Question 1

One problem for economic stability is that in a period of inflation

Accepted Answer

A)   banks will be tempted to increase lending in order to increase profits.
B)   banks will be tempted to decrease lending in order to increase profits.
C)   profit-oriented banks will tend to hold excess reserves and decrease the money supply.
D)   deposits will decrease and banks will have to reduce lending.

Question 2

The government banking regulation that places an upper limit on the money supply is

Accepted Answer

A)   deposit insurance by the FDIC.
B)   reserve requirements on bank deposits.
C)   periodic bank examinations and audits.
D)   limitations on the types of assets that a bank may own.

Question 3

Nowadays,most observers believe that monetary policy

Accepted Answer

A)   is less important than fiscal policy.
B)   is more important than fiscal policy.
C)   and fiscal policy are equally important.
D)   and fiscal policy are both unimportant.

Question 4

The official definition of the money supply that includes coins,paper money,travelers' checks,conventional checking accounts,and other checkable deposits at banks and savings institutions is called ____.

Accepted Answer

A)   M1
B)   M2
C)   M3
D)   L

Question 5

A banker operating under a system of fractional reserves

Accepted Answer

A)   is exposed to potential bank runs.
B)   must keep a prudent level of reserves.
C)   must lend money carefully.
D)   All of the above are correct.

Question 6

It is necessary for the Federal Reserve to regulate the money supply because

Accepted Answer

A)   banks tend to act in a counter-cyclical manner with regard to the money supply.
B)   banks are not profit-oriented,and tend to be unresponsive to the needs of business.
C)   left to itself,the banking system will create a gyrating money supply that will be destabilizing.
D)   left to itself,the banking system will not be able to increase or decrease the money supply.

Question 7

When a banker accepts a deposit of $1,000 in cash and puts $200 aside as required reserves and then makes a loan of $800 to a new borrower,this set of transactions

Accepted Answer

A)   decreases the money supply by $1,000.
B)   decreases the money supply by $200.
C)   does not change the money supply.
D)   increases the money supply by $200.
E)   increases the money supply by $800.

Question 8

The banking system of the United States is a fractional reserve system.What dangers does this pose for the safety of the banking system?

Accepted Answer

Fractional reserve banking means that ea...

Question 9

An increase in the reserve ratio would tend to

Accepted Answer

A)   increase excess reserves and raise the money multiplier.
B)   decrease excess reserves and decrease the money multiplier.
C)   increase excess reserves and decrease the money multiplier.
D)   decrease excess reserves and raise the money multiplier.

Question 10

It is imperative that banks maintain a reputation for safety in order that

Accepted Answer

A)   regulators can reduce their efforts.
B)   bank runs can be reduced or prevented.
C)   customers will not be afraid to ask for loans.
D)   stockholders can earn a high rate of return.

Question 11

Fractional reserve banking began as a search for

Accepted Answer

A)   a different metallic monetary system.
B)   additional sources of gold.
C)   different types of borrowers.
D)   additional profits.

Question 12

Gold and silver have historically been the most common form of commodity money.

Accepted Answer

A) True 
 B)False

Question 13

A single bank is limited in its ability to create money because

Accepted Answer

A)   loan recipients usually take the proceeds of the loan in cash.
B)   the FDIC will not permit it to create money unless the loans are guaranteed by the federal government.
C)   the money loaned will probably be deposited in another bank.
D)   federal legislation prohibits banks from creating money except to finance international trade.

Question 14

The FDIC

Accepted Answer

A)   insures most bank deposits for up to $250,000.
B)   eliminates the need for bank depositors to run to their bank when they hear bad news about the bank.
C)   has been credited with reducing the number of bank failures since 1933.
D)   All of the above are correct.

Question 15

A contraction of the money supply would have no effect on a recession.

Accepted Answer

A) True 
 B)False

Question 16

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.

Question 17

Which of the following observations is not true?

Accepted Answer

A)   Money is divisible.
B)   The value of money never remains the same.
C)   Money has an intrinsic value.
D)   Money is the most liquid form of asset.

Question 18

The U.S.government will probably return soon to a system of paper money backed by gold.

Accepted Answer

A) True 
 B)False

Question 19

E-cash cards are considered a major portion of the modern money supply.

Accepted Answer

A) True 
 B)False

Question 20

"Near monies" are

Accepted Answer

A)   stocks,bonds,and real estate.
B)   U.S.notes and Federal Reserve notes.
C)   included in the M1 definition of the money supply.
D)   liquid assets that are close substitutes for money.
E)   All of the above are correct.

Exam 12: Money and The Banking System

A single bank is limited in its ability to create money because

Correct AnswerverifiedShow Answer

The FDIC

Correct AnswerverifiedShow Answer

Nowadays,most observers believe that monetary policy

Correct AnswerverifiedShow Answer

When a banker accepts a deposit of $1,000 in cash and puts $200 aside as required reserves and then makes a loan of $800 to a new borrower,this set of transactions

Correct AnswerverifiedShow Answer

An increase in the reserve ratio would tend to

Correct AnswerverifiedShow Answer

A banker operating under a system of fractional reserves

Correct AnswerverifiedShow Answer

The official definition of the money supply that includes coins,paper money,travelers' checks,conventional checking accounts,and other checkable deposits at banks and savings institutions is called ____.

Correct AnswerverifiedShow Answer

A contraction of the money supply would have no effect on a recession.

Correct AnswerverifiedShow Answer

The banking system of the United States is a fractional reserve system.What dangers does this pose for the safety of the banking system?

Correct AnswerverifiedFractional reserve banking means that ea...View AnswerShow Answer

It is necessary for the Federal Reserve to regulate the money supply because

Correct AnswerverifiedShow Answer

Although checking deposits are considered money,they are actually

Correct AnswerverifiedShow Answer

The government banking regulation that places an upper limit on the money supply is

Correct AnswerverifiedShow Answer

"Near monies" are

Correct AnswerverifiedShow Answer

Gold and silver have historically been the most common form of commodity money.

Correct AnswerverifiedShow Answer

The U.S.government will probably return soon to a system of paper money backed by gold.

Correct AnswerverifiedShow Answer

Which of the following observations is not true?

Correct AnswerverifiedShow Answer

One problem for economic stability is that in a period of inflation

Correct AnswerverifiedShow Answer

E-cash cards are considered a major portion of the modern money supply.

Correct AnswerverifiedShow Answer

Fractional reserve banking began as a search for

Correct AnswerverifiedShow Answer

It is imperative that banks maintain a reputation for safety in order that

Correct AnswerverifiedShow Answer

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Fractional reserve banking means that ea...
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