Chapter 15

$50 billion in U.S. Treasury bills are included in A. neither M1 nor M2 B. both M1 and M2 C. M1 only D. M2 only

A

A company issues corporate bonds to finance a new building project. This is... A. Neither M1 nor M2. B. M1 and M2. C. M1 only. D. M2 only.

A

A $25,000 money market deposit account is counted in (M1, M2, both)

M2

A $500 time deposit is counted in (M1, M2, both)

M2

A customer's savings deposit is a (asset/liability) to a commercial bank.

liability

Funds borrowed from a credit union in the federal funds market is a (asset/liability) to a commercial bank

liability

The U.S. currency is a (liability/asset/ownership equity) of the Federal Reserve System.

liability

The reserve requirement is 20​%. The potential money multiplier is equal to ___. In the real​ world, the actual money multiplier is likely to be (less than/greater than) the potential money multiplier due to _____.

5, less than, leakages through currency drain and excess reserves.

During the late​ 1970s, prices quoted in terms of the Israeli​ currency, the​ shekel, rose so fast that grocery stores listed their prices in terms of the U.S. dollar and provided customers with​ dollar-shekel conversion tables that they updated daily. Although people continued to buy goods and services and make loans using​ shekels, many Israeli citizens converted shekels to dollars to avoid a reduction in their wealth due to inflation.​ Thus, the U.S. dollar functioned as money in Israel during this period A. as a unit of accounting. B. as a medium of exchange. C. as a credit card. D. as a standard of deferred payment.

A

Excess reserves are defined as A. the difference between legal reserves and required reserves. B. currency plus travelers checks plus demand deposits. C. deposits held at Federal Reserve district banks plus vault cash. D. the value of reserves that a depository institution must hold in the form of vault cash or deposits at the Fed.

A

Required reserves are defined as A. the value of reserves that a depository institution must hold in the form of vault cash or deposits at the Fed. B. currency plus travelers checks plus demand deposits. C. deposits held at Federal Reserve district banks plus vault cash. D. the difference between legal reserves and vault cash

A

Stefanie sells some stock and puts the profits into a money market deposit account in a Washington bank. Is this counted in M1​ only, M2​ only, M1 and​ M2, or​ neither? A. M2 only. B. M1 only. C. Neither M1 or M2. D. M1 and M2.

A

The Fed acts like a private banking institution when it A. provides payment−clearing services to depository institutions. B. acts as the​ "lender of last​ resort." C. regulates the money supply. D. supplies the economy with fiduciary currency.

A

Which of the following statements is true concerning the potential money​ multiplier? A. The required reserve ratio and the potential money multiplier are inversely related. B. The actual money multiplier and the potential money multiplier are inversely related. C. The required reserve ratio and the potential money multiplier sum to one. D. The required reserve ratio and the potential money multiplier are positively related.

A

Which of the following statements is true when considering​ liquidity? A. The most liquid assets typically earn no or little interest. B. Bonds have a guaranteed redemption value so there is no chance of a financial loss from their purchase. C. Stocks have no transaction fees. D. Physical assets are the most liquid type of assets.

A

$5 billion in traveler's checks not issued by a bank is counted in A. neither M1 nor M2 B. both M1 and M2 C. M1 only D. M2 only

B

Legal reserves are defined as A. the value of reserves that a depository institution must hold in the form of vault cash or deposits at the Fed. B. deposits held at Federal Reserve district banks plus vault cash. C. currency plus travelers checks plus demand deposits. D. the difference between excess reserves and required reserves

B

The Fed acts like a government agency when it A. holds a depository​ institution's reserves. B. acts as a lender of the last resort. C. acts as the​ government's fiscal agent. D. provides​ payment-clearing services.

B

Which of the following assets is the least​ liquid? A. A share of publicly traded stock. B. A house. C. A​ three-month Treasury bill. D. Currency.

B

Consider a bank balance​ sheet, with​ "Assets" on the left and​ "Liabilities" on the right side. Identify where the following items belong. I. U.S. Treasury bonds. II. Small−denomination time deposits. A. I: liabilities;​ II: assets. B. Both assets. C. I: assets;​ II: liabilities. D. Both liabilities.

C

$50 billion in U.S. Treasury bills is counted in A. both M1 and M2. B. M2 only. C. neither M1 nor M2 D. M1 only.

C

Consider a bank balance​ sheet, with​ "Assets" on the left and​ "Liabilities" on the right side. Identify where the following items belong. I. Deposits this bank holds in an account with another private bank. II. Borrowings from another bank in the interbank loan market. A. Both liabilities. B. I: liabilities;​ II: assets. C. I: assets;​ II: liabilities. D. Both assets.

