Deck 13: Money, Banks, and the Federal Reserve

Question 1

The Federal Reserve was originally created to

A) stabilize exchange rates
B) keep the unemployment rate at 0%
C) create jobs
D) issue bonds
E) create and regulate the U.S.money supply

Answer 1

create and regulate the U.S.money supply

Question 2

Fiat money is

A) money with intrinsic value like gold coins.
B) anything that serves as a means of payment by government declaration.
C) any currency made of paper.
D) a tangible asset like a house.
E) money that is backed by gold.

Answer 2

anything that serves as a means of payment by government declaration.

Question 3

If you use a check to purchase a textbook,the check is

A) the unit of value
B) the means of payment
C) the means of payment and the unit of value
D) outside the monetary system
E) worth less than an equivalent amount of currency

Answer 3

the means of payment

Question 4

The unit of value function of money refers to how we think about and record a transaction,whereas the means of payment function refers to how we actually pay for the items.

Question 5

In any monetary system,the means of payment must be the same as the unit of value.

Question 6

If the government passed a law designating sea shells as money,sea shells

A) would not be legal tender
B) would not function as money because they would be unable to serve as a unit of account
C) would not function as money because they would be unable to serve as a means of payment
D) would not function as money because they would be unable to serve as a store of wealth
E) would function as money as long as they were accepted in exchange for goods and services

Question 7

The organization responsible for creating and regulating the U.S.money supply is

A) the Department of Commerce
B) the Council of Economic Advisers
C) the U.S.Mint
D) the Federal Reserve System
E) the Department of the Treasury

Question 8

A monetary system is what allows us to

A) earn a wage
B) compare the costs of different goods and services
C) invest in productive assets
D) be productive
E) consume today,rather than tomorrow

Question 9

The means of payment function of money refers to the common unit for measuring how much something is worth

Question 10

Gold,silver and furs,when used as money,are referred to as

A) fiat money
B) precious money
C) paper currency
D) commodity money
E) exchange money

Question 11

If a piece of currency must be accepted for payment because the government says so,the currency is called

A) commodity money
B) money backed by gold
C) high-powered money
D) greenbacks
E) fiat money

Question 12

The primary reason that U.S.money has value is that it

A) is backed by gold
B) is fiat money
C) is accepted by others in exchange for goods and services
D) is commodity money
E) has a fixed value established by the Federal Reserve.

Question 13

Which of the following could not serve as commodity money?

A) diamond
B) gold
C) paper
D) fur
E) silver

Question 14

Establishing a unit of value and establishing a standard means of payment are two functions of a monetary system.

Question 15

The institution charged with creating and regulating the U.S.money supply is the

A) U.S.Treasury
B) Federal Reserve System
C) Department of Commerce
D) Department of Weights and Measures
E) U.S.Mint

Question 16

Money in the U.S.has value primarily because it is fiat money.

Question 17

When money is used to compare the costs of different goods and services,it is functioning as

A) a unit of account
B) a means of payment
C) fiat money
D) a store of wealth
E) legal tender

Question 18

In what year was the Federal Reserve System created?

A) 1790
B) 1861
C) 1879
D) 1913
E) 1935

Question 19

The first paper currency issued by the U.S.government was known as the

A) Federal Reserve note
B) treasury bill
C) greenback
D) pound
E) gold certificate

Question 20

In the United States between 1790 and the Civil War,who issued paper currency?

A) The Federal Reserve System
B) The U.S.Treasury Department
C) The U.S.Congress
D) The British government
E) Private banks.

Question 21

The cash that is counted as part of M1 does not include vault cash.

Question 22

Which of following is an example of fiat money?

A) US dollars
B) Gold
C) Diamonds
D) Silver
E) Fur

Question 23

Money is

A) only assets such as gold and silver
B) only fiat in nature
C) anything that is generally accepted as a means of payment
D) acceptable as a means of payment because the government guarantees that it must be
E) only those things backed by gold

Question 24

The least liquid of the following assets is

A) cash in the hands of the public
B) time deposits
C) savings accounts
D) travelers' checks
E) demand deposits

Question 25

Stocks and bonds are

A) financial assets;therefore,they are considered to be money
B) highly-liquid financial assets;therefore,they are considered to be money
C) not highly-liquid financial assets;therefore,they are not considered to be money
D) widely accepted means of payment;therefore,they are considered to be money
E) not financial assets;therefore,they are not considered to be money

Question 26

When economists and government officials speak about the money supply,they usually mean M2.

