Question 1

Federal Reserve notes are

Accepted Answer

A)  a liability of the Federal Reserve System. 
B)  an asset to the Federal Reserve System. 
C)  both an asset and a liability to the Federal Reserve System. 
D)  a liability to the United States Treasury. 
A)  a liability of the Federal Reserve System. 
B)  an asset to the Federal Reserve System. 
C)  both an asset and a liability to the Federal Reserve System. 
D)  a liability to the United States Treasury.

Question 2

The Federal Deposit Insurance Corporation

Accepted Answer

A)  increases the stability of the banking system by reducing the likelihood of bank runs. 
B)  discourages banks from engaging in excessive risk taking. 
C)  only insures deposits in money-center banks. 
D)  was established after the Panic of 1907. 
A)  increases the stability of the banking system by reducing the likelihood of bank runs. 
B)  discourages banks from engaging in excessive risk taking. 
C)  only insures deposits in money-center banks. 
D)  was established after the Panic of 1907.

Question 3

The Fed

Accepted Answer

A)  is responsible for minting coins. 
B)  distributes Federal Reserve notes, which are paper currency. 
C)  is responsible for conducting U.S. fiscal policy. 
D)  has 15 Federal Reserve banks and governing boards in New York and Chicago. 
A)  is responsible for minting coins. 
B)  distributes Federal Reserve notes, which are paper currency. 
C)  is responsible for conducting U.S. fiscal policy. 
D)  has 15 Federal Reserve banks and governing boards in New York and Chicago.

Question 4

The balance sheet of a bank shows its

Accepted Answer

A)  profits and losses. 
B)  assets and liabilities. 
C)  earnings and expenses. 
D)  revenues and costs. 
A)  profits and losses. 
B)  assets and liabilities. 
C)  earnings and expenses. 
D)  revenues and costs.

Question 5

When banks reduce the reserve ratio, the potential money multiplier

Accepted Answer

A)  increases. 
B)  decreases. 
C)  remains unchanged. 
D)  sometimes increases, and sometimes decreases depending on the rate of inflation. 
A)  increases. 
B)  decreases. 
C)  remains unchanged. 
D)  sometimes increases, and sometimes decreases depending on the rate of inflation.

Question 6

An interest-earning account that can be withdrawn at any time without payment of a penalty is a

Accepted Answer

A)  savings deposit. 
B)  money market deposit account. 
C)  government security account. 
D)  certificate of deposit. 
A)  savings deposit. 
B)  money market deposit account. 
C)  government security account. 
D)  certificate of deposit.

Question 7

The designate M1 measure of money consists of

Accepted Answer

A)  the most liquid types of money in the U.S. system. 
B)  small time deposits only. 
C)  credit cards and ATM cards. 
D)  gold and gold coins. 
A)  the most liquid types of money in the U.S. system. 
B)  small time deposits only. 
C)  credit cards and ATM cards. 
D)  gold and gold coins.

Question 8

Why might the Federal Reserve intervene in foreign currency markets?

Accepted Answer

A)  to ensure the safety of overseas investments for banks 
B)  to ensure the safety of overseas investments for private investors 
C)  to ensure the safety of overseas investments for pension funds 
D)  to maintain a desired exchange rate for the dollar 
A)  to ensure the safety of overseas investments for banks 
B)  to ensure the safety of overseas investments for private investors 
C)  to ensure the safety of overseas investments for pension funds 
D)  to maintain a desired exchange rate for the dollar

Question 9

Which function of money allows for comparison shopping?

Accepted Answer

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

Question 10

A method of measuring the money supply by looking at money as a temporary store of value is the

Accepted Answer

A)  fiduciary monetary system. 
B)  capital control. 
C)  transactions approach. 
D)  liquidity approach. 
A)  fiduciary monetary system. 
B)  capital control. 
C)  transactions approach. 
D)  liquidity approach.

Question 11

The reason that the commercial banking system can generate a multiple expansion or contraction of the money supply is that

Accepted Answer

A)  banks are required to hold only a fraction of their deposit liabilities as reserves. 
B)  most banks maintain a relatively large stock of reserves. 
C)  banks hold reserves equal to their net worth. 
D)  banks generally are required to hold surplus funds on deposit with other banks. 
A)  banks are required to hold only a fraction of their deposit liabilities as reserves. 
B)  most banks maintain a relatively large stock of reserves. 
C)  banks hold reserves equal to their net worth. 
D)  banks generally are required to hold surplus funds on deposit with other banks.

