Question 1

If a bank has assets of $100 million, according to practice, its liabilities should NOT exceed:

Accepted Answer

A)  $7 million. 
B)  $70 million. 
C)  $93 million. 
D)  $107 million.

Question 2

The guarantee by the FDIC to reimburse bank customers up to $250,000 per deposit in the event of bank problems is called:

Accepted Answer

A)  fractional reserve banking. 
B)  reserve requirements. 
C)  discount rate. 
D)  deposit insurance.

Question 3

Commodity-backed money is:

Accepted Answer

A)  a medium of exchange with no intrinsic value. 
B)  equivalent to commodity money. 
C)  a medium of exchange with alternative economic uses. 
D)  gold and silver coins used for exchange.

Question 4

When we keep part of our wealth in a savings account, money is playing the role mainly of:

Accepted Answer

A)  medium of exchange. 
B)  unit of account. 
C)  barter. 
D)  store of value.

Question 5

Money used to buy a ticket to a football game is functioning primarily as a:

Accepted Answer

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

Question 6

Which asset is part of M1?

Accepted Answer

A)  long-term certificates of deposit 
B)  corporate bonds 
C)  currency in a person's purse 
D)  money market fund account balances

Question 7

Currency, checkable deposits, and traveler's checks are about _____% of M1.

Accepted Answer

A)  10 
B)  55 
C)  75 
D)  100

Question 8

Suppose the banking system does NOT hold excess reserves and the reserve ratio is 20%. If Sam deposits $500 cash in his checking account, the banking system can increase the money supply by an additional:

Accepted Answer

A)  $5,000. 
B)  $2,000. 
C)  $2,500. 
D)  $400.

Question 9

Bank reserves are:

Accepted Answer

A)  the money in bank vaults only. 
B)  the amount of cash that a bank must hold to pay FDIC insurance premiums. 
C)  the currency held at bank vaults plus bank deposits at the Federal Reserve. 
D)  the entire amount of checkable bank deposits.

Question 10

Money that has value apart from its use as money is:

Accepted Answer

A)  fiat money. 
B)  currency. 
C)  convertible paper money. 
D)  commodity money.

Question 11

The reserve ratio is the fraction of its:

Accepted Answer

A)  deposits that a bank holds as reserves. 
B)  loans that a bank is required to hold as reserves. 
C)  loans that a bank holds as reserves. 
D)  assets that a bank is required to hold as reserves.

Question 12

Suppose that a bank gets a new deposit of $100 cash and it has a 20% required reserve ratio. If the bank lends the maximum amount of money allowed, then the money supply (including the original deposit) increases by:

Accepted Answer

A)  $20. 
B)  $100. 
C)  $500. 
D)  $1,000.

Question 13

Banks can lend money because:

Accepted Answer

A)  they have so much to lend. 
B)  they know not everyone wants their deposits back at the same time. 
C)  there is a high demand for commodity money. 
D)  they don't know how much cash they have in their vault.

Question 14

Capital requirements for banks do NOT serve the purpose of:

Accepted Answer

A)  reducing a bank owner's incentive for excessive risk taking. 
B)  offsetting the change in incentives caused by deposit insurance. 
C)  putting to use the excess of a bank's assets over its deposits and other liabilities. 
D)  reducing deposits.

Question 15

The money multiplier and the required reserve ratio are:

Accepted Answer

A)  independent of one another. 
B)  directly related to one another. 
C)  inversely related. 
D)  both greater than 1.

Question 16

When you buy a ticket to the rodeo, you are using money as mainly a(n):

Accepted Answer

A)  expander of economic activity. 
B)  store of value. 
C)  factor of production. 
D)  medium of exchange.

Question 17

Currency in the United States today is _____ money.

Accepted Answer

A)  fiat 
B)  intrinsic 
C)  commodity 
D)  commodity-backed

Question 18

The functions of money are:

Accepted Answer

A)  expander of economic activity, medium of exchange, and store of value. 
B)  medium of exchange, store of value, and factor of production. 
C)  store of value, medium of exchange, and determinant of investment. 
D)  store of value, unit of account, and medium of exchange.

Question 19

Which asset is near-money?

Accepted Answer

A)  a traveler's check 
B)  a credit card 
C)  a debit card 
D)  a savings account

Question 20

Suppose that there are no excess reserves in the banking system and the current amount of demand deposits is $100,000. If the monetary authorities lower the required reserve ratio from 10% to 5%:

Accepted Answer

A)  the amount of excess reserves in the banking system will fall. 
B)  the amount of excess reserves in the banking system will remain the same. 
C)  the money-creating potential of the banking system will decline. 
D)  the money-creating potential of the banking system will rise.

Exam 14: Money, Banking, and the Federal Reserve System