Question 1

Required reserves of banks are a fixed percentage of their

Accepted Answer

A)   loans.
B)   assets.
C)   deposits.
D)   All of these responses are correct.E) B) and C)
F) All of the above

Question 2

The narrowest definition of the money supply, including cash and checking deposits, is known as

Accepted Answer

A)   M0.
B)   M1.
C)   M payments.
D)   currency.
E)   real-value money.F) B) and C)
G) None of the above

Question 3

Systemic risks inhere mainly in the largest financial institutions.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is included in the M2 definition of the money supply?

Accepted Answer

A)   Cash and currency
B)   Checkable deposits
C)   Money market deposit accounts
D)   Money market mutual funds
E)   All of these responses are correct.F) A) and B)
G) A) and C)

Question 5

A principal disadvantage of conventional checking accounts compared to money market mutual funds is that checking accounts

Accepted Answer

A)   are less liquid.
B)   often do not pay interest.
C)   cannot be used as a store of value.
D)   are not insured by deposit insurance.E) B) and D)
F) B) and C)

Question 6

Bank failures in the United States occurred

Accepted Answer

A)   frequently through the 1960s and declined since then.
B)   infrequently through the 1960s and have become more common since then.
C)   frequently through the 1930s, declined after that time, and became more common in 2008.
D)   infrequently through the 1930s, increased after that time, and became less common in 2008.E) A) and D)
F) A) and C)

Question 7

The money-creation formula is oversimplified because it assumes that

Accepted Answer

A)   every recipient of a bank loan will redeposit the proceeds in another bank.
B)   loan recipients will not take any of the proceeds in cash.
C)   every bank lends out all excess reserves.
D)   All of these responses are correct.E) A) and B)
F) A) and C)

Question 8

Under fractional reserve banking system, banks

Accepted Answer

A)   hold more reserves than deposits.
B)   generally lend out majority of the funds deposited.
C)   cause the money supply to fall by lending out reserves.
D)   None of the above is correct.E) B) and C)
F) B) and D)

Question 9

The principal innovation that increases the safety of bank deposits is

Accepted Answer

A)   computerized accounting systems.
B)   credit cards.
C)   automatic teller machines.
D)   deposit insurance.E) B) and C)
F) B) and D)

Question 10

A unit of account is the function of money when used as a yardstick to post prices and record debts.

Accepted Answer

A) True 
 B)False

Question 11

Recently, the financial crisis led to a bank run in

Accepted Answer

A)   Brazil.
B)   Germany and France.
C)   Japan.
D)   England.E) C) and D)
F) A) and B)

Question 12

Liquidity refers to the

Accepted Answer

A)   rapidity with which money flows through the economy.
B)   ease with which an asset can be converted into cash.
C)   ease with which banks move funds from checking to savings accounts.
D)   All of these responses are correct.E) A) and B)
F) None of the above

Question 13

The primary benefit of a monetary system of exchange compared to a barter system is the increased

Accepted Answer

A)   ability to record transactions.
B)   time necessary to find trading partners.
C)   time devoted to shopping.
D)   efficiency in arranging transactions.E) A) and B)
F) None of the above

Question 14

Bankers' decisions on how much to hold in reserves influence the supply of money.

Accepted Answer

A) True 
 B)False

Question 15

The most common form of trading goods for goods is

Accepted Answer

A)   bilateral trade.
B)   government commodity distribution.
C)   status-based trades.
D)   barter.
E)   payments in kind.F) A) and B)
G) None of the above

Question 16

In addition to fiscal policy, the other main tool used to affect aggregate demand is

Accepted Answer

A)   trade policy.
B)   industrial policy.
C)   planning policy.
D)   monetary policy.E) A) and B)
F) None of the above

Question 17

A banker motivated by profit maximization may make decisions that destabilize the banking system.

Accepted Answer

A) True 
 B)False

Question 18

If people begin to hold more cash, the money-multiplier process will

Accepted Answer

A)   increase in intensity.
B)   remain the same.
C)   decrease in actual size.
D)   cause larger amounts of excess reserves.E) C) and D)
F) A) and C)

Question 19

The net worth of a bank is

Accepted Answer

A)   equal to the value of assets.
B)   equal to the value of deposits.
C)   equal to the value of liabilities.
D)   the value of assets less liabilities.
E)   the value of loans and securities.F) All of the above
G) A) and E)

Question 20

Money only consists of coins, paper money, and checkable deposits.

Accepted Answer

A) True 
 B)False

Exam 28: Money and the Banking System

Recently, the financial crisis led to a bank run in

Correct AnswerverifiedShow Answer

A banker motivated by profit maximization may make decisions that destabilize the banking system.

Correct AnswerverifiedShow Answer

In addition to fiscal policy, the other main tool used to affect aggregate demand is

Correct AnswerverifiedShow Answer

The money-creation formula is oversimplified because it assumes that

Correct AnswerverifiedShow Answer

Which of the following is included in the M2 definition of the money supply?

Correct AnswerverifiedShow Answer

Money only consists of coins, paper money, and checkable deposits.

Correct AnswerverifiedShow Answer

Bankers' decisions on how much to hold in reserves influence the supply of money.

Correct AnswerverifiedShow Answer

Liquidity refers to the

Correct AnswerverifiedShow Answer

A unit of account is the function of money when used as a yardstick to post prices and record debts.

Correct AnswerverifiedShow Answer

Bank failures in the United States occurred

Correct AnswerverifiedShow Answer

Systemic risks inhere mainly in the largest financial institutions.

Correct AnswerverifiedShow Answer

Under fractional reserve banking system, banks

Correct AnswerverifiedShow Answer

Required reserves of banks are a fixed percentage of their

Correct AnswerverifiedShow Answer

The most common form of trading goods for goods is

Correct AnswerverifiedShow Answer

The principal innovation that increases the safety of bank deposits is

Correct AnswerverifiedShow Answer

A principal disadvantage of conventional checking accounts compared to money market mutual funds is that checking accounts

Correct AnswerverifiedShow Answer

The net worth of a bank is

Correct AnswerverifiedShow Answer

The primary benefit of a monetary system of exchange compared to a barter system is the increased

Correct AnswerverifiedShow Answer

If people begin to hold more cash, the money-multiplier process will

Correct AnswerverifiedShow Answer

The narrowest definition of the money supply, including cash and checking deposits, is known as

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified