Question 1

The narrowest definition of the money supply is

Accepted Answer

A)  M1. 
B)  M2. 
C)  the difference between M2 and M1. 
D)  the sum of M1 and M2. 
A)  M1. 
B)  M2. 
C)  the difference between M2 and M1. 
D)  the sum of M1 and M2.

Question 2

The reserve ratio is 10% and a bank has $500,000 in transaction deposits. The amount of reserves equals

Accepted Answer

A)  $5,000. 
B)  $50,000. 
C)  $500,000. 
D)  undeterminable without information on cash reserves. 
A)  $5,000. 
B)  $50,000. 
C)  $500,000. 
D)  undeterminable without information on cash reserves.

Question 3

The concept of holding reserves, such as gold, that are less than the value of the total deposits

Accepted Answer

A)  is known as fractional reserve banking. 
B)  has been illegal since the passage of the Financial Services Modernization Act of 1999. 
C)  is known as non-credit banking. 
D)  None of the above are correct. 
A)  is known as fractional reserve banking. 
B)  has been illegal since the passage of the Financial Services Modernization Act of 1999. 
C)  is known as non-credit banking. 
D)  None of the above are correct.

Question 4

Assuming a reserve ratio of 5 percent, if a bank sells $200,000 in securities how much can the bank loan out?

Accepted Answer

A)  $10,000 
B)  190,000 
C)  $105,000 
D)  $2,000,000 
A)  $10,000 
B)  190,000 
C)  $105,000 
D)  $2,000,000

Question 5

Which of the following has been a problem faced by the FDIC in its provision of federal deposit insurance?

Accepted Answer

A)  moral hazard arising from the tendency for the highest-risk banks to be those most interested in obtaining deposit insurance in the first place 
B)  adverse selection arising from the tendency for banks to take on more risk after they receive deposit insurance 
C)  moral hazard arising from the tendency for banks to take on more risk after they receive deposit insurance 
D)  a relatively low number of bank failures each year, which has reduced the need for deposit insurance 
A)  moral hazard arising from the tendency for the highest-risk banks to be those most interested in obtaining deposit insurance in the first place 
B)  adverse selection arising from the tendency for banks to take on more risk after they receive deposit insurance 
C)  moral hazard arising from the tendency for banks to take on more risk after they receive deposit insurance 
D)  a relatively low number of bank failures each year, which has reduced the need for deposit insurance

Question 6

Even when people know the purchasing power of the currency is declining, they continue to use the currency because

Accepted Answer

A)  they have no other choice. 
B)  the return of holding currency is always higher than the returns of all other assets. 
C)  its value is still predictable. 
D)  it still has some intrinsic value. 
A)  they have no other choice. 
B)  the return of holding currency is always higher than the returns of all other assets. 
C)  its value is still predictable. 
D)  it still has some intrinsic value.

Question 7

If a bank receives a new transaction deposit of $10,000 and the reserve ratio is 5 percent, then the bank could expand its loans by as much as

Accepted Answer

A)  $500. 
B)  $9,500. 
C)  $10,000. 
D)  $200,000 
A)  $500. 
B)  $9,500. 
C)  $10,000. 
D)  $200,000

Question 8

The reserve ratio is 20 percent and all loan proceeds are deposited in transactions accounts. A bond dealer has $100 million in deposits, $8 million in vault cash, and $7 million in deposits at the Fed. The Fed sells $1 million in securities to the bond dealer, who subsequently deposits the $1 million into a bank. As a result of this transaction alone

Accepted Answer

A)  the money supply falls by $1 million and total reserves fall by $1 million. 
B)  the money supply falls by $1 million and total reserves rise by $1 million. 
C)  the money supply rises by $1 million, total reserves fall by $800,000. 
D)  the money supply rises by $1 million, but reserves do not change. 
A)  the money supply falls by $1 million and total reserves fall by $1 million. 
B)  the money supply falls by $1 million and total reserves rise by $1 million. 
C)  the money supply rises by $1 million, total reserves fall by $800,000. 
D)  the money supply rises by $1 million, but reserves do not change.

Question 9

The function of money as a store of value diminishes if

Accepted Answer

A)  prices of goods and services increase. 
B)  interest rates increase. 
C)  people begin to barter. 
D)  money is no longer backed by gold. 
A)  prices of goods and services increase. 
B)  interest rates increase. 
C)  people begin to barter. 
D)  money is no longer backed by gold.

Question 10

A fiduciary monetary standard exists when the value of a currency

Accepted Answer

A)  cannot be determined. 
B)  is convertible to a fixed quantity of gold. 
C)  depends upon the public's confidence that the currency can be exchanged for goods and services. 
D)  increases with inflation. 
A)  cannot be determined. 
B)  is convertible to a fixed quantity of gold. 
C)  depends upon the public's confidence that the currency can be exchanged for goods and services. 
D)  increases with inflation.

Question 11

Possession of information by one party in a financial transaction but not by the other party is

Accepted Answer

A)  asymmetric information. 
B)  symmetric information. 
C)  informational hazard. 
D)  financial intermediation. 
A)  asymmetric information. 
B)  symmetric information. 
C)  informational hazard. 
D)  financial intermediation.

