Question 1

When the Fed sells government securities,

Accepted Answer

A)  reserves increase, leading to a decrease in the money supply by an amount more than the sale of the government securities. 
B)  reserves decrease, leading to a increase in the money supply by an amount more than the sale of the government securities. 
C)  reserves increase, leading to a increase in the money supply by an amount more than the sale of the government securities. 
D)  reserves decrease, leading to a decrease in the money supply by an amount more than the sale of the government securities. 
A)  reserves increase, leading to a decrease in the money supply by an amount more than the sale of the government securities. 
B)  reserves decrease, leading to a increase in the money supply by an amount more than the sale of the government securities. 
C)  reserves increase, leading to a increase in the money supply by an amount more than the sale of the government securities. 
D)  reserves decrease, leading to a decrease in the money supply by an amount more than the sale of the government securities.

Question 2

What are reserves? Discuss the various types of reserves used in the U.S. banking system.

Accepted Answer

Reserves are assets held by a depository

Question 3

Which one of the following is a function of the Federal Reserve System?

Accepted Answer

A)  providing the economy with currency 
B)  providing a system for check clearing 
C)  serving as a lender of last resort 
D)  all of the above 
A)  providing the economy with currency 
B)  providing a system for check clearing 
C)  serving as a lender of last resort 
D)  all of the above

Question 4

-Based on the above table, the reserve ratio for the banking system is

Accepted Answer

A)  20 percent. 
B)  10 percent. 
C)  15 percent. 
D)  1 percent. 
A)  20 percent. 
B)  10 percent. 
C)  15 percent. 
D)  1 percent.

Question 5

In which year was the Federal Deposit Insurance Corporation (FDIC) established?

Accepted Answer

A)  1913 
B)  1929 
C)  1933 
D)  1951 
A)  1913 
B)  1929 
C)  1933 
D)  1951

Question 6

In a fiduciary monetary system,

Accepted Answer

A)  coins get their value from the precious metals of which they are made. 
B)  money gets its value from the confidence that the public has in its acceptability. 
C)  paper currency does not have value, but balances in checking accounts do. 
D)  checking account balances do not have value, but paper currency does. 
A)  coins get their value from the precious metals of which they are made. 
B)  money gets its value from the confidence that the public has in its acceptability. 
C)  paper currency does not have value, but balances in checking accounts do. 
D)  checking account balances do not have value, but paper currency does.

Question 7

A deposit in a financial institution that requires notice of intent to withdraw is a

Accepted Answer

A)  savings deposit. 
B)  money market deposit account. 
C)  time deposit. 
D)  certificate of deposit. 
A)  savings deposit. 
B)  money market deposit account. 
C)  time deposit. 
D)  certificate of deposit.

Question 8

The reserve ratio is 10% and a bank has $600,000 in transaction deposits. The amount of reserves equals

Accepted Answer

A)  $6,000. 
B)  $60,000. 
C)  $600,000. 
D)  undeterminable without information on cash reserves. 
A)  $6,000. 
B)  $60,000. 
C)  $600,000. 
D)  undeterminable without information on cash reserves.

Question 9

The likelihood that individuals who seek to borrow money may use the funds for unworthy, high-risk projects is

Accepted Answer

A)  asymmetric information. 
B)  adverse selection. 
C)  moral hazard. 
D)  financial intermediation. 
A)  asymmetric information. 
B)  adverse selection. 
C)  moral hazard. 
D)  financial intermediation.

Question 10

For something to serve as money, it must be

Accepted Answer

A)  backed by the authority of the government. 
B)  generally accepted by buyers and sellers. 
C)  light, durable, and common. 
D)  convertible to gold. 
A)  backed by the authority of the government. 
B)  generally accepted by buyers and sellers. 
C)  light, durable, and common. 
D)  convertible to gold.

Question 11

What effect has the presence of federal deposit insurance had on the banking industry?

Accepted Answer

A)  Banks now hold more excess reserves. 
B)  Banks have made it more difficult for customers to qualify for loans. 
C)  Banks have made riskier loans. 
D)  Depositors have become more vigilant in monitoring the decisions made by managers of their banks. 
A)  Banks now hold more excess reserves. 
B)  Banks have made it more difficult for customers to qualify for loans. 
C)  Banks have made riskier loans. 
D)  Depositors have become more vigilant in monitoring the decisions made by managers of their banks.

Question 12

Which of the following statements is correct? I. The Fed can periodically and without warning examine member commercial banks to ensure that they are conforming to current banking standards.
II) The Fed helps the government collect certain tax revenues and aids in the purchase and sale of government securities.

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 13

Which of the following assets is the most liquid in the United States?

Accepted Answer

A)  U.S. Treasury Bonds 
B)  U.S. currency 
C)  corporate bonds 
D)  an antique car 
A)  U.S. Treasury Bonds 
B)  U.S. currency 
C)  corporate bonds 
D)  an antique car

Question 14

Banks do not need to keep all of their deposits on hand as reserves because

Accepted Answer

A)  only a fraction of deposits are withdrawn at any one time. 
B)  FDIC protects banks from excessive withdrawal demands. 
C)  there is too much risk of bank robberies. 
D)  they can always generate new reserves through the money creation process. 
A)  only a fraction of deposits are withdrawn at any one time. 
B)  FDIC protects banks from excessive withdrawal demands. 
C)  there is too much risk of bank robberies. 
D)  they can always generate new reserves through the money creation process.

Question 15

Open market operations are

Accepted Answer

A)  the procedures for approving loans at commercial banks. 
B)  the procedures of applying for loans at commercial banks. 
C)  the Federal Reserve's purchase and sale of existing U.S. government securities. 
D)  steps a bank must complete before it can invest in stocks on the open market. 
A)  the procedures for approving loans at commercial banks. 
B)  the procedures of applying for loans at commercial banks. 
C)  the Federal Reserve's purchase and sale of existing U.S. government securities. 
D)  steps a bank must complete before it can invest in stocks on the open market.

Question 16

Checking accounts are included in

Accepted Answer

A)  certificates of deposit. 
B)  currency. 
C)  lines of credit. 
D)  M1. 
A)  certificates of deposit. 
B)  currency. 
C)  lines of credit. 
D)  M1.

Question 17

To function as money, something must hold its purchasing power over time. That is, it must be a

Accepted Answer

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

Exam 15: Money, Banking, and Central Banking

When the Fed sells government securities,

What are reserves? Discuss the various types of reserves used in the U.S. banking system.

Which one of the following is a function of the Federal Reserve System?

-Based on the above table, the reserve ratio for the banking system is

In which year was the Federal Deposit Insurance Corporation (FDIC) established?

In a fiduciary monetary system,

A deposit in a financial institution that requires notice of intent to withdraw is a

The reserve ratio is 10% and a bank has $600,000 in transaction deposits. The amount of reserves equals

The likelihood that individuals who seek to borrow money may use the funds for unworthy, high-risk projects is

For something to serve as money, it must be

What effect has the presence of federal deposit insurance had on the banking industry?

Which of the following assets is the most liquid in the United States?

Banks do not need to keep all of their deposits on hand as reserves because

Open market operations are

Checking accounts are included in

To function as money, something must hold its purchasing power over time. That is, it must be a

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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