Question 1

Suppose a person deposits a paycheck in a bank. The transaction deposits are money, so has the money supply increased? Explain.

Accepted Answer

No. The check was drawn on the

Question 2

Explain the forces that caused the savings and loan debacle in the latter half of the 1980s.

Accepted Answer

Deposit insurance created a moral hazard

Question 3

Suppose you borrow $500 from your bank to pay for a guitar. This is an example of

Accepted Answer

A)  direct financing. 
B)  indirect financing. 
C)  moral hazard. 
D)  transaction costs. 
A)  direct financing. 
B)  indirect financing. 
C)  moral hazard. 
D)  transaction costs.

Question 4

The transactions approach to measuring money stresses the role of money 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 5

The most liquid asset is

Accepted Answer

A)  gold. 
B)  silver. 
C)  money. 
D)  blue-chip stocks. 
A)  gold. 
B)  silver. 
C)  money. 
D)  blue-chip stocks.

Question 6

What characteristic defines something as money?

Accepted Answer

A)  assets declared by the government to be of value 
B)  a medium of exchange universally accepted in an economy 
C)  notes you can deposit in a savings account 
D)  an asset that earns interest 
A)  assets declared by the government to be of value 
B)  a medium of exchange universally accepted in an economy 
C)  notes you can deposit in a savings account 
D)  an asset that earns interest

Question 7

If all of a bank's depositors showed up on one day requesting cash withdrawals of all their deposited funds,

Accepted Answer

A)  the bank would pay them all, although reluctantly. 
B)  the bank would likely fail to have sufficient reserves to honor their requests. 
C)  the bank could lawfully refuse their demands. 
D)  the bank would immediately call all outstanding loans. 
A)  the bank would pay them all, although reluctantly. 
B)  the bank would likely fail to have sufficient reserves to honor their requests. 
C)  the bank could lawfully refuse their demands. 
D)  the bank would immediately call all outstanding loans.

Question 8

Fractional reserve banking refers to a system in which the depository institution

Accepted Answer

A)  holds reserves equal to its deposits. 
B)  holds reserves greater than its deposits. 
C)  holds reserves less than its deposits. 
D)  holds zero reserves. 
A)  holds reserves equal to its deposits. 
B)  holds reserves greater than its deposits. 
C)  holds reserves less than its deposits. 
D)  holds zero reserves.

Question 9

If the FOMC decides to engage in the selling of government bonds, what is the effect on the money supply?

Accepted Answer

A)  a decrease 
B)  an increase 
C)  no change 
D)  an initial increase followed by an additional rise when the bonds mature 
A)  a decrease 
B)  an increase 
C)  no change 
D)  an initial increase followed by an additional rise when the bonds mature

Question 10

If the FOMC decides that the Fed should buy bonds it

Accepted Answer

A)  instructs the New York Federal Reserve Bank's trading desk to buy them. 
B)  asks the Congress for permission to buy them. 
C)  requires the President's signature on the buy order. 
D)  requires the permission of the Financial Oversight Committee. 
A)  instructs the New York Federal Reserve Bank's trading desk to buy them. 
B)  asks the Congress for permission to buy them. 
C)  requires the President's signature on the buy order. 
D)  requires the permission of the Financial Oversight Committee.

Question 11

The U.S. central bank performs all the following roles for the nation EXCEPT

Accepted Answer

A)  performing banking functions for their nations' governments. 
B)  lending funds directly to the public. 
C)  providing financial services for private banks. 
D)  conducting their nations' monetary policies. 
A)  performing banking functions for their nations' governments. 
B)  lending funds directly to the public. 
C)  providing financial services for private banks. 
D)  conducting their nations' monetary policies.

Question 12

How are the assets and liabilities changed for a bond dealer, the bond dealer's bank, and the Fed when the Fed buys $100,000 in bonds?

Accepted Answer

The bond dealer trades a bond for a tran

Question 13

A medium of exchange is

Accepted Answer

A)  any asset that sellers will accept as payment. 
B)  a measure by which prices are expressed. 
C)  an asset that is used to settle future debts. 
D)  the thing traded when barter takes place. 
A)  any asset that sellers will accept as payment. 
B)  a measure by which prices are expressed. 
C)  an asset that is used to settle future debts. 
D)  the thing traded when barter takes place.

