Deck 13: Money and Banks

Question 1

When money serves as a mechanism for transforming current income into future purchases,it is functioning as a

A)Medium of exchange.
B)Store of value.
C)Standard of account.
D)Standard of value.

Answer 1

B

Question 2

Which of the following is not a transactions account?

A)A share draft account.
B)A savings account.
C)A NOW account.
D)A checking account.

Answer 2

B

Question 3

Which of the following is not true about barter?

A)It involves the direct exchange of one good or service for another.
B)It is more likely to occur if people lose faith in a nation's currency.
C)It is considered to be less efficient than the use of money.
D)It allows people to obtain more goods than they would under a money payment system.

Answer 3

D

Question 4

Money is functioning as a standard of value when you

A)Use it to compare two houses that are different prices.
B)Buy jeans at the mall.
C)Buy a rare baseball card that you expect will increase in value.
D)Trade a cup of sugar for two eggs.

Question 5

When money is used to acquire goods and services,it is functioning as a

A)Medium of exchange.
B)Store of value.
C)Standard of account.
D)Equation of value.

Question 6

Money is anything that

A)Can be used to barter.
B)A government declares to have value.
C)Has value.
D)Is generally accepted as a medium of exchange.

Question 7

Which of the following gave the U.S.federal government permanent authority to issue money?

A)The Constitution of the United States in 1779.
B)The National Banking Act of 1863.
C)The creation of the FDIC and FSLIC in 1933.
D)The Monetary Control Act of 1980.

Question 8

Which of the following is not true about M1?

A)It includes the most liquid forms of money.
B)It is the narrowest definition of the money supply.
C)Savings accounts makes up approximately one-third of it.
D)Currency in circulation makes up approximately half of it.

Question 9

The direct exchange of one good for another

A)Is barter.
B)Is most efficient for an economy.
C)Facilitates specialization in production.
D)Facilitates market exchanges.

Question 10

Money is functioning as a store of value when you

A)Use it to compare the cost of tuition 10 years ago to the cost today.
B)Take out a student loan to buy books.
C)Save your cash to pay for tuition next semester.
D)Pay your tuition in installments rather than all at one time.

Question 11

A bank account that permits direct payment to a third party is a

A)Savings account.
B)Transactions account.
C)Money market mutual fund.
D)Traveler's check.

Question 12

The basic money supply or M1 includes

A)Currency in circulation,transactions accounts,and traveler's checks.
B)Currency in circulation,transactions accounts,and savings accounts.
C)Currency in circulation,transactions accounts,traveler's checks,and money market mutual funds.
D)Currency in circulation,savings accounts,and credit card balances.

Question 13

Which of the following is true about the quantity of money in the U.S.economy?

A)It is equal to the amount of currency in circulation.
B)It is much greater than the amount of currency in circulation.
C)It is equal to the value of the government's gold reserves.
D)It is equal to the total amount of income.

Question 14

Which of the following is not a characteristic of money?

A)Mechanism for barter.
B)Medium of exchange.
C)Store of value.
D)Standard of value.

Question 15

Barter

A)Is the direct exchange of one good for another.
B)Is considered to be an efficient process for an economy.
C)Makes market transactions easier and less time-consuming.
D)Requires that gold be used to assess value.

Question 16

Farmer Brown wants some bacon for breakfast.He gets the bacon from Farmer Hernandez by giving her a dozen eggs.This type of transaction is referred to as

A)A farm transaction.
B)A money exchange.
C)Barter.
D)An efficient exchange of resources.

Question 17

Trusted money does all of the following except

A)Reduce the efficiency with which market exchanges take place.
B)Serve as a mechanism for transforming current income into future purchases.
C)Promote efficient division of labor.
D)Facilitate the continuous series of exchanges that characterizes a market economy.

Question 18

Which of the following statements is not correct about the U.S.monetary system?

A)The federal government did not print paper money until the Civil War.
B)Between 1789 and 1865,paper money was issued by hundreds of state-chartered banks.
C)Credit cards are the most common form of money today.
D)Early in U.S.history,the money supply consisted of items such as tobacco and bullets.

Question 19

Which of the following is an example of barter?

A)Jordan buys eggs with Canadian dollars from Ryan's Grocery,and Ryan buys gas from Jordan's Gas Station with Japanese yen.
B)Nicki uses her mom's credit card to purchase her textbooks online.
C)Keisha takes care of the neighbor's children,and the neighbor mows Keisha's yard as repayment.
D)Natalie buys gum at a convenience store and tells the cashier to keep the dollar change.

