Question 1

In addition to fiscal policy, the other main tool used to affect aggregate demand is

Accepted Answer

A)   trade policy.
B)   industrial policy.
C)   planning policy.
D)   monetary policy.E) None of the above
F) B) and C)

Question 2

A banker motivated by profit maximization may make decisions that destabilize the banking system.

Accepted Answer

A) True 
 B)False

Question 3

Bankers' decisions on how much to hold in reserves influence the supply of money.

Accepted Answer

A) True 
 B)False

Question 4

Systemic risks inhere mainly in the largest financial institutions.

Accepted Answer

A) True 
 B)False

Question 5

The narrowest definition of the money supply, including cash and checking deposits, is known as

Accepted Answer

A)   M0.
B)   M1.
C)   M payments.
D)   currency.
E)   real-value money.F) A) and E)
G) B) and D)

Question 6

Under fractional reserve banking system, banks

Accepted Answer

A)   hold more reserves than deposits.
B)   generally lend out majority of the funds deposited.
C)   cause the money supply to fall by lending out reserves.
D)   None of the above is correct.E) B) and C)
F) None of the above

Question 7

Recently, the financial crisis led to a bank run in

Accepted Answer

A)   Brazil.
B)   Germany and France.
C)   Japan.
D)   England.E) None of the above
F) All of the above

Question 8

Money only consists of coins, paper money, and checkable deposits.

Accepted Answer

A) True 
 B)False

Question 9

The principal innovation that increases the safety of bank deposits is

Accepted Answer

A)   computerized accounting systems.
B)   credit cards.
C)   automatic teller machines.
D)   deposit insurance.E) None of the above
F) B) and C)

Question 10

The most common form of trading goods for goods is

Accepted Answer

A)   bilateral trade.
B)   government commodity distribution.
C)   status-based trades.
D)   barter.
E)   payments in kind.F) B) and E)
G) A) and B)

Question 11

The primary benefit of a monetary system of exchange compared to a barter system is the increased

Accepted Answer

A)   ability to record transactions.
B)   time necessary to find trading partners.
C)   time devoted to shopping.
D)   efficiency in arranging transactions.E) All of the above
F) A) and B)

Question 12

The money-creation formula is oversimplified because it assumes that

Accepted Answer

A)   every recipient of a bank loan will redeposit the proceeds in another bank.
B)   loan recipients will not take any of the proceeds in cash.
C)   every bank lends out all excess reserves.
D)   All of these responses are correct.E) All of the above
F) A) and B)

Question 13

Liquidity refers to the

Accepted Answer

A)   rapidity with which money flows through the economy.
B)   ease with which an asset can be converted into cash.
C)   ease with which banks move funds from checking to savings accounts.
D)   All of these responses are correct.E) A) and B)
F) A) and C)

Question 14

Bank failures in the United States occurred

Accepted Answer

A)   frequently through the 1960s and declined since then.
B)   infrequently through the 1960s and have become more common since then.
C)   frequently through the 1930s, declined after that time, and became more common in 2008.
D)   infrequently through the 1930s, increased after that time, and became less common in 2008.E) None of the above
F) A) and B)

Question 15

If people begin to hold more cash, the money-multiplier process will

Accepted Answer

A)   increase in intensity.
B)   remain the same.
C)   decrease in actual size.
D)   cause larger amounts of excess reserves.E) None of the above
F) B) and C)

Question 16

A unit of account is the function of money when used as a yardstick to post prices and record debts.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is included in the M2 definition of the money supply?

Accepted Answer

A)   Cash and currency
B)   Checkable deposits
C)   Money market deposit accounts
D)   Money market mutual funds
E)   All of these responses are correct.F) A) and B)
G) B) and C)

Question 18

Required reserves of banks are a fixed percentage of their

Accepted Answer

A)   loans.
B)   assets.
C)   deposits.
D)   All of these responses are correct.E) B) and C)
F) None of the above

Question 19

The net worth of a bank is

Accepted Answer

A)   equal to the value of assets.
B)   equal to the value of deposits.
C)   equal to the value of liabilities.
D)   the value of assets less liabilities.
E)   the value of loans and securities.F) D) and E)
G) C) and D)

Question 20

A principal disadvantage of conventional checking accounts compared to money market mutual funds is that checking accounts

Accepted Answer

A)   are less liquid.
B)   often do not pay interest.
C)   cannot be used as a store of value.
D)   are not insured by deposit insurance.E) A) and B)
F) All of the above

Exam 28: Money and the Banking System

A unit of account is the function of money when used as a yardstick to post prices and record debts.

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The primary benefit of a monetary system of exchange compared to a barter system is the increased

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Bank failures in the United States occurred

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Liquidity refers to the

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Money only consists of coins, paper money, and checkable deposits.

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Recently, the financial crisis led to a bank run in

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The net worth of a bank is

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A principal disadvantage of conventional checking accounts compared to money market mutual funds is that checking accounts

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Under fractional reserve banking system, banks

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The principal innovation that increases the safety of bank deposits is

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The narrowest definition of the money supply, including cash and checking deposits, is known as

Correct AnswerverifiedShow Answer

A banker motivated by profit maximization may make decisions that destabilize the banking system.

Correct AnswerverifiedShow Answer

The money-creation formula is oversimplified because it assumes that

Correct AnswerverifiedShow Answer

In addition to fiscal policy, the other main tool used to affect aggregate demand is

Correct AnswerverifiedShow Answer

Systemic risks inhere mainly in the largest financial institutions.

Correct AnswerverifiedShow Answer

Required reserves of banks are a fixed percentage of their

Correct AnswerverifiedShow Answer

If people begin to hold more cash, the money-multiplier process will

Correct AnswerverifiedShow Answer

Which of the following is included in the M2 definition of the money supply?

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The most common form of trading goods for goods is

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Bankers' decisions on how much to hold in reserves influence the supply of money.

Correct AnswerverifiedShow Answer

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