Question 1

Banks do NOT need to keep all of their deposits on hand as reserves because

Accepted Answer

A)  only a fraction of deposits are withdrawn at any one time. 
B)  FDIC protects banks from excessive withdrawal demands. 
C)  there is too much risk of bank robberies. 
D)  they can always generate new reserves through the money creation process. 
A)  only a fraction of deposits are withdrawn at any one time. 
B)  FDIC protects banks from excessive withdrawal demands. 
C)  there is too much risk of bank robberies. 
D)  they can always generate new reserves through the money creation process.

Question 2

Which of the following statements does NOT describe a function of money?

Accepted Answer

A)  a store of value 
B)  a hedge against inflation 
C)  a standard of deferred payment 
D)  a unit of accounting 
A)  a store of value 
B)  a hedge against inflation 
C)  a standard of deferred payment 
D)  a unit of accounting

Question 3

Russia borrowed funds from the International Monetary Fund in 1989 in exchange for agreeing to undertake certain changes. However, after receiving the funds, Russia spent the funds on other things, making the loan repayment more unlikely to occur. This situation is referred to as

Accepted Answer

A)  adverse selection. 
B)  moral hazard. 
C)  asymmetric information. 
D)  deceptive knowledge. 
A)  adverse selection. 
B)  moral hazard. 
C)  asymmetric information. 
D)  deceptive knowledge.

Question 4

Suppose you borrow $10,000 from your bank to purchase a vehicle. This is an example of

Accepted Answer

A)  direct financing. 
B)  indirect financing. 
C)  moral hazard. 
D)  transaction costs. 
A)  direct financing. 
B)  indirect financing. 
C)  moral hazard. 
D)  transaction costs.

Question 5

Jane has just deposited $2,000 in her checking account. She knows that the bank will keep part of these funds on hand and loan out the rest. This is an example of

Accepted Answer

A)  the Federal Reserve System. 
B)  a sweep account. 
C)  fractional reserve banking. 
D)  excess reserves. 
A)  the Federal Reserve System. 
B)  a sweep account. 
C)  fractional reserve banking. 
D)  excess reserves.

Question 6

Which of the following actions has no effect on the total money supply?

Accepted Answer

A)  The Federal Open Market Committee buys government securities. 
B)  The Federal Open Market Committee sells government securities. 
C)  There is a transfer of deposits from one bank to another bank. 
D)  There is change in the money multiplier. 
A)  The Federal Open Market Committee buys government securities. 
B)  The Federal Open Market Committee sells government securities. 
C)  There is a transfer of deposits from one bank to another bank. 
D)  There is change in the money multiplier.

Question 7

Which of the following would be considered the least liquid asset?

Accepted Answer

A)  currency 
B)  checkable deposits 
C)  travelers checks 
D)  a house 
A)  currency 
B)  checkable deposits 
C)  travelers checks 
D)  a house

Question 8

The intrinsic value of U.S. currency today is the value of

Accepted Answer

A)  gold. 
B)  government bonds. 
C)  none. 
D)  silver. 
A)  gold. 
B)  government bonds. 
C)  none. 
D)  silver.

Question 9

Suppose that the reserve ratio is 5 percent. A bank's customer deposits into her account $100,000 in funds from a check written on an account at another bank. The maximum potential increase in the money supply resulting from this transaction is equal to

Accepted Answer

A)  $0. 
B)  $5,000. 
C)  $100,000. 
D)  $20,000,000. 
A)  $0. 
B)  $5,000. 
C)  $100,000. 
D)  $20,000,000.

Question 10

When you buy a hotdog for lunch, you are using money as a

Accepted Answer

A)  store of value. 
B)  standard of deferred payment. 
C)  medium of exchange. 
D)  unit of accounting. 
A)  store of value. 
B)  standard of deferred payment. 
C)  medium of exchange. 
D)  unit of accounting.

Question 11

The requirement for a double coincidence of wants occurs when

Accepted Answer

A)  there is inflation. 
B)  there is deflation. 
C)  a system of barter is used. 
D)  the medium of exchange is liquid. 
A)  there is inflation. 
B)  there is deflation. 
C)  a system of barter is used. 
D)  the medium of exchange is liquid.

Question 12

Which of the following is NOT true about the duties the Fed performs for the federal government?

Accepted Answer

A)  The Federal Reserve is the banker and fiscal agent of the federal government. 
B)  The U.S. Treasury controls the Fed. 
C)  The Federal Reserve aids in the purchase and sale of certain government securities. 
D)  The U.S. Treasury has a checking account at the Fed. 
A)  The Federal Reserve is the banker and fiscal agent of the federal government. 
B)  The U.S. Treasury controls the Fed. 
C)  The Federal Reserve aids in the purchase and sale of certain government securities. 
D)  The U.S. Treasury has a checking account at the Fed.

