Question 1

Which of the following represents a preventative measure against bank runs?

Accepted Answer

A)  The President of the United States can order banks to pay depositors. 
B)  The Federal Reserve can lower reserve requirements to ensure that banks have sufficient funds. 
C)  The FDIC provides deposit insurance. 
D)  None of the above is correct.

Question 2

Which of the following statements about the FDIC is correct? I. The deposit insurance premiums charged by the FDIC to a member bank fully reflect the riskiness of that bank's assets
II) The manner in which the FDIC is set up helps protect depository institutions from the rigors of true market competition

Accepted Answer

A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II

Question 3

Total reserves of private banks are

Accepted Answer

A)  all customer deposits. 
B)  deposits held at the Fed and vault cash. 
C)  the minimum amount banks need to hold against time deposits. 
D)  federal reserve notes.

Question 4

The largest component of M1 is

Accepted Answer

A)  currency and coins. 
B)  traveler's checks. 
C)  transaction deposits. 
D)  time deposit.

Question 5

Which of the following is NOT true about the duties the Fed performs for the federal government?

Accepted Answer

A)  The Federal Reserve is the banker and fiscal agent of the federal government. 
B)  The U.S. Treasury controls the Fed. 
C)  The Federal Reserve aids in the purchase and sale of certain government securities. 
D)  The U.S. Treasury has a checking account at the Fed.

Question 6

Which of the following is NOT included in the money supply when the transactions approach is used?

Accepted Answer

A)  Money market deposit accounts. 
B)  Traveler's checks. 
C)  Transaction deposits. 
D)  Currency.

Question 7

If banks engage in fractional reserve banking, it means that

Accepted Answer

A)  they never run short of currency. 
B)  they hold less than 100 percent of their deposits as reserves. 
C)  a fraction of their legal reserves are held as top-grade government securities. 
D)  they do not hold any excess reserves.

Question 8

Bank examinations by the FDIC help reduce the ________ problem, by preventing bank managers from allocating funds already obtained from depositors to non-creditworthy loans.

Accepted Answer

A)  moral hazard 
B)  principled hazard 
C)  adverse selection 
D)  contrary selection

Question 9

One of the benefits of money as a medium of exchange is that

Accepted Answer

A)  it allows for private transactions such as trading vegetables for medical services. 
B)  it allows individuals to compare the relative value of goods. 
C)  over time it will become more valuable so that individuals can purchase more goods and services. 
D)  it allows for specialization that leads to economic efficiencies.

Question 10

The possibility that a borrower might engage in riskier behavior after a loan has been obtained is

Accepted Answer

A)  asymmetric information. 
B)  adverse selection. 
C)  moral hazard. 
D)  financial intermediation.

Question 11

Given the list of assets below, which is the most liquid?

Accepted Answer

A)  $500 worth of General Motors common stock 
B)  $500 worth of General Motors bonds 
C)  A $500 travelers check 
D)  A one-ounce gold coin

Question 12

Of the items in the following lists, which go from most liquid to least liquid?

Accepted Answer

A)  a checking account, a house, a six-month certificate of deposit, shares of stock 
B)  a six-month certificate of deposit, shares of stock, a house, a checking account 
C)  a checking account, a certificate of deposit, shares of stock, a house 
D)  a house, a six-month certificate of deposit, shares of stock, a checking account

Question 13

The actual money multiplier multiplied by the change in total reserves is the

Accepted Answer

A)  federal funds rate. 
B)  discount rate. 
C)  potential money multiplier. 
D)  actual change in the money supply.

Question 14

Which of the following is NOT a function of money?

Accepted Answer

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

Question 15

Which of the following is a correct reason for stating that the United States has a fiduciary monetary system? I. Our money is convertible to a fixed amount of silver or gold.
II) Our money has a predictable value.

Accepted Answer

A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II

Question 16

The difference between assets and liabilities is

Accepted Answer

A)  a sweep account. 
B)  a balance sheet. 
C)  net worth. 
D)  legal reserves.

Question 17

The liquidity approach to measuring money stresses the role of money as a

Accepted Answer

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

Question 18

The balance sheet of a bank shows its

Accepted Answer

A)  profits and losses. 
B)  assets and liabilities. 
C)  earnings and expenses. 
D)  revenues and costs.

Question 19

All transaction deposits are included in

Accepted Answer

A)  M1 only. 
B)  M2 only. 
C)  both M1 and M2. 
D)  savings balances only.

Question 20

Which of the following describes a moral hazard problem?

Accepted Answer

A)  a process by which individuals have substantial resources devoted to the exchange process and need to make a profit or they will be adversely affected 
B)  a post-contractual problem that may result because participants to the exchange process have information that allows them to act in an opportunistic manner 
C)  a process by which individual buyers or sellers with better information are more likely to participate in voluntary exchange 
D)  a contractual problem that results because monopolies exist in all economies

Exam 15: Money, Banking, and Central Banking