Question 1

The level of reserves in the monetary system is determined by

Accepted Answer

A)  the Federal Open Market Committee. 
B)  the Treasury Department. 
C)  Congress. 
D)  the President of the United States. 
A)  the Federal Open Market Committee. 
B)  the Treasury Department. 
C)  Congress. 
D)  the President of the United States.

Question 2

Which of the following is NOT included in the M1 money supply?

Accepted Answer

A)  currency 
B)  passbook savings accounts 
C)  checkable and debitable accounts 
D)  traveler's checks 
A)  currency 
B)  passbook savings accounts 
C)  checkable and debitable accounts 
D)  traveler's checks

Question 3

When the Fed buys a U.S. bond in the open market

Accepted Answer

A)  its action has no effect on the total reserves or the money supply because the check it writes increases reserves at one bank but they fall at another. 
B)  total reserves increase by the amount of the purchase but the money supply stays the same. 
C)  its action expands total reserves and the money supply. 
D)  its action contracts total reserves and the money supply. 
A)  its action has no effect on the total reserves or the money supply because the check it writes increases reserves at one bank but they fall at another. 
B)  total reserves increase by the amount of the purchase but the money supply stays the same. 
C)  its action expands total reserves and the money supply. 
D)  its action contracts total reserves and the money supply.

Question 4

A checkable account

Accepted Answer

A)  is a very illiquid asset. 
B)  allows its holder to make transactions by writing checks. 
C)  must be traded on the stock exchange. 
D)  cannot serve as a store of value. 
A)  is a very illiquid asset. 
B)  allows its holder to make transactions by writing checks. 
C)  must be traded on the stock exchange. 
D)  cannot serve as a store of value.

Question 5

Which of the following statements is NOT true about money?

Accepted Answer

A)  Anything that serves as a medium of exchange, as a unit of accounting, as a store of value, and as a standard of deferred payment can be called money. 
B)  Money is any medium that is universally accepted by sellers and creditors. 
C)  Money is a standard of deferred payment. 
D)  Money can only be coins and paper. 
A)  Anything that serves as a medium of exchange, as a unit of accounting, as a store of value, and as a standard of deferred payment can be called money. 
B)  Money is any medium that is universally accepted by sellers and creditors. 
C)  Money is a standard of deferred payment. 
D)  Money can only be coins and paper.

Question 6

A system in which depository institutions hold reserves that are less than the amount of total deposits is

Accepted Answer

A)  the Federal Reserve System. 
B)  the federal funds market. 
C)  sweep accounts. 
D)  fractional reserve banking. 
A)  the Federal Reserve System. 
B)  the federal funds market. 
C)  sweep accounts. 
D)  fractional reserve banking.

Question 7

Transaction deposits

Accepted Answer

A)  are deposits in a banking institution on which a check may be written. 
B)  are only deposits that you can check on through the Internet. 
C)  include savings accounts. 
D)  are accounts that pay interest to the depositor. 
A)  are deposits in a banking institution on which a check may be written. 
B)  are only deposits that you can check on through the Internet. 
C)  include savings accounts. 
D)  are accounts that pay interest to the depositor.

Question 8

The reserve ratio is 10 percent. After the Fed buys $1 million in U.S. government securities from a bond dealer by transmitting the funds to the dealer's deposit account at Bank A, Bank A lends a construction company an amount equal to its excess reserves. The construction company spends the entire amount on lumber from a lumber yard, which deposits the construction company's check in its deposit account with Bank A. The maximum loan Bank A can now make is

Accepted Answer

A)  $900,000. 
B)  $100,000. 
C)  $810,000. 
D)  $1 million. 
A)  $900,000. 
B)  $100,000. 
C)  $810,000. 
D)  $1 million.

Question 9

Which of the following is included in M2 but NOT in M1?

Accepted Answer

A)  small-denomination time deposits 
B)  transaction deposits 
C)  currency 
D)  traveler's checks 
A)  small-denomination time deposits 
B)  transaction deposits 
C)  currency 
D)  traveler's checks

Question 10

Which of the following is NOT part of M1 but is included in M2?

Accepted Answer

A)  currency 
B)  small-denomination certificates of deposits 
C)  traveler's checks 
D)  cash 
A)  currency 
B)  small-denomination certificates of deposits 
C)  traveler's checks 
D)  cash

Question 11

Two people are involved in a borrower/lender situation, and one person has superior knowledge of its own current and future prospects over the other person. This is known as

Accepted Answer

A)  preventable information. 
B)  symmetric information. 
C)  asymmetric information. 
D)  deceptive knowledge. 
A)  preventable information. 
B)  symmetric information. 
C)  asymmetric information. 
D)  deceptive knowledge.

