Question 1

How could the rumor of a bank failure actually turn into a bank failing? Is the bank really without assets?

Accepted Answer

Individuals who heard a rumor that their

Question 2

"Near monies" are:

Accepted Answer

A)  included in the M1 definition of the money supply. 
B)  highly liquid assets that are close substitutes for money. 
C)  stocks, bonds, and real estate. 
D)  U.S. notes and Federal Reserve notes. 
A)  included in the M1 definition of the money supply. 
B)  highly liquid assets that are close substitutes for money. 
C)  stocks, bonds, and real estate. 
D)  U.S. notes and Federal Reserve notes.

Question 3

Suppose you found $3,000 hidden in your closet and deposited it in a demand deposit account at your bank.If the reserve requirement was 40 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)  $1,800; $7,500 
B)  $1,800; $5,400 
C)  $3,000; $7,500 
D)  $3,000; $3,000 
A)  $1,800; $7,500 
B)  $1,800; $5,400 
C)  $3,000; $7,500 
D)  $3,000; $3,000

Question 4

Exhibit 25-1 A bank's assets consist of $500,000 in total reserves,$1,600,000 in loans,and a building worth $1,200,000.Its liabilities and capital consist of $2,000,000 in demand deposits and $1,300,000 in capital.
Refer to Exhibit 25-1.If the required reserve ratio is 10 percent,what is the level of the bank's excess reserves? How much could it loan out as a result?

Accepted Answer

A)  $200,000; $200,000 
B)  $200,000; $2,000,000 
C)  $300,000; $300,000 
D)  $300,000; $3,000,000 
A)  $200,000; $200,000 
B)  $200,000; $2,000,000 
C)  $300,000; $300,000 
D)  $300,000; $3,000,000

Question 5

Which of the following backs our money supply?

Accepted Answer

A)  The words "This note is legal tender." 
B)  The faith in the government 
C)  The faith that people will take it in exchange for goods and services 
D)  Precious metals 
A)  The words "This note is legal tender." 
B)  The faith in the government 
C)  The faith that people will take it in exchange for goods and services 
D)  Precious metals

Question 6

Exhibit 25-2 A bank's assets consist of $1,000,000 in total reserves,$2,100,000 in loans,and a building worth $1,200,000.Its liabilities and capital consist of $3,000,000 in demand deposits and $1,300,000 in capital.
Refer to Exhibit 25-2.If the required reserve ratio is 10 percent,what is the level of the bank's excess reserves? How much could it loan out as a result?

Accepted Answer

A)  $700,000; $700,000 
B)  $700,000; $7,000,000 
C)  $300,000; $300,000 
D)  $300,000; $3,000,000 
A)  $700,000; $700,000 
B)  $700,000; $7,000,000 
C)  $300,000; $300,000 
D)  $300,000; $3,000,000

Question 7

Credit cards should be included in M1 because they are just like checks.

Accepted Answer

A) True 
 B)False

Question 8

When the U.S.banking system collapsed during 1929-1933,the money supply declined dramatically.

Accepted Answer

A) True 
 B)False

Question 9

An important effect of fractional reserve banking is that:

Accepted Answer

A)  bankers' choices about how much to lend can affect the money supply. 
B)  the commercial banking system has complete control over total reserves. 
C)  bankers always turn every dollar of excess reserves into loans. 
D)  a new bank deposit allows a bank to extend loans of the same amount to borrowers. 
A)  bankers' choices about how much to lend can affect the money supply. 
B)  the commercial banking system has complete control over total reserves. 
C)  bankers always turn every dollar of excess reserves into loans. 
D)  a new bank deposit allows a bank to extend loans of the same amount to borrowers.

Question 10

The money supply would tend to fall 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

If banks faced a 100 percent reserve requirement,the money multiplier would be:

Accepted Answer

A)  0.1. 
B)  1.0. 
C)  10. 
D)  100. 
A)  0.1. 
B)  1.0. 
C)  10. 
D)  100.

Question 12

Which of the following is false?

Accepted Answer

A)  The Fed controls the supply of money, even though privately owned commercial banks actually create and destroy money by making loans. 
B)  With a 10% required reserve ratio, a $10,000 cash deposit in a bank would result in an increase in the bank's excess reserves by $1000. 
C)  With a 10% required reserve ratio, a $1,000 bond purchase by the Fed directly creates $1,000 in money in the form of bank deposits, and indirectly permits up to $9,000 in additional money to be created through the multiple expansion in bank deposits. 
D)  When the Fed sells government bonds, it will tend to cause a multiple contraction of bank deposits. 
A)  The Fed controls the supply of money, even though privately owned commercial banks actually create and destroy money by making loans. 
B)  With a 10% required reserve ratio, a $10,000 cash deposit in a bank would result in an increase in the bank's excess reserves by $1000. 
C)  With a 10% required reserve ratio, a $1,000 bond purchase by the Fed directly creates $1,000 in money in the form of bank deposits, and indirectly permits up to $9,000 in additional money to be created through the multiple expansion in bank deposits. 
D)  When the Fed sells government bonds, it will tend to cause a multiple contraction of bank deposits.