Question 27

Which of the following is the most liquid form of asset?

A) Small time deposits
B) Large time deposits
C) Savings accounts
D) Money market mutual fund (MMMF)balances
E) Travelers' checks

Question 28

Which of the following is the most liquid category of assets?

A) Large time deposits
B) Money market mutual fund balances
C) Small time deposits
D) Saving-type accounts
E) Demand deposits

Question 29

Credit cards are considered to be money because they facilitate exchange.

Question 30

When was the first U.S.paper currency,the greenback,created?

A) During the Revolutionary War
B) During World War I
C) During World War II
D) During the Civil War
E) During the war of 1812.

Question 31

Which of the following is the proper order of assets ranked from most to least liquid?

A) Demand deposits,cash in the hands of the public,large time deposits
B) Travelers' checks,small time deposits,savings-type accounts
C) Small time deposits,large time deposits,demand deposits
D) Cash in the hands of the public,savings-type accounts,demand deposits
E) Cash in the hands of the public,money market mutual funds,small time deposits.

Question 32

Which of the following is the most liquid asset?

A) A classic art painting
B) A commercial building
C) A savings bond
D) A checking account balance
E) Gold

Question 33

Money is the means of payment in the economy.Examples of money include

A) currency,checking account balances,and credit card limits
B) ATM cards,checking account balances,and currency
C) travelers' checks and credit card limits
D) currency,stocks,and travelers' checks
E) currency,travelers' checks,and personal checks

Question 34

The most liquid asset(s)of all is (are)

A) cash in the hands of the public
B) cash in the hands of banks
C) demand deposits held by households and businesses at commercial banks
D) travelers' checks
E) credit cards

Question 35

All cash within the geographical boundaries of the United States is counted as part of the U.S.money supply.

Question 36

Money is

A) an asset that is widely accepted as a means of payment in the economy
B) any asset that is convertible into cash
C) an asset that is backed by a precious metal such as gold or silver
D) any financial asset created and issued by government
E) anything used to pay for goods and services,including currency,checks,and credit cards

Question 37

Cash in a commercial bank's vault is not part of the money supply.

Question 38

Which of the following is the most liquid asset?

A) a certificate of deposit
B) a government bond
C) a share of corporate stock
D) a checking account balance
E) fine jewelry

Question 39

Which of the following is counted as money?

A) Bonds
B) Credit card payments
C) Credit card limits
D) Currency
E) Corporate stock

Question 40

The standard definition of money is

A) currency + checking account balances + saving account balances
B) currency + checking account balances + travelers' checks
C) currency + checking account balances + credit cards
D) currency + credit cards + certificates of deposit
E) currency only

Question 41

If this balance sheet depicts the only bank in the economy,how large is M1?

A) $5 million
B) $10 million
C) $15 million
D) $60 million
E) $65 million

Question 42

One reason why financial intermediaries are beneficial is that

A) they can predict the pattern of the outflow of funds
B) they earn a profit
C) there are a variety of financial intermediaries
D) they reduce the risk to depositors by spreading loans among different borrowers
E) they charge high interest rates on funds they lend to depositors

Question 43

Which of the following is included in the M2 money stock?

A) bonds
B) stocks
C) gold
D) savings-type accounts
E) credit card balances

Question 44

Who owns a commercial bank?

A) Its depositors
B) Its stockholders
C) Lenders
D) Savers
E) The Federal Reserve

Question 45

M1 and M2 are

A) usually equal
B) aggregates that,when added together,encompass all methods of payment
C) nonofficial measures of the U.S.money supply
D) both measures of the U.S.money supply
E) the best way to measure the U.S.money supply

Question 46

Which of the following is not included in the M1 money stock?

A) money market funds
B) demand deposits
C) checking account deposits
D) travelers' checks
E) cash in the hands of the public

Question 47

Given the following information,what would be the value of M1?