Question 13

Under a fractional reserve banking system

Accepted Answer

A)  banks keep a fraction of their deposits on hand as reserves. 
B)  banks keep a fraction of their reserves on hand as deposits. 
C)  banks keep all of their deposits on hand as reserves. 
D)  banks keep all of their reserves on hand as deposits. 
A)  banks keep a fraction of their deposits on hand as reserves. 
B)  banks keep a fraction of their reserves on hand as deposits. 
C)  banks keep all of their deposits on hand as reserves. 
D)  banks keep all of their reserves on hand as deposits.

Question 14

Which of the following represents a function of money?

Accepted Answer

A)  medium of exchange 
B)  unit of accounting 
C)  standard of deferred payment 
D)  all of the above 
A)  medium of exchange 
B)  unit of accounting 
C)  standard of deferred payment 
D)  all of the above

Question 15

An asset that can be easily disposed of without high transactions costs and with relative certainty as to its value is

Accepted Answer

A)  profitable. 
B)  liquid. 
C)  fiduciary. 
D)  M2. 
A)  profitable. 
B)  liquid. 
C)  fiduciary. 
D)  M2.

Question 16

With a reserve ratio of 0 percent, the maximum potential money multiplier is

Accepted Answer

A)  0. 
B)  1. 
C)  100. 
D)  infinitely large. 
A)  0. 
B)  1. 
C)  100. 
D)  infinitely large.

Question 17

If people withdraw $1,000 from the nation's money market mutual funds and redeposit the funds in various checkable and debitable accounts, then

Accepted Answer

A)  M1 and M2 will remain unchanged. 
B)  M1 will increase, M2 will remain unchanged. 
C)  M1 will increase, M2 will decrease. 
D)  M1 and M2 will increase. 
A)  M1 and M2 will remain unchanged. 
B)  M1 will increase, M2 will remain unchanged. 
C)  M1 will increase, M2 will decrease. 
D)  M1 and M2 will increase.

Question 18

All of the following are functions of the Fed EXCEPT

Accepted Answer

A)  providing paper currency. 
B)  enforcing international trade agreements. 
C)  serving as a mechanism for clearing checks. 
D)  the banker and fiscal agent for the government. 
A)  providing paper currency. 
B)  enforcing international trade agreements. 
C)  serving as a mechanism for clearing checks. 
D)  the banker and fiscal agent for the government.

Question 19

An increase in the reserve ratio

Accepted Answer

A)  has an expansionary effect on the money supply. 
B)  has a contractionary effect on the money supply. 
C)  increases the money multiplier. 
D)  will cause banks to make more loans. 
A)  has an expansionary effect on the money supply. 
B)  has a contractionary effect on the money supply. 
C)  increases the money multiplier. 
D)  will cause banks to make more loans.

Question 20

The direct exchange of one good or service for another is called

Accepted Answer

A)  a token exchange. 
B)  a standard of deferred payment. 
C)  the exchange of purchasing power. 
D)  barter. 
A)  a token exchange. 
B)  a standard of deferred payment. 
C)  the exchange of purchasing power. 
D)  barter.

Exam 15: Money, Banking, and Central Banking

Banks do NOT need to keep all of their deposits on hand as reserves because

Which of the following statements does NOT describe a function of money?

Russia borrowed funds from the International Monetary Fund in 1989 in exchange for agreeing to undertake certain changes. However, after receiving the funds, Russia spent the funds on other things, making the loan repayment more unlikely to occur. This situation is referred to as

Suppose you borrow $10,000 from your bank to purchase a vehicle. This is an example of

Jane has just deposited $2,000 in her checking account. She knows that the bank will keep part of these funds on hand and loan out the rest. This is an example of

Which of the following actions has no effect on the total money supply?

Which of the following would be considered the least liquid asset?

The intrinsic value of U.S. currency today is the value of

Suppose that the reserve ratio is 5 percent. A bank's customer deposits into her account $100,000 in funds from a check written on an account at another bank. The maximum potential increase in the money supply resulting from this transaction is equal to

When you buy a hotdog for lunch, you are using money as a

The requirement for a double coincidence of wants occurs when

Which of the following is NOT true about the duties the Fed performs for the federal government?

Under a fractional reserve banking system

Which of the following represents a function of money?

An asset that can be easily disposed of without high transactions costs and with relative certainty as to its value is

With a reserve ratio of 0 percent, the maximum potential money multiplier is

If people withdraw $1,000 from the nation's money market mutual funds and redeposit the funds in various checkable and debitable accounts, then

All of the following are functions of the Fed EXCEPT

An increase in the reserve ratio

The direct exchange of one good or service for another is called

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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