Question 1

Which of the following observations is true of nontransaction deposits?

Accepted Answer

A) depositor can use them directly as a means of payment 
B) they do not pay any interest 
C) depositor cannot directly write checks against them 
D) they generally pay lower interest rates than transaction deposits 
A) depositor can use them directly as a means of payment 
B) they do not pay any interest 
C) depositor cannot directly write checks against them 
D) they generally pay lower interest rates than transaction deposits C

Question 2

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 D

Question 3

M2 equals M1 plus:

Accepted Answer

A) federal reserve. 
B) fixed assets. 
C) near moneys. 
D) currency in circulation. 
A) federal reserve. 
B) fixed assets. 
C) near moneys. 
D) currency in circulation. C

Question 4

Deposit insurance and government's willingness to help distressed banks have virtually eliminated the potential for serious bank runs.

Accepted Answer

A) True 
 B)False

Question 5

A commercial bank has $1,000,000 of outstanding demand deposits and actual reserves of $300,000.If the required reserve ratio is 20 percent, what is the maximum amount of new loans the bank can extend?

Accepted Answer

A) zero 
B) $100,000 
C) $300,000 
D) $700,000 
E) $800,000 
A) zero 
B) $100,000 
C) $300,000 
D) $700,000 
E) $800,000

Question 6

Balance Sheet 15-A
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 Balance Sheet 15-A.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 7

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 lend only a fraction of their total reserves to customers. 
D) banks reserve only a fraction of their activity for lending. 
E) banks reserve only a fraction of their cash for teller usage. 
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 lend only a fraction of their total reserves to customers. 
D) banks reserve only a fraction of their activity for lending. 
E) banks reserve only a fraction of their cash for teller usage.

Question 8

The predominant liability item for most banks is:

Accepted Answer

A) deposits. 
B) bonds. 
C) loans. 
D) federal cash reserves. 
A) deposits. 
B) bonds. 
C) loans. 
D) federal cash reserves.

Question 9

Paper money is fiat money because it has been declared by government as a means of exchange.

Accepted Answer

A) True 
 B)False

Question 10

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 transactions. 
C) M2 is nearly four times as large as 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 transactions. 
C) M2 is nearly four times as large as M1. 
D) None of the above.

Question 11

If a bank has $1 million in demand deposits, $400,000 in reserves, and faces a 30 percent reserve requirement, the amount of money that a bank could directly create by loaning out their excess reserves is:

Accepted Answer

A) $600,000. 
B) $400,000. 
C) $300,000. 
D) $100,000. 
A) $600,000. 
B) $400,000. 
C) $300,000. 
D) $100,000.

Question 12

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 13

Which of the following changes would clearly decrease 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 guarantees the deposits in almost all banks up to a limit of $100,000 (extended to $250,000 through 2103) per account?

Accepted Answer

A) the Federal Reserve 
B) the FDIC 
C) the U.S. Treasury 
D) Bank of America Corporation 
A) the Federal Reserve 
B) the FDIC 
C) the U.S. Treasury 
D) Bank of America Corporation

Question 15

The largest asset item for most banks is:

Accepted Answer

A) cash. 
B) bonds. 
C) loans. 
D) federal cash reserves. 
A) cash. 
B) bonds. 
C) loans. 
D) federal cash reserves.

Question 16

A decrease in currency in circulation combined with an equal increase in savings account deposits would:

Accepted Answer

A) increase both M1 and M2. 
B) increase M1 but have no effect on M2. 
C) decrease both M1 and M2. 
D) decrease M1 but have no effect on M2. 
A) increase both M1 and M2. 
B) increase M1 but have no effect on M2. 
C) decrease both M1 and M2. 
D) decrease M1 but have no effect on M2.

Question 17

If the reserve requirement is 15 percent and a customer makes a new cash deposit of $50,000, how much new excess reserves are created?

Accepted Answer

A) $7,500 
B) roughly $33,000 
C) $67,500 
D) $42,500 
E) $50,000 
A) $7,500 
B) roughly $33,000 
C) $67,500 
D) $42,500 
E) $50,000

Question 18

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 19

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. 
E) All of the above are correct. 
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. 
E) All of the above are correct.

Question 20

An increase in currency in circulation would ____ M1 and ____ M2.

Accepted Answer

A) increase; increase. 
B) not change; increase. 
C) decrease; decrease. 
D) not change; decrease. 
E) not change; not change. 
A) increase; increase. 
B) not change; increase. 
C) decrease; decrease. 
D) not change; decrease. 
E) not change; not change.

Which of the following observations is true of nontransaction deposits?

M2 equals M1 plus:

Deposit insurance and government's willingness to help distressed banks have virtually eliminated the potential for serious bank runs.

A commercial bank has $1,000,000 of outstanding demand deposits and actual reserves of $300,000.If the required reserve ratio is 20 percent, what is the maximum amount of new loans the bank can extend?

Fractional reserve banking takes its name from the fact that:

The predominant liability item for most banks is:

Paper money is fiat money because it has been declared by government as a means of exchange.

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

If a bank has $1 million in demand deposits, $400,000 in reserves, and faces a 30 percent reserve requirement, the amount of money that a bank could directly create by loaning out their excess reserves is:

Which of the following is true?

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

Which of the following guarantees the deposits in almost all banks up to a limit of $100,000 (extended to $250,000 through 2103) per account?

The largest asset item for most banks is:

A decrease in currency in circulation combined with an equal increase in savings account deposits would:

If the reserve requirement is 15 percent and a customer makes a new cash deposit of $50,000, how much new excess reserves are created?

Checkable deposits are:

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

An increase in currency in circulation would M1 and M2.

The Role and Method of Economics

The Economic Way of Thinking

Supply and Demand

Using Supply and Demand

Market Failure and Public Choice

Production and Costs

Firms in Competitive Markets

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets, Income Distribution, and Poverty

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Economic Growth

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Economics

Filters

Exam 15: Monetary Institutions

Which of the following observations is true of nontransaction deposits?

M2 equals M1 plus:

Deposit insurance and government's willingness to help distressed banks have virtually eliminated the potential for serious bank runs.

A commercial bank has $1,000,000 of outstanding demand deposits and actual reserves of $300,000.If the required reserve ratio is 20 percent, what is the maximum amount of new loans the bank can extend?

Fractional reserve banking takes its name from the fact that:

The predominant liability item for most banks is:

Paper money is fiat money because it has been declared by government as a means of exchange.

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

If a bank has $1 million in demand deposits, $400,000 in reserves, and faces a 30 percent reserve requirement, the amount of money that a bank could directly create by loaning out their excess reserves is:

Which of the following is true?

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

Which of the following guarantees the deposits in almost all banks up to a limit of $100,000 (extended to $250,000 through 2103) per account?

The largest asset item for most banks is:

A decrease in currency in circulation combined with an equal increase in savings account deposits would:

If the reserve requirement is 15 percent and a customer makes a new cash deposit of $50,000, how much new excess reserves are created?

Checkable deposits are:

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

An increase in currency in circulation would ____ M1 and ____ M2.

The Role and Method of Economics

The Economic Way of Thinking

Supply and Demand

Using Supply and Demand

Market Failure and Public Choice

Production and Costs

Firms in Competitive Markets

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets, Income Distribution, and Poverty

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Economic Growth

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Economics

Filters

An increase in currency in circulation would M1 and M2.