Question 1

If an asset can be disposed of without much risk of losing its nominal value, it is said to be

Accepted Answer

A)  fiduciary. 
B)  liquid. 
C)  worthless. 
D)  valuable. 
A)  fiduciary. 
B)  liquid. 
C)  worthless. 
D)  valuable.

Question 2

Money as a medium of exchange I. Facilitates the exchange of goods
II) Reduces the incentive to barter

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 3

The cost of holding money is best described as

Accepted Answer

A)  the cost of printing money. 
B)  the goods and services that money can buy 
C)  the yield which is paid to money holders by the U.S. government. 
D)  the yield that could have been earned had the asset been held in another form. 
A)  the cost of printing money. 
B)  the goods and services that money can buy 
C)  the yield which is paid to money holders by the U.S. government. 
D)  the yield that could have been earned had the asset been held in another form.

Question 4

Money that we have today can be set aside to purchase things in 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 5

The reserve ratio is 10 percent. A check for $1 million is deposited in Bank A, written on an account from Bank B. After the check clears what are the new excess reserves at Bank A, and by how much does the money supply change if all banks make loans so that they have zero excess reserves?

Accepted Answer

A)  $100,000; $900,000 
B)  $900,000; $1 million 
C)  $900,000; $900,000 
D)  $900,000; 0 
A)  $100,000; $900,000 
B)  $900,000; $1 million 
C)  $900,000; $900,000 
D)  $900,000; 0

Question 6

All of the following are examples of financial intermediaries EXCEPT

Accepted Answer

A)  credit unions. 
B)  insurance companies. 
C)  retirement funds. 
D)  stock exchanges. 
A)  credit unions. 
B)  insurance companies. 
C)  retirement funds. 
D)  stock exchanges.

Question 7

The formula is the

Accepted Answer

A)  federal funds rate. 
B)  discount rate. 
C)  potential money multiplier. 
D)  actual change in the money supply. 
A)  federal funds rate. 
B)  discount rate. 
C)  potential money multiplier. 
D)  actual change in the money supply.

Question 8

The fact that individuals whose credit worthiness is less than it appears to be are those who are most willing to borrow funds at any given interest rate is an example of

Accepted Answer

A)  adverse selection. 
B)  symmetric information. 
C)  moral bonuses. 
D)  diverse origins. 
A)  adverse selection. 
B)  symmetric information. 
C)  moral bonuses. 
D)  diverse origins.

Question 9

The price tag on an Under Armour shirt illustrates how money performs the function of a

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

Which of the following is NOT a function of the Fed?

Accepted Answer

A)  holding reserves for depository institutions 
B)  supervising member banks 
C)  regulating the money supply 
D)  determining the credit-worthiness of firms and individuals 
A)  holding reserves for depository institutions 
B)  supervising member banks 
C)  regulating the money supply 
D)  determining the credit-worthiness of firms and individuals

Question 11

The Fed is said to be the "lender of last resort" in that

Accepted Answer

A)  it stands ready to lend to any depository institution that it has decided should not fail. 
B)  it makes loans to individuals whom commercial banks do not believe are credit-worthy. 
C)  it charges a higher interest rate to borrowers than does any other bank. 
D)  it functions as the government's bank only when commercial banks fail to do so. 
A)  it stands ready to lend to any depository institution that it has decided should not fail. 
B)  it makes loans to individuals whom commercial banks do not believe are credit-worthy. 
C)  it charges a higher interest rate to borrowers than does any other bank. 
D)  it functions as the government's bank only when commercial banks fail to do so.

Question 12

Open market operations are conducted by the Fed

Accepted Answer

A)  in the private secondary U.S. securities market. 
B)  in the New York Stock Exchange. 
C)  through the Bureau of Engraving. 
D)  through the Washington location of the Federal Reserve's Bank of Governors. 
A)  in the private secondary U.S. securities market. 
B)  in the New York Stock Exchange. 
C)  through the Bureau of Engraving. 
D)  through the Washington location of the Federal Reserve's Bank of Governors.

Question 13

The reason we are willing to accept money with no intrinsic value is that

Accepted Answer

A)  paper currency may be exchanged for full-bodied money. 
B)  the money supply is backed by an equal amount of gold and silver. 
C)  we have a fiduciary monetary system in which currency is widely acceptable. 
D)  the value of the money varies directly with changes in the price level. 
A)  paper currency may be exchanged for full-bodied money. 
B)  the money supply is backed by an equal amount of gold and silver. 
C)  we have a fiduciary monetary system in which currency is widely acceptable. 
D)  the value of the money varies directly with changes in the price level.

