Deck 13: Money and Banks

Question 1

Barter:

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

Answer 1

C

Question 2

When money is used to pay for goods and services it is functioning as a:

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

Answer 2

C

Question 3

Reggie fixes his friend's car and the friend cleans his house instead of paying him.In economics,this is referred to as:

A) A market transaction.
B) An efficient exchange.
C) Barter.
D) A swap.

Answer 3

C

Question 4

Professor Williams tutors her next-door neighbor's son in economics.Instead of paying her for this service,the neighbor washes the professor's car.This is an example of:

A) A market transaction.
B) Barter.
C) A monetary transaction.
D) A store of value.

Question 5

Money is functioning as a store of value when you:

A) Buy a rare baseball card that you expect to increase in value.
B) Use it to compare the cost of a pair of shoes to the cost of a shirt.
C) Decide to save your cash to pay for tuition next semester.
D) Pay more than the minimum due on your credit card bill.

Question 6

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 for an economy than the use of money.
D) It allows people to obtain more goods than they can using money.

Question 7

Which of the following is not an essential characteristic of money?

A) It serves as a benchmark for barter.
B) It serves as a store of value.
C) It serves as a medium of exchange.
D) It serves as a standard of value.

Question 8

Money is functioning as a medium of exchange when you:

A) Buy lunch at a fast food restaurant for yourself and your friend.
B) Use it to compare the cost of a steak dinner to the cost of a hamburger.
C) Decide to save your cash for gas and eat leftover pizza for dinner.
D) Borrow a DVD from your friend and she borrows your textbook.

Question 9

When the market value of goods and services is expressed in prices,money is functioning as a:

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

Question 10

Money is anything that:

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

Question 11

Which of the following is not true about money?

A) It promotes the specialization of labor.
B) It is a mechanism for transforming current income into future purchases.
C) It must be minted by the government in order to have value.
D) It facilitates the continuous series of exchanges that characterize a market economy.

Question 12

Money is functioning as a standard of value when you:

A) Use it to compare two houses in different price ranges.
B) Buy jeans at the mall.
C) Buy an original painting that you expect will increase in value.
D) Save the money you earn during the summer to pay for fall tuition.

Question 13

Which of the following is not an essential characteristic of money?

A) It is a store of value.
B) It is backed by gold or silver.
C) It is a standard of value.
D) It is a medium of exchange.

Question 14

Money is functioning as a medium of exchange if you:

A) Compare book prices at the university bookstore versus online.
B) Spend less this week so you'll have money for a concert next month.
C) Purchase coffee at the local coffee shop before class.
D) Share a ride with your roommate instead of buying gas.

Question 15

Money is functioning as a store of value if you:

A) Buy your textbooks online at a reduced price.
B) Put it in a savings account so you can buy a new car next summer.
C) Walk all over the mall searching for the best prices.
D) Shop at thrift stores and garage sales.

Question 16

If money is used to transform current income into future purchases,it is functioning as a:

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

Question 17

Historically in the United States,money has included all of the following except:

A) Grain.
B) Fish.
C) Milk.
D) Furs.

Question 18

In order to simplify market transactions,an economy must use:

A) U.S.dollars.
B) A form of money.
C) Barter.
D) GolD.

Question 19

Money is functioning as a standard of value if you:

A) Buy a college T-shirt to support the athletic teams.
B) Skip lunch all week so you'll have enough money for the weekend.
C) Scan your own groceries in the "self" checkout line so that you can see the prices.
D) Compare the prices of running shoes online to those in a sporting goods store.

Question 20

Which of the following has not served as a form of money for the United States?

A) Eggs
B) Gun powder
C) Tobacco
D) Spanish gold coins

Question 21

LaTressa takes $230 from under her mattress and deposits it in her checking account.The immediate result of this transaction is that M1:

A) Increases by $230.
B) Increases by more than $230.
C) Decreases by $230.
D) Does not change in value.

Question 22

As the size of purchases becomes larger,a greater percentage of the purchases are made using:

A) Cash.
B) Checks and debit cards.
C) Barter.
D) Traveler's checks.

