Question 1

A $20 price tag on a sweater in a department store is an example of money serving as a

Accepted Answer

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

Question 2

Suppose you pay $490.00 for a new iPad. This is an example of

Accepted Answer

A)  money as a medium of exchange. 
B)  money as a store of value. 
C)  barter. 
D)  money as a standard of deferred payment. 
A)  money as a medium of exchange. 
B)  money as a store of value. 
C)  barter. 
D)  money as a standard of deferred payment.

Question 3

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 4

The value of a dollar varies

Accepted Answer

A)  inversely with the price of gold. 
B)  inversely with the price level. 
C)  directly with the price level. 
D)  directly with the purchasing power of other major currencies. 
A)  inversely with the price of gold. 
B)  inversely with the price level. 
C)  directly with the price level. 
D)  directly with the purchasing power of other major currencies.

Question 5

All of the following are functions of the Federal Reserve System EXCEPT

Accepted Answer

A)  supplying the economy with fiduciary currency. 
B)  providing a system of check collection and clearing. 
C)  acting as the government's fiscal agent. 
D)  lending funds to risky customers denied credit by commercial banks. 
A)  supplying the economy with fiduciary currency. 
B)  providing a system of check collection and clearing. 
C)  acting as the government's fiscal agent. 
D)  lending funds to risky customers denied credit by commercial banks.

Question 6

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 7

How many Federal Reserve district banks are there in the United States?

Accepted Answer

A)  1 
B)  5 
C)  7 
D)  none of the above. 
A)  1 
B)  5 
C)  7 
D)  none of the above.

Question 8

The Board of Governors of the Federal Reserve System is

Accepted Answer

A)  elected by the general public. 
B)  composed of seven members who are appointed by the President and approved by the Senate. 
C)  composed of representatives from the country's 12 largest commercial banks. 
D)  composed of 12 members of the Senate and the U.S. House of Representatives. 
A)  elected by the general public. 
B)  composed of seven members who are appointed by the President and approved by the Senate. 
C)  composed of representatives from the country's 12 largest commercial banks. 
D)  composed of 12 members of the Senate and the U.S. House of Representatives.

Question 9

With a reserve ratio of 10 percent, the maximum potential money multiplier is

Accepted Answer

A)  1. 
B)  5. 
C)  10. 
D)  100. 
A)  1. 
B)  5. 
C)  10. 
D)  100.

Question 10

Other things being equal, when the Fed buys U.S. government securities,

Accepted Answer

A)  the U.S. Treasury must immediately issue new securities to replace the securities that the Fed has removed from the market. 
B)  the Fed's total assets and total liabilities immediately expand by exactly the amount of the Fed's purchase. 
C)  the quantity of deposits in the U.S. banking system expands by less than the amount of the Fed's purchase. 
D)  the quantity of paper currency and coins in circulation expands by more than the amount of the Fed's purchase. 
A)  the U.S. Treasury must immediately issue new securities to replace the securities that the Fed has removed from the market. 
B)  the Fed's total assets and total liabilities immediately expand by exactly the amount of the Fed's purchase. 
C)  the quantity of deposits in the U.S. banking system expands by less than the amount of the Fed's purchase. 
D)  the quantity of paper currency and coins in circulation expands by more than the amount of the Fed's purchase.

Question 11

The direct exchange of one good or service for another is called

Accepted Answer

A)  a token exchange. 
B)  a standard of deferred payment. 
C)  the exchange of purchasing power. 
D)  barter. 
A)  a token exchange. 
B)  a standard of deferred payment. 
C)  the exchange of purchasing power. 
D)  barter.

Question 12

A method of measuring the money supply by looking at money as a temporary store of value is the

Accepted Answer

A)  fiduciary monetary system. 
B)  capital control. 
C)  transactions approach. 
D)  liquidity approach. 
A)  fiduciary monetary system. 
B)  capital control. 
C)  transactions approach. 
D)  liquidity approach.

Question 13

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 14

Which of the following is NOT a function of the Fed?

Accepted Answer

A)  Regulating the money supply in the economy 
B)  Offering checking accounts to the U.S. public 
C)  Acting as government's fiscal agent 
D)  Providing a system of check collection and clearing for depository institutions 
A)  Regulating the money supply in the economy 
B)  Offering checking accounts to the U.S. public 
C)  Acting as government's fiscal agent 
D)  Providing a system of check collection and clearing for depository institutions

Question 15

If the Federal Reserve buys $500 of government securities when the required reserve ratio is 20 percent, the maximum potential change in the money supply is a(n)

Accepted Answer

A)  increase by $100. 
B)  increase by $2,500. 
C)  decrease by $100. 
D)  decrease by $2,500. 
A)  increase by $100. 
B)  increase by $2,500. 
C)  decrease by $100. 
D)  decrease by $2,500.

Question 16

Which one of the following statements is true?

Accepted Answer

A)  Not all forms of currency are accepted equally well by the public as a medium of exchange. 
B)  Checkable and debitable account balances are not money, but currency is. 
C)  Checkable and debitable accounts are considered money by law in only 15 states. 
D)  The value of the dollar rises along with the increases in the consumer price index. 
A)  Not all forms of currency are accepted equally well by the public as a medium of exchange. 
B)  Checkable and debitable account balances are not money, but currency is. 
C)  Checkable and debitable accounts are considered money by law in only 15 states. 
D)  The value of the dollar rises along with the increases in the consumer price index.

Question 17

Financial institutions participate in which of the following activities?

Accepted Answer

A)  financial intermediation 
B)  indirect finance 
C)  the issuance of loans 
D)  all of the above 
A)  financial intermediation 
B)  indirect finance 
C)  the issuance of loans 
D)  all of the above

Question 18

Financial intermediaries are institutions that

Accepted Answer

A)  produce money for the federal government. 
B)  regulate the activities of stock and bond markets. 
C)  act as middlemen in the process of directing funds from savers to investors. 
D)  oversee the activities of government institutions such as the Federal Reserve. 
A)  produce money for the federal government. 
B)  regulate the activities of stock and bond markets. 
C)  act as middlemen in the process of directing funds from savers to investors. 
D)  oversee the activities of government institutions such as the Federal Reserve.

Question 19

In addition to insuring accounts, the FDIC today has the additional power of

Accepted Answer

A)  setting reserve requirements. 
B)  establishing FOMC goals. 
C)  establishing the discount rate. 
D)  establishing higher capital requirements for banks. 
A)  setting reserve requirements. 
B)  establishing FOMC goals. 
C)  establishing the discount rate. 
D)  establishing higher capital requirements for banks.

Question 20

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

Exam 15: Money, Banking, and Central Banking

A $20 price tag on a sweater in a department store is an example of money serving as a

Suppose you pay $490.00 for a new iPad. This is an example of

A sale of securities by the Fed causes

The value of a dollar varies

All of the following are functions of the Federal Reserve System EXCEPT

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.

How many Federal Reserve district banks are there in the United States?

The Board of Governors of the Federal Reserve System is

With a reserve ratio of 10 percent, the maximum potential money multiplier is

Other things being equal, when the Fed buys U.S. government securities,

The direct exchange of one good or service for another is called

A method of measuring the money supply by looking at money as a temporary store of value is the

Federal Reserve notes are

Which of the following is NOT a function of the Fed?

If the Federal Reserve buys $500 of government securities when the required reserve ratio is 20 percent, the maximum potential change in the money supply is a(n)

Which one of the following statements is true?

Financial institutions participate in which of the following activities?

Financial intermediaries are institutions that

In addition to insuring accounts, the FDIC today has the additional power of

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

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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