Question 12

A time deposit with a fixed maturity date offered by banks is called a

Accepted Answer

A)  checking account. 
B)  savings deposit. 
C)  small-denomination certificate of deposit. 
D)  corporate bond. 
A)  checking account. 
B)  savings deposit. 
C)  small-denomination certificate of deposit. 
D)  corporate bond.

Question 13

Financial intermediaries are institutions that

Accepted Answer

A)  create money. 
B)  provide checking accounts. 
C)  set interest rates. 
D)  transfer funds in the form of loans from savers to investors. 
A)  create money. 
B)  provide checking accounts. 
C)  set interest rates. 
D)  transfer funds in the form of loans from savers to investors.

Question 14

Which of the following is the most liquid?

Accepted Answer

A)  real estate 
B)  currency 
C)  government bonds 
D)  shares of stock 
A)  real estate 
B)  currency 
C)  government bonds 
D)  shares of stock

Question 15

If something serves as a store of value, we expect it to be

Accepted Answer

A)  divisible. 
B)  durable. 
C)  of intrinsic value. 
D)  light. 
A)  divisible. 
B)  durable. 
C)  of intrinsic value. 
D)  light.

Question 16

An account issued by banks yielding a market rate of interest with a minimum balance requirement and a limit on transactions is a

Accepted Answer

A)  savings deposit. 
B)  money market deposit account. 
C)  mutual funds account. 
D)  certificate of deposit. 
A)  savings deposit. 
B)  money market deposit account. 
C)  mutual funds account. 
D)  certificate of deposit.

Question 17

Which of the following is NOT included in M1?

Accepted Answer

A)  transaction deposits 
B)  currency 
C)  small time deposits 
D)  travelers checks 
A)  transaction deposits 
B)  currency 
C)  small time deposits 
D)  travelers checks

Question 18

Which of the following would reduce the money multiplier?

Accepted Answer

A)  reducing the reserve ratio 
B)  bond purchases by the Fed 
C)  cash drains from banks 
D)  bank reductions in desired reserve holdings 
A)  reducing the reserve ratio 
B)  bond purchases by the Fed 
C)  cash drains from banks 
D)  bank reductions in desired reserve holdings

Question 19

A transaction deposit is

Accepted Answer

A)  a fiduciary monetary system. 
B)  a checkable and debitable account. 
C)  opportunity cost. 
D)  the liquidity approach. 
A)  a fiduciary monetary system. 
B)  a checkable and debitable account. 
C)  opportunity cost. 
D)  the liquidity approach.

Question 20

If something is to serve as money it must be a store of value. This means that it must

Accepted Answer

A)  be divisible. 
B)  be the standard by which all goods are compared in setting prices. 
C)  hold its purchasing power over time. 
D)  be liquid. 
A)  be divisible. 
B)  be the standard by which all goods are compared in setting prices. 
C)  hold its purchasing power over time. 
D)  be liquid.

Exam 15: Money, Banking, and Central Banking

Federal Reserve notes are

The Federal Deposit Insurance Corporation

The Fed

The balance sheet of a bank shows its

When banks reduce the reserve ratio, the potential money multiplier

An interest-earning account that can be withdrawn at any time without payment of a penalty is a

The designate M1 measure of money consists of

Why might the Federal Reserve intervene in foreign currency markets?

Which function of money allows for comparison shopping?

A method of measuring the money supply by looking at money as a temporary store of value is the

The reason that the commercial banking system can generate a multiple expansion or contraction of the money supply is that

A time deposit with a fixed maturity date offered by banks is called a

Financial intermediaries are institutions that

Which of the following is the most liquid?

If something serves as a store of value, we expect it to be

An account issued by banks yielding a market rate of interest with a minimum balance requirement and a limit on transactions is a

Which of the following is NOT included in M1?

Which of the following would reduce the money multiplier?

A transaction deposit is

If something is to serve as money it must be a store of value. This means that it must

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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