Deck 13: Money and Banking

Question 1

Banking began in

A)biblical times.
B)medieval times.
C)the 19^th century.
D)the 20^th century.

Answer 1

B

Question 2

People tend to hold more money as

A)the price level rises and credit availability rises.
B)the price level rises and credit availability falls.
C)the price level falls and credit availability falls.
D)the price level falls and credit availability rises.

Answer 2

B

Question 3

Which statement is true?

A)M1 is larger than M3.
B)M2 is about five times the size of M1.
C)M3 is three times the size of M2.
D)None of the statements are true.

Answer 3

B

Question 4

In the early 1980s the savings and loan associations started making _____ loans and paying their shareholders _____ interest rates.

A)riskier;higher
B)riskier;lower
C)less risky;higher
D)less risky;lower

Question 5

All large financial institutions have to hold a reserve of almost ____% of their demand deposits.

A)2
B)10
C)12
D)20
E)100

Question 6

Statement I.Between 1987 and 1997 nearly one-third of all commercial banks failed.
Statement II: There are about 10 times as many commercial banks as savings and loan associations.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 7

Money is created when someone

A)takes out a bank loan.
B)pays back a bank loan.
C)spends money.
D)saves money.

Question 8

Bank deposit creation is limited by

A)reserve requirements.
B)the interest rate.
C)whether a bank is nationally or state chartered.
D)whether a bank is in a large city or rural area.

Question 9

Statement I: The savings and loan debacle has cost the U.S.taxpayers hundreds of billions of dollars.
Statement II: One of the main causes of the savings and loan debacle was federal deregulation of that industry.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 10

Which of the following is money?

A)A credit card
B)A check
C)A share of corporate stock
D)None of the choices are money.

Question 11

Which statement is true?

A)M1 is larger than M2.
B)M1 + M2 = M3.
C)M2 + large denomination time deposits = M3.
D)M1 times M2 = M3.

Question 12

The _____ demand for money is most sensitive to interest rate changes.

A)transactions
B)precautionary
C)speculative

Question 13

John Maynard Keynes said that people have three motives for holding money.Each of the following is a Keynesian motive except

A)inflation.
B)transactions.
C)speculative.
D)precautionary.

Question 14

Which one of the following is not money?

A)Gold
B)A dime
C)A demand deposit
D)A NOW account

Question 15

Which one of the following is not part of our money supply?

A)Dollar bills
B)Demand deposits
C)Travelers checks
D)Gold

Question 16

Back in the Middle Ages,the only safe place to put your money was

A)in Treasury bills.
B)in goldsmiths' safes.
C)in real estate.
D)in commodity futures.

Question 17

A medium of exchange is

A)the only job of money.
B)the least important job of money.
C)the most important job of money.

Question 18

The unintended consequences of the federal deregulation of the interest paid depositors in the savings and loans was

A)increasing the interest rates in the national money market
B)increasing the amount of the loss on existing loans
C)allowing management to make riskier loans
D)affecting the interest rates on existing long term loans

Question 19

Which statement is true?

A)Currency accounts for about ¾ of our money supply.
B)The use of money requires a double coincidence of wants.
C)M2 is over $8.5 trillion.
D)None of the statements are true.

Question 20

Statement I: In the 1980s,many savings and loan associations made very risky real estate loans that were not repaid.
Statement II: Risky investments in junk bonds played a role in the decline and fall of the savings and loan industry.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 21

The concept of the liquidity trap was formulated by

A)John Maynard Keynes.
B)Milton Friedman.
C)Stephen Pizzo.
D)Aristotle.
E)Marshall McLuhan.

Question 22

Statement I: As the level of income rises,people tend to hold more money.
Statement II: People tend to hold less money as credit availability increases.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 23

If a person writes a check on a Tulsa bank to purchase a new Oldsmobile,he is employing money as:

A)a medium of exchange.
B)a store of value.
C)a measure of value.
D)All of the choices are correct.

Question 24

Of the total M1,currency accounts for a little more than ______%.

A)20
B)30
C)40
D)50

Question 25

People tend to hold more money as

A)the price level rises and interest rates rise.
B)the price level falls and interest rates fall.
C)the price level rises and interest rates fall.
D)the price level falls and interest rates rise.

Question 26

The transaction motive for holding money

A)varies inversely with income.
B)varies directly with the number of times one is paid annually.
C)are used to make expected expenditures.
D)are held for the same reasons that precautionary cash balances are helD.
E)are held to cover unpredictable expenditures.

Question 27

The moment modern banking was born was when

A)the number of goldsmiths' receipts exceeded the number of gold coins kept in goldsmiths' safes.
B)the number of gold coins kept in goldsmiths' safes was equal to the number of goldsmiths' receipts in circulation.
C)the number of gold coins in goldsmiths' safes exceeded the number of goldsmiths' receipts in circulation.

Question 28

Which is true?

A)M1 is part of M2,but M2 is not part of M3.
B)M1 is not part of M2,but M2 is part of M3.
C)M1 is part of M2,and M2 is part of M3.
D)None of the choices are true.

