Question 1

The use of money as a medium of exchange requires a double coincidence of wants.

Accepted Answer

A) True 
 B)False

Question 2

Table 12.2   Refer to Table 12.2.If the reserve requirement is 12 percent and the bank receives a new deposit of $10, 000, then required reserves will increase by _____.

Accepted Answer

A) $3, 600 
B) $2, 400 
C) $2, 600 
D) $2, 800 
E) $1, 200 
A) $3, 600 
B) $2, 400 
C) $2, 600 
D) $2, 800 
E) $1, 200

Question 3

Suppose the reserve requirement is 10 percent and a person deposits $1, 500 in a local bank.That single local bank can now create a maximum of:

Accepted Answer

A) $150 in additional money by lending $150. 
B) $15, 000 in additional money by lending $15, 000. 
C) $1, 500 in additional money by lending $1, 500. 
D) $1, 350 in additional money by lending $1, 350. 
E) $135 in additional money by lending $135. 
A) $150 in additional money by lending $150. 
B) $15, 000 in additional money by lending $15, 000. 
C) $1, 500 in additional money by lending $1, 500. 
D) $1, 350 in additional money by lending $1, 350. 
E) $135 in additional money by lending $135.

Question 4

If a bank has deposits worth $800, 000, total reserves worth $900, 000, and the reserve ratio of 0.20, what is the value of excess reserves?

Accepted Answer

A) $620, 000 
B) $1, 000, 000 
C) $1, 160, 000 
D) $740, 000 
E) $160, 000 
A) $620, 000 
B) $1, 000, 000 
C) $1, 160, 000 
D) $740, 000 
E) $160, 000

Question 5

Calculate the dollar price of a German automobile worth 40, 000 euros, if the dollar per euro exchange rate is 1.5.

Accepted Answer

A) $41, 500 
B) $26, 700 
C) $60, 000 
D) $50, 000 
E) $38, 500 
A) $41, 500 
B) $26, 700 
C) $60, 000 
D) $50, 000 
E) $38, 500

Question 6

If banks are prevented from lending out funds, there will be no money creation in an economy.

Accepted Answer

A) True 
 B)False

Question 7

Other things equal, when U.S.money moves to other countries to take advantage of better foreign investment opportunities, then:

Accepted Answer

A) the U.S.money supply will increase. 
B) the reserve requirement for U.S.banks will rise. 
C) the U.S.money supply will decrease. 
D) U.S.banks will have more excess reserves to loan out. 
E) the effect of the U.S.deposit expansion multiplier will be increased. 
A) the U.S.money supply will increase. 
B) the reserve requirement for U.S.banks will rise. 
C) the U.S.money supply will decrease. 
D) U.S.banks will have more excess reserves to loan out. 
E) the effect of the U.S.deposit expansion multiplier will be increased.

Question 8

The cash reserves held by banks that are illegal are called excess reserves.

Accepted Answer

A) True 
 B)False

Question 9

A Eurodollar loan is a(n):

Accepted Answer

A) ECU-denominated loan issued by a U.S.bank. 
B) dollar-denominated loan payable to a European bank. 
C) ECU-denominated loan that is subject to banking regulations in both the United States and Europe. 
D) dollar-denominated loan issued outside the U.S.domestic banking system. 
E) loan by the European Community to the U.S.government. 
A) ECU-denominated loan issued by a U.S.bank. 
B) dollar-denominated loan payable to a European bank. 
C) ECU-denominated loan that is subject to banking regulations in both the United States and Europe. 
D) dollar-denominated loan issued outside the U.S.domestic banking system. 
E) loan by the European Community to the U.S.government.

Question 10

Which of the following can be categorized as a composite currency?

Accepted Answer

A) Italian lira 
B) European Currency Unit 
C) Pound 
D) Australian dollar 
E) Danish Krone 
A) Italian lira 
B) European Currency Unit 
C) Pound 
D) Australian dollar 
E) Danish Krone

Question 11

Under the system of fractional reserve banking, the reserve requirement is the ratio of excess reserves to total reserves.

Accepted Answer

A) True 
 B)False

Question 12

An asset is said to be illiquid when:

Accepted Answer

A) it lacks purchasing power. 
B) it cannot act as a store of value. 
C) it is an illegal tender. 
D) it cannot be readily exchanged for goods. 
E) it cannot be used to settle debts. 
A) it lacks purchasing power. 
B) it cannot act as a store of value. 
C) it is an illegal tender. 
D) it cannot be readily exchanged for goods. 
E) it cannot be used to settle debts.

Question 13

The higher the rate of inflation in Cuba, the greater the probability that Cuban residents will substitute U.S.currency for Cuban currency.

Accepted Answer

A) True 
 B)False

Question 14

Credit can be described as:

Accepted Answer

A) money used as a standard of deferred payment. 
B) savings made available to borrowers. 
C) fiduciary currency. 
D) a form of liquid asset. 
E) bank loans converted into commodity money. 
A) money used as a standard of deferred payment. 
B) savings made available to borrowers. 
C) fiduciary currency. 
D) a form of liquid asset. 
E) bank loans converted into commodity money.

Question 15

Which of the following is true of offshore banking?