Question 12

The opportunity cost of holding money

Accepted Answer

A)  is measured by the alternative interest yield obtainable by holding some other asset. 
B)  is based on the fiduciary monetary system. 
C)  refers to the amount of paper currency held by the Fed. 
D)  equals the amount paid for renting a house instead of buying it. 
A)  is measured by the alternative interest yield obtainable by holding some other asset. 
B)  is based on the fiduciary monetary system. 
C)  refers to the amount of paper currency held by the Fed. 
D)  equals the amount paid for renting a house instead of buying it.

Question 13

In a fiduciary monetary system, the value of the money issued by a government is based on

Accepted Answer

A)  the gold held in that government's vaults. 
B)  public confidence in that currency's acceptability and predictability of value. 
C)  the ability to convert it to some valuable commodity. 
D)  its being made out of some material with a market value equal to a bill's face value. 
A)  the gold held in that government's vaults. 
B)  public confidence in that currency's acceptability and predictability of value. 
C)  the ability to convert it to some valuable commodity. 
D)  its being made out of some material with a market value equal to a bill's face value.

Question 14

Which one of the following is TRUE?

Accepted Answer

A)  Transaction deposits are counted in M2 but are not included in M1. 
B)  Most of the U.S. currency in existence circulates outside U.S. borders. 
C)  Traveler's checks are not considered to be money because they are not valid unless signed. 
D)  Balances in money market deposit accounts are counted in M1 but are not included in M2. 
A)  Transaction deposits are counted in M2 but are not included in M1. 
B)  Most of the U.S. currency in existence circulates outside U.S. borders. 
C)  Traveler's checks are not considered to be money because they are not valid unless signed. 
D)  Balances in money market deposit accounts are counted in M1 but are not included in M2.

Question 15

Compared to a barter economy, an economy that uses money will

Accepted Answer

A)  be greedier. 
B)  be poorer. 
C)  have more corruption. 
D)  have more output. 
A)  be greedier. 
B)  be poorer. 
C)  have more corruption. 
D)  have more output.

Question 16

A system in which the value of currency issued by the government is based entirely on public faith that the currency will be acceptable in trade is

Accepted Answer

A)  a fiduciary system. 
B)  a private property system. 
C)  a Gresham system. 
D)  a socialistic system. 
A)  a fiduciary system. 
B)  a private property system. 
C)  a Gresham system. 
D)  a socialistic system.

Question 17

Which approach to measuring money focuses on the value of currency, transaction deposits, and travelers checks?

Accepted Answer

A)  the transactions approach 
B)  the liquidity approach 
C)  near moneys 
D)  M2 
A)  the transactions approach 
B)  the liquidity approach 
C)  near moneys 
D)  M2

Question 18

How are the assets and liabilities changed for a bond dealer, the bond dealer's bank, and the Fed when the Fed buys $100,000 in bonds?

Accepted Answer

The bond dealer trades a bond for a tran

Question 19

-Based on the information in the above table, the value of M1 is

Accepted Answer

A)  $2,200. 
B)  $1,900. 
C)  $3,000. 
D)  $3,100. 
A)  $2,200. 
B)  $1,900. 
C)  $3,000. 
D)  $3,100.

Question 20

Which of the following is NOT a function of the Federal Reserve System?

Accepted Answer

A)  regulating the money supply 
B)  offering banking services to households and businesses 
C)  acting as the fiscal agent of the federal government 
D)  supervising member banks 
A)  regulating the money supply 
B)  offering banking services to households and businesses 
C)  acting as the fiscal agent of the federal government 
D)  supervising member banks

Exam 15: Money, Banking, and Central Banking

The narrowest definition of the money supply is

The reserve ratio is 10% and a bank has $500,000 in transaction deposits. The amount of reserves equals

The concept of holding reserves, such as gold, that are less than the value of the total deposits

Assuming a reserve ratio of 5 percent, if a bank sells $200,000 in securities how much can the bank loan out?

Which of the following has been a problem faced by the FDIC in its provision of federal deposit insurance?

Even when people know the purchasing power of the currency is declining, they continue to use the currency because

If a bank receives a new transaction deposit of $10,000 and the reserve ratio is 5 percent, then the bank could expand its loans by as much as

The function of money as a store of value diminishes if

A fiduciary monetary standard exists when the value of a currency

Possession of information by one party in a financial transaction but not by the other party is

The opportunity cost of holding money

In a fiduciary monetary system, the value of the money issued by a government is based on

Which one of the following is TRUE?

Compared to a barter economy, an economy that uses money will

A system in which the value of currency issued by the government is based entirely on public faith that the currency will be acceptable in trade is

Which approach to measuring money focuses on the value of currency, transaction deposits, and travelers checks?

How are the assets and liabilities changed for a bond dealer, the bond dealer's bank, and the Fed when the Fed buys $100,000 in bonds?

-Based on the information in the above table, the value of M1 is

Which of the following is NOT a function of the Federal Reserve System?

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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