Question 20

Which of the following is not included in the narrowest definition of the money supply or M1?

A)Currency in circulation.
B)Transactions account balances.
C)Credit card balances.
D)Traveler's checks.

Question 21

Currency in circulation is included in

A)M1 only.
B)M2 only.
C)Both M1 and M2.
D)None of the choices are correct.

Question 22

Traveler's checks are included in which of the following?

A)Both M1 and M2.
B)M1 only.
C)M2 only.
D)None of the choices are correct.

Question 23

Which of the following is included in M2?

A)Treasury bills.
B)Commercial paper.
C)Savings accounts.
D)Overnight Eurodollars.

Question 24

Which of the following appears in M2 but not in M1?

A)Savings accounts.
B)NOW and ATS accounts.
C)Traveler's checks.
D)Credit union share drafts.

Question 25

Suppose Jason takes $150 he had in his wallet and deposits it into his checking account.The immediate result of this transaction is that M1

A)Increases by $150 and M2 remains the same.
B)Decreases by $150 and M2 remains the same.
C)And M2 do not change.
D)Remains the same and M2 increases by $150.

Question 26

NOW and ATS accounts are included in

A)M1 only.
B)M2 only.
C)Both M1 and M2.
D)None of the choices are correct.

Question 27

The different components of the money supply reflect

A)Variations in liquidity and accessibility of assets.
B)Whether deposits are domestic or international.
C)How often depositors use their accounts.
D)Whether the deposits are earned or inheriteD.The most basic forms of money are the most liquid,with additional forms being less liquid.

Question 28

Which of the following is not included in transactions accounts?

A)A checking account at a commercial bank.
B)A money market mutual fund.
C)A credit union share draft.
D)A demand deposit account at a mutual savings bank.

Question 29

Suppose Jared takes $200 from his savings account and holds it as cash.The immediate result of this transaction is that M2

A)Increases by $200 and M1 remains the same.
B)Decreases by $200 and M1 remains the same.
C)And M1 do not change.
D)Remains the same and M1 increases by $200.

Question 30

Which of the following is included in M1?

A)Currency in circulation.
B)Currency in a bank's vault.
C)Credit card balances.
D)All of the choices are correct.

Question 31

Which of the following is not included in any of the measures of the money supply?

A)Credit union share drafts.
B)Cash in the vault of a commercial bank.
C)Currency in circulation outside of commercial banks.
D)Transactions account balances at mutual savings banks.

Question 32

Suppose Megan withdraws $75 from her savings account and deposits it into her checking account.This transaction causes M1 to

A)Increase by $75 and M2 to remain the same.
B)Decrease by $75 and M2 to remain the same.
C)Increase by $75 and M2 to decrease by $75.
D)Remain the same and M2 to increase by $75.

Question 33

Which of the following is not included in M2?

A)All of the items in M1.
B)All of the items in M2.
C)Time deposits greater than $100,000.
D)Treasury bills.

Question 34

The majority of the basic money supply (M1)in the United States is in the form of

A)Savings accounts and currency in circulation.
B)Certificates of deposit and transactions accounts.
C)Transactions accounts and currency in circulation.
D)Gold and traveler's checks.

Question 35

Which of the following is not correct about the money kept in transactions accounts?

A)It permits direct payment to a third party.
B)It is backed by gold held by the government.
C)It is part of the basic money supply.
D)It is a good substitute for cash in many cases.

Question 36

Which of the following is not included in M1?

A)Credit union share drafts.
B)Transactions account balances at mutual savings banks.
C)Currency in circulation outside of commercial banks.
D)Savings account balances at a federal savings bank.

Question 37

Transactions account balances are included in

A)M1 only.
B)M2 only.
C)Both M1 and M2.
D)None of the choices are correct.

Question 38

Bradley digs out $50 from his cookie jar and deposits it in his checking account.The immediate result of this transaction is that M1 has

A)Not changed.
B)Increased by more than $50.
C)Increased by less than $50.
D)Increased by $50.

Question 39

Savings accounts are included in

A)M1 only.
B)M2 only.
C)M1 and M2.
D)None of the choices are correct.

Question 40

Suppose Oscar withdraws $100 from his checking account and deposits it into his savings account.This transaction causes M1 to

A)Increase by $100 and M2 to remain the same.
B)Decrease by $100 and M2 to remain the same.
C)Decrease by $100 and M2 to increase by $100.
D)Remain the same and M2 to increase by $100.

Question 41

The banking system can lend the sum of its excess reserves because

A)Banks are required to keep only a fraction of deposits on reserve.
B)Bank assets are greater than bank liabilities.
C)Required reserves are a leakage from the banking system.
D)The money multiplier is less than 1.

