Question 1

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

Accepted Answer

A)  The Fed holds reserves of depository institutions. 
B)  The Fed supplies the economy with fiduciary currency. 
C)  The Fed determines government spending and taxation policies. 
D)  The Fed acts as fiscal agent for the United States Department of the Treasury. 
A)  The Fed holds reserves of depository institutions. 
B)  The Fed supplies the economy with fiduciary currency. 
C)  The Fed determines government spending and taxation policies. 
D)  The Fed acts as fiscal agent for the United States Department of the Treasury.

Question 2

Financial intermediation is best defined as the process by which

Accepted Answer

A)  inflation is controlled. 
B)  corporations issue new stock. 
C)  liabilities are liquidated. 
D)  financial institutions accept savings from savers and make loans to investors. 
A)  inflation is controlled. 
B)  corporations issue new stock. 
C)  liabilities are liquidated. 
D)  financial institutions accept savings from savers and make loans to investors.

Question 3

Suppose your $50,000 certificate of deposit matures and you transfer the funds to your checking account. This causes

Accepted Answer

A)  M1 to decrease by $50,000 and M2 to increase by $50,000. 
B)  M1 to increase by $50,000 and M2 to remain the same. 
C)  both M1 and M2 to increase by $50,000. 
D)  no change to either M1 or M2. 
A)  M1 to decrease by $50,000 and M2 to increase by $50,000. 
B)  M1 to increase by $50,000 and M2 to remain the same. 
C)  both M1 and M2 to increase by $50,000. 
D)  no change to either M1 or M2.

Question 4

The level of reserves in the monetary system is determined by

Accepted Answer

A)  the Federal Open Market Committee. 
B)  the Treasury Department. 
C)  Congress. 
D)  the President of the United States. 
A)  the Federal Open Market Committee. 
B)  the Treasury Department. 
C)  Congress. 
D)  the President of the United States.

Question 5

People with savings often deposit their funds in a commercial bank, rather than investing them directly with business enterprises, in order to

Accepted Answer

A)  avoid the problems associated with financial intermediation. 
B)  avoid the problems associated with asymmetric information. 
C)  earn the highest possible return for taking on the riskiest investments. 
D)  All of the above are correct. 
A)  avoid the problems associated with financial intermediation. 
B)  avoid the problems associated with asymmetric information. 
C)  earn the highest possible return for taking on the riskiest investments. 
D)  All of the above are correct.

Question 6

The cost of holding money is

Accepted Answer

A)  transactions accounts. 
B)  the opportunity cost. 
C)  the liquidity approach. 
D)  capital controls. 
A)  transactions accounts. 
B)  the opportunity cost. 
C)  the liquidity approach. 
D)  capital controls.

Question 7

An increase in the interest rate would induce people to

Accepted Answer

A)  sell shares of stock and buy bonds, but would have no effect on their desire to hold money. 
B)  get rid of all their money and buy stocks with it. 
C)  sell their least liquid assets and hold more money in case interest rates go up again. 
D)  hold a smaller fraction of their wealth in the form of money. 
A)  sell shares of stock and buy bonds, but would have no effect on their desire to hold money. 
B)  get rid of all their money and buy stocks with it. 
C)  sell their least liquid assets and hold more money in case interest rates go up again. 
D)  hold a smaller fraction of their wealth in the form of money.

Question 8

All of the following are included in M1 EXCEPT

Accepted Answer

A)  coin and currency. 
B)  money market mutual fund shares. 
C)  traveler's checks. 
D)  checking account balances. 
A)  coin and currency. 
B)  money market mutual fund shares. 
C)  traveler's checks. 
D)  checking account balances.

Question 9

Asymmetric information before a transaction takes place generates the problem of

Accepted Answer

A)  bank runs. 
B)  irrational behavior. 
C)  moral hazard. 
D)  adverse selection. 
A)  bank runs. 
B)  irrational behavior. 
C)  moral hazard. 
D)  adverse selection.

Question 10

Which of the following assets are counted in M2?

Accepted Answer

A)  gold 
B)  balances in retail mutual funds accounts 
C)  value of outstanding bonds 
D)  lines of credit offered by commercial banks 
A)  gold 
B)  balances in retail mutual funds accounts 
C)  value of outstanding bonds 
D)  lines of credit offered by commercial banks

Question 11

Money that we have today can be set aside to purchase things in the future. This function of money is known as

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 12

For the United States, what is money based on the transactions approach to measuring money?

Accepted Answer

The transactions approach look

Question 13

Which of the following is NOT included in M1?

