Question 1

The supply of money is easier to control with commodity money than it is with fiat money.

Accepted Answer

A) True 
 B)False

Question 2

If people speculate that a run on one bank will cause a run on all banks in the financial system,and this speculation proves accurate,then the financial system would experience what is known as a

Accepted Answer

A) commodity crisis. 
B) securitization meltdown. 
C) bank panic. 
D) institutional death spiral.

Question 3

If the bank of Waterloo receives a $10,000 deposit and the reserve requirement is 10 percent,how much can the bank loan out? (Assume that before the deposit this bank is just meeting its legal reserve requirement. )

Accepted Answer

A) $1,000 
B) $9,000 
C) $10,000 
D) $11,000

Question 4

If the required reserve ratio is 10 percent,an increase in bank reserves of $1,000 can support an increase in checking account deposits (including the original deposit)in the banking system as a whole of up to

Accepted Answer

A) $100. 
B) $1,000. 
C) $10,000. 
D) $100,000.

Question 5

Which of the following is an appropriate policy for the Fed to pursue if it wants to increase the money supply?

Accepted Answer

A) raise the reserve requirement 
B) raise the discount rate 
C) buy U.S.Treasury bills 
D) lower taxes

Question 6

A commercial bank like Comerica creates money by

Accepted Answer

A) printing paper money. 
B) earning profits. 
C) selling corporate bonds. 
D) making loans.

Question 7

Which of the following is a function that money serves?

Accepted Answer

A) medium of exchange 
B) unit of account 
C) store of value 
D) All of the above are correct.

Question 8

Bank panics have largely disappeared in the United States because

Accepted Answer

A) banks are now required to hold a larger fraction of deposits as reserves. 
B) bank loans are more closely monitored by the Federal Reserve. 
C) of low interest rates. 
D) of deposit insurance.

Question 9

Which of the following is one of the most important benefits of money in an economy?

Accepted Answer

A) Money allows for the exchange of goods and services. 
B) Money allows for the accumulation of wealth. 
C) Money makes exchange easier,leading to more specialization and higher productivity. 
D) Money encourages people to produce all of their own goods (self-sufficiency)and therefore increases economic stability.

Question 10

The most liquid measure of money supply is

Accepted Answer

A) M0. 
B) M1. 
C) M2. 
D) M3.

Question 11

Banks hold 100% of their checking deposits as vault cash to ensure that bank runs do not occur.

Accepted Answer

A) True 
 B)False

Question 12

In response to the destructive bank panics of the Great Depression,future bank panics are designed to be prevented by

Accepted Answer

A) the Federal Reserve System acting as a lender of last resort. 
B) the Federal Reserve System conducting open market operations. 
C) the establishment of the Federal Deposit Insurance Corporation. 
D) establishing a fractional reserve system of banking. 
E) increasing the required reserve ratio to 100%.

Question 13

Open market operations refer to the purchase or sale of ________ to control the money supply.

Accepted Answer

A) corporate bonds and stocks by the Federal Reserve 
B) U.S.Treasury securities by the Federal Reserve 
C) corporate bonds and stocks by the U.S.Treasury 
D) U.S.Treasury securities by the U.S.Treasury

Question 14

Would the maximum loan that a bank can make be different when receiving a discount loan from the Federal Reserve of $1 million versus receiving a checking account deposit of $1 million? Explain why or why not.

Accepted Answer

The answer of Would the maximum loan that a bank...

Question 15

The required reserves of a bank equal its ________ the required reserve ratio.

Accepted Answer

A) deposits divided by 
B) deposits multiplied by 
C) loans divided by 
D) loans multiplied by

Question 16

Which of the following is an asset for a bank?

Accepted Answer

A) deposits of its customers 
B) short-term borrowing 
C) shareholders' equity 
D) loans

Question 17

How do open market operations work?

Accepted Answer

The answer of How do open market operations work?...

Question 18

In the United States,each bank panic in the late nineteenth and early twentieth centuries was accompanied by

Accepted Answer

A) inflation. 
B) deflation. 
C) a depression. 
D) a recession.

Question 19

Which policy tool allows the Federal Reserve the greatest control over monetary policy?

Accepted Answer

A) the discount rate 
B) open market operations 
C) the reserve requirement 
D) lender of last resort

Question 20

The seven members of the Board of Governors of the Federal Reserve are appointed by

Accepted Answer

A) Congress. 
B) the President. 
C) the Governors of the States. 
D) leaders in the banking industry. 
E) the Treasury Department.

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