Question 1

Open market operations are conducted by the Fed

Accepted Answer

A) in the private secondary U.S. securities market. 
B) in the New York Stock Exchange. 
C) through the Bureau of Engraving. 
D) through the Washington location of the Federal Reserve's Bank of Governors. 
A) in the private secondary U.S. securities market. 
B) in the New York Stock Exchange. 
C) through the Bureau of Engraving. 
D) through the Washington location of the Federal Reserve's Bank of Governors.

Question 2

The essential difference between paper money and coins as forms of money is that

Accepted Answer

A) the metallic content of coins makes them more acceptable as money. 
B) paper money issued by the Federal Reserve Board is backed by gold while coins are not. 
C) paper money serves as a unit of account while coins do not. 
D) paper is paper and not metal. The metal is more durable. 
A) the metallic content of coins makes them more acceptable as money. 
B) paper money issued by the Federal Reserve Board is backed by gold while coins are not. 
C) paper money serves as a unit of account while coins do not. 
D) paper is paper and not metal. The metal is more durable.

Question 3

All of the following are included in M1 EXCEPT

Accepted Answer

A) coin and currency. 
B) money market mutual fund shares. 
C) traveler's checks. 
D) checking account balances. 
A) coin and currency. 
B) money market mutual fund shares. 
C) traveler's checks. 
D) checking account balances.

Question 4

If knowledge possessed by one party in a financial transaction is not known to the other party, ________ exists.

Accepted Answer

A) disintermediation 
B) asymmetric information 
C) fraud 
D) no financial intermediation 
A) disintermediation 
B) asymmetric information 
C) fraud 
D) no financial intermediation

Question 5

-Refer to the above table. The value of M1 is

Accepted Answer

A) $860 billion. 
B) $910 billion. 
C) $1,360 billion. 
D) $2,560 billion. 
A) $860 billion. 
B) $910 billion. 
C) $1,360 billion. 
D) $2,560 billion.

Question 6

The opportunity cost of holding money

Accepted Answer

A) is measured by the alternative interest yield obtainable by holding some other asset. 
B) is based on the fiduciary monetary system. 
C) refers to the amount of paper currency held by the Fed. 
D) refers to the Fed's role as the lender of last resort. 
A) is measured by the alternative interest yield obtainable by holding some other asset. 
B) is based on the fiduciary monetary system. 
C) refers to the amount of paper currency held by the Fed. 
D) refers to the Fed's role as the lender of last resort.

Question 7

Following a new deposit of $50 at a bank, drawn on funds previously held on deposit at another bank, when the reserve ratio is 10 percent, the maximum potential increase in the money supply will be

Accepted Answer

A) $0. 
B) $50. 
C) $400. 
D) $500. 
A) $0. 
B) $50. 
C) $400. 
D) $500.

Question 8

The reserve ratio is 20 percent. If the Fed buys $1 million of U.S. government securities from a bond dealer by transmitting the funds to the dealer's deposit account at Bank ABC, then

Accepted Answer

A) Bank ABC can make no additional loans. 
B) Bank ABC can make additional loans up to $800,000. 
C) Bank ABC can make additional loans up to $1 million. 
D) Bank ABC cannot make any additional loans, but the system as a whole can make additional loans up to $1 million. 
A) Bank ABC can make no additional loans. 
B) Bank ABC can make additional loans up to $800,000. 
C) Bank ABC can make additional loans up to $1 million. 
D) Bank ABC cannot make any additional loans, but the system as a whole can make additional loans up to $1 million.

Question 9

Which of the following is NOT a financial intermediary?

Accepted Answer

A) commercial banks 
B) a savings and loan association 
C) the Federal Reserve Bank of New York 
D) the Internal Revenue Service 
A) commercial banks 
B) a savings and loan association 
C) the Federal Reserve Bank of New York 
D) the Internal Revenue Service

Question 10

By serving as the lender of last resort,

Accepted Answer

A) the Fed provides check clearing services. 
B) the Fed supervises depository institutions. 
C) the Fed can prevent bank failures. 
D) the Fed aids in the sale of government securities. 
A) the Fed provides check clearing services. 
B) the Fed supervises depository institutions. 
C) the Fed can prevent bank failures. 
D) the Fed aids in the sale of government securities.

Question 11

Which one of the following is TRUE?

Accepted Answer

A) Transaction deposits are counted in M2 but are not included in M1. 
B) Most of the U.S. currency in existence circulates outside U.S. borders. 
C) Traveler's checks are not considered to be money because they are not valid unless signed. 
D) Balances in money market deposit accounts are counted in M1 but are not included in M2. 
A) Transaction deposits are counted in M2 but are not included in M1. 
B) Most of the U.S. currency in existence circulates outside U.S. borders. 
C) Traveler's checks are not considered to be money because they are not valid unless signed. 
D) Balances in money market deposit accounts are counted in M1 but are not included in M2.

Question 12

Suppose that the actual money multiplier equals the maximum potential money multiplier. If the reserve ratio is 10 percent, in order for the banking system to increase deposits by $2.5 million, the Fed must

Accepted Answer

A) permit the system to have prolonged reserve deficiencies. 
B) sell $2.5 million of government securities to the general public. 
C) sell $250,000 of government securities to the general public. 
D) buy $250,000 of government securities from the public. 
A) permit the system to have prolonged reserve deficiencies. 
B) sell $2.5 million of government securities to the general public. 
C) sell $250,000 of government securities to the general public. 
D) buy $250,000 of government securities from the public.

Question 13

Monetary policy actions are determined by the

Accepted Answer

A) Federal Open Market Committee. 
B) New York Federal Reserve Bank. 
C) President of the United States. 
D) U.S. Congress. 
A) Federal Open Market Committee. 
B) New York Federal Reserve Bank. 
C) President of the United States. 
D) U.S. Congress.

