Question 1

Money is:

Accepted Answer

A)  any form of wealth.
B)  an asset that can be easily used to purchase goods and services.
C)  only currency designated by law.
D)  only currency in circulation.

Question 2

The U.S. dollar is defined as:

Accepted Answer

A)  fiat money, because it was established as money by an act of law.
B)  faith money, because we trust the government to defend its value.
C)  commodity-backed money, because it is convertible to gold.
D)  commodity money, because it is widely used to buy commodities.

Question 3

Commodity-backed money is more efficient than commodity money because commodity-backed money ties up fewer resources than commodity money.

Accepted Answer

A) True 
 B)False

Question 4

All of the following are responsibilities of the Federal Reserve EXCEPT to:

Accepted Answer

A)  control the monetary base.
B)  mint bills and coins.
C)  oversee and regulate the banking system.
D)  set the discount rate.

Question 5

_____ occurs when financial institutions assemble pools of loans and sell shares in the income from these pools.

Accepted Answer

A)  Loan origination
B)  Securitization
C)  Risk aversion
D)  Adverse selection

Question 6

Which of the following is part of M1?

Accepted Answer

A)  gold
B)  shares of corporate stock
C)  currency in a bank's vault
D)  traveler's checks

Question 7

Which of the following is near-money?

Accepted Answer

A)  a traveler's check
B)  a credit card
C)  a debit card
D)  a savings account

Question 8

The Federal Reserve reports on two main monetary aggregates:

Accepted Answer

A)  M2 and total debt.
B)  M1 and currency held by banks.
C)  M1 and M2.
D)  M1 and total stock purchases.

Question 9

If a bank has deposits of $100,000, cash in its vault of $10,000, and $15,000 on deposit at the Federal Reserve and if the required reserve ratio is 20%, then the bank:

Accepted Answer

A)  has no excess reserves.
B)  has excess reserves of $5,000.
C)  has insufficient reserves to meet requirements.
D)  has an insufficient deposit to loan ratio.

Question 10

Use the following to answer questions:
Table: Components of the Money System 
-(Table: Components of the Money Supply)  Look at the table Money Supply. The money supply measured by M2 is:

Accepted Answer

A)  $450 billion.
B)  $1,425 billion.
C)  $1,725 billion.
D)  $2,075 billion.

Question 11

The Panic of 1907, the savings and loan crisis, and the financial crisis of 2008 were similar in that they all:

Accepted Answer

A)  were caused by restrictive monetary policy.
B)  involved financial institutions that were not as strictly regulated as deposit-taking banks.
C)  were caused by large budget deficits.
D)  were caused by excessive regulation by the Federal Reserve.

Question 12

A vicious cycle of deleveraging occurs when:

Accepted Answer

A)  asset sales to cover losses produce negative balance sheet effects and force creditors to call in loans, forcing more sales of assets at decreasing prices.
B)  bank regulators take over a bank.
C)  deposit insurance is paid out.
D)  top executives at failing companies are forced to return bonuses.

Question 13

If banks decide to hold some of their excess reserves instead of lending them all out:

Accepted Answer

A)  the money multiplier will be less than 1 divided by the required reserve ratio.
B)  a loan of $1 will lead to a change in the money supply by a multiple amount equal to 1 divided by the required reserve ratio.
C)  the money multiplier becomes 1 divided by the excess reserves.
D)  depositors will have to borrow more to increase the money supply.

Question 14

When the Fed increases the reserve requirement, banks lend _____ of their deposits, which leads to a(n)  _____ in the money supply.

Accepted Answer

A)  less; decrease
B)  less; increase
C)  more; decrease
D)  more; increase

Question 15

Use the following to answer questions : 
-(Scenario: Monetary Base and Money Supply)  Look at the scenario Monetary Base and Money Supply. How much is M1?

Accepted Answer

A)  $325 billion
B)  $330 billion
C)  $380 billion
D)  $480 billion

Question 16

Subprime lending takes place at below-prime interest rates.

Accepted Answer

A) True 
 B)False

Question 17

Suppose you transfer $500 from your savings account to your checking account. With this transaction, M1 _____ and M2 _____.

Accepted Answer

A)  increases; decreases
B)  increases; stays the same
C)  decreases; decreases
D)  stays the same; decreases

Question 18

To make it easier for S&Ls to compete with banks in the late 1970s, Congress allowed the thrifts to undertake riskier investments in addition to home mortgages.

Accepted Answer

A) True 
 B)False

Question 19

Included in the M2 definition of money are checkable bank deposits.

Accepted Answer

A) True 
 B)False

Question 20

Included in M2 is (are) :

Accepted Answer

A)  currency in circulation only.
B)  money market funds only.
C)  traveler's checks only.
D)  currency in circulation, money market funds, and traveler's checks.

Exam 14: Money, Banking, and the Federal Reserve System

Included in M2 is (are) :

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Use the following to answer questions : -(Scenario: Monetary Base and Money Supply) Look at the scenario Monetary Base and Money Supply. How much is M1?

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A vicious cycle of deleveraging occurs when:

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To make it easier for S&Ls to compete with banks in the late 1970s, Congress allowed the thrifts to undertake riskier investments in addition to home mortgages.

Correct AnswerverifiedShow Answer

When the Fed increases the reserve requirement, banks lend _____ of their deposits, which leads to a(n) _____ in the money supply.

Correct AnswerverifiedShow Answer

Commodity-backed money is more efficient than commodity money because commodity-backed money ties up fewer resources than commodity money.

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Suppose you transfer $500 from your savings account to your checking account. With this transaction, M1 _____ and M2 _____.

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If banks decide to hold some of their excess reserves instead of lending them all out:

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Included in the M2 definition of money are checkable bank deposits.

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The Federal Reserve reports on two main monetary aggregates:

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The U.S. dollar is defined as:

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_____ occurs when financial institutions assemble pools of loans and sell shares in the income from these pools.

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Which of the following is part of M1?

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Which of the following is near-money?

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All of the following are responsibilities of the Federal Reserve EXCEPT to:

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Money is:

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Use the following to answer questions: Table: Components of the Money System -(Table: Components of the Money Supply) Look at the table Money Supply. The money supply measured by M2 is:

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The Panic of 1907, the savings and loan crisis, and the financial crisis of 2008 were similar in that they all:

Correct AnswerverifiedShow Answer

If a bank has deposits of $100,000, cash in its vault of $10,000, and $15,000 on deposit at the Federal Reserve and if the required reserve ratio is 20%, then the bank:

Correct AnswerverifiedShow Answer

Subprime lending takes place at below-prime interest rates.

Correct AnswerverifiedShow Answer

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When the Fed increases the reserve requirement, banks lend _ of their deposits, which leads to a(n) _ in the money supply.

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Suppose you transfer $500 from your savings account to your checking account. With this transaction, M1 _ and M2 _.

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