Question 1

Prior to 1980, thrift institutions in the United States were allowed to offer checking accounts.

Accepted Answer

A) True 
 B)False

Question 2

Commodity money is money that:

Accepted Answer

A)   has no value as a commodity.
B)   is not backed by gold or silver and is not a legal tender.
C)   may go out of circulation with an increase in its intrinsic value.
D)   always has a face value greater than the intrinsic value.
E)   is solely used in barter exchanges.

Question 3

The use of money as a unit of account:

Accepted Answer

A)   discourages specialization and division of labor.
B)   inhibits the exchange of goods and services.
C)   makes it difficult to compare the relative values of goods and services.
D)   lowers information costs relative to barter.
E)   relies on the existence of a double coincidence of wants.

Question 4

Outstanding U.S. dollar-denominated travelers' checks issued by non-bank institutions are not counted as part of the M1 money supply.

Accepted Answer

A) True 
 B)False

Question 5

Perishable goods such as tomatoes and milk are never used as a form of money, primarily because they cannot function as:

Accepted Answer

A)   a store of purchasing power.
B)   a means of payment.
C)   a standard of deferred payment.
D)   a medium of exchange.
E)   a unit of account.

Question 6

Which of the following properties should a commodity have to be considered as money?

Accepted Answer

A)   It should be scarce and rare.
B)   It should be perishable.
C)   It should be indivisible.
D)   It should be unpredictable in value.
E)   It should be homogenous in nature.

Question 7

In fractional reserve banking:

Accepted Answer

A)   bank assets are less than bank reserves.
B)   only a fraction of total deposits are bank reserves.
C)   only a fraction of required reserves are investor assets.
D)   bank loans are less than bank reserves.
E)   a fraction of bank reserves needs to be backed by gold.

Question 8

The cash reserves held by banks that are illegal are called excess reserves.

Accepted Answer

A) True 
 B)False

Question 9

-Refer to Table 12.2. If the reserve requirement is 12 percent and the bank receives a new deposit of $10,000, then required reserves will increase by _____.

Accepted Answer

A)   $3,600
B)   $2,400
C)   $2,600
D)   $2,800
E)   $1,200

Question 10

A $1,000 price tag on a stereo system is an example of money as a unit of account.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following constitutes a currency drain from the banking system?

Accepted Answer

A)   Purchase of government securities
B)   New demand deposits
C)   Banks lending out all excess reserves
D)   A banking panic that leads to large withdrawals from banks
E)   Lower required reserve holdings

Question 12

In the United States, the different categories of money supply measurement are based on:

Accepted Answer

A)   the elasticity of money.
B)   the liquidity of money.
C)   the amount of purchasing power.
D)   the reserve requirements in the banking system.
E)   the velocity of money.

Question 13

Suppose the National Bank has total cash reserves of $2,000 and has $5,000 in total deposits. If its total excess reserves are $1,250, then the reserve requirement is equal to:

Accepted Answer

A)   25 percent.
B)   15 percent.
C)   10 percent.
D)   5 percent.
E)   20 percent.

Question 14

U.S. bank notes have no intrinsic value and yet are widely accepted as a medium of exchange. This is a result of:

Accepted Answer

A)   Gresham's law.
B)   the use of money as a store of value.
C)   the fiduciary monetary system.
D)   the valuation of currency as commodity money.
E)   the gold and silver reserves of the Federal government that backs the currency.

Question 15

The main advantage of the Eurocurrency market is that investment funds cannot be subject to foreign government controls.

Accepted Answer

A) True 
 B)False

Question 16

What is the immediate effect when Bank A lends $1,000 to a local business?

Accepted Answer

A)   The money supply increases by $1,000.
B)   The money supply decreases by $1,000.
C)   Bank A's liability increases by $1,000.
D)   Bank A's excess reserves increase by $1,000.
E)   Bank A's demand deposits decrease by $1,000.

Question 17

The table given below shows the components of money supply in an economy.?
 
-Refer to Table 12.1 and calculate the value of M1.

Accepted Answer

A)   $550 million
B)   $570 million
C)   $780 million
D)   $1,125 million
E)   $1,145 million

Question 18

Excess reserves are equal to:

Accepted Answer

A)   total reserves plus required reserves.
B)   total reserves multiplied by required reserves.
C)   total reserves minus loans.
D)   total reserves minus required reserves.
E)   required reserves minus loans.

Question 19

By Gresham's law, commodity money will always drive out fiduciary money.

Accepted Answer

A) True 
 B)False

Question 20

-Refer to Table 12.2. Assume a reserve requirement of 10 percent. The maximum amount of new loans the bank could extend is _____.

Accepted Answer

A)   $500
B)   $1,000
C)   $2,000
D)   $3,000
E)   $4,000

Exam 12: Money and Banking

Suppose the National Bank has total cash reserves of $2,000 and has $5,000 in total deposits. If its total excess reserves are $1,250, then the reserve requirement is equal to:

Correct AnswerverifiedShow Answer

Outstanding U.S. dollar-denominated travelers' checks issued by non-bank institutions are not counted as part of the M1 money supply.

Correct AnswerverifiedShow Answer

The cash reserves held by banks that are illegal are called excess reserves.

Correct AnswerverifiedShow Answer

-Refer to Table 12.2. Assume a reserve requirement of 10 percent. The maximum amount of new loans the bank could extend is _____.

Correct AnswerverifiedShow Answer

What is the immediate effect when Bank A lends $1,000 to a local business?

Correct AnswerverifiedShow Answer

Which of the following constitutes a currency drain from the banking system?

Correct AnswerverifiedShow Answer

In the United States, the different categories of money supply measurement are based on:

Correct AnswerverifiedShow Answer

The main advantage of the Eurocurrency market is that investment funds cannot be subject to foreign government controls.

Correct AnswerverifiedShow Answer

In fractional reserve banking:

Correct AnswerverifiedShow Answer

The table given below shows the components of money supply in an economy.? -Refer to Table 12.1 and calculate the value of M1.

Correct AnswerverifiedShow Answer

Commodity money is money that:

Correct AnswerverifiedShow Answer

-Refer to Table 12.2. If the reserve requirement is 12 percent and the bank receives a new deposit of $10,000, then required reserves will increase by _____.

Correct AnswerverifiedShow Answer

Perishable goods such as tomatoes and milk are never used as a form of money, primarily because they cannot function as:

Correct AnswerverifiedShow Answer

A $1,000 price tag on a stereo system is an example of money as a unit of account.

Correct AnswerverifiedShow Answer

U.S. bank notes have no intrinsic value and yet are widely accepted as a medium of exchange. This is a result of:

Correct AnswerverifiedShow Answer

The use of money as a unit of account:

Correct AnswerverifiedShow Answer

Prior to 1980, thrift institutions in the United States were allowed to offer checking accounts.

Correct AnswerverifiedShow Answer

Which of the following properties should a commodity have to be considered as money?

Correct AnswerverifiedShow Answer

By Gresham's law, commodity money will always drive out fiduciary money.

Correct AnswerverifiedShow Answer

Excess reserves are equal to:

Correct AnswerverifiedShow Answer

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