Question 1

Goldsmiths were able to practice an early form of fractional reserve banking because they knew that

Accepted Answer

A) people were relatively unsophisticated in their financial transactions. 
B) gold was the major form of money. 
C) not all depositors would claim their gold at the same time. 
D) gold did not serve as a unit of account. 
A) people were relatively unsophisticated in their financial transactions. 
B) gold was the major form of money. 
C) not all depositors would claim their gold at the same time. 
D) gold did not serve as a unit of account.

Question 2

The primary purpose of the FDIC is to reduce the potential for

Accepted Answer

A) government regulations. 
B) reserve cheating. 
C) bank runs. 
D) excessive interest rates. 
A) government regulations. 
B) reserve cheating. 
C) bank runs. 
D) excessive interest rates.

Question 3

Explain what happens to the money supply when the Fed sells bonds on the open market. What happens to the assets and liabilities of the Fed?

Accepted Answer

The money supply falls when the Fed sell

Question 4

Suppose you place your savings in a time deposit at the bank, and that bank lends some of those funds to a business that desires a loan. This is an example of

Accepted Answer

A) direct finance. 
B) indirect finance. 
C) asymmetric information. 
D) adverse selection. 
A) direct finance. 
B) indirect finance. 
C) asymmetric information. 
D) adverse selection.

Question 5

Open market operations are

Accepted Answer

A) the buying and selling of existing U.S. government securities in open private markets by the Fed in order to change the money supply. 
B) the buying and selling of existing U.S. government securities in open private markets by citizens. 
C) the selling of new government securities by banks in order to increase the money supply. 
D) the selling of new government securities in open private markets by banks in order to finance the deficit. 
A) the buying and selling of existing U.S. government securities in open private markets by the Fed in order to change the money supply. 
B) the buying and selling of existing U.S. government securities in open private markets by citizens. 
C) the selling of new government securities by banks in order to increase the money supply. 
D) the selling of new government securities in open private markets by banks in order to finance the deficit.

Question 6

Which of the following represents a function of money?

Accepted Answer

A) medium of exchange 
B) unit of accounting 
C) standard of deferred payment 
D) all of the above 
A) medium of exchange 
B) unit of accounting 
C) standard of deferred payment 
D) all of the above

Question 7

If a bond dealer sells a government bond to the Fed for $100,000, and the reserve ratio is 10 percent, then the bank that receives a $100,000 deposit from the dealer can expand its loans by ________, and the money supply can increase by as much as ________.

Accepted Answer

A) $80,000; $800,000 
B) $10,000; $100,000 
C) $90,000; $1,000,000 
D) $90,000; $900,000 
A) $80,000; $800,000 
B) $10,000; $100,000 
C) $90,000; $1,000,000 
D) $90,000; $900,000

Question 8

A sale of securities by the Fed causes

Accepted Answer

A) a contraction of the money supply equal to the amount of the securities sold. 
B) an expansion of the money supply equal to the amount of the securities sold. 
C) a multiple expansion of the money supply greater than the amount of the securities sold. 
D) a multiple contraction of the money supply greater than the amount of the securities sold. 
A) a contraction of the money supply equal to the amount of the securities sold. 
B) an expansion of the money supply equal to the amount of the securities sold. 
C) a multiple expansion of the money supply greater than the amount of the securities sold. 
D) a multiple contraction of the money supply greater than the amount of the securities sold.

Question 9

United States coins and currency are backed by

Accepted Answer

A) silver. 
B) gold. 
C) reserves of foreign currencies. 
D) confidence that they will retain their value. 
A) silver. 
B) gold. 
C) reserves of foreign currencies. 
D) confidence that they will retain their value.

Question 10

Money in a fiduciary monetary system is backed by

Accepted Answer

A) gold. 
B) the public's confidence that the assets will continue to serve as money. 
C) the intrinsic value of the materials used to make the assets that serve as money. 
D) assets owned by the government that are intrinsically valuable. 
A) gold. 
B) the public's confidence that the assets will continue to serve as money. 
C) the intrinsic value of the materials used to make the assets that serve as money. 
D) assets owned by the government that are intrinsically valuable.

Question 11

The part of the Federal Reserve System (the Fed)that sets reserve requirements is

Accepted Answer

A) the Federal Open Market Committee. 
B) the Federal Advisory Committee. 
C) the Federal Reserve district banks. 
D) the Board of Governors. 
A) the Federal Open Market Committee. 
B) the Federal Advisory Committee. 
C) the Federal Reserve district banks. 
D) the Board of Governors.

Question 12

The key official definition of the money supply is

Accepted Answer

A) only coins and paper currency in circulation. 
B) only transactions deposits at banks. 
C) MZM. 
D) M2. 
A) only coins and paper currency in circulation. 
B) only transactions deposits at banks. 
C) MZM. 
D) M2.

Question 13

A bank with $200 million in transaction deposits keeps $20 million in cash in the bank vault, $10 million in deposits at the Fed, and $5 million in government securities in the bank vault. Its total reserves equal

Accepted Answer

A) $10 million. 
B) $20 million. 
C) $30 million. 
D) $35 million. 
A) $10 million. 
B) $20 million. 
C) $30 million. 
D) $35 million.

