Question 1

The potential money multiplier gives us

Accepted Answer

A) the growth in real national income when the money supply increases. 
B) the growth in the money supply when income increases. 
C) the maximum potential change in the money supply due to a change in reserves. 
D) the maximum potential change in the money supply due to a change in income. 
A) the growth in real national income when the money supply increases. 
B) the growth in the money supply when income increases. 
C) the maximum potential change in the money supply due to a change in reserves. 
D) the maximum potential change in the money supply due to a change in income.

Question 2

A transaction deposit is

Accepted Answer

A) a fiduciary monetary system. 
B) a checkable and debitable account. 
C) opportunity cost. 
D) the liquidity approach. 
A) a fiduciary monetary system. 
B) a checkable and debitable account. 
C) opportunity cost. 
D) the liquidity approach.

Question 3

The liquidity approach to measuring money stresses the role of money as a

Accepted Answer

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

Question 4

The process by which financial institutions accept savings from businesses, households and governments and lend the savings to other businesses, households and governments is

Accepted Answer

A) asymmetric information. 
B) adverse selection. 
C) moral hazard. 
D) financial intermediation. 
A) asymmetric information. 
B) adverse selection. 
C) moral hazard. 
D) financial intermediation.

Question 5

Financial intermediaries are important because

Accepted Answer

A) they bring lenders and borrowers together in a way that lowers transaction costs. 
B) they provide large funds to the stock market. 
C) they employ large numbers of people. 
D) they increase costs for banks. 
A) they bring lenders and borrowers together in a way that lowers transaction costs. 
B) they provide large funds to the stock market. 
C) they employ large numbers of people. 
D) they increase costs for banks.

Question 6

The Fed sells $1 million in bonds to a bond dealer. The bond dealer's bank experiences

Accepted Answer

A) a decrease in assets of $1 million as its reserves decrease and an increase in liabilities of $1 million as its deposits rise. 
B) a decrease in assets of $1 million as its reserves decrease and a decrease in liabilities of $1 million as its deposits fall. 
C) an increase in assets of $1 million as its deposits fell by $1 million, and a decrease in liabilities as its reserves fell by $1 million. 
D) no change in assets or liabilities. 
A) a decrease in assets of $1 million as its reserves decrease and an increase in liabilities of $1 million as its deposits rise. 
B) a decrease in assets of $1 million as its reserves decrease and a decrease in liabilities of $1 million as its deposits fall. 
C) an increase in assets of $1 million as its deposits fell by $1 million, and a decrease in liabilities as its reserves fell by $1 million. 
D) no change in assets or liabilities.

Question 7

Savings accounts, certificates of deposit, and bonds pay interest and stocks pay dividends. Why does anyone hold on to currency or other forms of money and lose this extra income?

Accepted Answer

Money is more liquid than these other as

Question 8

The reserve ratio is 20 percent. After the Fed buys $1 million in U.S. government securities from a bond dealer by transmitting the funds to the dealer's deposit account at Bank A, Bank A lends a construction company an amount equal to its excess reserves. The construction company spends the entire amount on lumber from a lumber yard, which deposits the construction company's check in its deposit account with Bank A. The maximum loan Bank A can now make is

Accepted Answer

A) $0. 
B) $640,000. 
C) $800,000. 
D) $1 million. 
A) $0. 
B) $640,000. 
C) $800,000. 
D) $1 million.

Question 9

-Based on the above table, the reserve ratio for the banking system is

Accepted Answer

A) 20 percent. 
B) 10 percent. 
C) 15 percent. 
D) 1 percent. 
A) 20 percent. 
B) 10 percent. 
C) 15 percent. 
D) 1 percent.

Question 10

From an accounting point of view, a checking account should be considered part of a bank's

Accepted Answer

A) assets. 
B) liabilities. 
C) profits. 
D) reserves. 
A) assets. 
B) liabilities. 
C) profits. 
D) reserves.

Question 11

Which of the following is NOT a function of the Federal Reserve System?

Accepted Answer

A) regulating the money supply 
B) making loans to households and businesses 
C) acting as the fiscal agent of the federal government 
D) supervising member banks 
A) regulating the money supply 
B) making loans to households and businesses 
C) acting as the fiscal agent of the federal government 
D) supervising member banks

Question 12

The purchasing power of money

Accepted Answer

A) is determined by law. 
B) varies inversely with the price level. 
C) depends on the value of gold. 
D) varies inversely with the interest rate. 
A) is determined by law. 
B) varies inversely with the price level. 
C) depends on the value of gold. 
D) varies inversely with the interest rate.

Question 13

A bank currently has $50 million in deposits, $6 million in cash in the vault, $4 million on deposit with the Fed, and $5 million in government securities. The reserve ratio is 20 percent. A new deposit is made of $1 million. What is the maximum size loan the bank can make once the check clears?

