Deck 14: Money, Banking, and Financial Institutions

Question 1

What function is money serving when you take it on a trip and keep it in your wallet or purse in case you need it?

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

Answer 1

A store of value.

Question 2

The principal advantage money has over barter is its function as:

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

Answer 2

a medium of exchange.

Question 3

One of the principal defects of using a commodity as money is that its worth as a:

A) medium of exchange may exceed its worth as a standard of account, causing it to cease being useful as money.
B) unit of account may exceed its worth as a store of value, causing it to cease being useful as money.
C) medium of exchange may exceed its worth as a store of value, causing it to cease being useful as money.
D) commodity may exceed its worth as money, causing it to cease functioning as a medium of exchange.

Answer 3

commodity may exceed its worth as money, causing it to cease functioning as a medium of exchange.

Question 4

All coins in circulation within the United States are:

A) near monies.
B) checkable deposits.
C) token money.
D) time deposits.

Question 5

A major component of the money supply (M1) is:

A) savings bonds.
B) checkable deposits.
C) gold certificates.
D) savings deposits.

Question 6

As of 2016, the largest component of the money supply (M1) is:

A) checkable deposits.
B) currency.
C) small time deposits.
D) savings deposits.

Question 7

The M1 money supply is composed of:

A) money market mutual funds held by individuals.
B) money market mutual funds held by businesses.
C) savings deposits and time deposits.
D) checkable deposits and currency.

Question 8

Which would be included in the definition of the money supply? Currency and checkable deposits owned by:

A) the Federal Reserve Banks.
B) the U.S. Treasury.
C) commercial banks.
D) the public.

Question 9

Tony Lai deposits $200 in currency in his checking account at a bank. This deposit is treated as:

A) a subtraction of $200 from the money supply because the $200 in currency is no longer in circulation.
B) an addition of $200 to the money supply because of the creation of a checkable deposit of $200.
C) an addition of $200 to the money supply because the bank holds $200 in currency and the checking account has been increased by $200.
D) no change in the money supply because the $200 in currency has been converted to a $200 increase in checkable deposits.

Question 10

Paper money in the United States comes in the form of:

A) U.S. Treasury bills.
B) U.S. Treasury bonds.
C) federal legal tender.
D) Federal Reserve Notes.

Question 11

How are the following items treated in the calculation of M1?

A) Small time deposits and currency are both included.
B) Small time deposits and money market mutual funds of individuals are both included.
C) Checkable deposits are excluded and currency is included.
D) Checkable deposits and currency are both included.

Question 12

Refer to the above table. The size of the M2 money supply is:

A) $2054 billion.
B) $2696 billion.
C) $5899 billion.
D) $6792 billion.

Question 13

- Refer to the above table. The size of the M1 money supply is:

A) $1,940.
B) $2,080.
C) $2,220.
D) $2,730.

Question 14

- Refer to the above table. The size of the M2 money supply is:

A) $3,730.
B) $3,980.
C) $4,330.
D) $4,470.

Question 15

Generally speaking, the greater the amount of financial wealth people hold in the form of near-monies, the:

A) greater is their willingness to spend out of their money incomes.
B) less is their willingness to spend out of their money incomes.
C) greater is the transactions demand for money.
D) less is the asset demand for money.

Question 16

One reason that "near-monies" are important is because:

A) they simplify the definition of money and therefore the formulation of monetary policy.
B) they can be easily converted into money or vice versa, and thereby can influence the stability of the economy.
C) they do not reflect the level of consumer spending, but they have a critical impact on saving and investment in the economy.
D) credit cards synchronize one's expenditures and income, thereby reducing the cash and checkable deposits one must hold.

Question 17

U.S. currency has value primarily because it:

A) is legal tender, is generally acceptable in exchange for goods or services, and is backed by the gold and silver of the federal government.
B) is generally acceptable in exchange for goods or services, is backed by the gold and silver of the federal government, and facilitates trade.
C) is relatively scarce, is legal tender, and is generally acceptable in exchange for goods and services.
D) facilitates trade, is legal tender, and permits the use of credit cards and near-monies.

