Question 1

The M1 money supply is composed of

Accepted Answer

A)  currency, demand deposits, traveler's checks, and other checkable accounts. 
B)  currency, demand deposits, savings deposits, money market mutual funds, and small time deposits. 
C)  currency, government bonds, gold certificates, and coins. 
D)  None of the above is correct. 
A)  currency, demand deposits, traveler's checks, and other checkable accounts. 
B)  currency, demand deposits, savings deposits, money market mutual funds, and small time deposits. 
C)  currency, government bonds, gold certificates, and coins. 
D)  None of the above is correct. A

Question 2

When a bank makes loans with excess reserves, it

Accepted Answer

A)  creates money. 
B)  destroys money. 
C)  alters the composition of M1. 
D)  leaves the money supply unchanged. 
A)  creates money. 
B)  destroys money. 
C)  alters the composition of M1. 
D)  leaves the money supply unchanged. A

Question 3

The objective of bank management is to

Accepted Answer

A)  maximize stockholders' profits by making risky investments and giving loans to borrowers who will pay the highest interest rates. 
B)  refuse to make risky loans and make loans only to the safest borrowers. 
C)  invest in the U.S. government securities and make loans only to established businesses. 
D)  strike the appropriate balance between the attraction of bank profits and the need for bank safety. 
A)  maximize stockholders' profits by making risky investments and giving loans to borrowers who will pay the highest interest rates. 
B)  refuse to make risky loans and make loans only to the safest borrowers. 
C)  invest in the U.S. government securities and make loans only to established businesses. 
D)  strike the appropriate balance between the attraction of bank profits and the need for bank safety. D

Question 4

Money that is backed solely by a government decree is referred to as fiat money.

Accepted Answer

A) True 
 B)False

Question 5

The one disadvantage of paper money is that it is easier to

Accepted Answer

A)  duplicate and counterfeit. 
B)  carry. 
C)  divide. 
D)  store and use at a later time. 
A)  duplicate and counterfeit. 
B)  carry. 
C)  divide. 
D)  store and use at a later time.

Question 6

Barter is a system of

Accepted Answer

A)  trade without the use of money. 
B)  trading one good for another. 
C)  the double coincidence of wants. 
D)  All of these responses are correct. 
A)  trade without the use of money. 
B)  trading one good for another. 
C)  the double coincidence of wants. 
D)  All of these responses are correct.

Question 7

Define the following terms and explain their importance to the study of macroeconomics: 
a. money 
b. M1 
c. near money 
d. bank run

Accepted Answer

a. Money is the standard object used in

Question 8

What is fiat money? Why is fiat money important in the United States today?

Accepted Answer

Fiat (from the Latin for "Let it be done

Question 9

Bankers' business decisions effect the money supply because bankers

Accepted Answer

A)  are respected men and women. 
B)  have the ability to create money. 
C)  use a special accounting system developed by the Federal Reserve Board. 
D)  All of these responses are correct. 
A)  are respected men and women. 
B)  have the ability to create money. 
C)  use a special accounting system developed by the Federal Reserve Board. 
D)  All of these responses are correct.

Question 10

The value of the deposit multiplier is increased if individuals hold all their money in cash.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is included in M1?

Accepted Answer

A)  Savings accounts 
B)  Money market deposit accounts 
C)  Money market mutual funds 
D)  Certificates of deposit 
E)  None of the above is included. 
A)  Savings accounts 
B)  Money market deposit accounts 
C)  Money market mutual funds 
D)  Certificates of deposit 
E)  None of the above is included.

Question 12

Although checking deposits are considered money, they are actually

Accepted Answer

A)  fictitious numbers in persons' checkbooks. 
B)  backed by commodities like gold. 
C)  not very useful for making payments. 
D)  bookkeeping entries in bank balance sheets. 
A)  fictitious numbers in persons' checkbooks. 
B)  backed by commodities like gold. 
C)  not very useful for making payments. 
D)  bookkeeping entries in bank balance sheets.

Question 13

Bank regulators are concerned about the safety of depositors because

Accepted Answer

A)  bank failures were common throughout most of the U.S. history and have even occurred in recent decades. 
B)  in the absence of federal insurance, depositors would lose their money if a bank failed. 
C)  nervous depositors may rush to withdraw their accounts and produce a "run" that could threaten even a sound bank. 
D)  All of these responses are correct. 
A)  bank failures were common throughout most of the U.S. history and have even occurred in recent decades. 
B)  in the absence of federal insurance, depositors would lose their money if a bank failed. 
C)  nervous depositors may rush to withdraw their accounts and produce a "run" that could threaten even a sound bank. 
D)  All of these responses are correct.

