Question 1

Which of the following is NOT included in the M1 money supply?

Accepted Answer

A)  currency 
B)  passbook savings accounts 
C)  checkable and debitable accounts 
D)  traveler's checks 
A)  currency 
B)  passbook savings accounts 
C)  checkable and debitable accounts 
D)  traveler's checks

Question 2

When a bank buys a bond from the Fed,

Accepted Answer

A)  its liabilities decrease. 
B)  its liabilities increase. 
C)  its reserves initially decrease. 
D)  its reserves initially increase. 
A)  its liabilities decrease. 
B)  its liabilities increase. 
C)  its reserves initially decrease. 
D)  its reserves initially increase.

Question 3

If a friend of yours keeps cash hidden under the mattress, he is using money as a

Accepted Answer

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

Question 4

A bank with $100 million in deposits has $15 million of cash in the bank, $10 million in deposits with the Fed, and $15 million in government securities in its vault. Its total reserves equal

Accepted Answer

A)  $10 million. 
B)  $15 million. 
C)  $25 million. 
D)  $40 million. 
A)  $10 million. 
B)  $15 million. 
C)  $25 million. 
D)  $40 million.

Question 5

If the Fed purchases $100,000 in government bonds from a bank, then the

Accepted Answer

A)  liabilities of the bank rise by $100,000. 
B)  reserves of the bank fall by $100,000. 
C)  assets of the bank rise by $100,000. 
D)  reserves of the bank rise by $100,000. 
A)  liabilities of the bank rise by $100,000. 
B)  reserves of the bank fall by $100,000. 
C)  assets of the bank rise by $100,000. 
D)  reserves of the bank rise by $100,000.

Question 6

When the Federal Reserve sells a government security to a bond dealer, which transmits payment from a transactions deposit account at a bank,

Accepted Answer

A)  the cash of the Federal Reserve will decrease. 
B)  the net worth of the commercial bank will decrease. 
C)  the loans of the commercial bank will increase. 
D)  the money supply will decrease. 
A)  the cash of the Federal Reserve will decrease. 
B)  the net worth of the commercial bank will decrease. 
C)  the loans of the commercial bank will increase. 
D)  the money supply will decrease.

Question 7

The liquidity of money refers to

Accepted Answer

A)  the amount of gold it is backed by. 
B)  the standard of deferred payments and how quickly those payments can be made. 
C)  how quickly it can be disposed of without high transaction costs. 
D)  asymmetric information. 
A)  the amount of gold it is backed by. 
B)  the standard of deferred payments and how quickly those payments can be made. 
C)  how quickly it can be disposed of without high transaction costs. 
D)  asymmetric information.

Question 8

Suppose you and a friend are shopping at a swap meet and you borrow $500 from your friend to pay for a guitar that you see there. 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 9

Mary decides to buy a bond from Joe for $100. The money supply will

Accepted Answer

A)  neither increase nor decrease. 
B)  increase by $100. 
C)  increase by more than $100. 
D)  decrease by $100. 
A)  neither increase nor decrease. 
B)  increase by $100. 
C)  increase by more than $100. 
D)  decrease by $100.

Question 10

The Federal Deposit Insurance Corporation insures

Accepted Answer

A)  banks against lawsuits. 
B)  the federal funds market. 
C)  the deposits held in member banks. 
D)  the deposits held in the Fed. 
A)  banks against lawsuits. 
B)  the federal funds market. 
C)  the deposits held in member banks. 
D)  the deposits held in the Fed.

Question 11

The cost of holding money is best described as

Accepted Answer

A)  the cost of printing money. 
B)  the cost which price decreases impose on money holders. 
C)  the yield which is paid to money holders by the U.S. government. 
D)  the yield that could have been earned had the asset been held in another form. 
A)  the cost of printing money. 
B)  the cost which price decreases impose on money holders. 
C)  the yield which is paid to money holders by the U.S. government. 
D)  the yield that could have been earned had the asset been held in another form.

Question 12

A business owner applies for a bank loan to launch a fairly low-risk project. After receiving the loan, she cancels the low-risk project and instead uses the borrowed funds for a high-risk venture. This is an example of

Accepted Answer

A)  financial intermediation. 
B)  the transactions approach. 
C)  moral hazard. 
D)  capital controls. 
A)  financial intermediation. 
B)  the transactions approach. 
C)  moral hazard. 
D)  capital controls.

Question 13

The reason we are willing to accept money with no intrinsic value is that

Accepted Answer

A)  paper currency may be exchanged for full-bodied money. 
B)  the money supply is backed by an equal amount of gold and silver. 
C)  we have a fiduciary monetary system in which currency has both acceptability and predictability of value. 
D)  the value of the money varies directly with changes in the price level. 
A)  paper currency may be exchanged for full-bodied money. 
B)  the money supply is backed by an equal amount of gold and silver. 
C)  we have a fiduciary monetary system in which currency has both acceptability and predictability of value. 
D)  the value of the money varies directly with changes in the price level.