Question 18

The federal backing for the money in the United States comes from:

A) providing sufficient quantities of precious metals such as gold and silver to cover the amount of paper money in circulation.
B) pledging physical assets, such as land, natural resources, and public buildings as collateral for outstanding currency.
C) control over the money supply designed to keep the value of money relatively stable over time.
D) protecting checkable deposits at financial institutions with deposit guarantees.

Question 19

In which of the following U.S. cities is one of the 12 Federal Reserve Banks located?

A) New York City
B) Seattle
C) Miami
D) Denver

Question 20

Which of the following statements best describes the 12 Federal Reserve Banks?

A) They are privately owned and privately controlled central banks whose basic goal is to provide an ample and orderly market for U.S. Treasury securities.
B) They are privately owned and publicly controlled central banks whose basic function is to minimize the risks in commercial banking in order to make it a reasonably profitable industry.
C) They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare.
D) They are privately owned and publicly controlled central banks whose basic goal is to earn profits for their owners.

Question 21

Which is the most important function of the Federal Reserve System?

A) Setting reserve requirements.
B) Controlling the money supply.
C) Lending money to banks and thrifts.
D) Acting as the fiscal agent for the U.S. government.

Question 22

The primary responsibility of the Federal Open Market Committee (FOMC) is:

A) issuing currency and acting as the fiscal agent for the federal government.
B) handling the Fed's collection of checks and adjusting legal reserves among banks.
C) setting the Fed's monetary policy and directing the buying and selling of government securities.
D) supervising bank operations to make sure they follow regulations and monitoring banks for fraud.

Question 23

Approximately how many commercial banks are there in the United States as of 2017?

A) 8,500
B) 7,300
C) 14,500
D) 6,000

Question 24

The use of a credit card is most similar to:

A) creating legal tender.
B) reducing the value of the U.S. dollar.
C) purchasing a certificate of deposit at a commercial bank.
D) obtaining a short-term loan from a financial institution.

Question 25

In the United States, credit cards account for about what percentage of the dollar volume of transactions for goods and services?

A) 10 percent
B) 25 percent
C) 40 percent
D) 65 percent

Question 26

Which of the following were factors in the financial crisis of 2007-2008?

A) Mortgage default crisis.
B) Securitization.
C) Subprime mortgage loans.
D) All of these.

Question 27

What is the current level of FDIC deposit insurance per account, as of 2017?

A) $50,000
B) $100,000
C) $250,000
D) $500,000

Question 28

Within the financial services industry, which of the following is an example of a financial institution?

A) Thrifts
B) Insurance companies
C) Pension funds
D) All of these

Question 29

Commercial banks, mutual fund companies, and securities firms are all part of the ________ services industry.

A) government
B) economic
C) financial
D) political

Question 30

Firms that pool deposits by customers to purchase stocks or bonds are known as:

A) insurance companies
B) thrifts
C) mutual fund companies
D) investment banks

Question 31

Firms that help corporations and governments raise money by selling stocks and bonds are known as:

A) insurance companies
B) thrifts
C) mutual fund companies
D) investment banks

Question 32

Firms that offer contracts through which individuals pay premiums to insure against some loss are known as:

A) insurance companies
B) thrifts
C) mutual fund companies
D) investment banks

Question 33

For which of the following types of firms is the buying and selling of stocks and bonds not a primary function?

A) securities firms
B) thrifts
C) mutual fund companies
D) investment banks

Question 34

Cash held by a bank is sometimes called:

A) token money.
B) legal tender.
C) vault cash.
D) fractional reserves.

Question 35

A commercial bank has checkable-deposit liabilities of $50,000 and a reserve ratio of 20 percent. What is the amount of required reserves?

A) $10,000
B) $50,000
C) $250,000
D) $1 million

Question 36

Use the following balance sheet for the ABC National Bank in answering the next question. Assume the required reserve ratio is 20 percent.


-Refer to the above data. This commercial bank has excess reserves of:

A) $0
B) $3,000.
C) $12,000.
D) $5,000.

Question 37

Use the following balance sheet for the ABC National Bank in answering the next question. Assume the required reserve ratio is 20 percent.


