Question 1

When the Fed buys U.S. government securities on the open market

Accepted Answer

A)  the reserves of the banking system expand. 
B)  the reserves of the banking system contract. 
C)  the money supply contracts. 
D)  the total reserves of the banking system will fall below required reserves. 
A)  the reserves of the banking system expand. 
B)  the reserves of the banking system contract. 
C)  the money supply contracts. 
D)  the total reserves of the banking system will fall below required reserves.

Question 2

Currency consists of

Accepted Answer

A)  only coins minted by the U.S. Treasury. 
B)  only Federal Reserve notes. 
C)  coins minted by the U.S. Treasury and Federal Reserve notes. 
D)  coins, Federal Reserve Notes and traveler's checks. 
A)  only coins minted by the U.S. Treasury. 
B)  only Federal Reserve notes. 
C)  coins minted by the U.S. Treasury and Federal Reserve notes. 
D)  coins, Federal Reserve Notes and traveler's checks.

Question 3

It is widely believed that the Federal Reserve's most important function is

Accepted Answer

A)  to provide loans to the federal government. 
B)  to regulate the money supply. 
C)  to set the legal, controlled consumer interest rates. 
D)  to lend to risky customers. 
A)  to provide loans to the federal government. 
B)  to regulate the money supply. 
C)  to set the legal, controlled consumer interest rates. 
D)  to lend to risky customers.

Question 4

Which of the following is NOT an asset of a bank?

Accepted Answer

A)  cash 
B)  loans 
C)  total reserves 
D)  transaction deposits 
A)  cash 
B)  loans 
C)  total reserves 
D)  transaction deposits

Question 5

The value of a dollar

Accepted Answer

A)  is determined only by the U.S. government. 
B)  varies inversely with the price level. 
C)  various directly with the price level. 
D)  varies directly with the purchasing power of other major currencies. 
A)  is determined only by the U.S. government. 
B)  varies inversely with the price level. 
C)  various directly with the price level. 
D)  varies directly with the purchasing power of other major currencies.

Question 6

The FDIC fee system encourages depository institutions to

Accepted Answer

A)  make riskier loans than they would otherwise. 
B)  reject loans that probably would have been profitable. 
C)  seek only a modest rate of return. 
D)  operate their institutions in too conservative a fashion. 
A)  make riskier loans than they would otherwise. 
B)  reject loans that probably would have been profitable. 
C)  seek only a modest rate of return. 
D)  operate their institutions in too conservative a fashion.

Question 7

The Board of Governors of the Federal Reserve System has

Accepted Answer

A)  7 members serving 14 year terms. 
B)  7 members serving 4 year terms. 
C)  12 members serving 14 year terms. 
D)  12 members serving 4 year terms. 
A)  7 members serving 14 year terms. 
B)  7 members serving 4 year terms. 
C)  12 members serving 14 year terms. 
D)  12 members serving 4 year terms.

Question 8

Money serves as a standard of value, which is another way of saying that money functions as

Accepted Answer

A)  a medium of exchange. 
B)  a unit of accounting. 
C)  an opportunity cost of investment. 
D)  standard of deferred payment. 
A)  a medium of exchange. 
B)  a unit of accounting. 
C)  an opportunity cost of investment. 
D)  standard of deferred payment.

Question 9

Which of the following is NOT one of the functions of money?

Accepted Answer

A)  medium of exchange 
B)  protection from increases in prices of goods and services 
C)  unit of accounting 
D)  store of value 
A)  medium of exchange 
B)  protection from increases in prices of goods and services 
C)  unit of accounting 
D)  store of value

Question 10

A method of measuring the money supply by looking at money as a medium of exchange 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

Suppose that a new customer opens a checking account and a saving account, placing $250,000 in each. Later, the bank makes a loan of $500,000 to a business firm. For this bank

Accepted Answer

A)  assets increased by $250,000 because the saving account is an asset, while liabilities increased by $250,000 because the checking account is a liability. 
B)  assets increased by $500,000 because the checking and saving accounts are assets, and liabilities increased by $500,000 because the loan is a liability. 
C)  assets increased by $500,000 because the loan is an asset, and liabilities increased by $500,000 because the checking and saving accounts are liabilities. 
D)  assets remained unchanged but liabilities increased by $500,000 because of the loan. 
A)  assets increased by $250,000 because the saving account is an asset, while liabilities increased by $250,000 because the checking account is a liability. 
B)  assets increased by $500,000 because the checking and saving accounts are assets, and liabilities increased by $500,000 because the loan is a liability. 
C)  assets increased by $500,000 because the loan is an asset, and liabilities increased by $500,000 because the checking and saving accounts are liabilities. 
D)  assets remained unchanged but liabilities increased by $500,000 because of the loan.