Question 42

The various money supply measures (M1 and M2)are used to distinguish the

A)Rate at which money flows through the economy.
B)Liquidity and accessibility of assets.
C)Speed with which banks transfer funds between savings and checking accounts.
D)Speed with which banks transfer funds between themselves.

Question 43

Suppose a bank has $500,000 in deposits and a required reserve ratio of 10 percent.Then required reserves are

A)$5,000,000.
B)$500,000.
C)$50,000.
D)$10,000.

Question 44

If bank customers decide as a group to pay off their loans and to not take out any new loans,ceteris paribus,

A)Excess reserves will decrease.
B)The money multiplier will decrease.
C)The money supply will increase.
D)The money supply will decrease.

Question 45

When cash or coins are initially deposited into a bank,

A)Neither the composition nor the size of the money supply changes.
B)The composition of the money supply does not change,but the size of the money supply does change.
C)The composition of the money supply changes,but the size of the money supply does not change.
D)Both the composition and the size of the money supply change.

Question 46

Required reserves represent

A)A leakage from the flow of money.
B)The desire on the part of some banks to hold funds and not lend them out.
C)Dollars that may be lent.
D)A flaw in the banking system.

Question 47

Suppose a bank has $300,000 in deposits and a required reserve ratio of 15 percent.Then required reserves are

A)$4,500.
B)$45,000.
C)$255,000.
D)$300,000.

Question 48

When the reserve requirement changes,which of the following will change for an individual bank?

A)Transactions account balances and lending capacity.
B)Transactions account balances,total reserves,and excess reserves.
C)Total reserves,required reserves,and excess reserves.
D)Required reserves,excess reserves,and lending capacity.

Question 49

Suppose a bank has $160,000 in deposits and a required reserve ratio of 10 percent.Then required reserves are

A)$16,000.
B)$160,000.
C)$1,600,000.
D)$1,600.

Question 50

Suppose a bank has $200,000 in deposits and a required reserve ratio of 15 percent.Then required reserves are

A)$3,000.
B)$1,333,333.
C)$3,000,000.
D)$30,000.

Question 51

Banks make loans to which of the following?

A)Businesses for new plants and equipment.
B)Consumers for new homes and cars.
C)The government for its projects.
D)All of the choices are correct.

Question 52

One of the essential functions a bank performs is that of

A)Creating money by lending required reserves.
B)Participating in the stock market.
C)Transferring money from savers to borrowers.
D)Purchasing government bonds.

Question 53

The ratio of a bank's total reserves to its total transactions deposits is known as the

A)Required reserves.
B)Reserve ratio.
C)Excess reserves.
D)Deposit ratio.

Question 54

When a bank makes a loan,it

A)Reduces the amount of money in the monetary system.
B)Creates a transactions account balance for the borrower.
C)Is insured against losses from borrowers who fail to pay off their loans.
D)Must hold deposits of an equal amount to offset the loan.

Question 55

Which of the following is not considered to be a private depository institution?

A)The Federal Reserve.
B)Mutual savings banks.
C)Savings and loan associations.
D)Commercial banks.

Question 56

Which of the following reflects the concept of fractional reserves?

A)The money multiplier is greater than 1.
B)Excess reserves are equal to 0.
C)Required reserves are equal to total reserves.
D)Banks can lend only their required reserves.

Question 57

One of the main functions of banks is

A)Borrowing money and lending to savers.
B)Creating money.
C)Ownership of projects in which they invest.
D)Maintaining a constant money supply.

Question 58

The term fractional reserves refers to

A)The fact that reserves are split among many banks.
B)Reserves being a small fraction of total transactions account balances.
C)The ratio of required reserves to total loans.
D)The ratio of excess reserves to total loans.

Question 59

The minimum amount of reserves a bank is required to hold is known as

A)The money multiplier.
B)Total reserves.
C)Excess reserves.
D)Required reserves.

Question 60

Deposit creation occurs when

A)A bank lends money.
B)A person takes money out of one bank and puts it in another bank.
C)A bank borrows dollars from the Federal Reserve.
D)A person takes money out of the banking system and holds it as cash.

Question 61

Suppose a bank has $200,000 in deposits,a required reserve ratio of 15 percent,and total reserves of $100,000.Then it has excess reserves of

A)$70,000.
B)$30,000.
C)Negative $100,000.
D)$200,000.