Question 14

The manner in which FDIC deposit insurance is set up in the United States encourages banks to

Accepted Answer

A) be too conservative in their lending practices. 
B) maintain excess reserves that are too great. 
C) make riskier loans than they otherwise would. 
D) reject some loans that probably would be profitable. 
A) be too conservative in their lending practices. 
B) maintain excess reserves that are too great. 
C) make riskier loans than they otherwise would. 
D) reject some loans that probably would be profitable.

Question 15

Transaction deposits

Accepted Answer

A) are deposits in a thrift institution or a commercial bank on which a check may be written. 
B) are only deposits that you can check on through the Internet. 
C) include savings accounts. 
D) are accounts that pay interest to the depositor. 
A) are deposits in a thrift institution or a commercial bank on which a check may be written. 
B) are only deposits that you can check on through the Internet. 
C) include savings accounts. 
D) are accounts that pay interest to the depositor.

Question 16

Which of the following is NOT a function of money?

Accepted Answer

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

Question 17

Because deposits are insured by the FDIC, most of us do not look at the lending behavior of our banks. This creates a(n)________ problem.

Accepted Answer

A) moral hazard 
B) principled hazard 
C) adverse selection 
D) contrary selection 
A) moral hazard 
B) principled hazard 
C) adverse selection 
D) contrary selection

Question 18

Without an accepted medium of exchange

Accepted Answer

A) there would be no trade. 
B) people would have to rely on gold or silver in order to exchange goods and services. 
C) goods and services would be exchanged by barter. 
D) prices are very difficult to determine. 
A) there would be no trade. 
B) people would have to rely on gold or silver in order to exchange goods and services. 
C) goods and services would be exchanged by barter. 
D) prices are very difficult to determine.

Question 19

Let us suppose that you apply for a loan with a bank. You tell the bank that you are going to remodel your kitchen, but after you get the loan you go to Las Vegas to gamble with the money. Your behavior is an example of

Accepted Answer

A) adverse selection. 
B) direct credit allocation. 
C) moral hazard. 
D) indirect credit allocation. 
A) adverse selection. 
B) direct credit allocation. 
C) moral hazard. 
D) indirect credit allocation.

Question 20

If all of a bank's depositors showed up on one day requesting cash withdrawals of all their deposited funds

Accepted Answer

A) the bank would pay them all, although reluctantly. 
B) the bank would likely fail to have sufficient reserves to honor their requests. 
C) the bank could lawfully refuse their demands. 
D) the bank would immediately call all outstanding loans. 
A) the bank would pay them all, although reluctantly. 
B) the bank would likely fail to have sufficient reserves to honor their requests. 
C) the bank could lawfully refuse their demands. 
D) the bank would immediately call all outstanding loans.

Open market operations are conducted by the Fed

The essential difference between paper money and coins as forms of money is that

All of the following are included in M1 EXCEPT

If knowledge possessed by one party in a financial transaction is not known to the other party, ________ exists.

-Refer to the above table. The value of M1 is

The opportunity cost of holding money

Following a new deposit of $50 at a bank, drawn on funds previously held on deposit at another bank, when the reserve ratio is 10 percent, the maximum potential increase in the money supply will be

The reserve ratio is 20 percent. If the Fed buys $1 million of U.S. government securities from a bond dealer by transmitting the funds to the dealer's deposit account at Bank ABC, then

Which of the following is NOT a financial intermediary?

By serving as the lender of last resort,

Which one of the following is TRUE?

Suppose that the actual money multiplier equals the maximum potential money multiplier. If the reserve ratio is 10 percent, in order for the banking system to increase deposits by $2.5 million, the Fed must

Monetary policy actions are determined by the

The manner in which FDIC deposit insurance is set up in the United States encourages banks to

Transaction deposits

Which of the following is NOT a function of money?

Because deposits are insured by the FDIC, most of us do not look at the lending behavior of our banks. This creates a(n)________ problem.

Without an accepted medium of exchange

Let us suppose that you apply for a loan with a bank. You tell the bank that you are going to remodel your kitchen, but after you get the loan you go to Las Vegas to gamble with the money. Your behavior is an example of

If all of a bank's depositors showed up on one day requesting cash withdrawals of all their deposited funds

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

Open market operations are conducted by the Fed

The essential difference between paper money and coins as forms of money is that

All of the following are included in M1 EXCEPT

If knowledge possessed by one party in a financial transaction is not known to the other party, ________ exists.

-Refer to the above table. The value of M1 is

The opportunity cost of holding money

Following a new deposit of $50 at a bank, drawn on funds previously held on deposit at another bank, when the reserve ratio is 10 percent, the maximum potential increase in the money supply will be

The reserve ratio is 20 percent. If the Fed buys $1 million of U.S. government securities from a bond dealer by transmitting the funds to the dealer's deposit account at Bank ABC, then

Which of the following is NOT a financial intermediary?

By serving as the lender of last resort,

Which one of the following is TRUE?

Suppose that the actual money multiplier equals the maximum potential money multiplier. If the reserve ratio is 10 percent, in order for the banking system to increase deposits by $2.5 million, the Fed must

Monetary policy actions are determined by the

The manner in which FDIC deposit insurance is set up in the United States encourages banks to

Transaction deposits

Which of the following is NOT a function of money?

Because deposits are insured by the FDIC, most of us do not look at the lending behavior of our banks. This creates a(n)________ problem.

Without an accepted medium of exchange

Let us suppose that you apply for a loan with a bank. You tell the bank that you are going to remodel your kitchen, but after you get the loan you go to Las Vegas to gamble with the money. Your behavior is an example of

If all of a bank's depositors showed up on one day requesting cash withdrawals of all their deposited funds

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