A) $400 billion
B) $100 billion
C) $425 billion
D) $1,175 billion

Question 48

Which of the following would not be considered money in the hands of the public?

A) cash hidden under a mattress
B) a bank's vault cash
C) cash in the cash register of a hardware store
D) cash stored in the hardware store's vault
E) cash in your wallet

Question 49

A bank's most important service is

A) making money
B) providing checking account services
C) organizing money flowing into accounts
D) providing investment advice
E) increasing the amount of cash the public holds

Question 50

Which of the following is not included in the M1 money stock?

A) small time deposits
B) demand deposits
C) checking account deposits
D) travelers' checks
E) cash in the hands of the public

Question 51

Which of the following is a role of a financial intermediary?

A) Increasing risk to lenders
B) Combining a large number of loans of small borrowers into a small number of deposits of large savers
C) Decreasing liquidity for savers
D) Reducing risk to depositors
E) Increasing interest rates for both borrowers and lenders.

Question 52

All items on a bank's balance sheet are stock variables.

Question 53

A bank's balance sheet can show a negative net worth and yet its income statement can show a profit for the year.

Question 54

Given the following information,what would be the value of M2?
$\begin{array}{|l|l}\hline \text { Small time deposits } & \$ 650 \text { billion } \\\text { Checking deposits } & \$ 300 \text { billion } \\\text { Savings-type accounts } & \$ 750 \text { billion } \\\text { Money market mutual funds } & \$ 600 \text { billion } \\\text { Travelers' checks } & \$ 25 \text { billion } \\\text { Large time deposits } & \$ 600 \text { billion } \\\text { Cash in hand } & \$ 100 \text { billion }\end{array}$

A) $400 billion
B) $100 billion
C) $425 billion
D) $1,825 billion

Question 55

Credit cards

A) are considered money because they are a means of payment
B) are not considered money and thus are not of importance to the monetary authority
C) are not considered money but are important because they may affect how much people hold in M1 and M2
D) are counted in the money supply as part of M3
E) are considered money when held by the public

Question 56

The standard measure of the money stock,M1,refers to

A) checking account balances,travelers' checks,and cash in the hands of the public
B) cash in the hands of the public,demand deposits,and small time deposits
C) cash in the hands of the public,savings-type account balances,and travelers' checks
D) savings-type account balances,small time deposits,and checking account deposits
E) the sum of the cash in the hands of the public

Question 57

Which of the following is not part of M2?

A) savings-type deposits
B) noninstitutional money market mutual fund balances
C) small time deposits
D) large time deposits (over $100,000)
E) cash held by the public

Question 58

Financial intermediaries are important because

A) the process of finding loans is complicated
B) firms are usually unwilling to part with extra revenue
C) they are examples of banks
D) we could not function in society without them
E) they facilitate efficient transactions between borrowers and lenders

Question 59

A credit union is an example of a financial intermediary.

Question 60

Financial intermediaries

A) harm both borrowers and lenders because they pay lenders a lower rate of interest than they charge to borrowers
B) specialize in assembling loanable funds from households and firms,and channeling those funds to other households,firms,and government agencies
C) are all depository institutions
D) increase the risk of lending and borrowing because a financial intermediary has nothing to lose from such transactions
E) reduce efficiency because they add an extra step to many financial transactions

Question 61

The Federal Reserve System is under the strict control of

A) the executive branch
B) the legislative branch
C) the judicial branch
D) the International Monetary Fund
E) none of the above

Question 62

If the Federal Reserve sets a required reserve ratio of 0.2 and a bank has $100 million in loans and $80 million in deposits,what is the level of required reserves for the bank?

A) $100 million
B) $16 million
C) $80 million
D) $20 million
E) $36 million

Question 63

If a commercial bank has assets valued at $200 million and a net worth of $20 million,what is the value of the bank's liabilities?