Question 62

Suppose a bank has $600,000 in deposits,a required reserve ratio of 5 percent,and bank reserves of $90,000.Then the bank can make new loans in the amount of

A)$5,400.
B)$30,000.
C)$60,000.
D)$90,000.

Question 63

Excess reserves are

A)Total reserves less required reserves.
B)Total reserves less transactions account balances.
C)Required reserves less demand deposits.
D)Bank reserves in excess of vault cash.

Question 64

A single bank with $20,000 of reserves and a reserve ratio of 5 percent could support total transactions account balances of at most

A)$400,000.
B)$1,000.
C)$100,000.
D)$20,000.

Question 65

Suppose University Bank has zero excess reserves.If the required reserve ratio decreases,the

A)Bank's assets will increase.
B)Bank will not have enough required reserves.
C)Bank will be able to make more loans.
D)Money multiplier will decrease.

Question 66

Which of the following is a bank liability?

A)Reserve deposits at the Fed.
B)Securities the bank has purchased.
C)Transactions account balances.
D)Loans made to customers.

Question 67

Which of the following sets the legal minimum reserve ratio?

A)The commercial banks.
B)The U.S.Treasury.
C)The Federal Reserve.
D)Congress.

Question 68

A single bank with $10,000 of reserves and a reserve ratio of 25 percent could support total transactions account balances of at most

A)$10,000.
B)$5,000.
C)$40,000.
D)$25,000.

Question 69

Suppose a bank has $200,000 in deposits,a required reserve ratio of 10 percent,and bank reserves of $45,000.Then this bank can make new loans in the amount of

A)$2,500.
B)$10,000.
C)$20,000.
D)$25,000.

Question 70

Initially a bank has a required reserve ratio of 20 percent and no excess reserves.If $5,000 is deposited into the bank,then initially,ceteris paribus,

A)This bank can increase its loans by $5,000.
B)This bank can increase its loans by $4,000.
C)Total reserves will increase by $4,000.
D)Required reserves will increase by $5,000.

Question 71

Suppose a bank has $2 million in deposits,a required reserve ratio of 10 percent,and total reserves of $500,000.Then it has excess reserves of

A)$50,000.
B)$200,000.
C)$500,000.
D)$300,000.

Question 72

Suppose a bank has $5,000,000 in deposits,a required reserve ratio of 20 percent,and total reserves of $1,000,000.Then the bank has excess reserves of

A)$1,000,000.
B)$2,000,000.
C)$500,000.
D)$0.

Question 73

Which of the following explains why banks try to keep their holdings of excess reserves low?

A)To maximize profits.
B)To keep the money multiplier low.
C)To escape Fed penalties.
D)To please bank examiners.

Question 74

For a small bank in a large banking system,excess reserves are equal to the

A)Amount of money that the U.S.Treasury makes available for loans.
B)The amount of reserves that a bank must hold equal to the loans that it makes.
C)The amount of loans a bank can make after meeting the reserve requirement.
D)The difference between transactions account balances and loans.

Question 75

Banks are required to keep a minimum amount of funds in reserve because

A)Depositors may decide to withdraw funds at any time.
B)The Fed may decide to withdraw funds at any time.
C)The bank may decide to increase aggregate demand at any time.
D)Borrowers may decide to repay loans ahead of schedule.

Question 76

Initially a bank has a required reserve ratio of 15 percent and no excess reserves.If $10,000 is deposited in the bank,then,ceteris paribus,

A)This bank can increase its loans by $1,500.
B)Required reserves will increase by $10,000.
C)Total reserves will increase by $8,500.
D)This bank can increase its loans by $8,500.

Question 77

Initially a bank has a required reserve ratio of 10 percent and no excess reserves.If $1,000 is deposited into the bank,then,ceteris paribus,

A)This bank can increase its loans by $900.
B)This bank can increase its loans by $1,000.
C)Total reserves will increase by $900.
D)Required reserves will increase by $1,000.

Question 78

Suppose a bank has $100,000 in deposits,a required reserve ratio of 20 percent,and total reserves of $20,000.Then this bank can make new loans in the amount of

A)$100,000.
B)$20,000.
C)$40,000.
D)$0.

Question 79

Suppose a bank has $200,000 in deposits,a required reserve ratio of 25 percent,and bank reserves of $100,000.Then this bank can make new loans in the amount of

A)$100,000.
B)$50,000.
C)$25,000.
D)$20,000.

Question 80

Suppose a bank has $1 million in deposits,a required reserve ratio of 25 percent,and total reserves of $600,000.Then it has excess reserves of

A)$250,000.
B)$600,000.
C)$350,000.
D)$1,000,000.