Question 1

When an asset is described as being highly liquid, which one of the following characteristics does it possess?

Accepted Answer

A)  It earns a high rate of interest, so its purchasing power is maintained when prices rise. 
B)  It is easily and readily converted into money without any loss in purchasing power. 
C)  The face value of the asset is somewhat less than its value when converted into currency. 
D)  The asset holds its value over time. 
A)  It earns a high rate of interest, so its purchasing power is maintained when prices rise. 
B)  It is easily and readily converted into money without any loss in purchasing power. 
C)  The face value of the asset is somewhat less than its value when converted into currency. 
D)  The asset holds its value over time.

Question 2

Small-denomination certificates of deposits are

Accepted Answer

A)  included in M1 but not M2. 
B)  included in M1 and M2. 
C)  included only in M1. 
D)  included in M2 but not M1. 
A)  included in M1 but not M2. 
B)  included in M1 and M2. 
C)  included only in M1. 
D)  included in M2 but not M1.

Question 3

Compared to a barter economy, an economy that uses money will

Accepted Answer

A)  be greedier. 
B)  be poorer. 
C)  have more corruption. 
D)  have more output. 
A)  be greedier. 
B)  be poorer. 
C)  have more corruption. 
D)  have more output.

Question 4

Open market operations are

Accepted Answer

A)  the buying of existing corporate securities in secondary markets by private citizens, banks and the Fed. 
B)  the buying and selling of existing U.S. government securities in open private markets by the Fed. 
C)  the actions of the Fed that are used to finance deficit financing by the government. 
D)  the selling of new government securities in order to increase the money supply. 
A)  the buying of existing corporate securities in secondary markets by private citizens, banks and the Fed. 
B)  the buying and selling of existing U.S. government securities in open private markets by the Fed. 
C)  the actions of the Fed that are used to finance deficit financing by the government. 
D)  the selling of new government securities in order to increase the money supply.

Question 5

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 6

Which of the following will limit the expansion of the money supply following a new deposit?

Accepted Answer

A)  Failure of banks to voluntarily hold excess reserves 
B)  A strong demand for new loans 
C)  A re-depositing of all loan proceeds 
D)  A strong demand for holding currency outside of commercial banks 
A)  Failure of banks to voluntarily hold excess reserves 
B)  A strong demand for new loans 
C)  A re-depositing of all loan proceeds 
D)  A strong demand for holding currency outside of commercial banks

Question 7

Which of the following is NOT a part of the Federal Reserve System?

Accepted Answer

A)  The Twelve District Federal Reserve banks 
B)  The Federal Open Market Committee 
C)  The Federal Deposit Insurance Corporation 
D)  The Board of Governors 
A)  The Twelve District Federal Reserve banks 
B)  The Federal Open Market Committee 
C)  The Federal Deposit Insurance Corporation 
D)  The Board of Governors

Question 8

Which of the following is included in M2 but NOT in M1?

Accepted Answer

A)  small-denomination time deposits 
B)  transaction deposits 
C)  currency 
D)  traveler's checks 
A)  small-denomination time deposits 
B)  transaction deposits 
C)  currency 
D)  traveler's checks

Question 9

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

Accepted Answer

A)  to provide loans to developing countries. 
B)  to supply the economy with fiduciary currency. 
C)  to hold depository institutions' reserves. 
D)  to act as the government's fiscal agent. 
A)  to provide loans to developing countries. 
B)  to supply the economy with fiduciary currency. 
C)  to hold depository institutions' reserves. 
D)  to act as the government's fiscal agent.

Question 10

Even when people know the purchasing power of the currency is declining, they continue to use the currency because

Accepted Answer

A)  they have no other choice. 
B)  its value is holding better than any other asset. 
C)  its value is still predictable. 
D)  it still has some intrinsic value. 
A)  they have no other choice. 
B)  its value is holding better than any other asset. 
C)  its value is still predictable. 
D)  it still has some intrinsic value.

Question 11

When you set aside the money you have today in order to purchase goods and services later on, you are using money as a

Accepted Answer

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

Question 12

Suppose you place your savings in a time deposit at the bank, and that bank lends some of those funds to a business that desires a loan. This is an example of

Accepted Answer

A)  direct finance. 
B)  indirect finance. 
C)  asymmetric information. 
D)  adverse selection. 
A)  direct finance. 
B)  indirect finance. 
C)  asymmetric information. 
D)  adverse selection.

