Question 1

The reserve ratio is 20 percent. If the Fed buys $1 million of U.S. government securities and the check is deposited in Bank A, but Bank A increases its vault cash by the entire amount, then the money supply

Accepted Answer

A)   does not increase.
B)   increases by $800,000.
C)   increases by $1 million.
D)   increases by more than $1 million.E) A) and B)
F) All of the above

Question 2

In the United States, where do depository institutions hold their reserves?

Accepted Answer

A)   In their own vaults in the form of precious metals such as gold and silver
B)   In accounts with the U.S. Department of the Treasury
C)   Either as vault cash or on reserve with Federal Reserve district banks
D)   All reserves must be held at a Federal Reserve district bankE) A) and D)
F) A) and B)

Question 3

If depository insurance exists, bank managers may make riskier loans than they would have otherwise, which is an example of

Accepted Answer

A)   regulatory lag.
B)   irrational behavior.
C)   moral hazard.
D)   adverse selection.E) B) and D)
F) C) and D)

Question 4

The Federal Open Market Committee has responsibility for

Accepted Answer

A)   appointing members to the Board of Governors of the Federal Reserve system.
B)   printing money.
C)   issuing orders to buy or sell government securities for the Fed.
D)   advising the Treasury Department on monetary policy.E) C) and D)
F) A) and D)

Question 5

An item to which a business holds legal claim is called a(n)

Accepted Answer

A)   asset.
B)   liability.
C)   loan.
D)   time deposit.E) All of the above
F) None of the above

Question 6

Which function of money allows for comparison shopping?

Accepted Answer

A)   Medium of exchange
B)   Unit of accounting
C)   Store of value
D)   Standard of deferred paymentE) C) and D)
F) A) and D)

Question 7

The most important function of the Fed is to

Accepted Answer

A)   provide a system for collecting and clearing checks.
B)   collect taxes.
C)   support the federal government's deficit spending by buying government securities.
D)   regulate the money supply.E) All of the above
F) A) and C)

Question 8

Which of the following is the most liquid asset?

Accepted Answer

A)   small denomination time deposits
B)   currency
C)   short-term treasury bonds
D)   shares of stockE) None of the above
F) C) and D)

Question 9

The level of reserves in the banking system is determined by

Accepted Answer

A)   the American Banking Association.
B)   the Federal Open Market Committee.
C)   bond dealers.
D)   the Treasury Department.E) B) and C)
F) A) and B)

Question 10

To increase the money supply,

Accepted Answer

A)   the Federal Reserve should sell government securities.
B)   the commercial banks should reduce their loans.
C)   the Federal Reserve should buy government securities.
D)   the Federal Reserve should reduce its loans to banks.E) B) and C)
F) A) and D)

Question 11

If Joe buys a Mocha at Starbucks, his money is acting as a

Accepted Answer

A)   unit of accounting.
B)   standard of deferred payment.
C)   store of value.
D)   medium of exchange.E) A) and B)
F) A) and C)

Question 12

Checkable and debitable accounts in commercial banks and other financial institutions are classified as money because

Accepted Answer

A)   they are not liabilities of the banks.
B)   they sometimes earn an interest income for the depositor.
C)   they are generally acceptable in the payment of debt.
D)   banks hold currency in their vaults equal to the value of demand deposits.E) A) and B)
F) A) and C)

Question 13

The process by which financial institutions accept savings from businesses, households and governments and lend the savings to other businesses, households and governments is

Accepted Answer

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

Question 14

A system in which depository institutions hold reserves that are less than the amount of total deposits is

Accepted Answer

A)   a fractional reserve banking system.
B)   a percentage reserve banking system.
C)   a ratio reserve banking system.
D)   a legal reserve banking system.E) A) and D)
F) None of the above

Question 15

Which of the following is NOT a function of the Federal Reserve System?

Accepted Answer

A)   supply fiduciary currency to the economy
B)   provide a system for check collection and clearing
C)   implement fiscal policy
D)   regulate the money supplyE) A) and C)
F) C) and D)

Question 16

Financial intermediaries are institutions that

Accepted Answer

A)   create money.
B)   provide checking accounts.
C)   set interest rates.
D)   transfer funds in the form of loans from savers to investors.E) None of the above
F) A) and B)

Question 17

Adverse selection refers to the

Accepted Answer

A)   possibility that the borrower may engage in riskier behavior after the loan is obtained.
B)   likelihood that a potential borrower may use the funds that he receives for unworthy, high risk projects.
C)   possession of information by one party in a financial transaction not known by the other party.
D)   use of statistical discrimination in making loans.E) A) and B)
F) All of the above

Question 18

If the reserve ratio decreases from 20 percent to 10 percent, then the potential money multiplier

Accepted Answer

A)   increases from 5 to 10.
B)   decreases from 10 to 5.
C)   does not change.
D)   decreases from 20 to 10.E) B) and C)
F) None of the above

Question 19

To expand the money supply, the Fed should

Accepted Answer

A)   buy U.S. government securities.
B)   sell U.S. government securities.
C)   raise the required reserve ration.
D)   cut taxes.E) B) and C)
F) A) and D)

Question 20

If the reserve ratio is 25 percent, the maximum potential money multiplier is

Accepted Answer

A)   1.
B)   4.
C)   8.
D)   25.E) None of the above
F) A) and B)

Exam 15: Money, Banking, and Central Banking

Checkable and debitable accounts in commercial banks and other financial institutions are classified as money because

Correct AnswerverifiedShow Answer

Financial intermediaries are institutions that

Correct AnswerverifiedShow Answer

The reserve ratio is 20 percent. If the Fed buys $1 million of U.S. government securities and the check is deposited in Bank A, but Bank A increases its vault cash by the entire amount, then the money supply

Correct AnswerverifiedShow Answer

The process by which financial institutions accept savings from businesses, households and governments and lend the savings to other businesses, households and governments is

Correct AnswerverifiedShow Answer

If Joe buys a Mocha at Starbucks, his money is acting as a

Correct AnswerverifiedShow Answer

To expand the money supply, the Fed should

Correct AnswerverifiedShow Answer

Adverse selection refers to the

Correct AnswerverifiedShow Answer

An item to which a business holds legal claim is called a(n)

Correct AnswerverifiedShow Answer

To increase the money supply,

Correct AnswerverifiedShow Answer

If the reserve ratio decreases from 20 percent to 10 percent, then the potential money multiplier

Correct AnswerverifiedShow Answer

A system in which depository institutions hold reserves that are less than the amount of total deposits is

Correct AnswerverifiedShow Answer

The level of reserves in the banking system is determined by

Correct AnswerverifiedShow Answer

Which function of money allows for comparison shopping?

Correct AnswerverifiedShow Answer

If depository insurance exists, bank managers may make riskier loans than they would have otherwise, which is an example of

Correct AnswerverifiedShow Answer

If the reserve ratio is 25 percent, the maximum potential money multiplier is

Correct AnswerverifiedShow Answer

In the United States, where do depository institutions hold their reserves?

Correct AnswerverifiedShow Answer

The Federal Open Market Committee has responsibility for

Correct AnswerverifiedShow Answer

The most important function of the Fed is to

Correct AnswerverifiedShow Answer

Which of the following is the most liquid asset?

Correct AnswerverifiedShow Answer

Which of the following is NOT a function of the Federal Reserve System?

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