Question 1

With fractional reserve banking

Accepted Answer

A)  banks can not generate profits.
B)  monetary policy will be ineffective.
C)  banks retain only a portion of their deposits in their vaults or at Federal Reserve banks.
D)  banks can act as securities brokers.

Question 2

The maximum potential money multiplier is equal to

Accepted Answer

A)  the reserve ratio.
B)  the inverse of the required reserve ratio.
C)  one minus the reserve ratio
D)  the number of dollars on reserve.

Question 3

Small-denomination time deposits are less than

Accepted Answer

A)  $1 million.
B)  $100,000.
C)  $10,000.
D)  $1,000.

Question 4

Any asset that sellers will accept as payment is a(n)

Accepted Answer

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

Question 5

The direct exchange of goods and services for other goods and services is known as

Accepted Answer

A)  primitive trade.
B)  nonmarket trade.
C)  barter.
D)  purchasing power parity.

Question 6

The Federal Reserve will engage in open market operations when

Accepted Answer

A)  it wants to punish private banks because they are not keeping the required level of reserves.
B)  it wants to change the money supply.
C)  it wants to change the reserve ratio.
D)  it wants to increase the total amount of reserves since government securities are considered a reserve.

Question 7

The possibility that a borrower might engage in riskier behavior after a loan is made is called

Accepted Answer

A)  adverse selection.
B)  liability aversion.
C)  moral hazard.
D)  the risk of default.

Question 8

The concept of holding reserves, such as gold, that are less than the value of the total deposits

Accepted Answer

A)  is known as fractional reserve banking.
B)  has been illegal since the passage of the Financial Services Modernization Act of 1999.
C)  is known as non-credit banking.
D)  None of the above are correct.

Question 9

Suppose you are offered a new smartphone in exchange for thirty hours of your work in your friend's garden. This is an example of

Accepted Answer

A)  money as a medium of exchange.
B)  money as a store of value.
C)  barter.
D)  money as a standard of deferred payment.

Question 10

A monetary system is preferable over the barter system because of the problems associated with

Accepted Answer

A)  cash leakages.
B)  the double coincidence of wants.
C)  the law of diminishing marginal utility.
D)  the law of increasing relative costs.

Question 11

An individual who desires the most liquid asset possible will hold

Accepted Answer

A)  currency.
B)  a savings account.
C)  checkable deposits at a bank.
D)  U.S. government bonds.

Question 12

A property of an asset that makes it desirable for use as a means of settling debts maturing in the future is a(n)

Accepted Answer

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

Question 13

Which of the following is TRUE of M2?

Accepted Answer

A)  It is larger than M1.
B)  It excludes savings deposits.
C)  It does not include highly liquid components of the money supply.
D)  It is less than M1.

Question 14

Which of the following statements is/are correct?
I. Depository institution managers undertake riskier actions than they otherwise would because of the existence of deposit insurance.
II. Because of the existence of deposit insurance, depositors in savings and loans and other banks have little incentive to investigate the financial stability of these institutions.

Accepted Answer

A)  I only
B)  II only
C)  both I and II
D)  neither I nor II

Question 15

Why is money as a medium of exchange important in an economy?

Accepted Answer

Money permits more specialization and re...

Question 16

Open market operations involve

Accepted Answer

A)  the buying and selling of existing corporate bonds.
B)  the buying and selling of existing corporate stocks.
C)  the buying and selling of existing federal government bonds.
D)  the buying and selling of Federal Reserve bonds.

Question 17

When banks reduce the reserve ratio, the potential money multiplier

Accepted Answer

A)  increases.
B)  decreases.
C)  remains unchanged.
D)  sometimes increases, and sometimes decreases depending on the rate of inflation.

Question 18

According to the text, the actual M1 multiplier in the U.S. today is

Accepted Answer

A)  between 0 and 1.
B)  between 1.5 and 2.0.
C)  negative.
D)  over 10.

Question 19

Which of the following has been a problem faced by the FDIC in its provision of federal deposit insurance?

