Question 1

The term "fiduciary" comes from the Latin fiducia, which means

Accepted Answer

A)  value. 
B)  gold. 
C)  money. 
D)  trust or confidence. 
A)  value. 
B)  gold. 
C)  money. 
D)  trust or confidence.

Question 2

The reserve ratio is 10 percent and all loan proceeds are deposited in transactions accounts. A bond dealer has $100 million in deposits, $8 million in vault cash, and $7 million in deposits at the Fed. The Fed sells $1 million in securities to the bond dealer. As a result, of this transaction alone,

Accepted Answer

A)  the money supply falls by $1 million and total reserves fall by $1 million. 
B)  the money supply falls by $1 million and total reserves rise by $1 million. 
C)  the money supply rises by $1 million, total reserves fall by $900,000. 
D)  the money supply rises by $1 million, but reserves do not change. 
A)  the money supply falls by $1 million and total reserves fall by $1 million. 
B)  the money supply falls by $1 million and total reserves rise by $1 million. 
C)  the money supply rises by $1 million, total reserves fall by $900,000. 
D)  the money supply rises by $1 million, but reserves do not change.

Question 3

As a result of money in an economy,

Accepted Answer

A)  people are greedier than in a barter economy. 
B)  stealing exists and people have to find ways to prevent theft. 
C)  transaction costs are higher than would be the case in a barter economy. 
D)  real Gross Domestic Product (GDP) and economic growth are greater than they would be in a barter economy. 
A)  people are greedier than in a barter economy. 
B)  stealing exists and people have to find ways to prevent theft. 
C)  transaction costs are higher than would be the case in a barter economy. 
D)  real Gross Domestic Product (GDP) and economic growth are greater than they would be in a barter economy.

Question 4

-According to the above table, the value of M1 is

Accepted Answer

A)  $1,888 billion. 
B)  $1,629 billion. 
C)  $1,213 billion. 
D)  $1,205 billion. 
A)  $1,888 billion. 
B)  $1,629 billion. 
C)  $1,213 billion. 
D)  $1,205 billion.

Question 5

In a fiduciary monetary system, the value of the money issued by a government is based on

Accepted Answer

A)  the gold held in that government's vaults. 
B)  public confidence in that currency's acceptability and predictability of value. 
C)  the ability to convert it to some asset of value, like silver. 
D)  its being made out of some material with a market value equal to a bill's face value. 
A)  the gold held in that government's vaults. 
B)  public confidence in that currency's acceptability and predictability of value. 
C)  the ability to convert it to some asset of value, like silver. 
D)  its being made out of some material with a market value equal to a bill's face value.

Question 6

Fractional reserve banking began

Accepted Answer

A)  in the early twentieth century. 
B)  in the early nineteenth century. 
C)  in the Middle Ages. 
D)  in ancient Greece. 
A)  in the early twentieth century. 
B)  in the early nineteenth century. 
C)  in the Middle Ages. 
D)  in ancient Greece.

Question 7

What is a fractional reserve banking system? How long has the fractional reserve banking system been in existence?

Accepted Answer

A fractional reserve banking s

Question 8

Bank X had a reputation for asking few questions when it provided loans. Five years later, the majority of the loans were not repaid. This is because the bank had failed to address the

Accepted Answer

A)  adverse selection problem. 
B)  moral hazard problem. 
C)  contrary selection problem. 
D)  free-rider problem. 
A)  adverse selection problem. 
B)  moral hazard problem. 
C)  contrary selection problem. 
D)  free-rider problem.

Question 9

All of the following are functions of the Fed EXCEPT

Accepted Answer

A)  providing paper currency. 
B)  enforcing international trade agreements. 
C)  serving as a mechanism for clearing checks. 
D)  the banker and fiscal agent for the government. 
A)  providing paper currency. 
B)  enforcing international trade agreements. 
C)  serving as a mechanism for clearing checks. 
D)  the banker and fiscal agent for the government.

Question 10

If a check written on one bank is deposited in another bank

Accepted Answer

A)  the money supply increases. 
B)  the money supply remains unchanged. 
C)  the money supply decreases. 
D)  new reserves are created for the banking system. 
A)  the money supply increases. 
B)  the money supply remains unchanged. 
C)  the money supply decreases. 
D)  new reserves are created for the banking system.

