Question 1

The reserve ratio is 10 percent. If the bank receives a customer deposit of $100,000, then an immediate effect is

Accepted Answer

A)  a reduction in the bank's total assets of exactly $10,000. 
B)  a reduction in the bank's total liabilities of exactly $10,000. 
C)  no change in the bank's total assets or total liabilities. 
D)  an increase in the bank's reserves of exactly $10,000. 
A)  a reduction in the bank's total assets of exactly $10,000. 
B)  a reduction in the bank's total liabilities of exactly $10,000. 
C)  no change in the bank's total assets or total liabilities. 
D)  an increase in the bank's reserves of exactly $10,000.

Question 2

A time deposit with a fixed maturity date offered by banks is called a

Accepted Answer

A)  checking account. 
B)  savings deposit. 
C)  small-denomination certificate of deposit. 
D)  corporate bond. 
A)  checking account. 
B)  savings deposit. 
C)  small-denomination certificate of deposit. 
D)  corporate bond.

Question 3

Which of the following is NOT an example of a financial intermediary?

Accepted Answer

A)  A credit union 
B)  A pension fund 
C)  The Internal Revenue Service 
D)  An insurance company 
A)  A credit union 
B)  A pension fund 
C)  The Internal Revenue Service 
D)  An insurance company

Question 4

When the Fed buys a U.S. bond in the open market

Accepted Answer

A)  total reserves will increase. 
B)  total reserves will decrease. 
C)  total reserves do not change but the money supply increases. 
D)  total reserves do not change but the money supply decreases. 
A)  total reserves will increase. 
B)  total reserves will decrease. 
C)  total reserves do not change but the money supply increases. 
D)  total reserves do not change but the money supply decreases.

Question 5

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 6

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 7

Which of the following is NOT included using the transactions approach to measuring the money supply (M1)?

Accepted Answer

A)  Currency 
B)  Certificates of deposit 
C)  Transaction deposits 
D)  Traveler's checks 
A)  Currency 
B)  Certificates of deposit 
C)  Transaction deposits 
D)  Traveler's checks

Question 8

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 9

The M2 measure of money is suggested by the ________ approach to measuring money.

Accepted Answer

A)  investment 
B)  liquidity 
C)  transactions 
D)  security 
A)  investment 
B)  liquidity 
C)  transactions 
D)  security

Question 10

Suppose that the reserve ratio is 20 percent. A bank's customer deposits into her account $100,000 in funds from a check written on an account at another bank. The maximum potential increase in the money supply resulting from this transaction is equal to

Accepted Answer

A)  $0. 
B)  $20,000. 
C)  $200,000. 
D)  $500,000. 
A)  $0. 
B)  $20,000. 
C)  $200,000. 
D)  $500,000.

Question 11

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 12

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 13

Which of the following is NOT an asset of a bank?

Accepted Answer

A)  cash 
B)  loans 
C)  total reserves 
D)  transaction deposits 
A)  cash 
B)  loans 
C)  total reserves 
D)  transaction deposits

Question 14

Asymmetric information before a transaction takes place generates the problem of

Accepted Answer

A)  flawed bank regulation. 
B)  intermediation. 
C)  adverse selection. 
D)  bank runs. 
A)  flawed bank regulation. 
B)  intermediation. 
C)  adverse selection. 
D)  bank runs.

Question 15

Deposits held by Federal Reserve district banks for depository institutions, plus depository institutions' vault cash are known as

Accepted Answer

A)  reserves. 
B)  a sweep account. 
C)  adverse selection. 
D)  the discount rate. 
A)  reserves. 
B)  a sweep account. 
C)  adverse selection. 
D)  the discount rate.

Question 16

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 17

When Annie puts her money in her sock drawer for purchases later on, money is acting as a

Accepted Answer

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

Question 18

Which one of the following would increase reserves for the banking system?

Accepted Answer

A)  The Fed sells government securities on the open market. 
B)  The Fed buys government securities on the open market. 
C)  You purchase a newly-issued U.S. Treasury bond. 
D)  You purchase a U.S. Treasury bond from a bond dealer. 
A)  The Fed sells government securities on the open market. 
B)  The Fed buys government securities on the open market. 
C)  You purchase a newly-issued U.S. Treasury bond. 
D)  You purchase a U.S. Treasury bond from a bond dealer.

Question 19

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 20

In 2010, President Obama signed into law that made the Federal Reserve as the nation's

Accepted Answer

A)  largest private bank. 
B)  federal income tax collector. 
C)  fiscal policy making unit. 
D)  regulator of systemic financial risk. 
A)  largest private bank. 
B)  federal income tax collector. 
C)  fiscal policy making unit. 
D)  regulator of systemic financial risk.

Exam 15: Money, Banking, and Central Banking

The reserve ratio is 10 percent. If the bank receives a customer deposit of $100,000, then an immediate effect is

A time deposit with a fixed maturity date offered by banks is called a

Which of the following is NOT an example of a financial intermediary?

When the Fed buys a U.S. bond in the open market

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?

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

Which of the following is NOT included using the transactions approach to measuring the money supply (M1)?

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

The M2 measure of money is suggested by the ________ approach to measuring money.

Suppose that the reserve ratio is 20 percent. A bank's customer deposits into her account $100,000 in funds from a check written on an account at another bank. The maximum potential increase in the money supply resulting from this transaction is equal to

The opportunity cost of holding money is measured by

An individual who desires the most liquid asset possible will hold

Which of the following is NOT an asset of a bank?

Asymmetric information before a transaction takes place generates the problem of

Deposits held by Federal Reserve district banks for depository institutions, plus depository institutions' vault cash are known as

The maximum potential money multiplier is equal to

When Annie puts her money in her sock drawer for purchases later on, money is acting as a

Which one of the following would increase reserves for the banking system?

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

In 2010, President Obama signed into law that made the Federal Reserve as the nation's

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

Measuring the Economys Performance

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

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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