Question 1

One reason why gold and silver coins have historically served as money is that:

Accepted Answer

A)  they are easily portable. 
B)  they can be made of uniform size and quality. 
C)  they can be divided if necessary for low prices. 
D)  all of the above are correct. 
A)  they are easily portable. 
B)  they can be made of uniform size and quality. 
C)  they can be divided if necessary for low prices. 
D)  all of the above are correct.

Question 2

If the government requires banks to keep 100 percent of their deposits on reserve,a $1,000 deposit in a checking account would lead to a $100,000 increase in the money supply.

Accepted Answer

A) True 
 B)False

Question 3

The idea behind money as a standard of value is that use of money allows:

Accepted Answer

A)  greater efficiency in exchange. 
B)  receipt of income to be separated from spending. 
C)  persons to hold spending power for some period of time. 
D)  prices quoted in money terms. 
A)  greater efficiency in exchange. 
B)  receipt of income to be separated from spending. 
C)  persons to hold spending power for some period of time. 
D)  prices quoted in money terms.

Question 4

If a bank receiving a new deposit of $200,000 would be able,as a result,to increase their lending by at most $120,000,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 5

Suppose all banks are subject to a uniform reserve requirement of 20 percent and that the Gamblers Last Chance Bank of Las Vegas has zero excess reserves.If a new customer deposits $10,000,the bank can now extend new loans up to a maximum of:

Accepted Answer

A)  $2,000. 
B)  $8,000. 
C)  $10,000. 
D)  $50,000. 
A)  $2,000. 
B)  $8,000. 
C)  $10,000. 
D)  $50,000.

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 20 percent,what is the level of the bank's excess reserves? How much money could the excess reserves be used to create in the banking system as a result?

Accepted Answer

A)  $600,000; $600,000 
B)  $600,000; $3,000,000 
C)  $400,000; $400,000 
D)  $400,000; $2,000,000 
A)  $600,000; $600,000 
B)  $600,000; $3,000,000 
C)  $400,000; $400,000 
D)  $400,000; $2,000,000

Question 7

U.S.government bonds held by commercial banks are:

Accepted Answer

A)  government assets and commercial bank assets. 
B)  government assets and commercial bank liabilities. 
C)  government liabilities and commercial bank assets. 
D)  government liabilities and commercial bank liabilities. 
A)  government assets and commercial bank assets. 
B)  government assets and commercial bank liabilities. 
C)  government liabilities and commercial bank assets. 
D)  government liabilities and commercial bank liabilities.

Question 8

Assume the reserve requirement is 10 percent.First National Bank has vault cash and deposits with the Fed of $40 million,loans and securities of $360 million,and demand deposits of $400 million.First National:

Accepted Answer

A)  is not in a position to extend additional loans. 
B)  could extend a maximum of $10 million of additional loans. 
C)  could extend a maximum of $20 million of additional loans. 
D)  could extend a maximum of $40 million of additional loans. 
A)  is not in a position to extend additional loans. 
B)  could extend a maximum of $10 million of additional loans. 
C)  could extend a maximum of $20 million of additional loans. 
D)  could extend a maximum of $40 million of additional loans.

Question 9

Suppose you found $2,000 hidden in your mattress and deposited it in a demand deposit account at your bank.If the reserve requirement was 25 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)  $2,000; $8,000 
B)  $2,000; $6,000 
C)  $1,500; $8,000 
D)  $1,500; $6,000 
A)  $2,000; $8,000 
B)  $2,000; $6,000 
C)  $1,500; $8,000 
D)  $1,500; $6,000

Question 10

Which of the following is true?

Accepted Answer

A)  A majority of U.S. money, whether M1 or M2, is in the form of legal tender. 
B)  If a bank lends out its excess reserves of $90,000, at the time the loan is made, the money supply will increase by $90,000. 
C)  Reserve requirements exist primarily to eliminate bank runs. 
D)  When there are two forms of money available, people prefer to spend the form of money that is more valuable. 
A)  A majority of U.S. money, whether M1 or M2, is in the form of legal tender. 
B)  If a bank lends out its excess reserves of $90,000, at the time the loan is made, the money supply will increase by $90,000. 
C)  Reserve requirements exist primarily to eliminate bank runs. 
D)  When there are two forms of money available, people prefer to spend the form of money that is more valuable.

Question 11

Which of the following did not contribute to the U.S.banking collapse of 1929-1933?

Accepted Answer

A)  The Federal Reserve System and other government agencies did not act quickly or decisively enough. 
B)  Deposit insurance did not exist at that time. 
C)  The banking industry consisted of only a few very large banks. 
D)  The fact that the economy was in a continuous downward spiral during this period undermined depositors' confidence in the solvency of the banks. 
A)  The Federal Reserve System and other government agencies did not act quickly or decisively enough. 
B)  Deposit insurance did not exist at that time. 
C)  The banking industry consisted of only a few very large banks. 
D)  The fact that the economy was in a continuous downward spiral during this period undermined depositors' confidence in the solvency of the banks.

Question 12

When the required reserve ratio is decreased:

Accepted Answer

A)  the excess reserves of member banks are reduced, but the money multiplier is not affected. 
B)  the excess reserves of member banks are reduced, and the money multiplier is increased. 
C)  the excess reserves of member banks are increased, but the money multiplier is not affected. 
D)  the excess reserves of member banks are increased, and the money multiplier is increased. 
A)  the excess reserves of member banks are reduced, but the money multiplier is not affected. 
B)  the excess reserves of member banks are reduced, and the money multiplier is increased. 
C)  the excess reserves of member banks are increased, but the money multiplier is not affected. 
D)  the excess reserves of member banks are increased, and the money multiplier is increased.