Question 12

The Federal Deposit Insurance Corporation

Accepted Answer

A)  insures the deposits held by the Fed. 
B)  insures the deposits held in banks. 
C)  insures banks against lawsuits by depositors. 
D)  insures the open market operations of the Fed. 
A)  insures the deposits held by the Fed. 
B)  insures the deposits held in banks. 
C)  insures banks against lawsuits by depositors. 
D)  insures the open market operations of the Fed.

Question 13

Giving the store clerk a $10 bill for a portable power bank priced at $10 is an example of money serving as a

Accepted Answer

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

Question 14

The term "depository institution" refers to

Accepted Answer

A)  commercial banks only. 
B)  credit unions only. 
C)  savings and loan associations only. 
D)  commercial banks, credit unions, and savings and loan associations. 
A)  commercial banks only. 
B)  credit unions only. 
C)  savings and loan associations only. 
D)  commercial banks, credit unions, and savings and loan associations.

Question 15

To reach the maximum money multiplier, it is assumed that

Accepted Answer

A)  commercial banks keep the amount of reserves. equal to total bank deposits. 
B)  all loans get redeposited in a checkable account. 
C)  there is insufficient loan demand. 
D)  loans are diverted into circulating currency. 
A)  commercial banks keep the amount of reserves. equal to total bank deposits. 
B)  all loans get redeposited in a checkable account. 
C)  there is insufficient loan demand. 
D)  loans are diverted into circulating currency.

Question 16

The direct exchange of goods and services for other goods and services without the use of money is

Accepted Answer

A)  a standard of deferred payment. 
B)  barter. 
C)  a store of value. 
D)  financial intermediaries. 
A)  a standard of deferred payment. 
B)  barter. 
C)  a store of value. 
D)  financial intermediaries.

Question 17

If all of a bank's depositors showed up on one day requesting cash withdrawals of all their deposited funds

Accepted Answer

A)  the bank would pay them all, although reluctantly. 
B)  the bank would likely fail to have sufficient reserves to honor their requests. 
C)  the bank could lawfully refuse their demands. 
D)  the bank would immediately call all outstanding loans. 
A)  the bank would pay them all, although reluctantly. 
B)  the bank would likely fail to have sufficient reserves to honor their requests. 
C)  the bank could lawfully refuse their demands. 
D)  the bank would immediately call all outstanding loans.

Question 18

When the Fed buys government securities

Accepted Answer

A)  reserves increase, leading to a decrease in the money supply by an amount more than the purchase of the government securities. 
B)  reserves decrease, leading to a increase in the money supply by an amount more than the purchase of the government securities. 
C)  reserves increase, leading to a increase in the money supply by an amount more than the purchase of the government securities. 
D)  reserves decrease, leading to a decrease in the money supply by an amount more than the purchase of the government securities. 
A)  reserves increase, leading to a decrease in the money supply by an amount more than the purchase of the government securities. 
B)  reserves decrease, leading to a increase in the money supply by an amount more than the purchase of the government securities. 
C)  reserves increase, leading to a increase in the money supply by an amount more than the purchase of the government securities. 
D)  reserves decrease, leading to a decrease in the money supply by an amount more than the purchase of the government securities.

Question 19

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

Accepted Answer

A)  total reserves will increase. 
B)  total reserves will decrease. 
C)  total reserves do not change but the money supply increases. 
D)  total reserves do not change but the money supply decreases. 
A)  total reserves will increase. 
B)  total reserves will decrease. 
C)  total reserves do not change but the money supply increases. 
D)  total reserves do not change but the money supply decreases.

Question 20

All of the following are functions of the Federal Reserve System EXCEPT

Accepted Answer

A)  to provide loans to developing countries. 
B)  to supply the economy with fiduciary currency. 
C)  to hold depository institutions' reserves. 
D)  to act as the government's fiscal agent. 
A)  to provide loans to developing countries. 
B)  to supply the economy with fiduciary currency. 
C)  to hold depository institutions' reserves. 
D)  to act as the government's fiscal agent.

Exam 15: Money, Banking, and Central Banking

When the Fed buys U.S. government securities on the open market

Currency consists of

It is widely believed that the Federal Reserve's most important function is

Which of the following is NOT an asset of a bank?

The value of a dollar

The FDIC fee system encourages depository institutions to

The Board of Governors of the Federal Reserve System has

Money serves as a standard of value, which is another way of saying that money functions as

Which of the following is NOT one of the functions of money?

A method of measuring the money supply by looking at money as a medium of exchange is the

Suppose that a new customer opens a checking account and a saving account, placing $250,000 in each. Later, the bank makes a loan of $500,000 to a business firm. For this bank

The Federal Deposit Insurance Corporation

Giving the store clerk a $10 bill for a portable power bank priced at $10 is an example of money serving as a

The term "depository institution" refers to

To reach the maximum money multiplier, it is assumed that

The direct exchange of goods and services for other goods and services without the use of money is

If all of a bank's depositors showed up on one day requesting cash withdrawals of all their deposited funds

When the Fed buys government securities

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

All of the following are functions of the Federal Reserve System EXCEPT

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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