Accepted Answer

A) 0 
B) $800,000 
C) $1 million 
D) $5.8 million 
A) 0 
B) $800,000 
C) $1 million 
D) $5.8 million

Question 14

In the United States, who determines monetary policy?
 What is the major tool used to determine monetary policy?

Accepted Answer

The Federal Reserve Bank's Federal Open

Question 15

A fiduciary monetary system ultimately rests on

Accepted Answer

A) the value of the metal backing up the system. 
B) the public's confidence in the system. 
C) the value of the assets backing up the system. 
D) the difficulty of counterfeiting the currency. 
A) the value of the metal backing up the system. 
B) the public's confidence in the system. 
C) the value of the assets backing up the system. 
D) the difficulty of counterfeiting the currency.

Question 16

Which of the following statements is correct?
I. The Fed can periodically and without warning examine member commercial banks to ensure that they are conforming to current banking standards.
II. The Fed helps the government collect certain tax revenues and aids in the purchase and sale of government securities.

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 17

What characteristic defines something as money?

Accepted Answer

A) assets declared by the government to be of value 
B) a medium of exchange widely accepted in an economy 
C) notes you can deposit in a savings account 
D) an asset that earns interest 
A) assets declared by the government to be of value 
B) a medium of exchange widely accepted in an economy 
C) notes you can deposit in a savings account 
D) an asset that earns interest

Question 18

Money market mutual funds are funds pooled by

Accepted Answer

A) a group of people to buy shares of stocks. 
B) a group of people to buy stock market funds. 
C) a group of people to buy short maturity credit instruments. 
D) a group of people to buy U.S. Treasury bonds. 
A) a group of people to buy shares of stocks. 
B) a group of people to buy stock market funds. 
C) a group of people to buy short maturity credit instruments. 
D) a group of people to buy U.S. Treasury bonds.

Question 19

Compared to a barter economy, an economy that uses money will

Accepted Answer

A) be greedier. 
B) be poorer. 
C) have more corruption. 
D) have more output. 
A) be greedier. 
B) be poorer. 
C) have more corruption. 
D) have more output.

Question 20

Which of the following is the most liquid asset?

Accepted Answer

A) small denomination time deposits 
B) currency 
C) short-term treasury bonds 
D) shares of stock 
A) small denomination time deposits 
B) currency 
C) short-term treasury bonds 
D) shares of stock

The potential money multiplier gives us

A transaction deposit is

The liquidity approach to measuring money stresses the role of money as a

The process by which financial institutions accept savings from businesses, households and governments and lend the savings to other businesses, households and governments is

Financial intermediaries are important because

The Fed sells $1 million in bonds to a bond dealer. The bond dealer's bank experiences

Savings accounts, certificates of deposit, and bonds pay interest and stocks pay dividends. Why does anyone hold on to currency or other forms of money and lose this extra income?

-Based on the above table, the reserve ratio for the banking system is

From an accounting point of view, a checking account should be considered part of a bank's

Which of the following is NOT a function of the Federal Reserve System?

The purchasing power of money

A bank currently has $50 million in deposits, $6 million in cash in the vault, $4 million on deposit with the Fed, and $5 million in government securities. The reserve ratio is 20 percent. A new deposit is made of $1 million. What is the maximum size loan the bank can make once the check clears?

In the United States, who determines monetary policy? What is the major tool used to determine monetary policy?

A fiduciary monetary system ultimately rests on

What characteristic defines something as money?

Money market mutual funds are funds pooled by

Compared to a barter economy, an economy that uses money will

Which of the following is the most liquid asset?

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

The potential money multiplier gives us

A transaction deposit is

The liquidity approach to measuring money stresses the role of money as a

The process by which financial institutions accept savings from businesses, households and governments and lend the savings to other businesses, households and governments is

Financial intermediaries are important because

The Fed sells $1 million in bonds to a bond dealer. The bond dealer's bank experiences

Savings accounts, certificates of deposit, and bonds pay interest and stocks pay dividends. Why does anyone hold on to currency or other forms of money and lose this extra income?

-Based on the above table, the reserve ratio for the banking system is

From an accounting point of view, a checking account should be considered part of a bank's

Which of the following is NOT a function of the Federal Reserve System?

The purchasing power of money

A bank currently has $50 million in deposits, $6 million in cash in the vault, $4 million on deposit with the Fed, and $5 million in government securities. The reserve ratio is 20 percent. A new deposit is made of $1 million. What is the maximum size loan the bank can make once the check clears?

In the United States, who determines monetary policy? What is the major tool used to determine monetary policy?

A fiduciary monetary system ultimately rests on

What characteristic defines something as money?

Money market mutual funds are funds pooled by

Compared to a barter economy, an economy that uses money will

Which of the following is the most liquid asset?

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