Question 23

The make up of almost all the basic U.S.money supply is currency and

A) Transaction accounts.
B) Piggy banks.
C) Traveler checks.
D) Credit Cards.

Question 24

When an individual deposits cash or coins in a transactions account,there is:

A) No change in either the composition or the size of the money supply.
B) A change in the size of the money supply,but not the composition.
C) A change in the composition of the money supply,but not the size.
D) A change in both the composition and the size of the money supply.

Question 25

Which of the following functions like money but is not included in M1?

A) Checking accounts
B) Cash
C) Traveler's checks
D) Money-market mutual funds

Question 26

Which of the following is not a function performed by banks?

A) Accepting deposits.
B) Offering check writing privileges.
C) Making loans.
D) Determining fiscal policy.

Question 27

Which of the following is not part of M1 but is included in "near money" according to the text?

A) Traveler's checks
B) Cash
C) Transactions accounts
D) Savings accounts

Question 28

Banks do all of the following except:

A) Purchase stock.
B) Earn a profit.
C) Make loans.
D) Accept deposits.

Question 29

The basic money supply includes:

A) Currency,transactions accounts,and traveler's checks.
B) Currency,transactions accounts,and savings account balances.
C) Currency,transactions accounts,and credit card balances.
D) Currency,savings account balances,and traveler's checks.

Question 30

Savings accounts and certificates of deposit are called

A) Transaction accounts.
B) Treasury accounts.
C) Store of value.
D) Near money.

Question 31

If Edgar takes $100 out of his savings account and deposits it into his checking account,the immediate result of this transaction is that M1:

A) Increases by $100.
B) Decreases by $100.
C) Decreases by more than $100.
D) Does not change.

Question 32

Martin takes $150 out of his checking account and hides it in his house as cash.The immediate result of this transaction is that M1:

A) Does not change in value.
B) Decreases by $150.
C) Decreases by more than $150.
D) Increases by $150.

Question 33

Which of the following is affected by changes in aggregate demand?

A) Total output but not employment or prices.
B) Employment and prices but not total output.
C) Prices and total output but not employment.
D) Prices,employment and total output.

Question 34

Most market transactions are made using:

A) Cash.
B) Transactions accounts.
C) Credit cards.
D) Traveler's checks.

Question 35

The creation of transactions deposits by bank lending is the definition of:

A) Counterfeit money.
B) Money laundering.
C) Loan creation.
D) Deposit creation.

Question 36

The total quantity of output demanded at alternative price levels in a given time period,ceteris paribus,is the definition of:

A) Aggregate supply.
B) Aggregate demand.
C) Money supply.
D) Money demanD.

Question 37

If Justin takes $75 from his cookie jar and deposits it in his checking account,the immediate result is that:

A) The value of M1 stays the same.
B) M1 increases by more than $75.
C) M1 increases by less than $75.
D) M1 increases by exactly $75.

Question 38

The overwhelming majority of the basic money supply in the U.S.is in the form of:

A) Traveler's checks and currency in circulation.
B) Currency in circulation and savings accounts.
C) Transactions accounts and currency in circulation.
D) Credit card balances and transactions accounts.

Question 39

Money-market mutual funds are:

A) Pools of money used to buy interest-bearing securities.
B) Sources of readily available cash at low interest rates.
C) Demand deposits earning high interest rates.
D) A component of M1.

Question 40

The smallest component of the basic money supply is in the form of:

A) Savings accounts.
B) Transactions accounts.
C) Currency in circulation.
D) Traveler's checks.

Question 41

Which of the following requires U.S.banks to maintain a minimum reserve ratio?

A) The Organization of Commercial Banks
B) The U.S.Treasury
C) The Federal Reserve
D) Congress

Question 42

Deposit creation occurs when:

A) A person puts cash in a bank and the bank holds all of it as reserves.
B) Someone deposits a payroll check into a transactions account at a bank.
C) Money enters the banking system and a portion of it is lent out.
D) A bank borrows reserves from the Federal Reserve.