Question 29

Each of the following played a role in causing the savings and loan associations to go bankrupt in the 1980s except

A)laws restricting assets S & Ls could purchase.
B)organized crime.
C)real estate speculators.
D)junk bond purchases.

Question 30

Each of the following hurt the savings and loan industry in the 1980s except

A)the recession of 1981-1982.
B)falling real estate prices.
C)the falling prices of junk bonds.
D)falling interest rates.

Question 31

Which statement is true?

A)The largest six American banks are among the top 10 banks in the world.
B)Bank of America is the largest American bank.
C)There are no American banks among the largest 10 banks in the world.
D)Two of the largest 10 banks in the world are Japanese.

Question 32

A large denomination time deposit is

A)money in a passbook savings account.
B)an S & L share.
C)any money left on deposit in a bank for over one year.
D)any deposit of at least $100,000 left on deposit at a bank for a specified period of time.

Question 33

Bank interest rates on short-term business loans during the late 1970s

A)had an upward trend.
B)had a downward trend.
C)stayed about the same.

Question 34

Statement I: As interest rates rise,in the long run people tend to hold less money.
Statement II: As the rate of inflation rises in the long run,people tend to hold more money.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 35

Suppose a goldsmith (banker)had a certain number of gold coins in his safe and he kept writing more and more goldsmiths' receipts for people who came to him to borrow money.What would be happening to his reserve ratio?

A)It would be rising.
B)It would be falling.
C)It would stay the same.
D)There is not enough information to answer this question.

Question 36

Most (75%)of the financial transactions are through the use of

A)electronic fund transfers.
B)credit cards.
C)checks.
D)cash.

Question 37

Banks can increase the supply of money

A)only by increasing the currency in the hands of the public.
B)only by increasing the checking deposits held by the public.
C)by increasing both the currency and the checking deposits in the hands of the publiC.
D)neither by increasing the currency nor the checking deposits in the hands of the public.

Question 38

The S & L debacle ultimately cost American taxpayers

A)at least $10 billion.
B)about $100 billion
C)about $200 billion.
D)between $300 billion and $500 billion.

Question 39

In the last four decades our money supply

A)grew every year.
B)fell every year.
C)grew in about half the years and fell the other years.
D)grew almost every year and only fell in a few years.

Question 40

About _____ of every ten dollars in our m1 balance is in the form of currency.

A)1
B)2
C)3
D)4
E)5

Question 41

Statement I: Large denomination CDs are not part of M2,but are part of M3.
Statement II: Small denomination CDs are part of M2,but not of M3.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 42

Large denomination time deposits are included in

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

Question 43

The demand for money schedule shows that the quantity of money that people want to hold

A)rises as income rises.
B)falls as income rises.
C)falls as the interest rate rises.
D)falls as the real price of money rises.

Question 44

Which is NOT considered money?

A)Checking account balances
B)Traveler's checks issued by non-banks
C)Credit cards
D)Currency

Question 45

Which statement is true?

A)Money may perform as a standard of value or as a store of value,but not both at the same time.
B)The main job of money is a medium of exchange.
C)Money may perform as a standard of value or as a standard of deferred payment,but not both at the same time.
D)Money performs extremely well as a standard of deferred payment in the long run.

Question 46

Even though credit cards are used by many people in making purchases,they are not included in the M1.A major reason is that

A)credit cards are a way of going into debt,whereas the components of M1 represent assets.
B)credit cards had not yet been invented when money was defined.
C)some credit cards are issued by stores (such as Sears),whereas all money is issued by banks.
D)credit cards are much less liquid than M1.
E)credit cards don't affect consumer expenditures,whereas M1 does.

Question 47

The opportunity cost of holding money

A)is zero because money is not an economic resource.
B)varies inversely with the interest rate.
C)varies directly with the interest rate.
D)varies inversely with the level of national income.

Question 48

Statement I: One job of money is as a store of value.
Statement II: Money may perform as a standard of value or as a medium of exchange,but not both at the same time.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 49

Money performs its job as a standard of value very well

A)in the short run.
B)in the long run.
C)in both the short and long run.
D)in neither the short run nor the long run.

Question 50

The term "double coincidence of wants"

A)means that people are trying to purchase the same thing.
B)is a situation where runaway prices are the result of printing too much money.
C)describes a barter situation where individuals agree to trade commodities in amounts satisfactory to both parties.
D)means that people with the same commodities agree to trade among themselves.

Question 51

Statement I: Our money supply is backed by gold.
Statement II: Our money supply consists almost entirely of paper currency;the rest is coins.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 52

Use of money as a medium of exchange

A)represents the most important service that money renders.
B)permits only very limited production because of the high transaction costs of exchange.
C)means that transactions only occur if there is a double coincidence of wants.
D)permits only very limited specialization of labor.

Question 53

The transaction demand for money is most clearly related to its use as a

A)medium of exchange.
B)standard of value.
C)measure of value.
D)store of value.
E)standard of deferred payment.