Question 13

Financial institutions that receive most of their funds from the savings of the public are

Accepted Answer

A)  the fiduciary monetary system. 
B)  the world index fund. 
C)  universal banking. 
D)  thrift institutions. 
A)  the fiduciary monetary system. 
B)  the world index fund. 
C)  universal banking. 
D)  thrift institutions.

Question 14

Which one of the following is included in M2 but NOT in M1?

Accepted Answer

A)  coins and currency 
B)  transaction deposits 
C)  a savings deposit without a set maturity 
D)  large-denomination time deposits 
A)  coins and currency 
B)  transaction deposits 
C)  a savings deposit without a set maturity 
D)  large-denomination time deposits

Question 15

The financial institutions in our banking system are all in the business of transferring funds from savers to investors. This process is known as

Accepted Answer

A)  lobbying. 
B)  parachuting. 
C)  money laundering. 
D)  financial intermediation. 
A)  lobbying. 
B)  parachuting. 
C)  money laundering. 
D)  financial intermediation.

Question 16

The Federal Reserve System is divided into how many districts?

Accepted Answer

A)  1 
B)  5 
C)  7 
D)  12 
A)  1 
B)  5 
C)  7 
D)  12

Question 17

If the reserve ratio is 10 percent and reserves in the commercial banking system increase by $10,000, the maximum possible expansion of demand deposits is

Accepted Answer

A)  $10,000. 
B)  $90,000. 
C)  $100,000. 
D)  $1,000,000. 
A)  $10,000. 
B)  $90,000. 
C)  $100,000. 
D)  $1,000,000.

Question 18

Money market mutual funds are funds pooled by

Accepted Answer

A)  a group of people to buy shares of stocks. 
B)  a group of people to buy stock market funds. 
C)  a group of people to buy short maturity credit instruments. 
D)  a group of people to buy U.S. Treasury bonds. 
A)  a group of people to buy shares of stocks. 
B)  a group of people to buy stock market funds. 
C)  a group of people to buy short maturity credit instruments. 
D)  a group of people to buy U.S. Treasury bonds.

Question 19

Which of the following is NOT a description of indirect finance?

Accepted Answer

A)  You take out a student loan from your bank. 
B)  An insurance company lends funds to IBM. 
C)  You borrow $500 from your best friend. 
D)  You buy shares in a mutual fund. 
A)  You take out a student loan from your bank. 
B)  An insurance company lends funds to IBM. 
C)  You borrow $500 from your best friend. 
D)  You buy shares in a mutual fund.

Question 20

Which approach to measuring money focuses on the value of currency, transaction deposits, and travelers checks?

Accepted Answer

A)  The transactions approach 
B)  The liquidity approach 
C)  Near moneys 
D)  M2 
A)  The transactions approach 
B)  The liquidity approach 
C)  Near moneys 
D)  M2

Exam 15: Money, Banking, and Central Banking

When an asset is described as being highly liquid, which one of the following characteristics does it possess?

Small-denomination certificates of deposits are

Compared to a barter economy, an economy that uses money will

Open market operations are

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

Which of the following will limit the expansion of the money supply following a new deposit?

Which of the following is NOT a part of the Federal Reserve System?

Which of the following is included in M2 but NOT in M1?

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

Even when people know the purchasing power of the currency is declining, they continue to use the currency because

When you set aside the money you have today in order to purchase goods and services later on, you are using money as a

Suppose you place your savings in a time deposit at the bank, and that bank lends some of those funds to a business that desires a loan. This is an example of

Financial institutions that receive most of their funds from the savings of the public are

Which one of the following is included in M2 but NOT in M1?

The financial institutions in our banking system are all in the business of transferring funds from savers to investors. This process is known as

The Federal Reserve System is divided into how many districts?

If the reserve ratio is 10 percent and reserves in the commercial banking system increase by $10,000, the maximum possible expansion of demand deposits is

Money market mutual funds are funds pooled by

Which of the following is NOT a description of indirect finance?

Which approach to measuring money focuses on the value of currency, transaction deposits, and travelers checks?

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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