Question 1

What is a fractional reserve system?

Accepted Answer

In order for banks to continue to do business in an orderly fashion and for depositors to have access to their deposits,the banks are required by law to keep cash on hand and reserves at the Federal Reserve in proportion to their checkable deposits.Banks must keep adequate cash reserves on hand to meet the needs of customers who wish to convert their checkable deposits into currency or spend them on goods or services.

Question 2

From a new deposit in a checking account potential money creation is:

Accepted Answer

A)  excess reserves times money multiplier. 
B)  initial deposit times money multiplier. 
C)  actual reserves times required reserve ratio. 
D)  required reserves times money multiplier. 
A)  excess reserves times money multiplier. 
B)  initial deposit times money multiplier. 
C)  actual reserves times required reserve ratio. 
D)  required reserves times money multiplier. B

Question 3

A gold standard is:

Accepted Answer

A)  a measurement of the importance of a good; it indicates high quality. 
B)  the basis for monetary exchange internationally. 
C)  an internationally recognized means for defining currency exchange rates. 
D)  a system where currency (e.g., the dollar) was defined as equivalent in value to a certain amount of gold. 
A)  a measurement of the importance of a good; it indicates high quality. 
B)  the basis for monetary exchange internationally. 
C)  an internationally recognized means for defining currency exchange rates. 
D)  a system where currency (e.g., the dollar) was defined as equivalent in value to a certain amount of gold. D

Question 4

Which of the following is an example of money serving as a medium of exchange?

Accepted Answer

A)  John buys a cup of coffee and a roll at the faculty dining room. 
B)  Steve puts a five-dollar bill in his money belt. 
C)  Scott deposits cash into a savings account. 
D)  Roland puts his coins into a piggy bank. 
A)  John buys a cup of coffee and a roll at the faculty dining room. 
B)  Steve puts a five-dollar bill in his money belt. 
C)  Scott deposits cash into a savings account. 
D)  Roland puts his coins into a piggy bank.

Question 5

If a bank had demand deposits of $50 million and it faced a 25 percent required reserve ratio,it would be able to have a maximum amount of how many dollars worth of loans?

Accepted Answer

A)  $50 million 
B)  $37.5 million 
C)  $25 million 
D)  $12.5 million 
A)  $50 million 
B)  $37.5 million 
C)  $25 million 
D)  $12.5 million

Question 6

What is fiat money? Why is fiat money important in the United States today?

Accepted Answer

Fiat (from the Latin for "let it be done

Question 7

Suppose you found $10,000 hidden under a rock and deposited it in a demand deposit account at your bank.If the reserve requirement was 20 percent,your deposit would initially add ____ to total demand deposits and over time increase the money supply by a maximum of ____.

Accepted Answer

A)  $2,000; $4,000 
B)  $2,000; $40,000 
C)  $10,000; $40,000 
D)  $10,000; $50,000 
A)  $2,000; $4,000 
B)  $2,000; $40,000 
C)  $10,000; $40,000 
D)  $10,000; $50,000

Question 8

Explain Gresham's Law.

Accepted Answer

When there are two forms of money availa

Question 9

What are the inherent disadvantages of a barter system?

Accepted Answer

In a barter system,the buyer may not hav

Question 10

The money supply would tend to rise if:

Accepted Answer

A)  banks decide to keep more excess reserves and people convert more of their demand deposits to currency. 
B)  banks decide to keep more excess reserves and people deposit currency in their demand deposit accounts. 
C)  banks decide to keep fewer excess reserves and people deposit currency in their demand deposit accounts. 
D)  banks decide to keep fewer excess reserves and people convert more of their demand deposits to currency. 
A)  banks decide to keep more excess reserves and people convert more of their demand deposits to currency. 
B)  banks decide to keep more excess reserves and people deposit currency in their demand deposit accounts. 
C)  banks decide to keep fewer excess reserves and people deposit currency in their demand deposit accounts. 
D)  banks decide to keep fewer excess reserves and people convert more of their demand deposits to currency.

Question 11

Checkable deposits are:

Accepted Answer

A)  included in both M1 and M2. 
B)  included in M1 but not M2. 
C)  included in M2 but not M1. 
D)  not included in either M1 or M2. 
A)  included in both M1 and M2. 
B)  included in M1 but not M2. 
C)  included in M2 but not M1. 
D)  not included in either M1 or M2.

Question 12

If the reserve requirement was 5% and a bank customer makes a deposit of $1,000,the initial result would be:

Accepted Answer

A)  a $950 increase in required reserves and a $50 increase in excess reserves. 
B)  a $20,000 increase in required reserves and a $950 increase in excess reserves. 
C)  a $50 increase in required reserves and a $20,000 increase in excess reserves. 
D)  none of the above 
A)  a $950 increase in required reserves and a $50 increase in excess reserves. 
B)  a $20,000 increase in required reserves and a $950 increase in excess reserves. 
C)  a $50 increase in required reserves and a $20,000 increase in excess reserves. 
D)  none of the above

Question 13

An increase in the excess reserves banks want to hold,together with people taking currency out of their demand deposit accounts,would:

Accepted Answer

A)  increase the money supply. 
B)  decrease the money supply. 
C)  leave the money supply unchanged. 
D)  have an indeterminate effect on the money supply. 
A)  increase the money supply. 
B)  decrease the money supply. 
C)  leave the money supply unchanged. 
D)  have an indeterminate effect on the money supply.

