D) turn over a percentage of their profits to the Federal Reserve System as payment for services provided by the Fed. 
A) use and pay for the services of the Federal Reserve System. 
B) set their interest rates according to schedules established by the Federal Reserve System. 
C) keep a certain percentage of their deposits as reserves. 
D) turn over a percentage of their profits to the Federal Reserve System as payment for services provided by the Fed.

Question 19

The money supply that consists of currency, transaction deposits, and traveler's checks is

Accepted Answer

A) M1. 
B) M2. 
C) the fiduciary monetary system. 
D) the liquidity approach. 
A) M1. 
B) M2. 
C) the fiduciary monetary system. 
D) the liquidity approach.

Question 20

Open market operations are

Accepted Answer

A) the buying of existing corporate securities in secondary markets by private citizens, banks and the Fed. 
B) the buying and selling of existing U.S. government securities in open private markets by the Fed. 
C) the actions of the Fed that are used to finance deficit financing by the government. 
D) the selling of new government securities in order to increase the money supply. 
A) the buying of existing corporate securities in secondary markets by private citizens, banks and the Fed. 
B) the buying and selling of existing U.S. government securities in open private markets by the Fed. 
C) the actions of the Fed that are used to finance deficit financing by the government. 
D) the selling of new government securities in order to increase the money supply.

To be accepted as money, an item must perform all of the following functions EXCEPT

The FDIC helps prevent

Fractional reserve banking is a system in which

The opportunity cost of holding money is measured by

The financial institutions in our banking system are all in the business of transferring funds from savers to investors. This process is known as

Which of the following is included in M2? I. money market mutual funds II. small-denomination certificates of deposit

The Federal Deposit Insurance Corporation insures

When a bank sells a bond to the Fed

Suppose that the Fed purchases $1,000,000 worth of bonds and that the reserve ratio is 25 percent. Then, the maximum potential expansion of deposits is

The use of money as a medium of exchange I. lowers transaction costs. II. permits more specialization.

The term "fiduciary" comes from the Latin fiducia, which means

The most important function of the Fed is to

Which of the following is NOT included in the MZM definition of money?

To increase the money supply

When you buy a taco for breakfast, you are using money as a

The Fed buys securities and gives a bond dealer a check for the amount. After the check has cleared

Depository institutions must

The money supply that consists of currency, transaction deposits, and traveler's checks is

Open market operations are

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

To be accepted as money, an item must perform all of the following functions EXCEPT

The FDIC helps prevent

Fractional reserve banking is a system in which

The opportunity cost of holding money is measured by

The financial institutions in our banking system are all in the business of transferring funds from savers to investors. This process is known as

Which of the following is included in M2? I. money market mutual funds II. small-denomination certificates of deposit

The Federal Deposit Insurance Corporation insures

When a bank sells a bond to the Fed

Suppose that the Fed purchases $1,000,000 worth of bonds and that the reserve ratio is 25 percent. Then, the maximum potential expansion of deposits is

The use of money as a medium of exchange I. lowers transaction costs. II. permits more specialization.

The term "fiduciary" comes from the Latin fiducia, which means

The most important function of the Fed is to

Which of the following is NOT included in the MZM definition of money?

To increase the money supply

When you buy a taco for breakfast, you are using money as a

The Fed buys securities and gives a bond dealer a check for the amount. After the check has cleared

Depository institutions must

The money supply that consists of currency, transaction deposits, and traveler's checks is

Open market operations are

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