ECON 131 Practice Final Ch. 14

______ is a completely inadequate mechanism ______ in a modern advanced economy.

barter; for trying to coordinate trades

The people in an economy have $10 million in money. There is only one bank that all the people deposit their money in and it holds 10% of the deposits as reserves. What is the money multiplier in this economy?

10

If Brent uses his credit card to purchase a new television, then the money to pay the retailer is taken from:

the credit card company's M1 funds

___are funds that the bank keeps on hand that are not loaned out or invested in bonds.

Reserves

If Sarah uses her smart card to purchase movies over the internet, then the money to pay the retailer will come from:

Sarah's M1 funds

Stealth bank has deposits of $350 million. It holds reserves of $30 million and government bonds worth $70 million. If the bank sells its loans at market value of $400 million, what will its total assets equal?

$500 million

Stealth bank holds deposits of $600 million. It holds reserves of $30 million and government bonds worth $80 million. The current market value of the bank's loans is $400 million. What is the value of the bank's total liabilities?

$600 million

Stealth bank has deposits of $300 million. It holds reserves of $20 million and has purchased government bonds worth $300 million. The bank's loans, if sold at current market value, would be worth $600 million. What does Stealth bank's net worth equal?

$620 million

Stealth bank has deposits of $700 million. It holds reserves of $20 million and has purchased government bonds worth $350 million. The banks loans, if sold at current 8 market value, would be worth $600 million. What is the total value of Stealth bank's assets?

$970 million

Which of the following terms is considered to be a narrow definition of the money supply that includes, among other things, currency?

M1

Stealth Bank is holding $4 million in reserves, $9 million in government bonds and $9.6 million in low risk mortgage loans. Out of the $20 million in customers' deposits, Stealth holds $13.1 million in the form of certificates of deposit. Describe the formula for determining Stealth Bank's net worth and, using the figures above, determine the Bank's net worth. Identify the criteria for classifying a bank as healthy or unhealthy and determine which applies to Stealth Bank in these circumstances.

Networth of a bank is total assets minus its total liabilities. ($4 million + $9 million + $9.6 million) - $20 million = $2.6 million Financially healthy bank has a positive net worth. Unhealthy banks with negative net worth will not be able to give depositors all of their money upon withdrawal.

If Bill performs plumbing upgrades for Alice in exchange for her incorporating his business, then their _________________________ will be satisfied.

a double coincidence of wants

In macroeconomics, ___________________________ describes a situation in which two people each want to exchange some good or service that the other can provide.

a double coincidence of wants

Which of the following would function as a store of value, and also provide a medium of exchange, and unit of account?

an estate

Which of the following is a valid criticism of the use of money as a store of value in modern economies?

annual inflationary loss of buying power

_____________ are a form of financial instrument through which corporations and governments borrow money from financial investors and promise to repay with interest.

bonds

If the central bank increases the amount of reserves banks are required to hold to 20%, then:

both the money multiplier and supply of money in the economy will decrease

_______ that requires the depositor to commit to leaving their funds in the bank for a certain period of time, in exchange for a higher rate of interest are also called _________.

certificates of deposit; time deposits

Which of the following would be classified in the M1 category of the money supply?

demand deposits

With respect to measuring the money supply, which of the following terms describes a checking account?

demand deposits

_________________________ are a form of deposits held in banks that are available by making a cash withdrawal or writing a check.

demand deposits

If Evelyn uses her debit card to buy an iPod, then the money to pay the retailer will come from:

her M1 funds

In an economy with _______________, money loses some buying power each year, but it remains money.

inflation

If mollusk shells were accepted as a method of payment in modern-day markets, what economic role would they play in the financial system?

medium of exchange

In 2010, Tara used $50,000.00 from funds she had invested in certificates of deposit as a down payment to buy a house. What function did this portion of her investments serve when she made the down payment?

medium of exchange

In modern economies, credit cards are a _________________ because of their wide acceptance as a method of payment for both goods and services.

medium of exchange

________________ serves society in three functions: medium of exchange, unit of account, and store of value.

money

The market where loans are made to borrowers is called the:

primary loan market

The quantity of money in an economy and the _____________________ are inextricably intertwined.

quantity of credit for loans

The term ___________________ describes the proportion of deposits that the bank must hold in the form of reserves that are not loaned out or invested in bonds.

reserve ratio

Banks typically come under financial stress because of:

risks associated with extraordinary economic gains

The money multiplier is equal to the _______________ in the economy divided by the original _________________.

total money; quantity of money