Question 1

When the Federal Reserve System was established,

Accepted Answer

A) all banks were required to become members 
B) only federally chartered banks were allowed to join 
C) only federally chartered banks were required to join 
D) most banks joined even though none were required to join 
E) membership was required for all banks in some states,but not in others 
A) all banks were required to become members 
B) only federally chartered banks were allowed to join 
C) only federally chartered banks were required to join 
D) most banks joined even though none were required to join 
E) membership was required for all banks in some states,but not in others

Question 2

To say that money serves as a store of value is to say that money is a useful way to store wealth for future use.

Accepted Answer

A) True 
 B)False

Question 3

A country that has experienced hyperinflation is

Accepted Answer

A) Brazil 
B) Russia 
C) Venezuela 
D) Zimbabwe 
E) All of the answers are correct 
A) Brazil 
B) Russia 
C) Venezuela 
D) Zimbabwe 
E) All of the answers are correct

Question 4

The discount rate is

Accepted Answer

A) the interest rate charged by the Federal Reserve banks on loans to banking institutions 
B) the interest rate banks charge each other for loans 
C) the rate banks charge their best business customers 
D) the rate of discount that banks use to determine the true mortgage rate 
E) the fraction of deposits that banks hold as reserves 
A) the interest rate charged by the Federal Reserve banks on loans to banking institutions 
B) the interest rate banks charge each other for loans 
C) the rate banks charge their best business customers 
D) the rate of discount that banks use to determine the true mortgage rate 
E) the fraction of deposits that banks hold as reserves

Question 5

Gresham's Law states that people

Accepted Answer

A) sell goods for money but prefer to buy goods with other goods 
B) buy and sell goods with money 
C) spend some money and hoard some money 
D) spend lower-quality money and hoard higher-quality money 
E) spend higher-quality money and hoard lower-quality money 
A) sell goods for money but prefer to buy goods with other goods 
B) buy and sell goods with money 
C) spend some money and hoard some money 
D) spend lower-quality money and hoard higher-quality money 
E) spend higher-quality money and hoard lower-quality money

Question 6

Inflation is impossible in a commodity money system.

Accepted Answer

A) True 
 B)False

Question 7

In a barter system,

Accepted Answer

A) trade will only occur if there is a double coincidence of wants 
B) an individual offers money to get a good or service 
C) an individual offers a good or service to get money 
D) different kinds of money are exchanged for each other 
E) individuals are self-sufficient 
A) trade will only occur if there is a double coincidence of wants 
B) an individual offers money to get a good or service 
C) an individual offers a good or service to get money 
D) different kinds of money are exchanged for each other 
E) individuals are self-sufficient

Question 8

Specialization of labor means that

Accepted Answer

A) production requires a special kind of labor 
B) the overall skill level of labor is increasing 
C) individuals produce goods that they are relatively good at producing and trade for those that they do not produce 
D) individuals achieve self-sufficiency in production 
E) exchange within the economy consists of trading in services 
A) production requires a special kind of labor 
B) the overall skill level of labor is increasing 
C) individuals produce goods that they are relatively good at producing and trade for those that they do not produce 
D) individuals achieve self-sufficiency in production 
E) exchange within the economy consists of trading in services

Question 9

The Federal Reserve System was created

Accepted Answer

A) by the National Banking Act of 1863 
B) initially as a bank for the banking system 
C) with strong central powers and a mandate to control the money supply until it was restructured in the 1930s 
D) initially with 12 districts,which were later restructured into the 15-district system we have today 
E) with the power to regulate all banks 
A) by the National Banking Act of 1863 
B) initially as a bank for the banking system 
C) with strong central powers and a mandate to control the money supply until it was restructured in the 1930s 
D) initially with 12 districts,which were later restructured into the 15-district system we have today 
E) with the power to regulate all banks

Question 10

The currency of Camelot is the noble.King Arthur orders the minting of a ten-noble gold coin,but it costs only seven nobles to mine and process the amount of gold in the coin.Which of the following statements is true?

Accepted Answer

A) Individuals outside the government will have an incentive to melt down the coin and use its contents,rather than its face value,in exchange. 
B) King Arthur has an incentive to melt down the coin and use its contents,rather than its face value,in exchange. 
C) The government loses seigniorage every time it spends new coins. 
D) The government earns seigniorage every time it spends new coins. 
E) The people of Camelot gain seigniorage on every private transaction. 
A) Individuals outside the government will have an incentive to melt down the coin and use its contents,rather than its face value,in exchange. 
B) King Arthur has an incentive to melt down the coin and use its contents,rather than its face value,in exchange. 
C) The government loses seigniorage every time it spends new coins. 
D) The government earns seigniorage every time it spends new coins. 
E) The people of Camelot gain seigniorage on every private transaction.

Question 11

All of the following are reasons that cigarettes came to serve as money in WWII prisoner of war camps except one.Which is the exception?