Question 12

Which of the following statements is correct? I. The Fed can periodically and without warning examine member commercial banks to ensure that they are conforming to current banking standards.
II) The Fed helps the government collect certain tax revenues and aids in the purchase and sale of government securities.

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 13

Money functions as

Accepted Answer

A)  a store of value. 
B)  an unit of account. 
C)  a medium of exchange. 
D)  all of the above. 
A)  a store of value. 
B)  an unit of account. 
C)  a medium of exchange. 
D)  all of the above.

Question 14

In a fractional reserve banking system

Accepted Answer

A)  banks are required to keep all deposits on hand so that they can pay their depositors when they desire to withdraw funds. 
B)  banks are required to keep a fraction of deposits in bonds. 
C)  banks are required to keep a fraction of all deposits on hand and send the rest to the Fed. 
D)  banks do not keep sufficient reserves on hand to cover 100 percent of their depositors' accounts. 
A)  banks are required to keep all deposits on hand so that they can pay their depositors when they desire to withdraw funds. 
B)  banks are required to keep a fraction of deposits in bonds. 
C)  banks are required to keep a fraction of all deposits on hand and send the rest to the Fed. 
D)  banks do not keep sufficient reserves on hand to cover 100 percent of their depositors' accounts.

Question 15

Deposits held by Federal Reserve district banks for depository institutions, plus depository institutions' vault cash are known as

Accepted Answer

A)  reserves. 
B)  a sweep account. 
C)  adverse selection. 
D)  the discount rate. 
A)  reserves. 
B)  a sweep account. 
C)  adverse selection. 
D)  the discount rate.

Question 16

A monetary system is preferable over the barter system because of the problems associated with

Accepted Answer

A)  cash leakages. 
B)  the double coincidence of wants. 
C)  the law of diminishing marginal utility. 
D)  the law of increasing relative costs. 
A)  cash leakages. 
B)  the double coincidence of wants. 
C)  the law of diminishing marginal utility. 
D)  the law of increasing relative costs.

Question 17

When Jack and Jill use dollars to compare the market values of their cellphones, money is acting as a

Accepted Answer

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

Question 18

Check collection and clearing happen

Accepted Answer

A)  at the bank where the check was written. 
B)  only at private clearing centers. 
C)  at the Fed and at private clearing centers. 
D)  only at the Fed. 
A)  at the bank where the check was written. 
B)  only at private clearing centers. 
C)  at the Fed and at private clearing centers. 
D)  only at the Fed.

Question 19

What differentiates a savings deposit from a small-denomination certificate of deposit (CD)?

Accepted Answer

A)  A CD has a fixed maturity date; a savings deposit can be withdrawn at any time. 
B)  A savings deposit cannot be withdrawn before its maturity date without incurring a penalty; funds in a CD are available at any time with no interest penalty. 
C)  Only a savings deposit is a time deposit. 
D)  All depository institutions accept savings deposits, whereas only a thrift institution can issue a CD. 
A)  A CD has a fixed maturity date; a savings deposit can be withdrawn at any time. 
B)  A savings deposit cannot be withdrawn before its maturity date without incurring a penalty; funds in a CD are available at any time with no interest penalty. 
C)  Only a savings deposit is a time deposit. 
D)  All depository institutions accept savings deposits, whereas only a thrift institution can issue a CD.

Question 20

The ability to quickly convert an asset into cash is

Accepted Answer

A)  disintermediation. 
B)  the standard of deferred payment. 
C)  financial intermediation. 
D)  liquidity. 
A)  disintermediation. 
B)  the standard of deferred payment. 
C)  financial intermediation. 
D)  liquidity.

Exam 15: Money, Banking, and Central Banking

The level of reserves in the monetary system is determined by

Which of the following is NOT included in the M1 money supply?

When the Fed buys a U.S. bond in the open market

A checkable account

Which of the following statements is NOT true about money?

A system in which depository institutions hold reserves that are less than the amount of total deposits is

Transaction deposits

Which of the following is included in M2 but NOT in M1?

Which of the following is NOT part of M1 but is included in M2?

Two people are involved in a borrower/lender situation, and one person has superior knowledge of its own current and future prospects over the other person. This is known as

Money functions as

In a fractional reserve banking system

Deposits held by Federal Reserve district banks for depository institutions, plus depository institutions' vault cash are known as

A monetary system is preferable over the barter system because of the problems associated with

When Jack and Jill use dollars to compare the market values of their cellphones, money is acting as a

Check collection and clearing happen

What differentiates a savings deposit from a small-denomination certificate of deposit (CD)?

The ability to quickly convert an asset into cash 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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