-Refer to the above data. This bank can safely expand its loans by a maximum of:

A) $7,000.
B) $25,000.
C) $12,000.
D) $5,000.

Question 38

Use the following balance sheet for the ABC National Bank in answering the next question. Assume the required reserve ratio is 20 percent.


- Refer to the above data. Assuming the bank loans out all of its remaining excess reserves as a checkable deposit, and has a check cleared against it for that amount, its reserves and checkable deposits will now be:

A) $25,000 and $122,000 respectively.
B) $22,000 and $110,000 respectively.
C) $32,000 and $115,000 respectively.
D) $22,000 and $105,000 respectively.

Question 39

Use the following balance sheet for the ABC National Bank in answering the next question. Assume the required reserve ratio is 20 percent.


-Refer to the above data. Assuming the bank loans out all of its remaining excess reserves as a checkable deposit and has a check cleared against it for that amount, the bank will now have excess reserves of:

A) $0.
B) $3,000.
C) $12,000.
D) $5,000.

Question 40

Use the following balance sheet for the ABC National Bank in answering the next question. Assume the required reserve ratio is 20 percent.


-Refer to the above data. If the original balance sheet was for the commercial banking system, rather than a single bank, loans and checkable deposits could have been expanded by a maximum of:

A) $8,000.
B) $15,000.
C) $48,000.
D) $25,000.

Question 41

Answer the next question on the basis of the following table for a commercial bank or thrift:


-Refer to the above table. When the legal reserve ratio is 25 percent, the excess reserves of this single bank are:

A) $0.
B) $1,000.
C) $5,000.
D) $30,000.

Question 42

Answer the next question on the basis of the following table for a commercial bank or thrift:


-Refer to the above table. When the legal reserve ratio is 20 percent, the money-creating potential of the entire banking system is:

A) $4,000.
B) $6,000.
C) $8,000.
D) $10,000.

Question 43

Answer the next question on the basis of the following table for a commercial bank or thrift:


-Refer to the above table. When the legal reserve ratio is 30 percent, the monetary multiplier is:

A) 5.
B) 4.
C) 3.33.
D) 2.5.

Question 44

Answer the next question on the basis of the following table for a commercial bank or thrift:


-Refer to the above table. If the legal reserve ratio falls from 25 percent to 10 percent, excess reserves of this single bank will:

A) rise by $6,000 and the monetary multiplier will increase from 4 to 10.
B) rise by $60,000 and the monetary multiplier will increase from 4 to 10.
C) fall by $6,000 and the monetary multiplier will decline from 30 to 10.
D) fall by $2,000 and the monetary multiplier will decline from 10 to 4.

Question 45

If excess reserves in the banking system are $4,000, checkable deposits are $40,000, and the legal reserve ratio is 10 percent, then actual reserves are:

A) $4,000.
B) $6,000.
C) $8,000.
D) $5,000.

Question 46

If actual reserves in the banking system are $8,000, checkable deposits are $70,000, and the legal reserve ratio is 10 percent, then excess reserves are:

A) zero.
B) $1,000.
C) $2,000.
D) $500.

Question 47

A small time deposit is one that is less than $100,000.

Question 48

The Federal Open Market Committee (FOMC) is made up of the presidents of the Federal Reserve Banks, the secretary of the Treasury, and the chair of the President's Council of Economic Advisers.

Question 49

The Federal Open Market Committee (FOMC) serves as the fiscal agent for the U.S. government.

Question 50

Federal Reserve Banks are bankers' banks.

Question 51

The Federal Reserve is responsible for issuing currency.

Question 52

The Federal Reserve is prohibited from lending money to banks and thrifts.

Question 53

Since the 1980s, banks and thrifts have lost their share of the financial services industry and control over financial assets.

Question 54

Electronic money and smart cards will increase the problems for the Federal Reserve in controlling the money supply.

Question 55

Without an acceptable domestic currency to serve as a medium of exchange, a nation might try to substitute a more stable currency from another nation.

Question 56

Federal deposit insurance discourages but does not prevent bank runs.

Question 57

The United States faced the most serious financial crisis since the Great Depression during the period of 2007-2008.

Question 58

Federal deposit insurance is currently capped at $100,000 per account.