Accepted Answer

A) The offshore banks are mainly concentrated in the European Union and the transactions are generally denominated in euro. 
B) The offshore banks operate with costly restrictions and pay higher taxes than the domestic banks. 
C) The offshore banks usually charge higher rates of interest on consumption loans than the domestic banks. 
D) Offshore banks in the U.S.are able to offer a higher rate on dollar deposits and a lower rate on dollar loans than their domestic competitors. 
E) Offshore banking transactions are considerably less risky than domestic transactions as they are closely monitored by the government of the nations in which they operate. 
A) The offshore banks are mainly concentrated in the European Union and the transactions are generally denominated in euro. 
B) The offshore banks operate with costly restrictions and pay higher taxes than the domestic banks. 
C) The offshore banks usually charge higher rates of interest on consumption loans than the domestic banks. 
D) Offshore banks in the U.S.are able to offer a higher rate on dollar deposits and a lower rate on dollar loans than their domestic competitors. 
E) Offshore banking transactions are considerably less risky than domestic transactions as they are closely monitored by the government of the nations in which they operate.

Question 16

In the 1980s, some states in the United States had significantly more bank failures than other states.What industries did the former states depend on heavily?

Accepted Answer

A) Oil and agriculture 
B) Tourism 
C) Defense and aeronautics 
D) Construction and textiles 
E) The computer industry 
A) Oil and agriculture 
B) Tourism 
C) Defense and aeronautics 
D) Construction and textiles 
E) The computer industry

Question 17

If Brazil experienced a period of rapid and unexpected inflation, causing Brazilians to lose confidence in the local currency (real)as a store of value, which of the following would be least likely to occur?

Accepted Answer

A) The value of the Brazilian real would depreciate on the foreign exchange market. 
B) Foreign currency would be used as a substitute for the real. 
C) The real would be used as a store of value in other countries 
D) Brazilians would save less. 
E) The purchasing power of the real would decrease. 
A) The value of the Brazilian real would depreciate on the foreign exchange market. 
B) Foreign currency would be used as a substitute for the real. 
C) The real would be used as a store of value in other countries 
D) Brazilians would save less. 
E) The purchasing power of the real would decrease.

Question 18

The table given below records the amount of new deposits, the value of required reserves, and total amount loaned out by Banks 1, 2, and 3. Table 12.3
  Refer to Table 12.3.What is the total increase in the money supply created in the banking system as a result of the initial deposit of $10, 000 in Bank 1?

Accepted Answer

A) $10, 000 
B) $27, 100 
C) $100, 000 
D) $90, 000 
E) $20, 000 
A) $10, 000 
B) $27, 100 
C) $100, 000 
D) $90, 000 
E) $20, 000

Question 19

An increase in the reserve requirement from 20 percent to 25 percent is most likely to:

Accepted Answer

A) reduce total deposits in the banking system. 
B) reduce excess reserves and the deposit expansion multiplier. 
C) increase the money supply. 
D) reduce the amount of reserves required. 
E) increase total deposits and the deposit expansion multiplier. 
A) reduce total deposits in the banking system. 
B) reduce excess reserves and the deposit expansion multiplier. 
C) increase the money supply. 
D) reduce the amount of reserves required. 
E) increase total deposits and the deposit expansion multiplier.

Question 20

When you save $1, 500 for a spring-break vacation in Cancun, you are using money as a standard of deferred payment.

Accepted Answer

A) True 
 B)False

Exam 10: Money and Banking

The use of money as a medium of exchange requires a double coincidence of wants.

Table 12.2 Refer to Table 12.2.If the reserve requirement is 12 percent and the bank receives a new deposit of $10, 000, then required reserves will increase by _____.

Suppose the reserve requirement is 10 percent and a person deposits $1, 500 in a local bank.That single local bank can now create a maximum of:

If a bank has deposits worth $800, 000, total reserves worth $900, 000, and the reserve ratio of 0.20, what is the value of excess reserves?

Calculate the dollar price of a German automobile worth 40, 000 euros, if the dollar per euro exchange rate is 1.5.

If banks are prevented from lending out funds, there will be no money creation in an economy.

Other things equal, when U.S.money moves to other countries to take advantage of better foreign investment opportunities, then:

The cash reserves held by banks that are illegal are called excess reserves.

A Eurodollar loan is a(n):

Which of the following can be categorized as a composite currency?

Under the system of fractional reserve banking, the reserve requirement is the ratio of excess reserves to total reserves.

An asset is said to be illiquid when:

The higher the rate of inflation in Cuba, the greater the probability that Cuban residents will substitute U.S.currency for Cuban currency.

Credit can be described as:

Which of the following is true of offshore banking?

In the 1980s, some states in the United States had significantly more bank failures than other states.What industries did the former states depend on heavily?

If Brazil experienced a period of rapid and unexpected inflation, causing Brazilians to lose confidence in the local currency (real)as a store of value, which of the following would be least likely to occur?

An increase in the reserve requirement from 20 percent to 25 percent is most likely to:

When you save $1, 500 for a spring-break vacation in Cancun, you are using money as a standard of deferred payment.

Economics: The World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

National Income Accounting

an Introduction to the Foreign Exchange Market and the Balance of Payments

Consumer Choice

Supply: The Costs of Doing Business

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Profit Maximization

Aggregate Expenditures

Perfect Competition

Income and Expenditures Equilibrium

Monopoly

Fiscal Policy

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Resource Markets

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

The Labor Market

Capital Markets

Economic Growth

Development Economics

the Land Market and Natural Resources

Aging, Social Security and Health Care

Globalization

Elasticity: Demand and Supply

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

Consumer Choice

International Trade Restrictions

World Trade Equilibrium

Exchange Rates and Financial Links Between Countries

International Trade Restrictions

Supply: the Costs of Doing Business

Exchange Rates and Financial Links Between Countries

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

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