Question 13

If the required reserve ratio was increased,then:

Accepted Answer

A)  the money supply would tend to decrease, but the outstanding loans of banks would tend to increase. 
B)  both the money supply and the outstanding loans of banks would tend to decrease. 
C)  the money supply would tend to increase, but the outstanding loans of banks would tend to decrease. 
D)  both the money supply and the outstanding loans of banks would tend to increase. 
A)  the money supply would tend to decrease, but the outstanding loans of banks would tend to increase. 
B)  both the money supply and the outstanding loans of banks would tend to decrease. 
C)  the money supply would tend to increase, but the outstanding loans of banks would tend to decrease. 
D)  both the money supply and the outstanding loans of banks would tend to increase.

Question 14

Suppose you found $5,000 hidden in your closet and deposited it in a demand deposit account at your bank.If the reserve requirement was 10 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)  $500; $5,000 
B)  $4,500; $5,000 
C)  $4,500; $45,000 
D)  $4,500; $50,000 
A)  $500; $5,000 
B)  $4,500; $5,000 
C)  $4,500; $45,000 
D)  $4,500; $50,000

Question 15

Which of the following is true?

Accepted Answer

A)  Checking account deposits and time deposits constitute assets of banks. 
B)  M2 includes M1, plus saving accounts, time deposits (except for some large-denomination certificates of deposits), and money market mutual funds. 
C)  reserves times the required reserve ratio equals deposits. 
D)  Money is destroyed when banks make loans. 
A)  Checking account deposits and time deposits constitute assets of banks. 
B)  M2 includes M1, plus saving accounts, time deposits (except for some large-denomination certificates of deposits), and money market mutual funds. 
C)  reserves times the required reserve ratio equals deposits. 
D)  Money is destroyed when banks make loans.

Question 16

People continue to value money because they have confidence in its convertibility into goods and services.

Accepted Answer

A) True 
 B)False

Question 17

Say the required reserve ratio is 20 percent.If you pay back a loan of $10,000 a bank had previously made to you,the act of paying back the loan:

Accepted Answer

A)  adds $2,000 in bank reserves. 
B)  adds $10,000 in bank reserves. 
C)  eliminates $2,000 in bank reserves. 
D)  eliminates $10,000 in bank reserves. 
A)  adds $2,000 in bank reserves. 
B)  adds $10,000 in bank reserves. 
C)  eliminates $2,000 in bank reserves. 
D)  eliminates $10,000 in bank reserves.

Question 18

The difference between M1 and M2 is significant.Which of the following best describes the difference?

Accepted Answer

A)  M1 is nearly three times as large as M2. 
B)  M2 is made up mostly of demand and checkable deposits. 
C)  M2 is substantially larger than M1. 
D)  None of the above. 
A)  M1 is nearly three times as large as M2. 
B)  M2 is made up mostly of demand and checkable deposits. 
C)  M2 is substantially larger than M1. 
D)  None of the above.

Question 19

Money is a more efficient store of value than wheat,especially when there is not rapid inflation.

Accepted Answer

A) True 
 B)False

Question 20

With the invention of banking,one important aspect of money was that:

Accepted Answer

A)  individuals have no discretion over the money supply. 
B)  government lost all control over the money supply. 
C)  banks have some discretion over the money supply. 
D)  banks have full control over the money supply. 
A)  individuals have no discretion over the money supply. 
B)  government lost all control over the money supply. 
C)  banks have some discretion over the money supply. 
D)  banks have full control over the money supply.

Exam 25: Monetary Institutions

How could the rumor of a bank failure actually turn into a bank failing? Is the bank really without assets?

"Near monies" are:

Which of the following backs our money supply?

Credit cards should be included in M1 because they are just like checks.

When the U.S.banking system collapsed during 1929-1933,the money supply declined dramatically.

An important effect of fractional reserve banking is that:

The money supply would tend to fall if:

If banks faced a 100 percent reserve requirement,the money multiplier would be:

Which of the following is false?

If the required reserve ratio was increased,then:

Which of the following is true?

People continue to value money because they have confidence in its convertibility into goods and services.

Say the required reserve ratio is 20 percent.If you pay back a loan of $10,000 a bank had previously made to you,the act of paying back the loan:

The difference between M1 and M2 is significant.Which of the following best describes the difference?

Money is a more efficient store of value than wheat,especially when there is not rapid inflation.

With the invention of banking,one important aspect of money was that:

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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