C

Consider a bank balance​ sheet, with​ "Assets" on the left and​ "Liabilities" on the right side. Identify where the following items belong. I. Mortgage loans to household customers. II. Money market deposit accounts. A. I: liabilities;​ II: assets. B. Both assets. C. I: assets;​ II: liabilities. D. Both liabilities.

C

Due to the​ Gramm-Leach-Bliley Act of 1999 A. the US government forbid US commercial banks to own stock of any other business domestic or foreign. B. allowed European central banks to unite into the European Union Bank. C. the US government allowed commercial banks to own stock and sell insurance policies. D. the US government forbid US commercial banks to own stock of foreign banks and businesses.

C

During the late​ 1970s, prices quoted in terms of the Israeli​ currency, the​ shekel, rose so fast that grocery stores listed their prices in terms of the U.S. dollar and provided customers with​ dollar-shekel conversion tables that they updated daily. Although people continued to buy goods and services and make loans using​ shekels, many Israeli citizens converted shekels to dollars to avoid a reduction in their wealth due to inflation.​ Thus, the U.S. dollar functioned as money in Israel during this period A. as a standard of deferred payment. B. as a medium of exchange. C. as a store of value. D. as a credit card.

C

Required reserves A. are equal to​ 100% of deposits in a fractional reserve banking system. B. currently must be no more than​ 5% of the total checkable deposits of a depository institution. C. are the minimum amount of legal reserves that a depository institution must have to back up its checkable deposits. D. are the minimum amount of reserves that must be loaned out by a depository institution.

C

The Fed acts like a government agency when it A. acts as the​ government's fiscal agent. B. holds a depository​ institution's reserves. C. regulates the money supply. D. provides​ payment-clearing services.

C

The Fed acts like a private banking institution when it A. acts as the​ "lender of last​ resort." B. supplies the economy with fiduciary currency. C. holds Depository institution's reserves. D. regulates the money supply.

C

Which of the following is not a duty of the a central​ bank? A. Conduct monetary policy for its respective government. B. Performing banking functions for its respective government. C. Guarantee the savings of its citizens. D. Provide financial services for private banks.

C

$15 billion in small-denomination time deposits are included in A. neither M1 nor M2 B. both M1 and M2 C. M1 only D. M2 only

D

Excess reserves A. are zero if required reserves equal legal reserves. B. are negative if legal reserves are not sufficient to cover required reserves. C. are minimized by​ profit-maximizing banks since they generate no income. D. All of the above. E. A and B only.

D

Jennifer has $1,000 in her checking account. Is this counted in M1​ only, M2​ only, M1 and​ M2, or​ neither? A. M2 only. B. Neither M1 nor M2. C. M1 only. D. M1 and M2.

D

Paul needs to decide between buying a big screen TV for​ $1,800 or being able to go on a Florida vacation for​ $1,000 and still having enough left over to buy a small screen TV for​ $800. Paul opts for the small screen TV and the Florida vacation. Paul has used money in what ways in making his​ decision? A. Medium of exchange and a method to decrease deferred payments. B. Medium of exchange and a store of value. C. Store of value and a standard unit of account. D. Medium of exchange and a standard unit of account.

D

Scott is seeking a loan from his bank for a home improvement project. He receives the loan and then decides to take a special vacation opportunity to Las Vegas and enter a gambling tournament. The​ bank, as a financial​ intermediary, is facing a problem of A. symmetric information. B. adverse selection. C. liabilities. D. moral hazard.

D

What is the basic structure of the Federal Reserve​ Bank? A. There is one major bank located in Washington D.C. with branch banks located in every major city. B. It is the combination of all private banks in the U.S. excluding Savings and Loans banks. C. There is one major bank with 25 branches. D. There are 12 district​ banks, a Board of Governors and a Federal Open Market Committee.

D

Which of the following events caused Congress to begin seriously looking at setting up the Federal Reserve​ system? A. The need to control inflation. B. World War I. C. The American​ people's loss of confidence in the​ nation's currency. D. Some severe banking crises at the end of the 19th century and early 20th century.

D

Insurance companies offer safe driver discounts to encourage insured individuals to drive safely. This is an attempt to (a) limit moral hazard (b) lower management costs (c) limit adverse selection

a

An auto loan to an individual is a (asset/liability) to a commercial bank.

asset

The bank's required reserve is a (asset/liability) to a commercial bank.

asset

Pension funds tend to combine the retirement funds of many future retirees to (a) limit moral hazard (b) lower management costs (c) limit adverse selection

b

A $20 Federal Reserve Note is counted in M1, M2, or both?

both

A $50 traveler's check is counted in (M1, M2, both)

both

Savings banks review loan applications to determine which of the potential borrowers carry high risk of default. This is an attempt to (a) limit moral hazard (b) lower management costs (c) limit adverse selection

c

The Fed sells bonds to Jim, a bond dealer who pays for the bonds with a check drawn on his bank. The bank's reserves will go (up/down).

down