Question 1

Money is defined as

Accepted Answer

A)  a person's net worth. 
B)  anything people generally accept in exchange for goods and services. 
C)  a by product of a barter economy. 
D)  any financial instrument that is backed by gold. 
A)  a person's net worth. 
B)  anything people generally accept in exchange for goods and services. 
C)  a by product of a barter economy. 
D)  any financial instrument that is backed by gold.

Question 2

Money provides a way to transfer wealth into the future. This function of money is known as

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 3

A fiduciary monetary system means

Accepted Answer

A)  that the value of each currency is determined by the amount of gold held by each nation. 
B)  that the currency is backed by implicit faith in government. 
C)  that money is legal tender. 
D)  that money has commodity value. 
A)  that the value of each currency is determined by the amount of gold held by each nation. 
B)  that the currency is backed by implicit faith in government. 
C)  that money is legal tender. 
D)  that money has commodity value.

Question 4

The FDIC helps prevent

Accepted Answer

A)  risky behavior on the part of bankers. 
B)  inflation. 
C)  bank runs. 
D)  risky behavior on the part of depositors. 
A)  risky behavior on the part of bankers. 
B)  inflation. 
C)  bank runs. 
D)  risky behavior on the part of depositors.

Question 5

Fractional reserve banking refers to a system in which the depository institution

Accepted Answer

A)  holds reserves equal to its deposits. 
B)  holds reserves greater than its deposits. 
C)  holds reserves less than its deposits. 
D)  holds zero reserves. 
A)  holds reserves equal to its deposits. 
B)  holds reserves greater than its deposits. 
C)  holds reserves less than its deposits. 
D)  holds zero reserves.

Question 6

A measure by which prices are expressed is a(n)

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 7

Which of the following is TRUE of the Federal Reserve System? I. It was established in the early 1980s.
II) It serves as the central bank of the United States.

Accepted Answer

A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II 
A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II

Question 8

Which of the following statements about the FDIC is correct? I. The deposit insurance premiums charged by the FDIC to a member bank fully reflect the riskiness of that bank's assets
II) The manner in which the FDIC is set up helps protect depository institutions from the rigors of true market competition

Accepted Answer

A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II 
A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II

Question 9

When you use a debit card to purchase a pair of jeans, you are

Accepted Answer

A)  creating a 30-day loan from your bank to the seller. 
B)  creating a 30-day loan from the seller to your bank. 
C)  giving your bank an instruction to transfer funds directly from your bank account to the store's bank account. 
D)  creating an overnight repurchase agreement between your bank and the store. 
A)  creating a 30-day loan from your bank to the seller. 
B)  creating a 30-day loan from the seller to your bank. 
C)  giving your bank an instruction to transfer funds directly from your bank account to the store's bank account. 
D)  creating an overnight repurchase agreement between your bank and the store.

Question 10

If a check written on one bank is deposited in another bank

Accepted Answer

A)  the money supply increases. 
B)  the money supply remains unchanged. 
C)  the money supply decreases. 
D)  new reserves are created for the banking system. 
A)  the money supply increases. 
B)  the money supply remains unchanged. 
C)  the money supply decreases. 
D)  new reserves are created for the banking system.

Question 11

The potential money multiplier gives us

Accepted Answer

A)  the growth in real national income when the money supply increases. 
B)  the growth in the money supply when income increases. 
C)  the maximum potential change in the money supply due to a change in reserves. 
D)  the maximum potential change in the money supply due to a change in income. 
A)  the growth in real national income when the money supply increases. 
B)  the growth in the money supply when income increases. 
C)  the maximum potential change in the money supply due to a change in reserves. 
D)  the maximum potential change in the money supply due to a change in income.

Question 12

The Fed sells a U.S. government security and a bank dealer writes a check for the amount. When the check clears

Accepted Answer

A)  reserves remain unchanged because the decrease of reserves at the dealer's bank is offset by an increase in the reserves at the Fed. 
B)  reserves have fallen by the amount of the check because the Fed clears the check by reducing the bank's deposits at the Fed. 
C)  reserves increase by the amount of the check because the Fed clears the check by increasing the amount of the bank's deposits with the Fed. 
D)  reserves have fallen by the amount of the reserves times the reserve ratio, and the money supply falls by the difference between the amount of the check and the fall in the reserves. 
A)  reserves remain unchanged because the decrease of reserves at the dealer's bank is offset by an increase in the reserves at the Fed. 
B)  reserves have fallen by the amount of the check because the Fed clears the check by reducing the bank's deposits at the Fed. 
C)  reserves increase by the amount of the check because the Fed clears the check by increasing the amount of the bank's deposits with the Fed. 
D)  reserves have fallen by the amount of the reserves times the reserve ratio, and the money supply falls by the difference between the amount of the check and the fall in the reserves.