Accepted Answer

A) cigarettes are of uniform quality 
B) cigaretttes were in limited supply 
C) cigarettes are reasonably durable 
D) cigarettes could not be counterfeited 
E) cigarettes could individually support small transactions and in packs they could support large transactions 
A) cigarettes are of uniform quality 
B) cigaretttes were in limited supply 
C) cigarettes are reasonably durable 
D) cigarettes could not be counterfeited 
E) cigarettes could individually support small transactions and in packs they could support large transactions

Question 12

Between 1930 and 1933,many banks in the U.S.failed because

Accepted Answer

A) the FDIC moved too slowly to prevent the bank failures 
B) most bankers were either corrupt or incompetent 
C) of excessive regulation by the federal government 
D) people shifted their funds to take advantage of rising stock market prices 
E) people lost confidence in them 
A) the FDIC moved too slowly to prevent the bank failures 
B) most bankers were either corrupt or incompetent 
C) of excessive regulation by the federal government 
D) people shifted their funds to take advantage of rising stock market prices 
E) people lost confidence in them

Question 13

In the 1970s,U.S.consumers transferred their deposits from accounts in banks and thrifts to money market mutual funds because money market mutual funds

Accepted Answer

A) were more liquid 
B) were less risky 
C) paid higher interest rates 
D) were guaranteed for a larger amount 
E) were more liquid and paid higher interest rates 
A) were more liquid 
B) were less risky 
C) paid higher interest rates 
D) were guaranteed for a larger amount 
E) were more liquid and paid higher interest rates

Question 14

Prior to the 1970s,bankers were happy with interest-rate ceilings because those ceilings

Accepted Answer

A) eliminated interest-rate competition among banks 
B) guaranteed them high profits 
C) guaranteed them a minimum profit 
D) enabled them to expand into other lines of commerce 
E) allowed them to hold corporate stock 
A) eliminated interest-rate competition among banks 
B) guaranteed them high profits 
C) guaranteed them a minimum profit 
D) enabled them to expand into other lines of commerce 
E) allowed them to hold corporate stock

Question 15

The U.S.has more banks per capita than most other countries primarily because it

Accepted Answer

A) has more people 
B) has a more prosperous economy 
C) had restricted branch banking 
D) continues to prohibit bank holding companies 
E) discourages automatic teller machines (ATMs) 
A) has more people 
B) has a more prosperous economy 
C) had restricted branch banking 
D) continues to prohibit bank holding companies 
E) discourages automatic teller machines (ATMs)

Question 16

The emergence of mortgage-backed securities provided mortgage brokers with an incentive to seek out only the most credit worthy borrowers.

Accepted Answer

A) True 
 B)False

Question 17

When prices rise,

Accepted Answer

A) the purchasing power of money increases 
B) the purchasing power of money decreases 
C) the purchasing power of money remains unchanged 
D) the purchasing power of money either increases or decreases,depending upon the size of the national debt 
E) the purchasing power of money either increases or decreases,depending upon the level of government expenditures 
A) the purchasing power of money increases 
B) the purchasing power of money decreases 
C) the purchasing power of money remains unchanged 
D) the purchasing power of money either increases or decreases,depending upon the size of the national debt 
E) the purchasing power of money either increases or decreases,depending upon the level of government expenditures

Question 18

One characteristic of houses that makes them unsuitable as a medium of exchange is that they are not easily divisible.

Accepted Answer

A) True 
 B)False

Question 19

Paper money is a good example of commodity money.

Accepted Answer

A) True 
 B)False

Question 20

Under a fractional reserve banking system,banks may lend out a multiple of their reserves.

Accepted Answer

A) True 
 B)False

Exam 14: Money and the Financial System

When the Federal Reserve System was established,

To say that money serves as a store of value is to say that money is a useful way to store wealth for future use.

A country that has experienced hyperinflation is

The discount rate is

Gresham's Law states that people

Inflation is impossible in a commodity money system.

In a barter system,

Specialization of labor means that

The Federal Reserve System was created

The currency of Camelot is the noble.King Arthur orders the minting of a ten-noble gold coin,but it costs only seven nobles to mine and process the amount of gold in the coin.Which of the following statements is true?

All of the following are reasons that cigarettes came to serve as money in WWII prisoner of war camps except one.Which is the exception?

Between 1930 and 1933,many banks in the U.S.failed because

In the 1970s,U.S.consumers transferred their deposits from accounts in banks and thrifts to money market mutual funds because money market mutual funds

Prior to the 1970s,bankers were happy with interest-rate ceilings because those ceilings

The U.S.has more banks per capita than most other countries primarily because it

The emergence of mortgage-backed securities provided mortgage brokers with an incentive to seek out only the most credit worthy borrowers.

When prices rise,

One characteristic of houses that makes them unsuitable as a medium of exchange is that they are not easily divisible.

Paper money is a good example of commodity money.

Under a fractional reserve banking system,banks may lend out a multiple of their reserves.

The Art and Science of Economic Analysis

Economic Tools and Economics Systems

Economic Decision Makers

Demand, supply, and Markets

Introduction to Macroeconomics

Tracking the Useconomy

Unemployment and Inflation

Productivity and Growth

Aaggregate Expenditure and Aggregate Demand

Baggregate Expenditure and Aggregate Demand

Aggregate Supply

Fiscal Policy

Federal Budgets and Public Policy

Banking and the Money Supply

Monetary Theory and Policy

Macro Policy Debate: Active or Passive

International Trade

Externalities and the Environment

International Finance

Economic Development

understanding Graphs

National Income Accounts

The Algebra of Demand-Side Equilibrium

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