Question 13

A bank receives a demand deposit of $2,000.The bank loans out $1,200 of this deposit and increases its excess reserves by $600.What is the required reserve ratio?

Accepted Answer

A)  10% 
B)  30% 
C)  40% 
D)  60% 
A)  10% 
B)  30% 
C)  40% 
D)  60%

Question 14

A bank may hold secondary reserves,such as U.S.government securities because:

Accepted Answer

A)  they pay higher interest rates than deposits at the Fed, and are easily converted into cash assets. 
B)  they pay higher interest rates than deposits at the Fed, even though they are hard to convert assets. 
C)  they pay lower interest rates than deposits at the Fed, but are more easily converted into cash assets. 
D)  they pay lower interest rates than deposits at the Fed, and are hard to convert into cash assets. 
A)  they pay higher interest rates than deposits at the Fed, and are easily converted into cash assets. 
B)  they pay higher interest rates than deposits at the Fed, even though they are hard to convert assets. 
C)  they pay lower interest rates than deposits at the Fed, but are more easily converted into cash assets. 
D)  they pay lower interest rates than deposits at the Fed, and are hard to convert into cash assets.

Question 15

Fractional reserve banking takes its name from the fact that:

Accepted Answer

A)  banks hold only a fraction of their reserves at the bank itself. 
B)  banks keep only a fraction of total deposits on reserve. 
C)  banks reserve only a fraction of their activity for lending. 
D)  all of the above 
A)  banks hold only a fraction of their reserves at the bank itself. 
B)  banks keep only a fraction of total deposits on reserve. 
C)  banks reserve only a fraction of their activity for lending. 
D)  all of the above

Question 16

Which of the following is true?

Accepted Answer

A)  The FDIC sets the reserve requirements for commercial banks. 
B)  The Federal Reserve System guarantees the deposits in almost all banks up to a limit of $1,000,000 per account. 
C)  If a bank should fail, the FDIC guarantees that depositors can get their funds up to a limit of $250,000 per account. 
D)  all of the above 
A)  The FDIC sets the reserve requirements for commercial banks. 
B)  The Federal Reserve System guarantees the deposits in almost all banks up to a limit of $1,000,000 per account. 
C)  If a bank should fail, the FDIC guarantees that depositors can get their funds up to a limit of $250,000 per account. 
D)  all of the above

Question 17

Suppose the XYZ bank has excess reserves of $4,000 and demand deposits of $80,000.If the required reserve ratio is 25 percent,the banks total reserves equal:

Accepted Answer

A)  $16,000. 
B)  $20,000. 
C)  $24,000. 
D)  $84,000. 
A)  $16,000. 
B)  $20,000. 
C)  $24,000. 
D)  $84,000.

Question 18

Other things being equal,if you took money out of your savings deposit account and put it in a demand deposit account:

Accepted Answer

A)  M1 would increase and M2 would increase. 
B)  M1 would increase but M2 would not change. 
C)  M1 would decrease and M2 would decrease. 
D)  M1 would fall but M2 would not change. 
A)  M1 would increase and M2 would increase. 
B)  M1 would increase but M2 would not change. 
C)  M1 would decrease and M2 would decrease. 
D)  M1 would fall but M2 would not change.

Question 19

Reserve requirements exist primarily to prevent bank failures.

Accepted Answer

A) True 
 B)False

Question 20

What is the initial impact on reserves of a $2,000 deposit if the reserve ratio is 10%?

Accepted Answer

A)  $200 in excess reserves and $1,800 in required reserves 
B)  $1,800 in excess reserves and $200 in required reserves 
C)  $2,00 in excess reserves and zero required reserves 
D)  zero excess reserves and $2,000 in required reserves 
A)  $200 in excess reserves and $1,800 in required reserves 
B)  $1,800 in excess reserves and $200 in required reserves 
C)  $2,00 in excess reserves and zero required reserves 
D)  zero excess reserves and $2,000 in required reserves

Exam 25: Monetary Institutions

One reason why gold and silver coins have historically served as money is that:

If the government requires banks to keep 100 percent of their deposits on reserve,a $1,000 deposit in a checking account would lead to a $100,000 increase in the money supply.

The idea behind money as a standard of value is that use of money allows:

If a bank receiving a new deposit of $200,000 would be able,as a result,to increase their lending by at most $120,000,then the required reserve ratio equals:

Suppose all banks are subject to a uniform reserve requirement of 20 percent and that the Gamblers Last Chance Bank of Las Vegas has zero excess reserves.If a new customer deposits $10,000,the bank can now extend new loans up to a maximum of:

U.S.government bonds held by commercial banks are:

Assume the reserve requirement is 10 percent.First National Bank has vault cash and deposits with the Fed of $40 million,loans and securities of $360 million,and demand deposits of $400 million.First National:

Which of the following is true?

Which of the following did not contribute to the U.S.banking collapse of 1929-1933?

When the required reserve ratio is decreased:

A bank receives a demand deposit of $2,000.The bank loans out $1,200 of this deposit and increases its excess reserves by $600.What is the required reserve ratio?

A bank may hold secondary reserves,such as U.S.government securities because:

Fractional reserve banking takes its name from the fact that:

Which of the following is true?

Suppose the XYZ bank has excess reserves of $4,000 and demand deposits of $80,000.If the required reserve ratio is 25 percent,the banks total reserves equal:

Other things being equal,if you took money out of your savings deposit account and put it in a demand deposit account:

Reserve requirements exist primarily to prevent bank failures.

What is the initial impact on reserves of a $2,000 deposit if the reserve ratio is 10%?

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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