Question 13

The degree to which an asset can be acquired or disposed of without much danger of any intervening loss in nominal value is known as

Accepted Answer

A)  transaction deposits. 
B)  a time deposit. 
C)  liquidity. 
D)  the opportunity cost of holding cash. 
A)  transaction deposits. 
B)  a time deposit. 
C)  liquidity. 
D)  the opportunity cost of holding cash.

Question 14

A business owner applies for a bank loan to launch a fairly low-risk project. After receiving the loan, she cancels the low-risk project and instead uses the borrowed funds for a high-risk venture. This is an example of

Accepted Answer

A)  financial intermediation. 
B)  the transactions approach. 
C)  moral hazard. 
D)  capital controls. 
A)  financial intermediation. 
B)  the transactions approach. 
C)  moral hazard. 
D)  capital controls.

Question 15

United States coins and currency are backed by

Accepted Answer

A)  silver. 
B)  gold. 
C)  reserves of foreign currencies. 
D)  confidence that they will retain their value. 
A)  silver. 
B)  gold. 
C)  reserves of foreign currencies. 
D)  confidence that they will retain their value.

Question 16

All of the following are included in M1 EXCEPT

Accepted Answer

A)  coin and currency. 
B)  money market mutual fund shares. 
C)  traveler's checks. 
D)  checking account balances. 
A)  coin and currency. 
B)  money market mutual fund shares. 
C)  traveler's checks. 
D)  checking account balances.

Question 17

Due to the existence of the FDIC, banks

Accepted Answer

A)  may make riskier loans knowing that their depositors are insured. 
B)  have not changed their behavior even with the existence of insurance. 
C)  become more cautious in making loans. 
D)  are no longer concerned about net worth. 
A)  may make riskier loans knowing that their depositors are insured. 
B)  have not changed their behavior even with the existence of insurance. 
C)  become more cautious in making loans. 
D)  are no longer concerned about net worth.

Question 18

In the United States, where do depository institutions hold their reserves?

Accepted Answer

A)  in their own vaults in the form of precious metals such as gold and silver 
B)  in accounts with the U.S. Department of the Treasury 
C)  either as vault cash or on reserve with Federal Reserve district banks 
D)  All reserves must be held at a Federal Reserve district bank. 
A)  in their own vaults in the form of precious metals such as gold and silver 
B)  in accounts with the U.S. Department of the Treasury 
C)  either as vault cash or on reserve with Federal Reserve district banks 
D)  All reserves must be held at a Federal Reserve district bank.

Question 19

For barter to occur there must be

Accepted Answer

A)  no markets for people to exchange goods. 
B)  a double coincidence of wants for each good to be exchanged. 
C)  one person who pays cash. 
D)  services in exchange for goods. 
A)  no markets for people to exchange goods. 
B)  a double coincidence of wants for each good to be exchanged. 
C)  one person who pays cash. 
D)  services in exchange for goods.

Question 20

In which year was the Federal Deposit Insurance Corporation (FDIC) established?

Accepted Answer

A)  1913 
B)  1929 
C)  1933 
D)  1951 
A)  1913 
B)  1929 
C)  1933 
D)  1951

Exam 15: Money, Banking, and Central Banking

Money is defined as

Money provides a way to transfer wealth into the future. This function of money is known as

A fiduciary monetary system means

The FDIC helps prevent

Fractional reserve banking refers to a system in which the depository institution

A measure by which prices are expressed is a(n)

Which of the following is TRUE of the Federal Reserve System? I. It was established in the early 1980s. II) It serves as the central bank of the United States.

When you use a debit card to purchase a pair of jeans, you are

If a check written on one bank is deposited in another bank

The potential money multiplier gives us

The Fed sells a U.S. government security and a bank dealer writes a check for the amount. When the check clears

The degree to which an asset can be acquired or disposed of without much danger of any intervening loss in nominal value is known as

A business owner applies for a bank loan to launch a fairly low-risk project. After receiving the loan, she cancels the low-risk project and instead uses the borrowed funds for a high-risk venture. This is an example of

United States coins and currency are backed by

All of the following are included in M1 EXCEPT

Due to the existence of the FDIC, banks

In the United States, where do depository institutions hold their reserves?

For barter to occur there must be

In which year was the Federal Deposit Insurance Corporation (FDIC) established?

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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