Question 14

What would cause a bank run?

Accepted Answer

A)  Depositors feel that the bank does not have sufficient assets to cover their deposits. 
B)  Depositors feel that they are earning too low of a return on their deposits. 
C)  Borrowers feel that they are being charged too high of an interest rate on their loans. 
D)  Bank managers choose to hold more excess reserves. 
A)  Depositors feel that the bank does not have sufficient assets to cover their deposits. 
B)  Depositors feel that they are earning too low of a return on their deposits. 
C)  Borrowers feel that they are being charged too high of an interest rate on their loans. 
D)  Bank managers choose to hold more excess reserves.

Question 15

The transactions approach to measuring money relies on the role of money primarily as a

Accepted Answer

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

Question 16

If a bank receives a new transaction deposit of $10,000 and the reserve ratio is 15 percent, then the bank could expand its loans by as much as

Accepted Answer

A)  $1,500. 
B)  $8,500. 
C)  $15,000. 
D)  $66,700. 
A)  $1,500. 
B)  $8,500. 
C)  $15,000. 
D)  $66,700.

Question 17

The reserve ratio is 20 percent. The Fed buys $1 million in government securities from a bond dealer by transmitting the funds to the dealer's deposit account at Bank A. Bank A loans the maximum amount possible to a construction company, which buys materials from a lumber yard. The lumberyard deposits the construction company's check in Bank B. What is the maximum loan Bank A can now make and the maximum loan Bank B can now make?

Accepted Answer

A)  Bank A: 0; Bank B: $640,000 
B)  Bank A: 0; Bank B: $800,000 
C)  Bank A: $800,000; Bank B: $640,000 
D)  Bank A: $800,000; Bank B: 0 
A)  Bank A: 0; Bank B: $640,000 
B)  Bank A: 0; Bank B: $800,000 
C)  Bank A: $800,000; Bank B: $640,000 
D)  Bank A: $800,000; Bank B: 0

Question 18

Among the liabilities of a bank are its

Accepted Answer

A)  transaction deposits. 
B)  total reserves. 
C)  excess reserves. 
D)  loans. 
A)  transaction deposits. 
B)  total reserves. 
C)  excess reserves. 
D)  loans.

Question 19

A corporate bond is not as liquid as cash because the bond

Accepted Answer

A)  cannot be converted to spendable dollars either until it matures or is sold to another investor. 
B)  can be exchanged only for the goods or services produced by the company that issued the bond. 
C)  must be exchanged for a stock certificate before it can be converted to spendable funds. 
D)  represents an exchange for gold only. 
A)  cannot be converted to spendable dollars either until it matures or is sold to another investor. 
B)  can be exchanged only for the goods or services produced by the company that issued the bond. 
C)  must be exchanged for a stock certificate before it can be converted to spendable funds. 
D)  represents an exchange for gold only.

Question 20

The requirement for a double coincidence of wants occurs when

Accepted Answer

A)  there is inflation. 
B)  there is deflation. 
C)  a system of barter is used. 
D)  the medium of exchange is liquid. 
A)  there is inflation. 
B)  there is deflation. 
C)  a system of barter is used. 
D)  the medium of exchange is liquid.

Exam 15: Money, Banking, and Central Banking

Which of the following is NOT included in the M1 money supply?

When a bank buys a bond from the Fed,

If a friend of yours keeps cash hidden under the mattress, he is using money as a

A bank with $100 million in deposits has $15 million of cash in the bank, $10 million in deposits with the Fed, and $15 million in government securities in its vault. Its total reserves equal

If the Fed purchases $100,000 in government bonds from a bank, then the

When the Federal Reserve sells a government security to a bond dealer, which transmits payment from a transactions deposit account at a bank,

The liquidity of money refers to

Suppose you and a friend are shopping at a swap meet and you borrow $500 from your friend to pay for a guitar that you see there. This is an example of

Mary decides to buy a bond from Joe for $100. The money supply will

The Federal Deposit Insurance Corporation insures

The cost of holding money is best described as

A business owner applies for a bank loan to launch a fairly low-risk project. After receiving the loan, she cancels the low-risk project and instead uses the borrowed funds for a high-risk venture. This is an example of

The reason we are willing to accept money with no intrinsic value is that

What would cause a bank run?

The transactions approach to measuring money relies on the role of money primarily as a

If a bank receives a new transaction deposit of $10,000 and the reserve ratio is 15 percent, then the bank could expand its loans by as much as

Among the liabilities of a bank are its

A corporate bond is not as liquid as cash because the bond

The requirement for a double coincidence of wants occurs when

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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