Question 1

Money functioning as a medium of exchange results in an increase in transactions costs.

Accepted Answer

A) True 
 B)False

Question 2

If individuals will no longer accept a currency,is it still considered to be money?

Accepted Answer

A)  No, because one of the main characteristics necessary for something to serve as money is that it must be generally acceptable. 
B)  No, because of Gresham's Law. 
C)  Yes, because the government identifies it as legal tender. 
D)  Yes, because one of the main characteristics necessary for something to serve as money is that it must be generally acceptable. 
A)  No, because one of the main characteristics necessary for something to serve as money is that it must be generally acceptable. 
B)  No, because of Gresham's Law. 
C)  Yes, because the government identifies it as legal tender. 
D)  Yes, because one of the main characteristics necessary for something to serve as money is that it must be generally acceptable.

Question 3

Money almost always serves as the standard unit for quoting prices.This is another way of saying money serves as a:

Accepted Answer

A)  medium of exchange. 
B)  store of value. 
C)  standard of value. 
D)  commodity itself. 
A)  medium of exchange. 
B)  store of value. 
C)  standard of value. 
D)  commodity itself.

Question 4

Suppose you found $1,000 hidden in your mattress and deposited it in a demand deposit account at your bank.If the reserve requirement was 20 percent,the deposit would directly create ____ in excess reserves and ultimately lead to a ____ total increase in the money supply,if all banks in the system lend out 100 percent of their excess reserves.

Accepted Answer

A)  $800; $4,000 
B)  $800; $5,000 
C)  $1,000; $4,000 
D)  $1,000; $5,000 
A)  $800; $4,000 
B)  $800; $5,000 
C)  $1,000; $4,000 
D)  $1,000; $5,000

Question 5

Which of the following is the best definition of money?

Accepted Answer

A)  anything generally accepted as a payment for goods or repayment of debt 
B)  anything that is a liability of the federal government 
C)  anything that is a liability of a commercial bank 
D)  coins and currency in the hands of the public 
A)  anything generally accepted as a payment for goods or repayment of debt 
B)  anything that is a liability of the federal government 
C)  anything that is a liability of a commercial bank 
D)  coins and currency in the hands of the public

Question 6

Banks are considered a safer place to deposit money now than they were prior to 1933 because:

Accepted Answer

A)  gold reserves have increased. 
B)  reserve requirements are higher. 
C)  they are more closely regulated. 
D)  the FDIC was created. 
A)  gold reserves have increased. 
B)  reserve requirements are higher. 
C)  they are more closely regulated. 
D)  the FDIC was created.

Question 7

When is a particular bank in a position to make new loans?

Accepted Answer

A)  When required reserves equal actual reserves. 
B)  When required reserves exceed actual reserves. 
C)  When required reserves are less than actual reserves. 
D)  all of the above 
A)  When required reserves equal actual reserves. 
B)  When required reserves exceed actual reserves. 
C)  When required reserves are less than actual reserves. 
D)  all of the above

Question 8

If a bank had demand deposits of $80 million and it faced a 25 percent required reserve ratio,it would be required to have how many reserves?

Accepted Answer

A)  $20 million 
B)  $40 million 
C)  $60 million 
D)  $80 million 
A)  $20 million 
B)  $40 million 
C)  $60 million 
D)  $80 million

Question 9

If a bank had the reserve requirement of 10 percent and excess reserves of $2,000,the largest loan it could legally extend would be:

Accepted Answer

A)  $200. 
B)  $1,800. 
C)  $2,000. 
D)  $20,000. 
A)  $200. 
B)  $1,800. 
C)  $2,000. 
D)  $20,000.

Question 10

A decrease 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 11

Which of the following combinations would have an indeterminate effect on the size of the money supply?

Accepted Answer

A)  an increase in the percentage of money people want to hold as currency and a decrease in the fraction of deposits banks want to hold as excess reserves 
B)  an increase in the percentage of money people want to hold as currency and an increase in the fraction of deposits banks want to hold as excess reserves 
C)  a decrease in the percentage of money people want to hold as currency and a decrease in the fraction of deposits banks want to hold as excess reserves 
D)  none of the above 
A)  an increase in the percentage of money people want to hold as currency and a decrease in the fraction of deposits banks want to hold as excess reserves 
B)  an increase in the percentage of money people want to hold as currency and an increase in the fraction of deposits banks want to hold as excess reserves 
C)  a decrease in the percentage of money people want to hold as currency and a decrease in the fraction of deposits banks want to hold as excess reserves 
D)  none of the above

Question 12

New loans create money directly,but they also create excess reserves in other banks,which leads to still further increases in both loans and the supply of money.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following changes would clearly increase the supply of money in the banking system?

