Question 1

Transactions deposits include

Accepted Answer

A)  credit cards. 
B)  certificates of deposit. 
C)  lines of credit. 
D)  checkable and debitable accounts. 
A)  credit cards. 
B)  certificates of deposit. 
C)  lines of credit. 
D)  checkable and debitable accounts.

Question 2

The part of the Federal Reserve System (the Fed) that holds the reserve balances of depository institutions is

Accepted Answer

A)  the Federal Open Market Committee. 
B)  the Federal Advisory Committee. 
C)  the Federal Reserve district banks. 
D)  the Board of Governors. 
A)  the Federal Open Market Committee. 
B)  the Federal Advisory Committee. 
C)  the Federal Reserve district banks. 
D)  the Board of Governors.

Question 3

The Federal Reserve Bank was first established in the U.S. by an Act of Congress passed in

Accepted Answer

A)  1789. 
B)  1861. 
C)  1913. 
D)  1947. 
A)  1789. 
B)  1861. 
C)  1913. 
D)  1947.

Question 4

If the money multiplier is 2.4 and the Fed buys $8 million in securities on the open market, transaction deposits could potentially

Accepted Answer

A)  increase by $19.2 million. 
B)  increase by $8 million. 
C)  decrease by $19.2 million. 
D)  decrease by $16.5 million. 
A)  increase by $19.2 million. 
B)  increase by $8 million. 
C)  decrease by $19.2 million. 
D)  decrease by $16.5 million.

Question 5

Depository institutions must

Accepted Answer

A)  use and pay for the services of the Federal Reserve System. 
B)  set their interest rates according to schedules established by the Federal Reserve System. 
C)  keep a certain percentage of their deposits as reserves. 
D)  turn over a percentage of their profits to the Federal Reserve System as payment for services provided by the Fed. 
A)  use and pay for the services of the Federal Reserve System. 
B)  set their interest rates according to schedules established by the Federal Reserve System. 
C)  keep a certain percentage of their deposits as reserves. 
D)  turn over a percentage of their profits to the Federal Reserve System as payment for services provided by the Fed.

Question 6

The Federal Reserve will engage in open market operations when

Accepted Answer

A)  it wants to punish private banks because they are not keeping the required level of reserves. 
B)  it wants to change the money supply. 
C)  it wants to change the reserve ratio. 
D)  it wants to increase the total amount of reserves since government securities are considered a reserve. 
A)  it wants to punish private banks because they are not keeping the required level of reserves. 
B)  it wants to change the money supply. 
C)  it wants to change the reserve ratio. 
D)  it wants to increase the total amount of reserves since government securities are considered a reserve.

Question 7

The Board of Governors of the Federal Reserve System is

Accepted Answer

A)  appointed by the Congress. 
B)  elected by the public. 
C)  appointed by the President with approval of the U.S. Senate. 
D)  elected by members of the American Banking Association. 
A)  appointed by the Congress. 
B)  elected by the public. 
C)  appointed by the President with approval of the U.S. Senate. 
D)  elected by members of the American Banking Association.

Question 8

The existence of money in an economy promotes efficiency by

Accepted Answer

A)  creating an equal distribution of income. 
B)  creating incentives to be self-sufficient. 
C)  facilitating trade, thereby allowing for greater specialization. 
D)  allowing for the formation of corporations as legal entities. 
A)  creating an equal distribution of income. 
B)  creating incentives to be self-sufficient. 
C)  facilitating trade, thereby allowing for greater specialization. 
D)  allowing for the formation of corporations as legal entities.

Question 9

In a fractional reserve banking system,

Accepted Answer

A)  banks are required to keep all deposits on hand so that they can pay their depositors when they desire to withdraw funds. 
B)  banks are required to keep a fraction of deposits in bonds. 
C)  banks are required to keep a fraction of all deposits on hand and send the rest to the Fed. 
D)  banks do not keep sufficient reserves on hand to cover 100 percent of their depositors' accounts. 
A)  banks are required to keep all deposits on hand so that they can pay their depositors when they desire to withdraw funds. 
B)  banks are required to keep a fraction of deposits in bonds. 
C)  banks are required to keep a fraction of all deposits on hand and send the rest to the Fed. 
D)  banks do not keep sufficient reserves on hand to cover 100 percent of their depositors' accounts.

Question 10

Which of the following would NOT be an asset on a bank's balance sheet?