Question 14

For the past several decades, the U.S. M1 multiplier has been between

Accepted Answer

A)  1.0 and 2.0. 
B)  2.5 and 3.0. 
C)  3.0 and 6.0. 
D)  6.5 and 10.0. 
A)  1.0 and 2.0. 
B)  2.5 and 3.0. 
C)  3.0 and 6.0. 
D)  6.5 and 10.0.

Question 15

For the money expansion process to produce the maximum potential multiplier effect

Accepted Answer

A)  all loans of a given bank have to be deposited in that bank. 
B)  the required reserve ratio has to be 100 percent. 
C)  the Fed has to sell government bonds to back up the loans. 
D)  all loans from banks have to be redeposited throughout the banking system. 
A)  all loans of a given bank have to be deposited in that bank. 
B)  the required reserve ratio has to be 100 percent. 
C)  the Fed has to sell government bonds to back up the loans. 
D)  all loans from banks have to be redeposited throughout the banking system.

Question 16

Following a new deposit of $500, the loans of a commercial bank increase by $450. In this situation, the reserve ratio is most likely

Accepted Answer

A)  9 percent. 
B)  10 percent. 
C)  20 percent. 
D)  90 percent. 
A)  9 percent. 
B)  10 percent. 
C)  20 percent. 
D)  90 percent.

Question 17

The actual money multiplier multiplied by the change in total reserves is the

Accepted Answer

A)  federal funds rate. 
B)  discount rate. 
C)  potential money multiplier. 
D)  actual change in the money supply. 
A)  federal funds rate. 
B)  discount rate. 
C)  potential money multiplier. 
D)  actual change in the money supply.

Question 18

Fractional reserve banking began

Accepted Answer

A)  in the early twentieth century. 
B)  in the early nineteenth century. 
C)  in the Middle Ages. 
D)  in ancient Greece. 
A)  in the early twentieth century. 
B)  in the early nineteenth century. 
C)  in the Middle Ages. 
D)  in ancient Greece.

Question 19

The Fed buys securities and gives a bond dealer a check for the amount. After the check has cleared

Accepted Answer

A)  reserves remain unchanged because the increase of reserves at the dealer's bank are offset by an increase in 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 have risen 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 increases by the difference between the amount of the check and the increase in the reserves. 
A)  reserves remain unchanged because the increase of reserves at the dealer's bank are offset by an increase in 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 have risen 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 increases by the difference between the amount of the check and the increase in the reserves.

Question 20

The possibility that a borrower might engage in riskier behavior after a loan has been obtained is

Accepted Answer

A)  asymmetric information. 
B)  adverse selection. 
C)  moral hazard. 
D)  financial intermediation. 
A)  asymmetric information. 
B)  adverse selection. 
C)  moral hazard. 
D)  financial intermediation.

Exam 15: Money, Banking, and Central Banking

If an asset can be disposed of without much risk of losing its nominal value, it is said to be

Money as a medium of exchange I. Facilitates the exchange of goods II) Reduces the incentive to barter

The cost of holding money is best described as

Money that we have today can be set aside to purchase things in the future. This function of money is known as

The reserve ratio is 10 percent. A check for $1 million is deposited in Bank A, written on an account from Bank B. After the check clears what are the new excess reserves at Bank A, and by how much does the money supply change if all banks make loans so that they have zero excess reserves?

All of the following are examples of financial intermediaries EXCEPT

The formula is the

The fact that individuals whose credit worthiness is less than it appears to be are those who are most willing to borrow funds at any given interest rate is an example of

The price tag on an Under Armour shirt illustrates how money performs the function of a

Which of the following is NOT a function of the Fed?

The Fed is said to be the "lender of last resort" in that

Open market operations are conducted by the Fed

The reason we are willing to accept money with no intrinsic value is that

For the past several decades, the U.S. M1 multiplier has been between

For the money expansion process to produce the maximum potential multiplier effect

Following a new deposit of $500, the loans of a commercial bank increase by $450. In this situation, the reserve ratio is most likely

The actual money multiplier multiplied by the change in total reserves is the

Fractional reserve banking began

The Fed buys securities and gives a bond dealer a check for the amount. After the check has cleared

The possibility that a borrower might engage in riskier behavior after a loan has been obtained is

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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