Question 43

The reserve requirement directly limits the ability of banks to:

A) Change their interest rates.
B) Advertise their services.
C) Accept additional deposits.
D) Make new loans.

Question 44

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 can be lent.
D) A flaw in the banking system.

Question 45

Money creation occurs when:

A) A person puts cash in a bank.
B) A person deposits a payroll check in their checking account.
C) Banks make loans to borrowers.
D) The Federal Reserve increases the reserve requirement.

Question 46

The assets held by a bank to fulfill its deposit obligations are known as:

A) Excess reserves.
B) Bank reserves.
C) The reserve ratio.
D) The deposit ratio.

Question 47

If you deposit $1,000 in your checking account,your bank is only required to hold a portion of the deposit and is allowed to lend out the balance.This illustrates the concept known as:

A) Split reserves.
B) Money laundering.
C) Fractional reserves.
D) Demand deposits.

Question 48

When a bank makes a loan:

A) It reduces the amount of money in the monetary system.
B) It creates a transactions-account balance for the borrower.
C) It usually gives the borrower cash.
D) It prints additional money for the borrower.

Question 49

The term fractional reserves refers to:

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

Question 50

Ceteris paribus,the money supply becomes smaller when:

A) The Federal Reserve reduces the reserve requirement.
B) An individual deposits currency into her transactions account.
C) An individual repays the money that he borrowed from a bank.
D) A bank reduces its excess reserves to make a loan.

Question 51

Which of the following does not occur when a bank makes a loan?

A) It creates money.
B) It creates a transactions-account balance for the borrower.
C) The money supply increases.
D) It transfers money from spenders to savers.

Question 52

Ceteris paribus,if Tamika pays off a loan at the bank then over time:

A) Deposit creation takes place.
B) The money supply becomes larger.
C) There is no change in the money supply.
D) The money supply becomes smaller.

Question 53

Banks are most profitable when:

A) Loans are initiated.
B) Borrowers open a checking account.
C) They sell traveler checks.
D) They help customers.

Question 54

The reserve ratio is the ratio of:

A) Bank reserves to total transaction deposits.
B) Bank reserves to savings account balances.
C) Bank transactions deposits to required reserves.
D) Required reserves to excess reserves.

Question 55

If there is no minimum reserve requirement in the banking system,the potential ability of banks to create money is:

A) Zero.
B) Unlimited.
C) Limited by the amount of deposits.
D) Limited by the number of banks in the banking system.

Question 56

The reserve ratio is the:

A) Percentage of excess reserves held by banks.
B) Fraction of deposits that banks hold as excess reserves.
C) Number of deposit dollars the banking system can create.
D) Percentage of total deposits that are held as bank reserves.

Question 57

The reserve ratio is equal to:

A) Bank reserves plus total deposits.
B) Bank reserves divided by total deposits.
C) Total deposits minus bank reserves.
D) Total deposits divided by bank reserves.

Question 58

Which of the following is true for U.S.banks?

A) Banks must keep only a fraction of total deposits as reserves.
B) Banks create money by printing it.
C) Banks are allowed to lend as much money as they choose.
D) Banks transfer money from spenders to savers.

Question 59

If there is only one bank in an economy:

A) Reserves never leave the bank.
B) Transactions accounts equal bank reserves.
C) Loans equal bank reserves.
D) Loans equal transaction accounts.

Question 60

Banks do all of the following except:

A) Lend money to businesses for new plant and equipment.
B) Lend money to consumers for new homes and cars.
C) Print dollar bills.
D) Create money through lending.

Question 61

Initially a bank has a minimum reserve requirement of 15 percent and no excess reserves.If $200,000 is deposited in the bank,then ceteris paribus:

A) The bank can increase its loans by $30,000.
B) The bank can increase its loans by $230,000.
C) Excess reserves will increase by $170,000.
D) Required reserves will increase by $200,000.

Question 62

Excess reserves are calculated as:

A) Total reserves minus required reserves.
B) Total reserves minus transaction accounts.
C) Required reserves minus transaction accounts.
D) Bank reserves minus vault cash.

