Students Again

Question 1 (Multiple Choice)
A basic argument for using the M1 concept of money is that:

A) it includes all of the important financial assets that have any degree of liquidity.
B) the government collects data for the components of M1, but does not do so for M2 and M3.
C) its components are superior to other financial assets as a store of value.
D) its components are directly and immediately spendable.

Correct Answer: D

Question 2 (Multiple Choice)
Other things equal, if checkable deposits decrease by $40 billion and balances in money market mutual funds increase by $40 billion, the:

A) M1 money supply will decline and M2 money supply will remain unchanged.
B) M1 and M2 money supplies will not change.
C) M2 and M3 money supplies will increase.
D) M1, M2, and M3 money supplies will decline.

Correct Answer: A

Question 3 (Multiple Choice)
A bank's actual reserves can be found by:

A) adding its required and excess reserves.
B) subtracting its required reserves from its excess reserves.
C) multiplying its excess reserves by the reserve ratio.
D) multiplying its checkable deposits by the reserve ratio.

Correct Answer: A

Question 4 (Multiple Choice)
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 vault cash.
C) government securities that the bank holds.
D) the bank's net worth.

Correct Answer: B

Question 5 (Multiple Choice)
The asset demand for money is downsloping because:

A) the opportunity cost of holding money increases as the interest rate rises.
B) it is more attractive to hold money at high interest rates than at low interest rates.
C) bond prices rise as interest rates rise.
D) the opportunity cost of holding money declines as the interest rate rises.

Correct Answer: A

Question 6 (True/False)
If actual reserves in the banking system are $50,000, excess reserves are $5,000, and checkable deposits are $225,000, then the monetary multiplier is 4.

True
False

Correct Answer: false

Question 7 (Multiple Choice)
Currency in circulation is part of:

A) M1 only.
B) M2 only.
C) M3 only.
D) M1, M2, and M3.

Correct Answer: D

Question 8 (True/False)
Banks create money when they accept deposits of cash.

True
False

Correct Answer: false

Question 9 (Multiple Choice)
Which one of the following is true about the U. S. Federal Reserve System?

A) The head of the U.S. Treasury also chairs the Federal Reserve Board.
B) There are 10 regional Federal Reserve Banks.
C) There are 14 members of the Federal Reserve Board.
D) The Federal Open Market Committee (FOMC) has more members than does the Federal Reserve Board of Governors.

Correct Answer: D

Question 10 (Multiple Choice)
Firms whose central business is providing individual account shares of collections of stocks, bonds, or both are known as:

A) insurance companies.
B) thrifts.
C) commercial banks.
D) mutual funds companies.

Correct Answer: D

Question 11 (Multiple Choice)
Plastic cards that contain computer chips that store account balances are known as:

A) credit cards.
B) smart cards.
C) debit cards.
D) E-cards.

Correct Answer: B

Question 12 (Multiple Choice)
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.

Correct Answer: C

Question 13 (Multiple Choice)
Which one of the following is presently a major deterrent to bank panics in the United States?

A) the legal reserve requirement
B) the fractional reserve system
C) the gold standard
D) deposit insurance

Correct Answer: D

Question 14 (Multiple Choice)
Commercial banks monetize claims when they:

A) collect checks through the Federal Reserve System.
B) make loans to the public.
C) accept repayment of outstanding loans.
D) borrow from the Federal Reserve Banks.

Correct Answer: B

Question 15 (Multiple Choice)
The transactions demand for money will shift to the:

A) right when the interest rate increases.
B) left when the interest rate decreases.
C) right when aggregate income increases.
D) right when aggregate income decreases.

Correct Answer: C

Question 16 (True/False)
The monetary multiplier and the income multiplier are two ways of referring to the same concept.

True
False

Correct Answer: false

Question 17 (Multiple Choice)
Assume that a bank initially has no excess reserves. If it receives $5,000 in cash from a depositor and the bank finds that it can safely lend out $4,500, the reserve requirement must be:

A) zero.
B) 10 percent.
C) 20 percent.
D) 25 percent

Correct Answer: A

Question 18 (Multiple Choice)
The term thrift institution or thrifts includes:

A) savings and loan associations, mutual savings banks, and credit unions.
B) savings and loan associations, mutual savings banks, credit unions, and commercial banks.
C) commercial banks and the twelve Federal Reserve Banks.
D) any institution offering savings accounts.

Correct Answer: A

Question 19 (Multiple Choice)
In defining money as M1 economists exclude time deposits because:

A) the intrinsic value of time deposits is nil.
B) the purchasing power of time deposits is much less stable than that of checkable deposits and currency.
C) they are not directly or immediately a medium of exchange.
D) they are not recognized by the Federal government as legal tender.

Correct Answer: C

Question 20 (Multiple Choice)
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.

Correct Answer: D

Question 21 (Multiple Choice)
Fiat money is:

A) composed only of checkable deposits.
B) money because the government asserts that it is.
C) money that is paper - but not coin.
D) money that is coin - but not paper.

Correct Answer: B

Question 22 (Multiple Choice)
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.

Correct Answer: D

Question 23 (Multiple Choice)
A $200 price tag on a cashmere sweater in a department store window is an example of money functioning as a:

A) unit of account.
B) standard of deferred payments.
C) store of value.
D) medium of exchange.

Correct Answer: A

Question 24 (Multiple Choice)
If you place a part of your summer earnings in a savings account, you are using money primarily as a(n):

A) medium of exchange.
B) store of value.
C) unit of account.
D) standard of value.

Correct Answer: B

Question 25 (Multiple Choice)
If the reserve requirement is 10 percent, how much excess reserves does a bank acquire when a business deposits a $500 check drawn on another bank?

A) $450
B) $550
C) $5000
D) $500

Correct Answer: A

Question 26 (True/False)
The higher the interest rate, the larger will be the amount of money demanded for transaction purposes.

True
False

Correct Answer: false

Question 27 (Multiple Choice)
Assume the Standard Internet Company negotiates a loan for $5,000 from the Metro National Bank and receives a checkable deposit for that amount in exchange for its promissory note (IOU). As a result of this transaction:

A) the supply of money is increased by $5,000.
B) the supply of money declines by the amount of the loan.
C) a claim has been

Correct Answer: A

Question 28 (Multiple Choice)
The Board of Governors of the Federal Reserve has ____ members.

A) 5
B) 7
C) 9
D) 14

Correct Answer: B

Question 29 (Multiple Choice)
An increase in nominal GDP increases the demand for money because:

A) interest rates will rise.
B) more money is needed to finance a larger volume of transactions.
C) bond prices will fall.
D) the opportunity cost of holding money will decline.

Correct Answer: B

Question 30 (True/False)
Bond prices and interest rates are directly or positively related.

True
False

Correct Answer: false