Accepted Answer

A)  Loans outstanding 
B)  Bank building 
C)  Cash in the vault 
D)  Transactions deposits 
A)  Loans outstanding 
B)  Bank building 
C)  Cash in the vault 
D)  Transactions deposits

Question 11

You go to work today, but will get your paycheck at the end of the month. This is an example of money serving 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 12

-According to the above table, the value of M2 is

Accepted Answer

A)  $3,807 billion. 
B)  $5,237 billion. 
C)  $6,237 billion. 
D)  $6,253 billion. 
A)  $3,807 billion. 
B)  $5,237 billion. 
C)  $6,237 billion. 
D)  $6,253 billion.

Question 13

Which of the following would be considered the least liquid asset?

Accepted Answer

A)  currency 
B)  checkable deposits 
C)  travelers checks 
D)  shares of stock 
A)  currency 
B)  checkable deposits 
C)  travelers checks 
D)  shares of stock

Question 14

In defining money as M1, economists exclude time deposits because

Accepted Answer

A)  they have no intrinsic value. 
B)  they do not directly serve as a medium of exchange. 
C)  they are not recognized as legal tender. 
D)  they earn an interest for their holders. 
A)  they have no intrinsic value. 
B)  they do not directly serve as a medium of exchange. 
C)  they are not recognized as legal tender. 
D)  they earn an interest for their holders.

Question 15

If the FDIC eliminated its insurance program for deposits, then

Accepted Answer

A)  the banking system would probably fail. 
B)  individual depositors would have more incentive to ascertain the soundness and solvency of the bank. 
C)  banks would probably hold fewer reserves. 
D)  moral hazard would be increased. 
A)  the banking system would probably fail. 
B)  individual depositors would have more incentive to ascertain the soundness and solvency of the bank. 
C)  banks would probably hold fewer reserves. 
D)  moral hazard would be increased.

Question 16

The direct exchange of goods and services for other goods and services is known as

Accepted Answer

A)  barter. 
B)  purchasing power. 
C)  intermediation. 
D)  wholesale trade. 
A)  barter. 
B)  purchasing power. 
C)  intermediation. 
D)  wholesale trade.

Question 17

Who benefits from the process of financial intermediation?

Accepted Answer

A)  Savers only. 
B)  Borrowers only. 
C)  Both savers and borrowers. 
D)  There is no benefit, because money does not create wealth. 
A)  Savers only. 
B)  Borrowers only. 
C)  Both savers and borrowers. 
D)  There is no benefit, because money does not create wealth.

Question 18

When the Federal Reserve sells a government security to a commercial bank,

Accepted Answer

A)  the cash reserves of the commercial bank decrease. 
B)  the net worth of the commercial bank increases. 
C)  the loans of the commercial bank will increase. 
D)  the balance sheet of the commercial bank is thrown off balance. 
A)  the cash reserves of the commercial bank decrease. 
B)  the net worth of the commercial bank increases. 
C)  the loans of the commercial bank will increase. 
D)  the balance sheet of the commercial bank is thrown off balance.

Question 19

The ability of an asset to hold its value over time is a(n)

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 20

If the reserve ratio is raised, the money multiplier

Accepted Answer

A)  is lowered. 
B)  is increased. 
C)  stays the same. 
D)  is doubled. 
A)  is lowered. 
B)  is increased. 
C)  stays the same. 
D)  is doubled.

Exam 15: Money, Banking, and Central Banking

Transactions deposits include

The part of the Federal Reserve System (the Fed) that holds the reserve balances of depository institutions is

The Federal Reserve Bank was first established in the U.S. by an Act of Congress passed in

If the money multiplier is 2.4 and the Fed buys $8 million in securities on the open market, transaction deposits could potentially

Depository institutions must

The Federal Reserve will engage in open market operations when

The Board of Governors of the Federal Reserve System is

The existence of money in an economy promotes efficiency by

In a fractional reserve banking system,

Which of the following would NOT be an asset on a bank's balance sheet?

You go to work today, but will get your paycheck at the end of the month. This is an example of money serving as a

-According to the above table, the value of M2 is

Which of the following would be considered the least liquid asset?

In defining money as M1, economists exclude time deposits because

If the FDIC eliminated its insurance program for deposits, then

The direct exchange of goods and services for other goods and services is known as

Who benefits from the process of financial intermediation?

When the Federal Reserve sells a government security to a commercial bank,

The ability of an asset to hold its value over time is a(n)

If the reserve ratio is raised, the money multiplier

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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