Accepted Answer

A)  an increase in the percentage of money people want to hold as currency and a decrease in the fraction of deposits banks want to hold as excess reserves 
B)  an increase in the percentage of money people want to hold as currency and an increase in the fraction of deposits banks want to hold as excess reserves 
C)  a decrease in the percentage of money people want to hold as currency and a decrease in the fraction of deposits banks want to hold as excess reserves 
D)  a decrease in the percentage of money people want to hold as currency and an increase in the fraction of deposits banks want to hold as excess reserves 
A)  an increase in the percentage of money people want to hold as currency and a decrease in the fraction of deposits banks want to hold as excess reserves 
B)  an increase in the percentage of money people want to hold as currency and an increase in the fraction of deposits banks want to hold as excess reserves 
C)  a decrease in the percentage of money people want to hold as currency and a decrease in the fraction of deposits banks want to hold as excess reserves 
D)  a decrease in the percentage of money people want to hold as currency and an increase in the fraction of deposits banks want to hold as excess reserves

Question 14

Which of the following is true?

Accepted Answer

A)  Demand deposits and other checkable deposits have replaced paper and metallic currency as the major source of money used for transactions in the United States. 
B)  Credit cards are not money; they are substitutes for the use of money in exchange. 
C)  Most of the money that we use for day-to-day transactions is not official legal tender. 
D)  all of the above 
A)  Demand deposits and other checkable deposits have replaced paper and metallic currency as the major source of money used for transactions in the United States. 
B)  Credit cards are not money; they are substitutes for the use of money in exchange. 
C)  Most of the money that we use for day-to-day transactions is not official legal tender. 
D)  all of the above

Question 15

Money lowers the transaction cost when:

Accepted Answer

A)  the economy is experiencing rapid inflation. 
B)  its value is stable. 
C)  the rate of inflation is uncertain. 
D)  there is widespread deflation 
A)  the economy is experiencing rapid inflation. 
B)  its value is stable. 
C)  the rate of inflation is uncertain. 
D)  there is widespread deflation

Question 16

Which of the following is true?

Accepted Answer

A)  Actual reserves equal required reserves minus excess reserves. 
B)  The predominant liability of virtually all banks is loans. 
C)  The lower the required reserve ratio, the larger the money multiplier. 
D)  If some banks choose not to lend all of their excess reserves, the total amount of money created by an initial cash deposit will be larger. 
A)  Actual reserves equal required reserves minus excess reserves. 
B)  The predominant liability of virtually all banks is loans. 
C)  The lower the required reserve ratio, the larger the money multiplier. 
D)  If some banks choose not to lend all of their excess reserves, the total amount of money created by an initial cash deposit will be larger.

Question 17

A reserve requirement of 10% implies a money multiplier of 10 and a reserve requirement of 15% implies a money multiplier of 15.

Accepted Answer

A) True 
 B)False

Question 18

If you deposit $500 cash into your account at a commercial bank.If it faces a 10 percent required reserve ratio,as a result of your deposit,the bank will:

Accepted Answer

A)  have $450 of additional excess reserves. 
B)  be capable of lending an additional $5,000. 
C)  be capable of lending an additional $500 
D)  have $50 of additional excess reserves. 
A)  have $450 of additional excess reserves. 
B)  be capable of lending an additional $5,000. 
C)  be capable of lending an additional $500 
D)  have $50 of additional excess reserves.

Question 19

Banks create money when they increase demand deposits through the process of creating loans.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following observations concerning money market mutual funds is not true?

Accepted Answer

A)  They are interest-earning accounts provided by brokers. 
B)  They are considered to be near money. 
C)  Depositors are allowed to write checks against their accounts. 
D)  These funds are invested in long-term securities. 
A)  They are interest-earning accounts provided by brokers. 
B)  They are considered to be near money. 
C)  Depositors are allowed to write checks against their accounts. 
D)  These funds are invested in long-term securities.

Exam 25: Monetary Institutions

Money functioning as a medium of exchange results in an increase in transactions costs.

If individuals will no longer accept a currency,is it still considered to be money?

Money almost always serves as the standard unit for quoting prices.This is another way of saying money serves as a:

Which of the following is the best definition of money?

Banks are considered a safer place to deposit money now than they were prior to 1933 because:

When is a particular bank in a position to make new loans?

If a bank had demand deposits of $80 million and it faced a 25 percent required reserve ratio,it would be required to have how many reserves?

If a bank had the reserve requirement of 10 percent and excess reserves of $2,000,the largest loan it could legally extend would be:

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

Which of the following combinations would have an indeterminate effect on the size of the money supply?

New loans create money directly,but they also create excess reserves in other banks,which leads to still further increases in both loans and the supply of money.

Which of the following changes would clearly increase the supply of money in the banking system?

Which of the following is true?

Money lowers the transaction cost when:

Which of the following is true?

A reserve requirement of 10% implies a money multiplier of 10 and a reserve requirement of 15% implies a money multiplier of 15.

If you deposit $500 cash into your account at a commercial bank.If it faces a 10 percent required reserve ratio,as a result of your deposit,the bank will:

Banks create money when they increase demand deposits through the process of creating loans.

Which of the following observations concerning money market mutual funds is not true?

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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