Question 14

Federal Reserve notes are

Accepted Answer

A) paper currency. 
B) savings bonds. 
C) checks issued by the U.S. government. 
D) travelers' checks. 
A) paper currency. 
B) savings bonds. 
C) checks issued by the U.S. government. 
D) travelers' checks.

Question 15

Fractional reserve banking can be thought of as a bank

Accepted Answer

A) withholding a portion of its total deposits that are not loaned out. 
B) holding deposits equal to its net worth. 
C) paying a fraction of its profit to depositors. 
D) loaning out all of its reserves. 
A) withholding a portion of its total deposits that are not loaned out. 
B) holding deposits equal to its net worth. 
C) paying a fraction of its profit to depositors. 
D) loaning out all of its reserves.

Question 16

When money serves as a store of value, it allows you to

Accepted Answer

A) transfer wealth into the future. 
B) eliminate a double coincidence of wants. 
C) be an effective negotiator. 
D) find good bargains. 
A) transfer wealth into the future. 
B) eliminate a double coincidence of wants. 
C) be an effective negotiator. 
D) find good bargains.

Question 17

If lenders refuse to state the debt in terms of dollars, then dollars are not a

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 18

U.S. paper currency is issued by the

Accepted Answer

A) United States Mint. 
B) Federal Reserve System. 
C) U.S. Treasury. 
D) largest commercial banks. 
A) United States Mint. 
B) Federal Reserve System. 
C) U.S. Treasury. 
D) largest commercial banks.

Question 19

The part of the Federal Reserve System (the Fed)that supervises and regulates member banks is

Accepted Answer

A) the Federal Open Market Committee. 
B) the Federal Advisory Committee. 
C) the Federal Reserve district banks. 
D) the Board of Governors. 
A) the Federal Open Market Committee. 
B) the Federal Advisory Committee. 
C) the Federal Reserve district banks. 
D) the Board of Governors.

Question 20

If the FDIC eliminated its insurance program for deposits, then

Accepted Answer

A) the banking system would probably fail. 
B) individual depositors would have more incentive to ascertain the soundness and solvency of the bank. 
C) banks would probably hold fewer reserves. 
D) moral hazard would be increased. 
A) the banking system would probably fail. 
B) individual depositors would have more incentive to ascertain the soundness and solvency of the bank. 
C) banks would probably hold fewer reserves. 
D) moral hazard would be increased.

Goldsmiths were able to practice an early form of fractional reserve banking because they knew that

The primary purpose of the FDIC is to reduce the potential for

Explain what happens to the money supply when the Fed sells bonds on the open market. What happens to the assets and liabilities of the Fed?

Suppose you place your savings in a time deposit at the bank, and that bank lends some of those funds to a business that desires a loan. This is an example of

Open market operations are

Which of the following represents a function of money?

If a bond dealer sells a government bond to the Fed for $100,000, and the reserve ratio is 10 percent, then the bank that receives a $100,000 deposit from the dealer can expand its loans by , and the money supply can increase by as much as .

A sale of securities by the Fed causes

United States coins and currency are backed by

Money in a fiduciary monetary system is backed by

The part of the Federal Reserve System (the Fed)that sets reserve requirements is

The key official definition of the money supply is

A bank with $200 million in transaction deposits keeps $20 million in cash in the bank vault, $10 million in deposits at the Fed, and $5 million in government securities in the bank vault. Its total reserves equal

Federal Reserve notes are

Fractional reserve banking can be thought of as a bank

When money serves as a store of value, it allows you to

If lenders refuse to state the debt in terms of dollars, then dollars are not a

U.S. paper currency is issued by the

The part of the Federal Reserve System (the Fed)that supervises and regulates member banks is

If the FDIC eliminated its insurance program for deposits, then

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

Goldsmiths were able to practice an early form of fractional reserve banking because they knew that

The primary purpose of the FDIC is to reduce the potential for

Explain what happens to the money supply when the Fed sells bonds on the open market. What happens to the assets and liabilities of the Fed?

Suppose you place your savings in a time deposit at the bank, and that bank lends some of those funds to a business that desires a loan. This is an example of

Open market operations are

Which of the following represents a function of money?

If a bond dealer sells a government bond to the Fed for $100,000, and the reserve ratio is 10 percent, then the bank that receives a $100,000 deposit from the dealer can expand its loans by ________, and the money supply can increase by as much as ________.

A sale of securities by the Fed causes

United States coins and currency are backed by

Money in a fiduciary monetary system is backed by

The part of the Federal Reserve System (the Fed)that sets reserve requirements is

The key official definition of the money supply is

A bank with $200 million in transaction deposits keeps $20 million in cash in the bank vault, $10 million in deposits at the Fed, and $5 million in government securities in the bank vault. Its total reserves equal

Federal Reserve notes are

Fractional reserve banking can be thought of as a bank

When money serves as a store of value, it allows you to

If lenders refuse to state the debt in terms of dollars, then dollars are not a

U.S. paper currency is issued by the

The part of the Federal Reserve System (the Fed)that supervises and regulates member banks is

If the FDIC eliminated its insurance program for deposits, then

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

If a bond dealer sells a government bond to the Fed for $100,000, and the reserve ratio is 10 percent, then the bank that receives a $100,000 deposit from the dealer can expand its loans by , and the money supply can increase by as much as .