Macro Final

2. U.S. currency has value because: A. it is backed by gold B. it is acceptable in exchange C. it is backed by government debt D. its value is regulated by Congress

B. it is acceptable in exchange

12. The ABC Commercial Bank has $5,000 in excess reserves and the reserve ratio is 30 percent. The bank must have: A. $90,000 in checkable deposit liabilities and $32,000 in reserves. B. $20,000 in checkable deposit liabilities and $10,000 in reserves. C. $90,000 in checkable deposit liabilities and $35,000 in reserves.

A. $90,000 in checkable deposit liabilities and $32,000 in reserves.

1. If you write a check on a bank to purchase a used car, 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.

A. Medium of Exchange

17. A bank temporarily short of required reserves may be able to remedy this situation by: A. borrowing funds in the Federal funds market. B. granting new loans. C. shifting some of its vault cash to its reserve account at the Federal Reserve. D. buying bonds from the public.

A. borrowing funds in the Federal funds market.

11. A fractional reserve banking system: A. is susceptible to bank panics. B. prevents money creation through the lending process. C. only tends to exist in developing economies. D. prevents the Federal Reserve from influencing the money supply

A. is susceptible to bank panics.

8. Checkable deposits are classified as money because: A. they can be readily used in purchasing goods and paying debts. B. banks hold currency equal to the value of their checkable deposits. C. they are ultimately the obligations of the Treasury. D. they earn interest income for the depositor.

A. they can be readily used in purchasing goods and paying debts.

9. "Near-monies" are included in: A. both M1 and M2. B. M2 only. C. M1 only. D. neither M1 nor M2.

B. M2 only.

5. When economists say that money serves as a medium of exchange, they mean that it is: A. a way to keep wealth in a readily spendable form for future use. B. a means of payment. C. a monetary unit for measuring and comparing the relative values of goods. D. declared as legal tender by the government.

B. a means of payment.

4. Near-monies: A. include all financial and real assets that can be easily converted into currency. B. are certain highly liquid financial assets that do not function directly as a medium of exchange but can be readily converted into M1. C. are excluded from M2 because they are highly liquid.

B. are certain highly liquid financial assets that do not function directly as a medium of exchange but can be readily converted into M1.

20. Paper money replaced gold in our monetary system because: A. banks ran out of storage capacity for gold. B. the paper worked better as a medium of exchange. C. the Constitution gives the government the authority to regulate the currency D. there wasn't enough gold to go around.

B. the paper worked better as a medium of exchange.

13. Refer to the above data. If this bank has excess reserves of $6 million, the legal reserve ratio must be: A. 10 percent. B. 12 percent. C. 14 percent. D. 20 percent.

C. 14 percent.

7. Which of the following is the basic economic policy function of the Federal Reserve Banks? A. holding the deposits or reserves of commercial banks B. acting as fiscal agents for the Federal government C. controlling the supply of money D. the collection or clearing of checks among commercial banks

C. controlling the supply of money

16. Commercial banks create money when they: A. accept cash deposits from the public. B. purchase government securities from the central banks. C. create checkable deposits in exchange for IOUs. D. raise their interest rates.

C. create checkable deposits in exchange for IOUs.

15. The amount of reserves that a commercial bank is required to hold is equal to: A. the amount of its checkable deposits. B. the sum of its checkable deposits and time deposits. C. its checkable deposits multiplied by the reserve requirement. D. its checkable deposits divided by its total assets.

C. its checkable deposits multiplied by the reserve requirement.

19. Money is destroyed when: A. loans are made. B. checks written on one bank are deposited in another bank. C. loans are repaid. D. the net worth of the banking system declines.

C. loans are repaid.

14. Refer to the above data. Suppose that this bank currently has $6 million in excess reserves and that customers of this bank collectively write checks for cash at the bank in the amount of $6 million. As a result, the bank's excess reserves diminish to: A. $0. B. $6 million. C. $0.72 million. D. $0.84 million.

D. $0.84 million.

3. A $20 bill is a: A. gold certificate. B. Treasury note. C. Treasury bill. D. Federal Reserve Note.

D. Federal Reserve Note.

6. Currency in circulation is part of: A. M1 only. B. M2 only. C. neither M1 nor M2. D. both M1 and M2.

D. both M1 and M2.

10. The goldsmith's ability to create money was based on the fact that: A. withdrawals of gold tended to exceed deposits of gold in any given time period. B. consumers and merchants preferred to use gold for transactions, rather than paper money. C. the goldsmith was required to keep 100 percent gold reserves. D. paper money in the form of gold receipts was rarely redeemed for gold.

D. paper money in the form of gold receipts was rarely redeemed for gold.

18. The multiple by which the commercial banking system can expand the supply of money is equal to the reciprocal of: A. the MPS. B. its actual reserves. C. its excess reserves. D. the reserve ratio

D. the reserve ratio.