Question 1

What was the purpose of the deposit guarantee scheme in Australian and NZ banks?

Accepted Answer

When the Lehman Brothers bank closed in

Question 2

How has the growth in the level of electronic transactions led to a decreased ability for banks to predict the amount of cash they need to have on reserve.

Accepted Answer

With the advent of debit cards, internet

Question 3

Which of the following functions is not one of the functions of money?

Accepted Answer

A)  medium of exchange 
B)  measure of liquidity 
C)  unit of account 
D)  store of value 
A)  medium of exchange 
B)  measure of liquidity 
C)  unit of account 
D)  store of value

Question 4

Money is:

Accepted Answer

A)  equivalent to income 
B)  equivalent to wealth 
C)  an asset used as a medium of exchange 
D)  backed by gold 
A)  equivalent to income 
B)  equivalent to wealth 
C)  an asset used as a medium of exchange 
D)  backed by gold

Question 5

The RBA currently requires banks to have a reserve ratio in order to control money supply to the economy

Accepted Answer

A) True 
 B)False

Question 6

In fractional-reserve banking, a bank keeps only a fraction of its deposit in reserve.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is the most liquid asset?

Accepted Answer

A)  a demand deposit 
B)  a savings account 
C)  a home 
D)  rare coins 
A)  a demand deposit 
B)  a savings account 
C)  a home 
D)  rare coins

Question 8

Under a fractional-reserve banking system, banks:

Accepted Answer

A)  hold only a fraction of their deposits as reserves 
B)  generally lend out a majority of their deposits 
C)  can create money by lending out reserves 
D)  all of the above 
A)  hold only a fraction of their deposits as reserves 
B)  generally lend out a majority of their deposits 
C)  can create money by lending out reserves 
D)  all of the above

Question 9

If $500 is deposited into the First Bank of Oz, then:

Accepted Answer

A)  the bank will be able to create money by $3333 
B)  excess reserves initially increase by $75 
C)  required reserves increase by $75 
D)  total reserves initially increase by $425 
A)  the bank will be able to create money by $3333 
B)  excess reserves initially increase by $75 
C)  required reserves increase by $75 
D)  total reserves initially increase by $425

Question 10

One of the functions of money comes from the use of money to transfer purchasing power to the future. This is called:

Accepted Answer

A)  medium of exchange 
B)  unit of account 
C)  store of value 
D)  measure of liquidity 
A)  medium of exchange 
B)  unit of account 
C)  store of value 
D)  measure of liquidity

Question 11

If $5000 of new reserves are deposited in the banking system, and the reserve ratio is 25%, what is the multiplier? What is the bank reserve, and how much is created?

Accepted Answer

Multiplier = 1/0.25

Question 12

There is a _____:

Accepted Answer

A)  short-run trade-off between prices and interest rates 
B)  long-run trade-off between inflation and unemployment 
C)  short-run trade-off between inflation and unemployment 
D)  short-run trade-off between inflation and the money supply 
A)  short-run trade-off between prices and interest rates 
B)  long-run trade-off between inflation and unemployment 
C)  short-run trade-off between inflation and unemployment 
D)  short-run trade-off between inflation and the money supply

Question 13

If a bank uses $80 of reserves to make a new loan when the reserve ratio is 25 per cent, then:

Accepted Answer

A)  the money supply initially increases by $20 
B)  the money supply initially decreases by $80 
C)  the level of wealth in the economy will not have changed 
D)  the money supply will eventually increase by more than $20 but less than $80 
A)  the money supply initially increases by $20 
B)  the money supply initially decreases by $80 
C)  the level of wealth in the economy will not have changed 
D)  the money supply will eventually increase by more than $20 but less than $80

Question 14

If Banks 'R Us has a reserve ratio of 12.5% and keeps $100 in reserve, then Banks 'R Us's deposits are:

Accepted Answer

A)  $1250 
B)  $12.50 
C)  $800 
D)  $80 
A)  $1250 
B)  $12.50 
C)  $800 
D)  $80

Question 15

Discuss the problems the RBA has controlling the money supply in a system of fractional-reserve banking.

Accepted Answer

The RBA's control over the cash rate has

Question 16

Cigarettes were used as a currency not only in several prisoner-of-war camps during World War II, but also in some countries in Eastern Europe just before the collapse of communism.

Accepted Answer

A) True 
 B)False

Question 17

The purpose of a central bank is to:

Accepted Answer

A)  control the value of money 
B)  regulate the supply of money 
C)  oversee the banking system 
D)  all of the above 
A)  control the value of money 
B)  regulate the supply of money 
C)  oversee the banking system 
D)  all of the above

Question 18

When the Governor of the RBA gives a press conference, his comments are often an indicator of RBA intention. This has been dubbed as 'Open Mouth Operations', enabling the RBA to change retail bank policy without making a cash rate decision. Explain how this can be an effective method of managing the monetary policy? Explain your reasoning.

Accepted Answer

Due to the relationship between the bank

Question 19

Reserve laws were circumvented in the United States, where banks did not highlight loans given 'off-balance-sheet'. This led to liquidity crises that have been called the credit crunch. Explain how crises can be exacerbated when laws demanding a fractional reserve level are flouted.

Accepted Answer

The loans that were not on banks' balanc

Question 20

Which of the following statements about the role of the Reserve Bank of Australia is correct?

Accepted Answer

A)  The RBA ensures the overall stability of the financial system 
B)  The RBA has an obligation to protect the interests of bank depositors 
C)  The RBA supervises individual financial institutions and ensures their stability 
D)  The RBA acts as a lender of last resort 
A)  The RBA ensures the overall stability of the financial system 
B)  The RBA has an obligation to protect the interests of bank depositors 
C)  The RBA supervises individual financial institutions and ensures their stability 
D)  The RBA acts as a lender of last resort

Exam 29: The Monetary System

What was the purpose of the deposit guarantee scheme in Australian and NZ banks?

How has the growth in the level of electronic transactions led to a decreased ability for banks to predict the amount of cash they need to have on reserve.

Which of the following functions is not one of the functions of money?

Money is:

The RBA currently requires banks to have a reserve ratio in order to control money supply to the economy

In fractional-reserve banking, a bank keeps only a fraction of its deposit in reserve.

Which of the following is the most liquid asset?

Under a fractional-reserve banking system, banks:

If $500 is deposited into the First Bank of Oz, then:

One of the functions of money comes from the use of money to transfer purchasing power to the future. This is called:

If $5000 of new reserves are deposited in the banking system, and the reserve ratio is 25%, what is the multiplier? What is the bank reserve, and how much is created?

There is a _____:

If a bank uses $80 of reserves to make a new loan when the reserve ratio is 25 per cent, then:

If Banks 'R Us has a reserve ratio of 12.5% and keeps $100 in reserve, then Banks 'R Us's deposits are:

Discuss the problems the RBA has controlling the money supply in a system of fractional-reserve banking.

Cigarettes were used as a currency not only in several prisoner-of-war camps during World War II, but also in some countries in Eastern Europe just before the collapse of communism.

The purpose of a central bank is to:

Reserve laws were circumvented in the United States, where banks did not highlight loans given 'off-balance-sheet'. This led to liquidity crises that have been called the credit crunch. Explain how crises can be exacerbated when laws demanding a fractional reserve level are flouted.

Which of the following statements about the role of the Reserve Bank of Australia is correct?

Ten Lessons From Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand and Government Policies

Consumers, Producers and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Business Strategy

Competition Policy

Monopolistic Competition

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

Inflation: Its Causes and Costs

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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