Question 1

What is the typical role of a central bank?

Accepted Answer

A)  It serves as a bank for the national treasury. 
B)  It regulates depository institutions. 
C)  It serves as a lender of last resort. 
D)  all of the above 
A)  It serves as a bank for the national treasury. 
B)  It regulates depository institutions. 
C)  It serves as a lender of last resort. 
D)  all of the above D

Question 2

The possibility that a borrower might engage in riskier behavior after a loan is made is called

Accepted Answer

A)  adverse selection. 
B)  liability aversion. 
C)  moral hazard. 
D)  the risk of default. 
A)  adverse selection. 
B)  liability aversion. 
C)  moral hazard. 
D)  the risk of default. C

Question 3

When the Fed buys U.S. government securities, the money supply

Accepted Answer

A)  increases because there is an increase in transaction deposits at the bank of the bond dealer but there is no decrease in transaction deposits at any other bank. 
B)  decreases because there is an increase in the reserves of the bond dealer's bank. 
C)  remains unchanged because the increase in transaction deposits at the bond dealer's bank is offset by a reduction in transaction deposits at the Fed. 
D)  remains unchanged because the increase in transaction deposits at the bond dealer's bank is offset by a fall in transaction deposits at another bank. 
A)  increases because there is an increase in transaction deposits at the bank of the bond dealer but there is no decrease in transaction deposits at any other bank. 
B)  decreases because there is an increase in the reserves of the bond dealer's bank. 
C)  remains unchanged because the increase in transaction deposits at the bond dealer's bank is offset by a reduction in transaction deposits at the Fed. 
D)  remains unchanged because the increase in transaction deposits at the bond dealer's bank is offset by a fall in transaction deposits at another bank. A

Question 4

The central bank for the United States is

Accepted Answer

A)  Chase Manhattan Bank. 
B)  the U.S. Treasury. 
C)  the Federal Reserve System. 
D)  First National Bank of America. 
A)  Chase Manhattan Bank. 
B)  the U.S. Treasury. 
C)  the Federal Reserve System. 
D)  First National Bank of America.

Question 5

If knowledge possessed by one party in a financial transaction is NOT known to the other party, ________ exists.

Accepted Answer

A)  disintermediation 
B)  asymmetric information 
C)  fraud 
D)  no financial intermediation 
A)  disintermediation 
B)  asymmetric information 
C)  fraud 
D)  no financial intermediation

Question 6

The purchasing power of the dollar

Accepted Answer

A)  varies directly with the price of gold. 
B)  varies directly with interest rates. 
C)  varies directly with the price level. 
D)  varies inversely with the price level. 
A)  varies directly with the price of gold. 
B)  varies directly with interest rates. 
C)  varies directly with the price level. 
D)  varies inversely with the price level.

Question 7

Which of the following would NOT be an asset on a bank's balance sheet?

Accepted Answer

A)  loans outstanding 
B)  bank building 
C)  cash in the vault 
D)  transactions deposits 
A)  loans outstanding 
B)  bank building 
C)  cash in the vault 
D)  transactions deposits

Question 8

The FDIC was created because

Accepted Answer

A)  banks failed to create money the way the Fed wanted them to. 
B)  people worried about bank failures after World War I, even though very few banks actually failed. 
C)  there were so many bank failures in the 1930s. 
D)  the Fed kept the required reserve ratio too low. 
A)  banks failed to create money the way the Fed wanted them to. 
B)  people worried about bank failures after World War I, even though very few banks actually failed. 
C)  there were so many bank failures in the 1930s. 
D)  the Fed kept the required reserve ratio too low.

Question 9

A bank with $200 million in transaction deposits keeps $20 million in cash in the bank vault, $10 million in deposits at the Fed, and $10 million in government securities in the bank vault. Its total reserves equal

Accepted Answer

A)  $200 million. 
B)  $20 million. 
C)  $30 million. 
D)  $235 million. 
A)  $200 million. 
B)  $20 million. 
C)  $30 million. 
D)  $235 million.

Question 10

The most liquid asset is

Accepted Answer

A)  gold. 
B)  a vehicle. 
C)  money. 
D)  stocks of a highly profitable company. 
A)  gold. 
B)  a vehicle. 
C)  money. 
D)  stocks of a highly profitable company.

Question 11

The difference between assets and liabilities is

Accepted Answer

A)  a sweep account. 
B)  a balance sheet. 
C)  net worth. 
D)  legal reserves. 
A)  a sweep account. 
B)  a balance sheet. 
C)  net worth. 
D)  legal reserves.

Question 12

Suppose that the Fed purchases $1,000,000 worth of bonds and that the reserve ratio is 100 percent. Then, the maximum potential expansion of deposits is

Accepted Answer

A)  $1,000,000. 
B)  $0. 
C)  $100 million. 
D)  none of the above. 
A)  $1,000,000. 
B)  $0. 
C)  $100 million. 
D)  none of the above.

