Question 1

Which of the following is included in M1?

Accepted Answer

A)  Balances in savings accounts.
B)  Certificates of deposit.
C)  Balances in transactions accounts.
D)  Treasury bills.

Question 2

Which of the following is not correct about the money kept in transactions accounts?

Accepted Answer

A)  It permits direct payment to a third party.
B)  It is backed by gold held by the government.
C)  It is part of the basic money supply.
D)  It is a good substitute for cash in many cases.

Question 3

Initially a bank has a required reserve ratio of 10 percent and no excess reserves.If $1,000 is deposited into the bank,then,ceteris paribus,

Accepted Answer

A)  This bank can increase its loans by $900.
B)  This bank can increase its loans by $1,000.
C)  Total reserves will increase by $900.
D)  Required reserves will increase by $1,000.

Question 4

When money serves as a mechanism for transforming current income into future purchases,it is functioning as a

Accepted Answer

A)  Medium of exchange.
B)  Store of value.
C)  Standard of account.
D)  Standard of value.

Question 5

If the banking system has demand deposits of $100,000,total reserves equal to $20,000,and a required reserve ratio of 20 percent,the banking system can increase the volume of loans by

Accepted Answer

A)  $0.
B)  $20,000.
C)  $80,000.
D)  $100,000.

Question 6

When someone takes out a loan at a bank,the money supply becomes smaller.

Accepted Answer

A) True 
 B)False

Question 7

According to a World View article titled "The Cashless Society," the Russian economy's turn to a barter system caused a

Accepted Answer

A)  Movement inside (or further inside) the Russian production possibilities curve.
B)  Movement beyond the production possibilities curve.
C)  Shift of the production possibilities curve outward because the economy's production potential increased.
D)  None of the choices are correct.

Question 8

If the minimum reserve ratio is 20 percent,then $1 of reserves can support a maximum of $10 more in transactions deposits.

Accepted Answer

A) True 
 B)False

Question 9

Suppose a banking system has a required reserve ratio of 10 percent.What is the maximum possible increase in the money supply in response to a $2 billion increase in excess reserves for the whole banking system?

Accepted Answer

A)  $20 billion.
B)  $2 billion.
C)  $200 million.
D)  $210 million.

Question 10

-Refer to Table 13.2.If ABC Bank has a required reserve ratio of 15 percent,it can legally make a onetime maximum loan of

Accepted Answer

A)  $30,000.
B)  $40,000.
C)  $50,000.
D)  $80,000.

Question 11

Federal deposit insurance was established by

Accepted Answer

A)  The Constitution of the United States in 1779.
B)  The National Banking Act of 1863.
C)  The creation of the FDIC and FSLIC in 1933 and 1934.
D)  The Monetary Control Act of 1980.

Question 12

Which of the following is a bank liability?

Accepted Answer

A)  Reserve deposits at the Fed.
B)  Securities the bank has purchased.
C)  Transactions account balances.
D)  Loans made to customers.

Question 13

Which of the following is true about the quantity of money in the U.S.economy?

Accepted Answer

A)  It is equal to the amount of currency in circulation.
B)  It is much greater than the amount of currency in circulation.
C)  It is equal to the value of the government's gold reserves.
D)  It is equal to the total amount of income.

Question 14

A reduction in the minimum required reserve ratio will reduce the money multiplier.

Accepted Answer

A) True 
 B)False

Question 15

Checking accounts perform the same market functions as cash.

Accepted Answer

A) True 
 B)False

Question 16

Suppose a banking system has $100,000 in deposits,a required reserve ratio of 25 percent,and total bank reserves for the whole system of $25,000.Then the potential increase in deposit creation for the whole system is equal to

Accepted Answer

A)  $0.
B)  $25,000.
C)  $50,000.
D)  $100,000.

Question 17

The basic money supply or M1 includes

Accepted Answer

A)  Currency in circulation,transactions accounts,and traveler's checks.
B)  Currency in circulation,transactions accounts,and savings accounts.
C)  Currency in circulation,transactions accounts,traveler's checks,and money market mutual funds.
D)  Currency in circulation, savings accounts, and credit card balances.

Question 18

Describe the three purposes that money must perform.

Accepted Answer

Money must function as a medium of excha...

Question 19

In the 2008 credit crisis,the FDIC increased the limit on insured deposits from

Accepted Answer

A)  $50,000 to $100,000.
B)  $100,000 to $200,000.
C)  $100,000 to $250,000.
D)  $250,000 to $500,000.

Question 20

The banking system can lend the sum of its excess reserves because

Accepted Answer

A)  Banks are required to keep only a fraction of deposits on reserve.
B)  Bank assets are greater than bank liabilities.
C)  Required reserves are a leakage from the banking system.
D)  The money multiplier is less than 1.

Exam 13: Money and Banks

A reduction in the minimum required reserve ratio will reduce the money multiplier.

Correct AnswerverifiedShow Answer

Describe the three purposes that money must perform.

Correct AnswerverifiedMoney must function as a medium of excha...View AnswerShow Answer

Checking accounts perform the same market functions as cash.

Correct AnswerverifiedShow Answer

If the banking system has demand deposits of $100,000,total reserves equal to $20,000,and a required reserve ratio of 20 percent,the banking system can increase the volume of loans by

Correct AnswerverifiedShow Answer

The basic money supply or M1 includes

Correct AnswerverifiedShow Answer

Suppose a banking system has a required reserve ratio of 10 percent.What is the maximum possible increase in the money supply in response to a $2 billion increase in excess reserves for the whole banking system?

Correct AnswerverifiedShow Answer

Which of the following is a bank liability?

Correct AnswerverifiedShow Answer

Federal deposit insurance was established by

Correct AnswerverifiedShow Answer

Suppose a banking system has $100,000 in deposits,a required reserve ratio of 25 percent,and total bank reserves for the whole system of $25,000.Then the potential increase in deposit creation for the whole system is equal to

Correct AnswerverifiedShow Answer

-Refer to Table 13.2.If ABC Bank has a required reserve ratio of 15 percent,it can legally make a onetime maximum loan of

Correct AnswerverifiedShow Answer

When someone takes out a loan at a bank,the money supply becomes smaller.

Correct AnswerverifiedShow Answer

Which of the following is true about the quantity of money in the U.S.economy?

Correct AnswerverifiedShow Answer

In the 2008 credit crisis,the FDIC increased the limit on insured deposits from

Correct AnswerverifiedShow Answer

Which of the following is included in M1?

Correct AnswerverifiedShow Answer

Which of the following is not correct about the money kept in transactions accounts?

Correct AnswerverifiedShow Answer

The banking system can lend the sum of its excess reserves because

Correct AnswerverifiedShow Answer

When money serves as a mechanism for transforming current income into future purchases,it is functioning as a

Correct AnswerverifiedShow Answer

If the minimum reserve ratio is 20 percent,then $1 of reserves can support a maximum of $10 more in transactions deposits.

Correct AnswerverifiedShow Answer

According to a World View article titled "The Cashless Society," the Russian economy's turn to a barter system caused a

Correct AnswerverifiedShow Answer

Initially a bank has a required reserve ratio of 10 percent and no excess reserves.If $1,000 is deposited into the bank,then,ceteris paribus,

Correct AnswerverifiedShow Answer

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Money must function as a medium of excha...
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