Question 54

Coins in the hands of the public are

A)included in M1,but not in M2.
B)included in both M1 and in M2.
C)included in M2,but not in M1.
D)excluded from M1 and M2 because people can exchange them for Federal Reserve notes.

Question 55

Paper money in the United States is issued by the

A)United States Mint.
B)Federal Reserve Banks.
C)United States Treasury.
D)Federal Open Market Committee.
E)United States Government Printing OfficE.

Question 56

It is generally agreed that when the rate of monetary growth exceeds the rate of growth in real GDP in the long run

A)the inflation rate will increase every year by a constant rate.
B)real GDP will grow at a faster rate.
C)the average price level will tend to decrease over time.
D)the average price level will tend to increase over time.
E)the inflation rate will decrease every year until it ultimately equals zero.

Question 57

Statement I: The dividing line between small denomination CDs and large denomination CDs is $10,000.
Statement II: Our money supply grows from 4 to 6 percent two out of three years.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 58

The most narrow definition of the money stock developed by the Federal Reserve System in the United States is

A)M1.
B)M2.
C)M3.
D)M4.

Question 59

The precautionary demand for money arises

A)because people feel relatively certain what the future will bring.
B)because individuals are uncertain about the future.
C)when nominal income exceeds potential income.
D)as important exceptions to the Keynesian model.
E)because the transaction demand for money is never adequate to absorb the money supply.

Question 60

Which of the following is not a component of M1?

A)Currency
B)Passbook savings account
C)Checking accounts
D)Traveler's checks issued by non-banks

Question 61

The major consideration of whether something can serve as money is that it must be

A)redeemable in precious metals such as gold or silver.
B)printed by each nation's government or banking authority.
C)freely available to all who want it.
D)exchangeable for other types of money.
E)acceptable as a means of payment.

Question 62

Money is a good store of value

A)when the average price level is rising.
B)when the economy is experiencing severe inflation.
C)when the average price level is falling.
D)when the unemployment rate is high.

Question 63

Which of the following influences the demand for money?

A)Only the money supply.
B)Only the interest rate.
C)Only the level of income.
D)Both money supply and interest rate influence the demand for money.

Question 64

Statement I: The Federal Deposit Insurance Corporation prefers takeovers to payoffs.
Statement II: There are 12,000,000 automated teller machines (ATMs)in the U.S.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 65

Checkable deposits are funds immediately available from all of the following EXCEPT

A)banks.
B)savings and loans.
C)credit card companies.
D)savings banks.

Question 66

Welfare banks are

A)illegal.
B)check-cashing stores.
C)credit unions operated by local welfare departments.
D)bank branches located in poor neighborhoods.

Question 67

Which is the most accurate statement?

A)The FDIC will not let any bank fail.
B)The FDIC insures all bank deposits up to $10,000.
C)The FDIC was created in the 1930s to prevent bank failures.
D)The FDIC insures all bank deposits up to $40,000.

Question 68

Checkable deposits are money because they are

A)legal tender.
B)fiat money.
C)a medium of exchange.
D)token money.

Question 69

The traditional role of savings and loan associations has been to

A)finance business purchases of capital goods.
B)purchase corporate stocks on behalf of its depositors.
C)make installment loans to consumers.
D)make mortgage loans on houses.

Question 70

Statement I: The regulatory pendulum in the savings and loan industry has begun to swing toward more regulation since the savings and loan debacle.
Statement II: Most financial intermediaries are commercial banks.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 71

The main purpose of federal deposit insurance is to

A)permit the Federal Reserve to control the money supply.
B)prevent borrowers who are likely to default on their loans from getting loans in the first place.
C)prevent bank panics.
D)put savings and loan associations on an equal competitive footing with commercial banks.

Question 72

Small denomination time deposits are included in

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

Question 73

Currency is included in

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

Question 74

The M1 definition of the money supply

A)includes only coins and currency.
B)includes only things that can be used as a medium of exchange,while the M2 definition includes some things that cannot be used directly as a medium of exchange.
C)includes some kinds of accounts that are not included in M2.
D)tends to grow more rapidly than M2.

Question 75

Which statement is the most accurate?

A)Banks are not financial intermediaries.
B)Banks are the only financial intermediaries.
C)Banks are the most important financial intermediaries.
D)Banks are among the least important financial intermediaries.

Question 76

When money is held as an asset,it is serving as

A)a standard of value.
B)a standard of deferred payment.
C)a medium of exchange.
D)a store of value.

Question 77

Money serves which of the following functions?

A)A medium of exchange.
B)A standard of value.
C)A store of value.
D)All of the choices are true of money's function.

Question 78

Statement I: Over 99% of all banks are members of the FDIC.
Statement II: The savings and loan debacle had its origins in the late 1980s.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 79

It is costly to hold money because

A)deflation may reduce its purchasing power.
B)in doing so one sacrifices interest income.
C)bond prices are highly variable.
D)the velocity of money may decline.

Question 80

Demand deposits are essentially

A)coins and currency.
B)based on gold deposits with the Fed.
C)checkable deposits.
D)not legally required to be available sooner than 30 days after a check is presented to a bank.