Question 13

Which of the following represents a preventative measure against bank runs?

Accepted Answer

A)  The President of the United States can order banks to pay depositors. 
B)  The Federal Reserve can lower reserve requirements to ensure that banks have sufficient funds. 
C)  The FDIC provides deposit insurance. 
D)  None of the above is correct. 
A)  The President of the United States can order banks to pay depositors. 
B)  The Federal Reserve can lower reserve requirements to ensure that banks have sufficient funds. 
C)  The FDIC provides deposit insurance. 
D)  None of the above is correct.

Question 14

Which of the following is a checkable and debitable account?

Accepted Answer

A)  a brokerage account with your stockbroker 
B)  a savings account 
C)  a checking account 
D)  All of the above are checkable and debitable accounts. 
A)  a brokerage account with your stockbroker 
B)  a savings account 
C)  a checking account 
D)  All of the above are checkable and debitable accounts.

Question 15

An asset is liquid if

Accepted Answer

A)  it earns interest. 
B)  it is backed by a government guarantee. 
C)  it can be exchanged for other items of value without high transaction costs. 
D)  All of the above are correct. 
A)  it earns interest. 
B)  it is backed by a government guarantee. 
C)  it can be exchanged for other items of value without high transaction costs. 
D)  All of the above are correct.

Question 16

Which one of the following statements is TRUE?

Accepted Answer

A)  Not all forms of currency are accepted equally well by the public as a medium of exchange. 
B)  Checkable and debitable account balances are not money, but currency is. 
C)  Checkable and debitable accounts are considered money by law in only 15 states. 
D)  The value of the dollar rises along with the increases in the consumer price index. 
A)  Not all forms of currency are accepted equally well by the public as a medium of exchange. 
B)  Checkable and debitable account balances are not money, but currency is. 
C)  Checkable and debitable accounts are considered money by law in only 15 states. 
D)  The value of the dollar rises along with the increases in the consumer price index.

Question 17

Beginning in late 2000s, the FDIC sought to increase the public's confidence in depository institutions by

Accepted Answer

A)  lowering insurance premiums for bank deposits. 
B)  eliminating insurance premiums for bank deposits. 
C)  assessing insurance premiums on banks' total liabilities. 
D)  changing the scope of insurance to banks' assets. 
A)  lowering insurance premiums for bank deposits. 
B)  eliminating insurance premiums for bank deposits. 
C)  assessing insurance premiums on banks' total liabilities. 
D)  changing the scope of insurance to banks' assets.

Question 18

The largest component of M1 is

Accepted Answer

A)  transaction deposits. 
B)  currency and coins. 
C)  travelers checks. 
D)  savings accounts. 
A)  transaction deposits. 
B)  currency and coins. 
C)  travelers checks. 
D)  savings accounts.

Question 19

Thrift institutions

Accepted Answer

A)  receive most of their funds from the public's savings deposits. 
B)  include commercial banks and investment firms. 
C)  include credit unions but not savings and loan associations. 
D)  do not offer transaction deposits. 
A)  receive most of their funds from the public's savings deposits. 
B)  include commercial banks and investment firms. 
C)  include credit unions but not savings and loan associations. 
D)  do not offer transaction deposits.

Question 20

The Board of Governors of the Federal Reserve System has how many governors?

Accepted Answer

A)  1 
B)  5 
C)  7 
D)  12 
A)  1 
B)  5 
C)  7 
D)  12

Exam 15: Money, Banking, and Central Banking

What is the typical role of a central bank?

The possibility that a borrower might engage in riskier behavior after a loan is made is called

When the Fed buys U.S. government securities, the money supply

The central bank for the United States is

If knowledge possessed by one party in a financial transaction is NOT known to the other party, ________ exists.

The purchasing power of the dollar

Which of the following would NOT be an asset on a bank's balance sheet?

The FDIC was created because

A bank with $200 million in transaction deposits keeps $20 million in cash in the bank vault, $10 million in deposits at the Fed, and $10 million in government securities in the bank vault. Its total reserves equal

The most liquid asset is

The difference between assets and liabilities is

Suppose that the Fed purchases $1,000,000 worth of bonds and that the reserve ratio is 100 percent. Then, the maximum potential expansion of deposits is

Which of the following represents a preventative measure against bank runs?

Which of the following is a checkable and debitable account?

An asset is liquid if

Which one of the following statements is TRUE?

Beginning in late 2000s, the FDIC sought to increase the public's confidence in depository institutions by

The largest component of M1 is

Thrift institutions

The Board of Governors of the Federal Reserve System has how many governors?

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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