Question 1

To the extent that money serves as a store of value, it allows you to

Accepted Answer

A)  transfer wealth into the future. 
B)  comparison shop. 
C)  be an effective negotiator. 
D)  find good bargains. 
A)  transfer wealth into the future. 
B)  comparison shop. 
C)  be an effective negotiator. 
D)  find good bargains.

Question 2

Which of the following is a time deposit with a fixed maturity date offered by banks and other financial institutions?

Accepted Answer

A)  Savings deposit 
B)  Money market deposit account 
C)  Time deposit 
D)  Small-denomination certificate of deposit 
A)  Savings deposit 
B)  Money market deposit account 
C)  Time deposit 
D)  Small-denomination certificate of deposit

Question 3

The Federal Deposit Insurance Corporation

Accepted Answer

A)  insures the deposits held by the Fed. 
B)  insures the deposits held in banks. 
C)  insures banks against lawsuits by depositors. 
D)  insures the open market operations of the Fed. 
A)  insures the deposits held by the Fed. 
B)  insures the deposits held in banks. 
C)  insures banks against lawsuits by depositors. 
D)  insures the open market operations of the Fed.

Question 4

Who appoints the chair of the Federal Reserve System?

Accepted Answer

A)  the Senate and Congress 
B)  member banks of the Federal Reserve System 
C)  the President of the United States 
D)  the Federal Open Market Committee (FOM
C)  
A)  the Senate and Congress 
B)  member banks of the Federal Reserve System 
C)  the President of the United States 
D)  the Federal Open Market Committee (FOM
C)

Question 5

A system in which money is issued by the government and its value is based uniquely on the public's faith that the currency represents command over goods and services is the

Accepted Answer

A)  transactions approach. 
B)  liquidity approach. 
C)  fiduciary monetary system. 
D)  transaction deposits. 
A)  transactions approach. 
B)  liquidity approach. 
C)  fiduciary monetary system. 
D)  transaction deposits.

Question 6

Which of the following would be considered a transaction deposit?

Accepted Answer

A)  passbook savings account 
B)  checking account 
C)  credit card account 
D)  401(k) retirement account 
A)  passbook savings account 
B)  checking account 
C)  credit card account 
D)  401(k) retirement account

Question 7

The function of money as a store of value diminishes if

Accepted Answer

A)  prices of goods and services increase. 
B)  interest rates increase. 
C)  people begin to barter. 
D)  money is no longer backed by gold. 
A)  prices of goods and services increase. 
B)  interest rates increase. 
C)  people begin to barter. 
D)  money is no longer backed by gold.

Question 8

The degree to which an asset can be acquired or disposed of without much danger of any intervening loss in nominal value is known as

Accepted Answer

A)  transaction deposits. 
B)  a time deposit. 
C)  liquidity. 
D)  M2. 
A)  transaction deposits. 
B)  a time deposit. 
C)  liquidity. 
D)  M2.

Question 9

An asset that can be easily disposed of without high transactions costs and with relative certainty as to its value is

Accepted Answer

A)  solid. 
B)  liquid. 
C)  M1. 
D)  M2. 
A)  solid. 
B)  liquid. 
C)  M1. 
D)  M2.

Question 10

-Based on the above table, an open market operation in which the Fed purchased $100,000 of government securities would

Accepted Answer

A)  create a reserve deficiency for the banking system. 
B)  lead to a maximum potential expansion of the money supply of $100,000. 
C)  lead to a maximum potential expansion of the money supply of $1 million. 
D)  cause demand deposits to fall by $100,000. 
A)  create a reserve deficiency for the banking system. 
B)  lead to a maximum potential expansion of the money supply of $100,000. 
C)  lead to a maximum potential expansion of the money supply of $1 million. 
D)  cause demand deposits to fall by $100,000.

Question 11

If the actual money multiplier equals the potential money multiplier and if the Federal Reserve wishes to increase the money supply by $500 when the reserve ratio is 10 percent, it should

Accepted Answer

A)  sell $50 of government bonds. 
B)  buy $50 of government bonds. 
C)  sell $5000 of government bonds. 
D)  buy $5000 of government bonds. 
A)  sell $50 of government bonds. 
B)  buy $50 of government bonds. 
C)  sell $5000 of government bonds. 
D)  buy $5000 of government bonds.