Accepted Answer

A)  moral hazard arising from the tendency for the highest-risk banks to be those most interested in obtaining deposit insurance in the first place
B)  adverse selection arising from the tendency for banks to take on more risk after they receive deposit insurance
C)  moral hazard arising from the tendency for banks to take on more risk after they receive deposit insurance
D)  a relatively low number of bank failures each year, which has reduced the need for deposit insurance

Question 20

Assuming a reserve ratio of 10 percent, if a bank receives $100,000 in deposits how much can the bank loan out?

Accepted Answer

A)  $90,000
B)  $100,000
C)  $110,000
D)  $10,000

Exam 14: Money Banking and Central Banking

Assuming a reserve ratio of 10 percent, if a bank receives $100,000 in deposits how much can the bank loan out?

Correct Answer
verified

The concept of holding reserves, such as gold, that are less than the value of the total deposits

Correct Answer
verified

Open market operations involve

Correct Answer
verified

The direct exchange of goods and services for other goods and services is known as

Correct Answer
verified

A monetary system is preferable over the barter system because of the problems associated with

Correct Answer
verified

The Federal Reserve will engage in open market operations when

Correct Answer
verified

Small-denomination time deposits are less than

Correct Answer
verified

A property of an asset that makes it desirable for use as a means of settling debts maturing in the future is a(n)

Correct Answer
verified

Suppose you are offered a new smartphone in exchange for thirty hours of your work in your friend's garden. This is an example of

Correct Answer
verified

When banks reduce the reserve ratio, the potential money multiplier

Correct Answer
verified

The maximum potential money multiplier is equal to

Correct Answer
verified

Which of the following is TRUE of M2?

Correct Answer
verified

Why is money as a medium of exchange important in an economy?

Correct Answer
verified
Money permits more specialization and re...
View Answer

Any asset that sellers will accept as payment is a(n)

Correct Answer
verified

An individual who desires the most liquid asset possible will hold

Correct Answer
verified

According to the text, the actual M1 multiplier in the U.S. today is

Correct Answer
verified

With fractional reserve banking

Correct Answer
verified

Correct Answer
verified

Which of the following has been a problem faced by the FDIC in its provision of federal deposit insurance?

Correct Answer
verified

The possibility that a borrower might engage in riskier behavior after a loan is made is called

Correct Answer
verified

Exam 14: Money Banking and Central Banking

Assuming a reserve ratio of 10 percent, if a bank receives $100,000 in deposits how much can the bank loan out?

Correct AnswerverifiedShow Answer

The concept of holding reserves, such as gold, that are less than the value of the total deposits

Correct AnswerverifiedShow Answer

Open market operations involve

Correct AnswerverifiedShow Answer

The direct exchange of goods and services for other goods and services is known as

Correct AnswerverifiedShow Answer

A monetary system is preferable over the barter system because of the problems associated with

Correct AnswerverifiedShow Answer

The Federal Reserve will engage in open market operations when

Correct AnswerverifiedShow Answer

Small-denomination time deposits are less than

Correct AnswerverifiedShow Answer

A property of an asset that makes it desirable for use as a means of settling debts maturing in the future is a(n)

Correct AnswerverifiedShow Answer

Suppose you are offered a new smartphone in exchange for thirty hours of your work in your friend's garden. This is an example of

Correct AnswerverifiedShow Answer

When banks reduce the reserve ratio, the potential money multiplier

Correct AnswerverifiedShow Answer

The maximum potential money multiplier is equal to

Correct AnswerverifiedShow Answer

Which of the following is TRUE of M2?

Correct AnswerverifiedShow Answer

Why is money as a medium of exchange important in an economy?

Correct AnswerverifiedMoney permits more specialization and re...View AnswerShow Answer

Any asset that sellers will accept as payment is a(n)

Correct AnswerverifiedShow Answer

An individual who desires the most liquid asset possible will hold

Correct AnswerverifiedShow Answer

According to the text, the actual M1 multiplier in the U.S. today is

Correct AnswerverifiedShow Answer

With fractional reserve banking

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following has been a problem faced by the FDIC in its provision of federal deposit insurance?

Correct AnswerverifiedShow Answer

The possibility that a borrower might engage in riskier behavior after a loan is made is called

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
Money permits more specialization and re...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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