Question 14

A transaction deposit is

Accepted Answer

A)  a fiduciary monetary system. 
B)  a checkable and debitable account. 
C)  opportunity cost. 
D)  the liquidity approach. 
A)  a fiduciary monetary system. 
B)  a checkable and debitable account. 
C)  opportunity cost. 
D)  the liquidity approach.

Question 15

Money serves as a standard of value, which is another way of saying that money functions as

Accepted Answer

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

Question 16

If the transactions approach to measuring money is used, then the money supply consists of

Accepted Answer

A)  currency only. 
B)  transaction deposits only. 
C)  currency and transaction deposits only. 
D)  currency, checkable and debitable deposits, and traveler's checks. 
A)  currency only. 
B)  transaction deposits only. 
C)  currency and transaction deposits only. 
D)  currency, checkable and debitable deposits, and traveler's checks.

Question 17

A barter arrangement essentially means

Accepted Answer

A)  a cashless transaction. 
B)  a credit deal. 
C)  buying with an I.O.U. 
D)  swapping goods for cash. 
A)  a cashless transaction. 
B)  a credit deal. 
C)  buying with an I.O.U. 
D)  swapping goods for cash.

Question 18

The Fed sells $1 million in bonds to a bond dealer. The bond dealer's bank experiences

Accepted Answer

A)  a decrease in assets of $1 million as its reserves decrease and an increase in liabilities of $1 million as its deposits rise. 
B)  a decrease in assets of $1 million as its reserves decrease and a decrease in liabilities of $1 million as its deposits fall. 
C)  an increase in assets of $1 million as its deposits fell by $1 million, and a decrease in liabilities as its reserves fell by $1 million. 
D)  no change in assets or liabilities. 
A)  a decrease in assets of $1 million as its reserves decrease and an increase in liabilities of $1 million as its deposits rise. 
B)  a decrease in assets of $1 million as its reserves decrease and a decrease in liabilities of $1 million as its deposits fall. 
C)  an increase in assets of $1 million as its deposits fell by $1 million, and a decrease in liabilities as its reserves fell by $1 million. 
D)  no change in assets or liabilities.

Question 19

Money as a medium of exchange I. Facilitates the exchange of goods
II) Reduces the incentive to barter

Accepted Answer

A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II 
A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II

Question 20

Money is still useful during times of inflation because

Accepted Answer

A)  it still retains the characteristic of predictability of value. 
B)  more money can be made so people can still purchase the goods and services they want. 
C)  it is not a liquid asset. 
D)  its opportunity cost falls as inflation rises. 
A)  it still retains the characteristic of predictability of value. 
B)  more money can be made so people can still purchase the goods and services they want. 
C)  it is not a liquid asset. 
D)  its opportunity cost falls as inflation rises.

Exam 15: Money, Banking, and Central Banking

Suppose a person deposits a paycheck in a bank. The transaction deposits are money, so has the money supply increased? Explain.

Explain the forces that caused the savings and loan debacle in the latter half of the 1980s.

Suppose you borrow $500 from your bank to pay for a guitar. This is an example of

The transactions approach to measuring money stresses the role of money as a

The most liquid asset is

What characteristic defines something as money?

If all of a bank's depositors showed up on one day requesting cash withdrawals of all their deposited funds,

Fractional reserve banking refers to a system in which the depository institution

If the FOMC decides to engage in the selling of government bonds, what is the effect on the money supply?

If the FOMC decides that the Fed should buy bonds it

The U.S. central bank performs all the following roles for the nation EXCEPT

How are the assets and liabilities changed for a bond dealer, the bond dealer's bank, and the Fed when the Fed buys $100,000 in bonds?

A medium of exchange is

A transaction deposit is

Money serves as a standard of value, which is another way of saying that money functions as

If the transactions approach to measuring money is used, then the money supply consists of

A barter arrangement essentially means

The Fed sells $1 million in bonds to a bond dealer. The bond dealer's bank experiences

Money as a medium of exchange I. Facilitates the exchange of goods II) Reduces the incentive to barter

Money is still useful during times of inflation because

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