Question 12

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 13

A barter arrangement simply means

Accepted Answer

A)  a direct exchange of goods without the use of money. 
B)  a promise to pay in the future. 
C)  that gold must be offered from one party. 
D)  the government has paid for the goods. 
A)  a direct exchange of goods without the use of money. 
B)  a promise to pay in the future. 
C)  that gold must be offered from one party. 
D)  the government has paid for the goods.

Question 14

Even when a particular monetary asset is not performing one of the functions of money well, people still use the asset because

Accepted Answer

A)  it is still easier than relying on barter. 
B)  they have no choice. 
C)  once an asset is defined as money it is always money. 
D)  people expect money will come back at a later date. 
A)  it is still easier than relying on barter. 
B)  they have no choice. 
C)  once an asset is defined as money it is always money. 
D)  people expect money will come back at a later date.

Question 15

Suppose that a new customer opens a checking account and a saving account, placing $50,000 in each. Later, the bank makes a loan of $100,000 to a business firm. For this bank,

Accepted Answer

A)  assets increased by $50,000 because the saving account is an asset, while liabilities increased by $50,000 because the checking account is a liability. 
B)  assets increased by $100,000 because the checking and saving accounts are assets, and liabilities increased by $100,000 because the loan is a liability. 
C)  assets increased by $100,000 because the loan is an asset, and liabilities increased by $100,000 because the checking and saving accounts are liabilities. 
D)  assets remained unchanged but liabilities increased by $100,000 because of the loan. 
A)  assets increased by $50,000 because the saving account is an asset, while liabilities increased by $50,000 because the checking account is a liability. 
B)  assets increased by $100,000 because the checking and saving accounts are assets, and liabilities increased by $100,000 because the loan is a liability. 
C)  assets increased by $100,000 because the loan is an asset, and liabilities increased by $100,000 because the checking and saving accounts are liabilities. 
D)  assets remained unchanged but liabilities increased by $100,000 because of the loan.

Question 16

If an asset can be obtained or disposed of without much risk of losing its nominal value, it is said to be

Accepted Answer

A)  fiduciary. 
B)  liquid. 
C)  wealth. 
D)  valuable. 
A)  fiduciary. 
B)  liquid. 
C)  wealth. 
D)  valuable.

Question 17

Check collection and clearing happen

Accepted Answer

A)  at the bank where the check was written. 
B)  only at private clearing centers. 
C)  at the Fed and at private clearing centers. 
D)  only at the Fed. 
A)  at the bank where the check was written. 
B)  only at private clearing centers. 
C)  at the Fed and at private clearing centers. 
D)  only at the Fed.

Question 18

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 19

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 20

What is liquidity? Why is money the most liquid of all assets? What is the cost of this liquidity?

Accepted Answer

Liquidity is the degree to which an asse

Exam 15: Money, Banking, and Central Banking

To the extent that money serves as a store of value, it allows you to

Which of the following is a time deposit with a fixed maturity date offered by banks and other financial institutions?

The Federal Deposit Insurance Corporation

Who appoints the chair of the Federal Reserve System?

A system in which money is issued by the government and its value is based uniquely on the public's faith that the currency represents command over goods and services is the

Which of the following would be considered a transaction deposit?

The function of money as a store of value diminishes if

The degree to which an asset can be acquired or disposed of without much danger of any intervening loss in nominal value is known as

An asset that can be easily disposed of without high transactions costs and with relative certainty as to its value is

-Based on the above table, an open market operation in which the Fed purchased $100,000 of government securities would

If the actual money multiplier equals the potential money multiplier and if the Federal Reserve wishes to increase the money supply by $500 when the reserve ratio is 10 percent, it should

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

A barter arrangement simply means

Even when a particular monetary asset is not performing one of the functions of money well, people still use the asset because

Suppose that a new customer opens a checking account and a saving account, placing $50,000 in each. Later, the bank makes a loan of $100,000 to a business firm. For this bank,

If an asset can be obtained or disposed of without much risk of losing its nominal value, it is said to be

Check collection and clearing happen

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

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 ________.

What is liquidity? Why is money the most liquid of all assets? What is the cost of this liquidity?

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

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 .