Question 1

Savings accounts have specific maturity dates.

Accepted Answer

A) True 
 B)False

Question 2

Suppose the required reserve ratio is 0.1 and Linda deposits $4,000 in cash at the College State Bank.If the bank held no excess reserves before Linda's deposit and now increases its reserves by $500,which of the following is true?

Accepted Answer

A) The bank must have lent out an additional $4,000. 
B) $500 is the value of the bank's required reserves. 
C) The bank now has excess reserves of $100. 
D) Both the bank's assets and its liabilities rise by $500. 
E) The bank now has $500 in excess reserves.

Question 3

The United Bank of Glassen only lent money to a limited number of big business houses.After a financial crisis,the bank went out of business.Which of the following reasons could have contributed to the collapse of this bank?

Accepted Answer

A) Their decision not to lend funds to the Federal Reserve 
B) Their decision not to diversify their asset portfolio 
C) Their decision to extend loans to a diversified pool of borrowers 
D) Their decision to extend mainly short-term loans 
E) Their decision to unnecessarily scrutinize each borrower's details

Question 4

The M1 money supply consists primarily of:

Accepted Answer

A) savings deposits. 
B) certificates of deposit. 
C) miscellaneous near-monies. 
D) checkable deposits. 
E) money market mutual fund accounts.

Question 5

Which of the following is not money?

Accepted Answer

A) Checks 
B) Coins 
C) Federal reserve notes 
D) Debit cards 
E) Credit cards

Question 6

When the Fed buys U.S.government securities from a bank,that bank's excess reserves and total reserves increase,but there is no change in required reserves.

Accepted Answer

A) True 
 B)False

Question 7

The money expansion process continues until there are no more:

Accepted Answer

A) required reserves in the system. 
B) demand deposits in the system. 
C) excess reserves in the system that banks are willing to lend. 
D) liabilities in the system. 
E) assets in the system.

Question 8

Stores need not accept your check but must accept currency because:

Accepted Answer

A) currency is backed by gold. 
B) checks are not money but currency is. 
C) currency is legal tender,but checks are not. 
D) currency is easier to handle. 
E) currency is a medium of exchange,but checks are not.

Question 9

When the Fed sells U.S.government securities to a member bank,the immediate effect on that bank's balance sheet is a(n):

Accepted Answer

A) decrease in assets and an increase in liabilities. 
B) increase in assets and a decrease in liabilities. 
C) increase in both assets and liabilities. 
D) decrease in both assets and liabilities. 
E) change in the type of assets the bank is holding,but no change in liabilities.

Question 10

In order to meet a deficiency of required reserves,a bank could:

Accepted Answer

A) buy securities. 
B) deposit vault cash with the Fed. 
C) turn some of its deposits at the Fed into cash. 
D) close some checking accounts. 
E) borrow from another bank in the federal funds market.

Question 11

Which of the following is an advantage of using a credit card?

Accepted Answer

A) Credit cards help account holders tap directly into their checking account. 
B) Credit cards help account holders get a loan from the card issuer. 
C) Credit cards require a PIN number,and are therefore safe. 
D) Credit card holders can earn a fixed interest on their accounts. 
E) Credit cards help eliminate the use of money.

Question 12

Suppose The United Bank of Glassen has loaned $250 to Mr.Joseph Langdon for his business.Mr.Langdon repays the loan with a check written against his own bank,Rexan Bank.Which of the following is likely to happen as a result of this transaction?

Accepted Answer

A) The reserves at the United Bank of Glassen will fall. 
B) The reserves at Rexan Bank will increase. 
C) Checkable deposits at Rexan Bank will increase. 
D) Rexan Bank will make more loans than before. 
E) The reserves and checkable deposits of Rexan Bank will decrease.

Question 13

The table below shows the balance sheet of Leftbank.Leftbank's total reserves:
Table 14.3
?
LEFTBANK
?
$\begin{array}{|l|r|r|
}
\hline\text { Assets } & & \text { Liabilities and Net Worth } \
\hline & & \
\hline \text { Deposits with the Fed } & -\$ 10,000 &\\hline \text { U.S. Government securities } & \$ 10,000\\hline
\end{array}$

Accepted Answer

A) rose by $9,000. 
B) were not affected by this transaction. 
C) fell by $9,000. 
D) fell by $10,000. 
E) rose by $10,000.

Question 14

Banks are permitted to lend all of their reserves.

Accepted Answer

A) True 
 B)False

Question 15

The distinction between M1 and M2 has blurred over time because:

Accepted Answer

A) M1 is now larger than M2. 
B) depositors can transfer funds between accounts easily. 
C) the Federal Reserve has defined them less precisely. 
D) M1 is becoming less liquid. 
E) banks are now offering time deposits.

Question 16

Which of the following is not true of Federal Reserve notes?

Accepted Answer

A) They are fiat money. 
B) They are a liability of the Fed. 
C) They are redeemable for other Federal Reserve notes. 
D) They are redeemable for gold. 
E) They are counted as currency in the money supply

Question 17

If a bank borrows $1,000 from the Fed and lends it out,the bank sets in motion a process that will result in an expansion of the money supply by a multiple of that $1,000.

Accepted Answer

A) True 
 B)False

Question 18

Suppose checking deposits increase by $6,000 after all rounds of the money-creation process when the Fed buys $1,200 worth of U.S.government securities.This implies that the maximum value of the required reserve ratio is:

Accepted Answer

A) 5. 
B) 0.75. 
C) 0.2. 
D) 1.2. 
E) 1.0.

Question 19

Which of the following is an asset to a bank?

Accepted Answer

A) Checkable deposits 
B) Transaction deposits 
C) Credit cards 
D) Loans 
E) Borrowings from the Fed

Question 20

During the 2008 crisis,the Fed demanded interest payments on reserves held at the Fed.

Accepted Answer

A) True 
 B)False

Exam 14: Banking and the Money Supply

Savings accounts have specific maturity dates.

Suppose the required reserve ratio is 0.1 and Linda deposits $4,000 in cash at the College State Bank.If the bank held no excess reserves before Linda's deposit and now increases its reserves by $500,which of the following is true?

The United Bank of Glassen only lent money to a limited number of big business houses.After a financial crisis,the bank went out of business.Which of the following reasons could have contributed to the collapse of this bank?

The M1 money supply consists primarily of:

Which of the following is not money?

When the Fed buys U.S.government securities from a bank,that bank's excess reserves and total reserves increase,but there is no change in required reserves.

The money expansion process continues until there are no more:

Stores need not accept your check but must accept currency because:

When the Fed sells U.S.government securities to a member bank,the immediate effect on that bank's balance sheet is a(n) :

In order to meet a deficiency of required reserves,a bank could:

Which of the following is an advantage of using a credit card?

Suppose The United Bank of Glassen has loaned $250 to Mr.Joseph Langdon for his business.Mr.Langdon repays the loan with a check written against his own bank,Rexan Bank.Which of the following is likely to happen as a result of this transaction?

Banks are permitted to lend all of their reserves.

The distinction between M1 and M2 has blurred over time because:

Which of the following is not true of Federal Reserve notes?

If a bank borrows $1,000 from the Fed and lends it out,the bank sets in motion a process that will result in an expansion of the money supply by a multiple of that $1,000.

Suppose checking deposits increase by $6,000 after all rounds of the money-creation process when the Fed buys $1,200 worth of U.S.government securities.This implies that the maximum value of the required reserve ratio is:

Which of the following is an asset to a bank?

During the 2008 crisis,the Fed demanded interest payments on reserves held at the Fed.