ch 14-15

The amount that a commercial bank can lend is determined by its outstanding loans. required reserves. outstanding checkable deposits. excess reserves.

a

To say that coins are "token money" means that a. their face value is greater than their intrinsic value. b. their face value is equal to their intrinsic value. c. they are not legal tender. d. their face value is less than their intrinsic value

a

In a fractional reserve banking system, a. the Federal Reserve has no control over the amount of money in circulation. b.banks can create money through the lending process. c. bank panics cannot occur. d. the monetary system must be backed by gold.

b

In the U.S. economy, the money supply is controlled by the a. Senate Committee on Banking and Finance. b. Federal Reserve System. c. Congress. d. U.S. Treasury.

b

Money is "created" when a. people use money to pay for stuff they buy from one another. b. a bank grants a loan to a customer. c. someone lends money to a friend or a family member. d. a depositor deposits money at the bank.

b

Other things equal, an excessive increase in the money supply will a.have no impact on the purchasing power of the dollar. b.decrease the purchasing power of each dollar. c. increase the purchasing power of each dollar. d. reduce the price level.

b

Overnight loans from one bank to another for reserve purposes entail an interest rate called the discount rate. federal funds rate. treasury bill rate. prime rate

b

The Board of Governors of the Federal Reserve has ________ members. 14 7 9 5

b

The money supply is backed a. dollar-for-dollar by gold and silver. b.by the government's ability to control the supply of money and therefore to keep its value relatively stable. c. by government bonds. d. by gold reserves representing a fraction of the total value of dollars in circulation.

b

The multiple by which the commercial banking system can expand the supply of money on the basis of excess reserves a. is the reciprocal of the bank's actual reserves. b. is larger, the smaller the required reserve ratio. c. will be zero when the required reserve ratio is 100 percent. d. is directly or positively related to the size of the required reserve ratio

b

if you are estimating your total expenses for school next semester, you are using money primarily as an economic investment. a unit of account. a store of value. a medium of exchange.

b

A fractional reserve banking system a. only tends to exist in developing economies. b. prevents the Federal Reserve from influencing the money supply. c. is susceptible to bank "panics" or "runs." d. prevents money creation through the lending process.

c

As it relates to Federal Reserve activities, the acronym FOMC describes the Federal Organization for Money Creation. Federal Options Market Committee. Federal Open Market Committee. Federal Organization for Monetary Control.

c

Firms whose central business is to offer security advice and buy and sell individual stocks and bonds for clients are known as pension fund companies. insurance companies. securities firms. thrifts.

c

Most modern banking systems are based on a. 100 percent reserves. b. money of intrinsic value. c. fractional reserves. d. commodity money.

c

The Federal Reserve System was created in 1946. 1895. 1913. 1926.

c

The paper money used in the United States is a.United States notes. b. Treasury notes. c. Federal Reserve notes. d. National Bank notes.

c

When loans are repaid at commercial banks, a. the net worth of commercial banks increases. b. money is created. c. money is destroyed. d. the assets of commercial banks increase

c

Which of these pairs of financial institutions are most alike in terms of their main lines of business? a. thrifts and securities firms b. pension fund companies and commercial banks c. commercial banks and thrifts d. insurance companies and mutual fund companies

c

Which one of the following is presently a major deterrent to bank panics in the United States? a. the fractional reserve system b. the gold standard c. deposit insurance d. the legal reserve requirement

c

During periods of rapid inflation, money may cease to work as a medium of exchange a. unless it is backed by gold. b. because it is too scarce for everyone to have enough for transactions. c. unless it has been designated legal tender. d. because people and businesses will not want to accept it in transactions.

d

Excess reserves refer to the a. difference between a bank's vault cash and its reserves deposited at the Federal Reserve Bank. b. minimum amount of actual reserves a bank must keep on hand to back up its customers deposits. c. difference between actual reserves and loans. d. difference between actual reserves and required reserves.

d

If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as a. a store of value. b. an economic investment. c. a unit of account. d. a medium of exchange.

d

In the United States, the money supply (M1) includes a. coins, paper currency, checkable deposits, and credit balances with brokers. b. paper currency, coins, gold certificates, and time deposits. c. currency, checkable deposits, and Series E bonds. d. coins, paper currency, and checkable deposits.

d

The amount of reserves that a commercial bank is required to hold is equal to a. its checkable deposits divided by its total assets. b. the amount of its checkable deposits. c. the sum of its checkable deposits and time deposits. d. its checkable deposits multiplied by the reserve requirement.

d

When required reserves exceed actual reserves, commercial banks will be forced to have borrowers a. withdraw some of their deposits. b. take out more loans. c. use credit cards. d. repay loans.

d

Which of the following factors can contribute to a reduction in the money supply? a. banks expanding the approval and granting of loans b. a decrease in the required reserve ratio c. bank sales of government bonds to meet liquidity demands d. bank purchases of Treasury bonds from the Fed

d

Money market deposit accounts are included in a. M1 only. b. M2 only. c. neither M1 nor M2. d. both M1 and M2.

not a

The reserve ratio refers to the ratio of a bank's a. required reserves to its checkable-deposit liabilities. b. capital stock to its total assets. c. reserves to its liabilities and net worth. d. checkable deposits to its total liabilities.

not c

The members of the Federal Reserve Board a. are appointed by the American Economic Association. b. serve seven-year terms. c. are appointed for 14-year terms. d. are elected by votes of the 12 presidents of the Federal Reserve Banks.

not d

When a check is drawn and cleared, the a. bank against which the check is cleared loses reserves and deposits equal to the amount of the check. b. bank receiving the check loses reserves and deposits equal to the amount of the check. c. reserves and deposits of both the bank against which the check is cleared and the bank receiving the check are unchanged by this transaction. d. bank against which the check is cleared acquires reserves and deposits equal to the amount of the check.

not d

Checkable deposits are a included in M1. b.not included in either Ml or M2. c.also called time deposits. d.considered to be a near money.

a

The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 in a. commercial banks and thrifts. b. securities firms and insurance companies. c. thrifts and insurance companies. d. mutual fund companies and pension fund companies.

a