Accepted Answer

A)  transaction deposits 
B)  currency 
C)  small time deposits 
D)  travelers checks 
A)  transaction deposits 
B)  currency 
C)  small time deposits 
D)  travelers checks

Question 14

How does the liquidity approach to measuring the money supply differ from the transaction approach?

Accepted Answer

The liquidity approach focuses on assets

Question 15

The U.S. fiduciary monetary system

Accepted Answer

A)  is the one agency responsible for providing coins and paper currency. 
B)  is one where money is not convertible to a fixed quantity of gold. 
C)  puts capital controls in place. 
D)  controls the private banking system. 
A)  is the one agency responsible for providing coins and paper currency. 
B)  is one where money is not convertible to a fixed quantity of gold. 
C)  puts capital controls in place. 
D)  controls the private banking system.

Question 16

In a fiduciary monetary system, money is backed by

Accepted Answer

A)  the public's confidence that the assets will continue to be accepted as money. 
B)  the intrinsic value of the materials used to make the assets. 
C)  the assets of the institutions that issue the various assets used as money. 
D)  gold. 
A)  the public's confidence that the assets will continue to be accepted as money. 
B)  the intrinsic value of the materials used to make the assets. 
C)  the assets of the institutions that issue the various assets used as money. 
D)  gold.

Question 17

Suppose that the actual money multiplier equals the maximum potential money multiplier. If the reserve ratio is 10 percent, in order for the banking system to increase deposits by $2.5 million, the Fed must

Accepted Answer

A)  permit the system to have prolonged reserve deficiencies. 
B)  sell $2.5 million of government securities to the general public. 
C)  sell $250,000 of government securities to the general public. 
D)  buy $250,000 of government securities from the public. 
A)  permit the system to have prolonged reserve deficiencies. 
B)  sell $2.5 million of government securities to the general public. 
C)  sell $250,000 of government securities to the general public. 
D)  buy $250,000 of government securities from the public.

Question 18

If the actual money multiplier equals the potential money multiplier and if the Fed wishes to reduce the money supply by $1 million when the reserve ratio is 20 percent, then the Fed should

Accepted Answer

A)  sell $200,000 of government securities. 
B)  buy $200,000 of government securities. 
C)  sell $500,000 of government securities. 
D)  buy $500,000 of government securities. 
A)  sell $200,000 of government securities. 
B)  buy $200,000 of government securities. 
C)  sell $500,000 of government securities. 
D)  buy $500,000 of government securities.

Question 19

The opportunity cost of holding money

Accepted Answer

A)  is measured by the alternative interest yield obtainable by holding some other asset. 
B)  is based on the fiduciary monetary system. 
C)  refers to the amount of paper currency held by the Fed. 
D)  refers to the Fed's role as the lender of last resort. 
A)  is measured by the alternative interest yield obtainable by holding some other asset. 
B)  is based on the fiduciary monetary system. 
C)  refers to the amount of paper currency held by the Fed. 
D)  refers to the Fed's role as the lender of last resort.

Question 20

Which of the following could least reasonably be included in the liquidity approach to defining the money supply?

Accepted Answer

A)  Savings deposits 
B)  Money market mutual fund accounts 
C)  Corporate bonds 
D)  Traveler's checks 
A)  Savings deposits 
B)  Money market mutual fund accounts 
C)  Corporate bonds 
D)  Traveler's checks

Exam 15: Money, Banking, and Central Banking

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

Financial intermediation is best defined as the process by which

Suppose your $50,000 certificate of deposit matures and you transfer the funds to your checking account. This causes

The level of reserves in the monetary system is determined by

People with savings often deposit their funds in a commercial bank, rather than investing them directly with business enterprises, in order to

The cost of holding money is

An increase in the interest rate would induce people to

All of the following are included in M1 EXCEPT

Asymmetric information before a transaction takes place generates the problem of

Which of the following assets are counted in M2?

Money that we have today can be set aside to purchase things in the future. This function of money is known as

For the United States, what is money based on the transactions approach to measuring money?

Which of the following is NOT included in M1?

How does the liquidity approach to measuring the money supply differ from the transaction approach?

The U.S. fiduciary monetary system

In a fiduciary monetary system, money is backed by

Suppose that the actual money multiplier equals the maximum potential money multiplier. If the reserve ratio is 10 percent, in order for the banking system to increase deposits by $2.5 million, the Fed must

If the actual money multiplier equals the potential money multiplier and if the Fed wishes to reduce the money supply by $1 million when the reserve ratio is 20 percent, then the Fed should

The opportunity cost of holding money

Which of the following could least reasonably be included in the liquidity approach to defining the money supply?

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