Question 11

Which of the following actions has no effect on the total money supply?

Accepted Answer

A)  The Federal Open Market Committee buys government securities. 
B)  The Federal Open Market Committee sells government securities. 
C)  There is a transfer of deposits from one bank to another bank. 
D)  There is change in the money multiplier. 
A)  The Federal Open Market Committee buys government securities. 
B)  The Federal Open Market Committee sells government securities. 
C)  There is a transfer of deposits from one bank to another bank. 
D)  There is change in the money multiplier.

Question 12

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 13

-The potential money multiplier for the banking system in the above table is

Accepted Answer

A)  5. 
B)  9. 
C)  1. 
D)  10. 
A)  5. 
B)  9. 
C)  1. 
D)  10.

Question 14

Perishable goods such as milk or fruit are never used as money, because they cannot function as 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 15

The purchasing power of the dollar

Accepted Answer

A)  varies directly with the price of gold. 
B)  varies directly with the purchasing power of other major currencies such as the euro and the Japanese yen. 
C)  varies directly with the price level. 
D)  varies inversely with the price level. 
A)  varies directly with the price of gold. 
B)  varies directly with the purchasing power of other major currencies such as the euro and the Japanese yen. 
C)  varies directly with the price level. 
D)  varies inversely with the price level.

Question 16

The Fed

Accepted Answer

A)  is responsible for minting coins. 
B)  distributes Federal Reserve notes, which are paper currency. 
C)  is responsible for conducting U.S. fiscal policy. 
D)  has 15 Federal Reserve banks and governing boards in New York and Chicago. 
A)  is responsible for minting coins. 
B)  distributes Federal Reserve notes, which are paper currency. 
C)  is responsible for conducting U.S. fiscal policy. 
D)  has 15 Federal Reserve banks and governing boards in New York and Chicago.

Question 17

The reserve ratio equals 20 percent. The Fed buys $1 million in U.S. government securities. The most the money supply can increase is

Accepted Answer

A)  $1 million. 
B)  $4 million. 
C)  $5 million. 
D)  $10 million. 
A)  $1 million. 
B)  $4 million. 
C)  $5 million. 
D)  $10 million.

Question 18

What are the functions of money?

Accepted Answer

Money serves as a medium of exchange, wh

Question 19

Following a new deposit of $500, the loans of a commercial bank increase by $400. In this situation, the reserve ratio is most likely

Accepted Answer

A)  0 percent. 
B)  20 percent. 
C)  80 percent. 
D)  180 percent. 
A)  0 percent. 
B)  20 percent. 
C)  80 percent. 
D)  180 percent.

Question 20

The largest component of M1 is

Accepted Answer

A)  transaction deposits. 
B)  currency and coins. 
C)  travelers checks. 
D)  savings accounts. 
A)  transaction deposits. 
B)  currency and coins. 
C)  travelers checks. 
D)  savings accounts.

Exam 15: Money, Banking, and Central Banking

The term "fiduciary" comes from the Latin fiducia, which means

As a result of money in an economy,

-According to the above table, the value of M1 is

In a fiduciary monetary system, the value of the money issued by a government is based on

Fractional reserve banking began

What is a fractional reserve banking system? How long has the fractional reserve banking system been in existence?

Bank X had a reputation for asking few questions when it provided loans. Five years later, the majority of the loans were not repaid. This is because the bank had failed to address the

All of the following are functions of the Fed EXCEPT

If a check written on one bank is deposited in another bank

Which of the following actions has no effect on the total money supply?

Which one of the following is true?

-The potential money multiplier for the banking system in the above table is

Perishable goods such as milk or fruit are never used as money, because they cannot function as a

The purchasing power of the dollar

The Fed

The reserve ratio equals 20 percent. The Fed buys $1 million in U.S. government securities. The most the money supply can increase is

What are the functions of money?

Following a new deposit of $500, the loans of a commercial bank increase by $400. In this situation, the reserve ratio is most likely

The largest component of M1 is

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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