Econ Ch. 31 and 32

A

A $70 price tag on a sweater in a department store window is an example of money functioning as a: A. Unit of account B. Standard of deferred payment C. Store of value D. Medium of exchange

C

A reserve requirement of 20 percent means a bank must have $1,000 of reserves if its checkable deposits are: A. $100 B. $1,000 C. $5,000 D. $12,000

B

A single commercial bank must meet a 25 percent reserve requirement. If it initially has no excess reserves and then $2,000 in cash is deposited in the bank, it can increase its loans by a maximum of: A. $2,000 B. $1,500 C. $1,250 D. $1,750

D

Currency in circulation is part of: A. M1 only B. M2 not including M1 C. neither M1 nor M2 D. both M1 and M2

B

The reserves of a commercial bank consist of: A. The amount of money market funds it holds. B. Deposits at the Federal Reserve Bank and value cash. C. Government securities that the bank holds. D. The bank's net worth.

A

The value of money varies: A. Inversely with the price level. B. Directly with the volume of employment C. Directly with the price level D. Directly with the interest rate

B

Money eliminates the need for a coincidence of wants in trading primarily through its role as a: A. Unit of account B. Medium of exchange C. Store of value D. Medium of deferred payment.

C

One major advantage of money serving as a medium of exchange is that it allows society to: A. Transfer purchasing power from the present to the future B. Measure the relative worth of products C. Escape the complications of barter. D. Use credit cards instead of currency

D

Research involving industrially advanced countries suggests that: A. The more independent the central bank, the lower the average annual growth of real GDP B. The more independent the central bank, the higher the average annual growth of real GDP. C. There is no relationship between the degree of independence of a country's central bank and the growth rate of its real GDP. D. The less independent the central bank, the higher the average annual rate of inflation.

C

The Federal Open Market Committee (FOMC): A. Provides advice on banking stability to the Fed B. Monitors regulatory banking laws for member banks C. Sets policy on the sale and purchase of government bonds by the Fed D. Follows the actions and operations of financial markets to keep them open and competitive

C

When the Fed acts as a "lender of last resort", like it did in the financial crisis of 2007-2008, it is performing its role of: A. Controlling the money supply B. Setting the reserve requirements C. Being the bankers' bank D. Providing for clerk clearing and collection

C

When the receipts given by goldsmiths to depositors were used to make purchases: A. The gold standard was created. B. existing banking laws were violated. C. The receipts became in effect paper money. D. A fractional reserve banking system was created.

D

Which group assists the Board of Governors of the Federal Reserve System in determining monetary policy? A. U.S. Treasury B. U.S. Congress C. Federal Advisory Council D. Federal Open Market Committee

C

Assume company X deposits $100,000 in cash in commercial Bank A. If no excess reserves exist at the time this deposit is made and the reserve ratio is 20 percent, Bank A can increase the money supply by a maximum of: A. $50,000 B. $180,000 C. $80,000 D. $500,000

D

Assume that Smith deposits $600 in currency into her checking account in the XYZ Bank. Later that same day Jones negotiates a loan for $1,200 at the same bank. In what direction and by what amount has the supply of money changed? A. decreased by $600 B. increased by $1,800 C. increased by $600 D. increased by $1,200

B

Assuming no other changes, if checkable deposits increase by $40 billion and currency in circulation decreases by $40 billion, the: A. M1 money supply will decline. B. M1 money supply will not change. C. M2 money supply will decline. D. M2 money supply will increase.

A

Cash held by a bank in its vault is a part of the bank's: A. Reserves B. Liabilities C. Money Supply D. Net worth

C

Checkable deposits are included in: A. M1 but not in M2 B. M2 but not in M1 C. Both M1 and M2 D. Neither M1 nor M2

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 m equals the maximum number of new dollars that can be created for a single dollar of excess reserves and R equals the required reserve ratio, then for the banking system: A. m= r-1 B. R=m/1 C. R =m-1 D. m= 1/R

A

If you deposit a $50 bill in a commercial bank that has a 10 percent legal reserve requirement the will: A. have $45 of additional excess reserves. B. Be capable of lending an additional $500 C. Be capable of lending no more than an additional $50 D. Have $50 of required reserves.

B

If you place a part of your summer earnings in a savings account, you are using money primarily as a: A. Medium of exchange B. Store of value C. Unit of account D. Standard of value

A

If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as: A. a medium of exchange B. A store of value C. A unit of account D. An economic investment

C

In a fractional reserve banking system: A. Bank panics cannot occur. B. The monetary system must be backed by gold. C. Banks can create money through the lending process. D. The federal reserve has no control over the amount of money in circulation.

B

In the U.S. economy the money supply is controlled by the: A. U.S. Treasury B. Federal Reserve System C. Senate Committee on Banking and Finance D. Congress

True

The Federal Reserve System is independent of Congress and the President, and does not have to follow all orders from either Congress or the President. True or False

C

The balance sheet below is for the First Federal Bank. Assume the required reserve ratio is 20 percent. The monetary multiplier is: A. 3.00 B. 4.00 C. 5.00 D. 6.67

C

The balance sheet below is for the First Federal Bank. Assume the required reserve ratio is 20 percent. If the original bank balance sheet was for the whole commercial banking system rather than a single bank, loans and deposits could have been expanded by a maximum of: A. $40,000 B. $100,000 C. $200,000 D. $300,000

C

The basic requirement of money is that it be: A. Backed by precious metals--gold or silver B. Authorized as legal tender by the central government C. Generally accepted as a medium of exchange D. Some form of debt or credit

D

The m1 money supply is composed of: A. All coins and paper money held by the general public and the banks B. Bank deposits of households and business firms C. Bank deposits and mutual funds D. Checkable deposits and currency in circulation

A

The money supply is backed: A. By the government's ability to control the supply of money and therefore to keep its value relatively stable. B. By government bonds. C. Dollar-for-dollar by gold and silver. D. By gold reserves representing a fraction of the total value of dollars in circulation.

A

The purchasing power of money and the price level vary: A. inversely B. directly during recessions, but inversely during inflations. C. Directly, but not proportionately D. Directly and proportionately

A

What "backs" the money supply of the U.S.? A. The U.S. government's ability to keep the value of money relatively stable. B. The amount of gold the U.S. government has on deposit at its banks C. The fact that currency is issued by the Federal Reserve System D. The fact that the intrinsic value of coins in circulation is greater than their face value

B

When a consumer wants to compare the price of one product with another, money is primarily functioning as a: A. store of value B. Unit of account C. Checkable deposit D. Medium of exchange