Question 63

Suppose a bank has $100,000 in deposits,a minimum reserve requirement of 5 percent,and bank reserves of $12,000.Then it can make new loans in the amount of:

A) $12,000
B) $7,000
C) $5,000
D) $2,000

Question 64

Suppose a bank has $1,500,000 in deposits,a minimum reserve requirement of 20 percent,and total reserves of $350,000.Then the bank has excess reserves of:

A) $1,850,000
B) $350,000
C) $300,000
D) $50,000

Question 65

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

A) $3,000
B) $30,000
C) $200,000
D) $330,000

Question 66

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

A) Amount of money that the Federal Reserve System makes available for loans.
B) Amount of reserves that a bank must hold above the loans that it makes.
C) Amount of loans a bank can make after meeting the reserve requirement.
D) Difference between transaction account balances and loans.

Question 67

If excess reserves are $50,000,demand deposits are $1,000,000,and the minimum reserve requirement is 5 percent,then total reserves are:

A) $1,000,000
B) $100,000
C) $50,000
D) $2,500

Question 68

Suppose a bank has $1,000,000 in deposits,a minimum reserve requirement of 15 percent,and bank reserves of $170,000.Then the bank can make new loans in the amount of:

A) $15,000
B) $20,000
C) $170,000
D) $320,000

Question 69

Suppose a bank has $2,000,000 in deposits,a minimum reserve requirement of 10 percent,and bank reserves of $250,000.Then the bank has excess reserves of:

A) $50,000
B) $250,000
C) $450,000
D) $1,550,000

Question 70

Suppose a bank has $50,000 in transactions accounts and a minimum reserve requirement of 10 percent.Then required reserves are:

A) $5,000
B) $50,000
C) $55,000
D) $500,000

Question 71

Suppose a bank has $1,000,000 in deposits and a minimum reserve requirement of 20 percent.Then required reserves are:

A) $1,000,000
B) $880,000
C) $200,000
D) $1,200,000

Question 72

Suppose a bank has $400,000 in deposits,a minimum reserve requirement of 25 percent,and bank reserves of $100,000.Then the bank can make new loans in the amount of:

A) $100,000
B) $75,000
C) $25,000
D) $0

Question 73

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

A) The bank can increase its loans by $10,000.
B) The bank can increase its loans by $9,000.
C) Total reserves will increase by $9,000.
D) Required reserves will increase by $10,000.

Question 74

If excess reserves are $25,000,demand deposits are $100,000,and the minimum reserve requirement is 20 percent,then total reserves are:

A) $20,000
B) $25,000
C) $45,000
D) $125,000

Question 75

A bank may lend an amount equal to its:

A) Required reserves.
B) Total reserves.
C) Total assets.
D) Excess reserves.

Question 76

The money multiplier is:

A) A bank's transaction deposits divided by its reserves.
B) The amount of a bank's excess reserves divided by its required reserves.
C) The amount of a bank's actual reserves divided by its required reserves.
D) 1 divided by the required reserve ratio.

Question 77

Banks try to keep their holdings of excess reserves low in order to:

A) Create as much money as possible for the economy.
B) Keep the money multiplier low.
C) Escape Fed penalties.
D) Maximize profits.

Question 78

If excess reserves are $30,000,demand deposits are $500,000,and the minimum reserve requirement is 10 percent,then total reserves are:

A) $20,000
B) $30,000
C) $50,000
D) $80,000

Question 79

Suppose a bank has $100,000 in deposits and a minimum reserve requirement of 7 percent.Then required reserves are:

A) $100,000
B) $93,000
C) $70,000
D) $7,000

Question 80

Initially a bank has a minimum reserve requirement of 20 percent and no excess reserves.If $20,000 is deposited in the bank,then the bank can,ceteris paribus:

A) Lend $20,000.
B) Lend $16,000.
C) Hold $20,000 less in excess reserves.
D) Reduce its required reserves by $20,000.