A) There is not enough information to determine.
B) $20 million
C) $220 million
D) $180 million
E) $200 million

Question 64

The Federal Reserve System was created in

A) 1776
B) 1894
C) 1913
D) 1930
E) 1936

Question 65

A bank's balance sheet shows

A) information about the riskiness of its loans
B) the amount of money loaned to each individual borrower
C) the amount of cash in the hands of the public
D) the number of checking accounts it maintains
E) the bank's assets and liabilities

Question 66

Given the balance sheet below and assuming a required reserve ratio of 20 percent,how much (in dollar terms)is this bank holding in excess reserves?

A) $3.5 million
B) $8 million
C) $15 million
D) $19 million
E) $35 million

Question 67

If the required reserve ratio is 0.2,and a bank has $100 million in demand deposits and $40 million in property and buildings,it must hold reserves of at least

A) $28 million
B) $20 million
C) $26 million
D) $12 million
E) $8 million

Question 68

Which of the following is a liability of a commercial bank?

A) Property and buildings owned
B) Loans
C) Government bonds held
D) Cash in its vault
E) Deposits at the bank

Question 69

One reason for the differences between the Federal Reserve System and its European counterparts is

A) that the Fed was established earlier
B) the tendency for Americans to embrace the idea of a central authority
C) the fear that a powerful central bank might be dominated by one group's interests to another group's detriment
D) the homogeneity of the United States compared with other nations
E) because our definition of money is much different from other countries.

Question 70

Given the balance sheet below and assuming a required reserve ratio of 20 percent,how much (in dollar terms)must the bank hold in required reserves?

A) It is failing to meet its reserve requirement.
B) It is just meeting its reserve requirement,but has no excess reserves.
C) It is meeting its reserve requirement,and has $5 million in excess reserves.
D) It is meeting its reserve requirement,and has $10 million in excess reserves.
E) It is meeting its reserve requirement,and has $15 million in excess reserves.

Question 71

If a commercial bank has liabilities valued at $150 million,a net worth of $50 million and assets (not including loans)of $180 million,what is the value of the bank's loans?

A) $180 million
B) $200 million
C) $20 million
D) $280 million
E) $80 million

Question 72

Reserves are defined as

A) the total cash in bank vaults
B) money deposited in Federal Reserve accounts
C) the sum of vault cash and deposits at Federal Reserve banks
D) the total amount of money a bank must hold
E) ten percent of demand deposit liabilities

Question 73

Demand deposits are liabilities to a bank because

A) the bank must pay interest on these accounts
B) we need some method of creating a balance
C) the bank must be willing to account for loans and bonds
D) the bank could potentially lose this money if loans are not repaid
E) the customers have the right to withdraw the funds from their checking accounts

Question 74

Macro National Bank,a commercial bank,holds $1 million in vault cash,$15 million in government and corporate bonds,$40 million in demand deposits,$10 million on deposit with a Federal Reserve bank,and $8 million worth of property.What are Macro National Bank's total liabilities?

A) $40 million
B) $48 million
C) $50 million
D) $51 million
E) $65 million

Question 75

If a bank's total assets are $150 million and total liabilities are $110 million,the bank's net worth is

A) $15 million
B) $260 million
C) $40 million
D) -$40 million
E) $5 million

Question 76

Given the balance sheet below and assuming a required reserve ratio of 20 percent,how much (in dollar terms)must the bank hold in required reserves?

A) $2 million
B) $3 million
C) $4 million
D) $7 million
E) $16 million

Question 77

Given the balance sheet below and assuming a required reserve ratio of 20 percent,how much (in dollar terms)is this bank actually holding in reserves?

A) $3.5 million
B) $8 million
C) $15 million
D) $20 million
E) $35 million

Question 78

Which of the following groups exerts the most control over the money supply in the United States?

A) The executive branch of government
B) The legislative branch of government
C) The judicial branch of government
D) The Federal Reserve
E) The U.S.Treasury Department

Question 79

The Federal Reserve is

A) part of the executive branch of the government
B) not part of any branch of the government
C) part of the judicial branch of the government
D) part of both the legislative and the judicial branch of the government
E) part of both the executive and the legislative branch of the government

Question 80

One reason a bank keeps vault cash is because it

A) may be required to provide cash to customers who are withdrawing their funds
B) wants to earn more interest income
C) wants to offer more loans
D) may need to make transactions with other banks
E) may need to pay more interest on its savings accounts