Question 14

Bank regulation exists because public authorities are convinced that

Accepted Answer

A)  the balance between public interest and safety does not affect profitability, and should be removed from the hands of managers. 
B)  the balance between bank profitability and public interest cannot be handled with legislation, but can be handled with regulation. 
C)  the balance between bank profitability and safety cannot be left to profit-maximizing managers. 
D)  the balance between bank safety and public interest can best be obtained by reliance on the market. 
A)  the balance between public interest and safety does not affect profitability, and should be removed from the hands of managers. 
B)  the balance between bank profitability and public interest cannot be handled with legislation, but can be handled with regulation. 
C)  the balance between bank profitability and safety cannot be left to profit-maximizing managers. 
D)  the balance between bank safety and public interest can best be obtained by reliance on the market.

Question 15

Banks are required to keep a minimum level of reserves on hand. The intent of this regulation is

Accepted Answer

A)  monetary control rather than bank safety. 
B)  bank safety in case of bank runs. 
C)  maintenance of bank profits. 
D)  limiting the level of bank profits. 
A)  monetary control rather than bank safety. 
B)  bank safety in case of bank runs. 
C)  maintenance of bank profits. 
D)  limiting the level of bank profits.

Question 16

Why are checking account balances included in the M1 definition of the money supply?

Accepted Answer

A)  Checking account balances are a traditional form of money that predates paper money. 
B)  Checking account balances are used to make so many payments. 
C)  Checking account balances are backed by gold and silver. 
D)  Checking account balances pay interest. 
A)  Checking account balances are a traditional form of money that predates paper money. 
B)  Checking account balances are used to make so many payments. 
C)  Checking account balances are backed by gold and silver. 
D)  Checking account balances pay interest.

Question 17

Liquidity is the ease with which an asset can be converted into the economy's medium of exchange.

Accepted Answer

A) True 
 B)False

Question 18

The lion's share of purchases and transactions in the U.S. economy are made with coins and paper money.

Accepted Answer

A) True 
 B)False

Question 19

The money-creation process generated by an injection of reserves stops when

Accepted Answer

A)  people deposit their loans into other banks. 
B)  reserve requirements are raised. 
C)  the increase in required reserves equals the size of the injection. 
D)  bankers begin to fear runs and stop making loans. 
A)  people deposit their loans into other banks. 
B)  reserve requirements are raised. 
C)  the increase in required reserves equals the size of the injection. 
D)  bankers begin to fear runs and stop making loans.

Question 20

Fractional reserve banking is a banking system in which banks hold only a fraction of deposits as reserves.

Accepted Answer

A) True 
 B)False

Exam 28: Money and the Banking System

The M1 money supply is composed of

When a bank makes loans with excess reserves, it

The objective of bank management is to

Money that is backed solely by a government decree is referred to as fiat money.

The one disadvantage of paper money is that it is easier to

Barter is a system of

Define the following terms and explain their importance to the study of macroeconomics: a. money b. M1 c. near money d. bank run

What is fiat money? Why is fiat money important in the United States today?

Bankers' business decisions effect the money supply because bankers

The value of the deposit multiplier is increased if individuals hold all their money in cash.

Which of the following is included in M1?

Although checking deposits are considered money, they are actually

Bank regulators are concerned about the safety of depositors because

Bank regulation exists because public authorities are convinced that

Banks are required to keep a minimum level of reserves on hand. The intent of this regulation is

Why are checking account balances included in the M1 definition of the money supply?

Liquidity is the ease with which an asset can be converted into the economy's medium of exchange.

The lion's share of purchases and transactions in the U.S. economy are made with coins and paper money.

The money-creation process generated by an injection of reserves stops when

Fractional reserve banking is a banking system in which banks hold only a fraction of deposits as reserves.

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation

Bringing in the Supply Side: Unemployment and Inflation

Managing Aggregate Demand: Fiscal Policy

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate Over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off Between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder

Exchange Rates and the Macroeconomy

Contemporary Issues in the Us Economy

Filters