Question 1

Barter is a system of

Accepted Answer

A)   trade without the use of money.
B)   trading one good for another.
C)   the double coincidence of wants.
D)   All of these responses are correct.E) C) and D)
F) A) and D)

Question 2

Money that is backed solely by a government decree is referred to as fiat money.

Accepted Answer

A) True 
 B)False

Question 3

Why are checking account balances included in the M1 definition of the money supply?

Accepted Answer

A)   Checking account balances are a traditional form of money that predates paper money.
B)   Checking account balances are used to make so many payments.
C)   Checking account balances are backed by gold and silver.
D)   Checking account balances pay interest.E) A) and C)
F) All of the above

Question 4

Define the following terms and explain their importance to the study of macroeconomics: 
a. money 
b. M1 
c. near money 
d. bank run

Accepted Answer

a. Money is the standard object used in ...

Question 5

Fractional reserve banking is a banking system in which banks hold only a fraction of deposits as reserves.

Accepted Answer

A) True 
 B)False

Question 6

The lion's share of purchases and transactions in the U.S. economy are made with coins and paper money.

Accepted Answer

A) True 
 B)False

Question 7

The one disadvantage of paper money is that it is easier to

Accepted Answer

A)   duplicate and counterfeit.
B)   carry.
C)   divide.
D)   store and use at a later time.E) A) and D)
F) A) and C)

Question 8

Banks are required to keep a minimum level of reserves on hand. The intent of this regulation is

Accepted Answer

A)   monetary control rather than bank safety.
B)   bank safety in case of bank runs.
C)   maintenance of bank profits.
D)   limiting the level of bank profits.E) B) and D)
F) A) and D)

Question 9

Liquidity is the ease with which an asset can be converted into the economy's medium of exchange.

Accepted Answer

A) True 
 B)False

Question 10

When a bank makes loans with excess reserves, it

Accepted Answer

A)   creates money.
B)   destroys money.
C)   alters the composition of M1.
D)   leaves the money supply unchanged.E) A) and B)
F) None of the above A

Question 11

The money-creation process generated by an injection of reserves stops when

Accepted Answer

A)   people deposit their loans into other banks.
B)   reserve requirements are raised.
C)   the increase in required reserves equals the size of the injection.
D)   bankers begin to fear runs and stop making loans.E) A) and B)
F) A) and D)

Question 12

Which of the following is included in M1?

Accepted Answer

A)   Savings accounts
B)   Money market deposit accounts
C)   Money market mutual funds
D)   Certificates of deposit
E)   None of the above is included.F) A) and E)
G) D) and E)

Question 13

The M1 money supply is composed of

Accepted Answer

A)   currency, demand deposits, traveler's checks, and other checkable accounts.
B)   currency, demand deposits, savings deposits, money market mutual funds, and small time deposits.
C)   currency, government bonds, gold certificates, and coins.
D)   None of the above is correct.E) None of the above
F) All of the above A

Question 14

What is fiat money? Why is fiat money important in the United States today?

Accepted Answer

Fiat (from the Latin for "Let it be done...

Question 15

Bankers' business decisions effect the money supply because bankers

Accepted Answer

A)   are respected men and women.
B)   have the ability to create money.
C)   use a special accounting system developed by the Federal Reserve Board.
D)   All of these responses are correct.E) A) and B)
F) None of the above

Question 16

The value of the deposit multiplier is increased if individuals hold all their money in cash.

Accepted Answer

A) True 
 B)False

Question 17

The objective of bank management is to

Accepted Answer

A)   maximize stockholders' profits by making risky investments and giving loans to borrowers who will pay the highest interest rates.
B)   refuse to make risky loans and make loans only to the safest borrowers.
C)   invest in the U.S. government securities and make loans only to established businesses.
D)   strike the appropriate balance between the attraction of bank profits and the need for bank safety.E) C) and D)
F) A) and B) D

Question 18

Bank regulation exists because public authorities are convinced that

Accepted Answer

A)   the balance between public interest and safety does not affect profitability, and should be removed from the hands of managers.
B)   the balance between bank profitability and public interest cannot be handled with legislation, but can be handled with regulation.
C)   the balance between bank profitability and safety cannot be left to profit-maximizing managers.
D)   the balance between bank safety and public interest can best be obtained by reliance on the market.E) A) and C)
F) A) and B)

Question 19

Although checking deposits are considered money, they are actually

Accepted Answer

A)   fictitious numbers in persons' checkbooks.
B)   backed by commodities like gold.
C)   not very useful for making payments.
D)   bookkeeping entries in bank balance sheets.E) B) and D)
F) B) and C)

Question 20

Bank regulators are concerned about the safety of depositors because

Accepted Answer

A)   bank failures were common throughout most of the U.S. history and have even occurred in recent decades.
B)   in the absence of federal insurance, depositors would lose their money if a bank failed.
C)   nervous depositors may rush to withdraw their accounts and produce a "run" that could threaten even a sound bank.
D)   All of these responses are correct.E) B) and C)
F) C) and D)

Exam 28: Money and the Banking System

Barter is a system of

Correct AnswerverifiedShow Answer

Money that is backed solely by a government decree is referred to as fiat money.

Correct AnswerverifiedShow Answer

Why are checking account balances included in the M1 definition of the money supply?

Correct AnswerverifiedShow Answer

Define the following terms and explain their importance to the study of macroeconomics: a. money b. M1 c. near money d. bank run

Correct Answerverifieda. Money is the standard object used in ...View AnswerShow Answer

Fractional reserve banking is a banking system in which banks hold only a fraction of deposits as reserves.

Correct AnswerverifiedShow Answer

The lion's share of purchases and transactions in the U.S. economy are made with coins and paper money.

Correct AnswerverifiedShow Answer

The one disadvantage of paper money is that it is easier to

Correct AnswerverifiedShow Answer

Banks are required to keep a minimum level of reserves on hand. The intent of this regulation is

Correct AnswerverifiedShow Answer

Liquidity is the ease with which an asset can be converted into the economy's medium of exchange.

Correct AnswerverifiedShow Answer

When a bank makes loans with excess reserves, it

Correct AnswerverifiedA

The money-creation process generated by an injection of reserves stops when

Correct AnswerverifiedShow Answer

Which of the following is included in M1?

Correct AnswerverifiedShow Answer

The M1 money supply is composed of

Correct AnswerverifiedA

What is fiat money? Why is fiat money important in the United States today?

Correct AnswerverifiedFiat (from the Latin for "Let it be done...View AnswerShow Answer

Bankers' business decisions effect the money supply because bankers

Correct AnswerverifiedShow Answer

The value of the deposit multiplier is increased if individuals hold all their money in cash.

Correct AnswerverifiedShow Answer

The objective of bank management is to

Correct AnswerverifiedD

Bank regulation exists because public authorities are convinced that

Correct AnswerverifiedShow Answer

Although checking deposits are considered money, they are actually

Correct AnswerverifiedShow Answer

Bank regulators are concerned about the safety of depositors because

Correct AnswerverifiedShow Answer

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a. Money is the standard object used in ...
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A

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A

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Fiat (from the Latin for "Let it be done...
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D

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