Question 14

A bank's actual reserves can be calculated by:

Accepted Answer

A)  multiplying its demand deposits by the required reserve ratio. 
B)  multiplying its excess reserves by the required reserve ratio. 
C)  subtracting its required reserves from its excess reserves. 
D)  adding its required reserves and its excess reserves. 
A)  multiplying its demand deposits by the required reserve ratio. 
B)  multiplying its excess reserves by the required reserve ratio. 
C)  subtracting its required reserves from its excess reserves. 
D)  adding its required reserves and its excess reserves.

Question 15

If a bank receiving a new deposit of $200,000 would be able,as a result,to increase their lending by at most $150,000,then the required reserve ratio equals:

Accepted Answer

A)  4%. 
B)  25%. 
C)  40%. 
D)  50%. 
A)  4%. 
B)  25%. 
C)  40%. 
D)  50%.

Question 16

If you go into a bank which faces a 10% required reserve ratio and borrow $1,000,the bank will ____ your checking account at the bank.

Accepted Answer

A)  add $1,000 to 
B)  subtract $1,000 from 
C)  add $5,000 to 
D)  subtract $5,000 from 
A)  add $1,000 to 
B)  subtract $1,000 from 
C)  add $5,000 to 
D)  subtract $5,000 from

Question 17

If the required reserve ratio was 25 percent,a bank that received currency deposits of $16,000:

Accepted Answer

A)  could now issue $64,000 of new loans. 
B)  could now issue $16,000 of new loans. 
C)  could now issue $12,000 of new loans. 
D)  could now issue $4,000 of new loans. 
A)  could now issue $64,000 of new loans. 
B)  could now issue $16,000 of new loans. 
C)  could now issue $12,000 of new loans. 
D)  could now issue $4,000 of new loans.

Question 18

If the reserve requirement was 15% and a bank customer makes a deposit of $500,the initial result would be:

Accepted Answer

A)  a $75 increase in required reserves and a $425 increase in excess reserves. 
B)  a $425 increase in required reserves and a $75 increase in excess reserves. 
C)  a $75 increase in required reserves and a $3,333 increase in excess reserves. 
D)  a $3,333 increase in required reserves and a $425 increase in excess reserves. 
A)  a $75 increase in required reserves and a $425 increase in excess reserves. 
B)  a $425 increase in required reserves and a $75 increase in excess reserves. 
C)  a $75 increase in required reserves and a $3,333 increase in excess reserves. 
D)  a $3,333 increase in required reserves and a $425 increase in excess reserves.

Question 19

If banks faced a 100 percent reserve requirement,a decrease in banking reserves of $4 million would:

Accepted Answer

A)  increase the money supply by $4 million. 
B)  increase the money supply by $400 million. 
C)  decrease the money supply by $4 million. 
D)  decrease the money supply by $400 million. 
A)  increase the money supply by $4 million. 
B)  increase the money supply by $400 million. 
C)  decrease the money supply by $4 million. 
D)  decrease the money supply by $400 million.

Question 20

A change in the required reserve ratio changes:

Accepted Answer

A)  the amount of actual reserves in the banking system. 
B)  the amount of excess reserves in the banking system. 
C)  the value of government securities held by the Fed. 
D)  the level of insurance for banks who are members of the FDIC. 
A)  the amount of actual reserves in the banking system. 
B)  the amount of excess reserves in the banking system. 
C)  the value of government securities held by the Fed. 
D)  the level of insurance for banks who are members of the FDIC.

Exam 25: Monetary Institutions

What is a fractional reserve system?

From a new deposit in a checking account potential money creation is:

A gold standard is:

Which of the following is an example of money serving as a medium of exchange?

If a bank had demand deposits of $50 million and it faced a 25 percent required reserve ratio,it would be able to have a maximum amount of how many dollars worth of loans?

What is fiat money? Why is fiat money important in the United States today?

Suppose you found $10,000 hidden under a rock and deposited it in a demand deposit account at your bank.If the reserve requirement was 20 percent,your deposit would initially add ____ to total demand deposits and over time increase the money supply by a maximum of ____.

Explain Gresham's Law.

What are the inherent disadvantages of a barter system?

The money supply would tend to rise if:

Checkable deposits are:

If the reserve requirement was 5% and a bank customer makes a deposit of $1,000,the initial result would be:

An increase in the excess reserves banks want to hold,together with people taking currency out of their demand deposit accounts,would:

A bank's actual reserves can be calculated by:

If a bank receiving a new deposit of $200,000 would be able,as a result,to increase their lending by at most $150,000,then the required reserve ratio equals:

If you go into a bank which faces a 10% required reserve ratio and borrow $1,000,the bank will ____ your checking account at the bank.

If the required reserve ratio was 25 percent,a bank that received currency deposits of $16,000:

If the reserve requirement was 15% and a bank customer makes a deposit of $500,the initial result would be:

If banks faced a 100 percent reserve requirement,a decrease in banking reserves of $4 million would:

A change in the required reserve ratio changes:

The Role and Method of Economics

Economics: Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Markets in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty, and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Aggregate Demand and Aggregate Supply

The Aggregate Expenditure Model

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Trade

International Finance

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Suppose you found $10,000 hidden under a rock and deposited it in a demand deposit account at your bank.If the reserve requirement was 20 percent,your deposit would initially add to total demand deposits and over time increase the money supply by a maximum of .