Question 1

Statement I: Branch banking is prohibited in most states.
Statement II: All banks are chartered in the states in which they have their headquarters.

Accepted Answer

Statement I is false because branch banking is allowed in most states, with regulations varying by state. Statement II is false because banks can be chartered either by the state or by the federal government (through the Office of the Comptroller of the Currency for national banks).

Question 2

Money allows dissimilar goods and services to be valued according to a single common denominator-a nation's basic monetary unit,such as the dollar.Which of the following represents this function?

Accepted Answer

The function described is that of a standard of value, as it allows for dissimilar goods and services to be valued using a common monetary unit. A medium of exchange refers to the use of currency in the exchange of goods and services. A store of value refers to the ability of money to hold its value over time. A standard of deferred payment refers to the use of currency to pay for goods or services at a future date.

Question 3

When the receipts given by goldsmiths to depositors were used to make purchases,

Accepted Answer

When the receipts given by goldsmiths to depositors were used to make purchases, they became in effect paper money as they were circulated in place of actual gold. This was the precursor to modern-day paper currency systems.

Question 4

The bulk of the M1 money supply is made up of

Accepted Answer

Checkable deposits, which include demand deposits and other types of accounts that allow for withdrawals by check or debit card, make up the largest portion of M1. Traveler's checks, currency, and Federal Reserve notes are also part of M1, but make up a smaller portion of the total money supply.

Question 5

Mrs.Fufnik decides to keep $7,000 in her checking account in anticipation of rising interest rates.This is an example of the

Accepted Answer

The answer of Mrs.Fufnik decides to keep $7,000 in her...

Question 6

An increase in the rate of interest would increase

Accepted Answer

An increase in the rate of interest increases the opportunity cost of holding money, as the return on bonds and other interest-bearing assets becomes more attractive compared to the zero return on money held in cash or a checking account. This leads individuals and firms to hold less money and to increase their holdings in interest-bearing assets, reducing both the transactions and asset demand for money. The price of bonds would also decrease, as bond yields and prices are inversely related.

Question 7

Statement I: Insurance companies are a form of financial intermediary.
Statement II: The United States Treasury generally borrows through financial intermediaries.

Accepted Answer

Statement I is true as insurance companies collect premiums from policyholders and invest them in various assets, acting as a middleman between the policyholders and the investment markets. Statement II is false as the United States Treasury typically auctions off its debt directly to investors (such as individuals, corporations, and foreign governments) rather than going through intermediaries.

Question 8

Statement I: Banks in unit banking states are generally larger than banks in states that do not require unit banking.
Statement II: Two out of five states have unlimited branching.

Accepted Answer

Statement II is true, as two out of five states (Illinois and North Dakota) have unlimited branching. However, statement I is false. In fact, banks in states that require unit banking (such as Illinois and Texas) are generally smaller and less diversified than banks in states that allow interstate and intrastate branching. This is because unit banking laws limit banks to operating only one branch in a single location, which makes it harder for them to spread their risks and access a larger customer base.

Question 9

Statement I: Financial intermediaries repackage the flow of deposits,insurance premiums,and pension contributions into larger chunks that are lent out.
Statement II: Banks are one of several types of financial intermediaries.

Accepted Answer

Statement I is true as financial intermediaries take smaller deposits, premiums, and contributions and use them to create larger loans. Statement II is also true as banks are just one type of financial intermediary, with others including credit unions, insurance companies, and pension funds.

Question 10

Statement I: The whole idea of the FDIC is to avert bank panics by assuring the public that the federal government stands behind the banking system.
Statement II: The FDIC is backed by the Congress,the Treasury,and the Federal Reserve.

Accepted Answer

Both statements are true. The FDIC's main purpose is to prevent bank runs and protect depositors' funds by guaranteeing them up to a certain amount. The FDIC is indeed backed by the US Congress, Treasury, and Federal Reserve.

Question 11

Statement I: Virtually all savings is channeled to borrowers through financial intermediaries.
Statement II: Pension funds are a form of financial intermediary.

Accepted Answer

The answer of Statement I: Virtually all savings is channeled...

Question 12

If you are asked how much a 2-week vacation in Jamaica is worth,which function of money will you base your answer on?

Accepted Answer

The function of money that measures and compares the value of goods and services is known as the standard of value. In this case, we are asked to determine the value of a 2-week vacation in Jamaica. Therefore, the answer will be based on the standard of value.

Question 13

In the late 1980s,our money supply

Accepted Answer

The answer of In the late 1980s,our money supply
...

Question 14

Our money supply

Accepted Answer

The money supply grows by varying amounts from year to year, depending on factors such as economic policy, demand for money, inflation, and economic growth. There is no fixed rate of growth for the money supply.

Question 15

Mr.Krapotkin hopes to use the family savings to invest in the stock market after prices fall next week.This is an example of

Accepted Answer

Mr. Krapotkin's intention to invest in the stock market after the prices fall next week implies that he wants to take advantage of the anticipated price decline by buying low and selling high. This is an example of speculative demand for holding money, which is driven by the desire to earn a return on money by buying assets whose prices are expected to rise in the future.

Question 16

Statement I: A strong case can be made to designate M2 as our basic money supply,rather than M1.
Statement II: The Federal Reserve watches M2 more closely than it watches M1.

Accepted Answer

Both statements are true.

M2, which includes M1 plus savings deposits, time deposits, and other less-liquid assets, is a broader measure of money supply than M1. Therefore, M2 provides a more comprehensive overview of the money supply in the economy.

The Federal Reserve watches M2 more closely than M1 because it considers M2 to be a better indicator of overall economic activity and inflation. The central bank uses M2 as one of its key tools to implement monetary policy.

Question 17

The precautionary motive for holding money is

Accepted Answer

The precautionary motive for holding money refers to the desire to hold money in case unexpected transactions or expenses arise. This allows individuals or businesses to have the necessary funds available to cover these unexpected costs without having to liquidate other assets or take on debt. The other choices are not related to the precautionary motive for holding money.

Question 18

When money is used to set the value of goods such as cars,DVD players,and TVs,money is serving as a

Accepted Answer

When money is used to set the value of goods, it is acting as a standard of value or unit of account. This means that money is being used as a common measurement of value to compare the worth of different products.

Question 19

Statement I: More than two-thirds of the nation's banks have state charters.
Statement II: All nationally chartered banks must join the Federal Reserve System

Accepted Answer

Statement I is true as more than two-thirds of the nation's banks have state charters. Statement II is also true as all nationally chartered banks must join the Federal Reserve System. Therefore, both statements are true.

Question 20

What percentage of the M2 measure of money is currency?

Accepted Answer

Currency makes up about 10% of the M2 measure of money, with the majority being made up of demand deposits, savings deposits, and other types of deposits.

Quiz 13: Money and Banking

Statement I: Branch banking is prohibited in most states. Statement II: All banks are chartered in the states in which they have their headquarters.

Money allows dissimilar goods and services to be valued according to a single common denominator-a nation's basic monetary unit,such as the dollar.Which of the following represents this function?

When the receipts given by goldsmiths to depositors were used to make purchases,

The bulk of the M1 money supply is made up of

Mrs.Fufnik decides to keep $7,000 in her checking account in anticipation of rising interest rates.This is an example of the

An increase in the rate of interest would increase

Statement I: Insurance companies are a form of financial intermediary. Statement II: The United States Treasury generally borrows through financial intermediaries.

Statement I: Banks in unit banking states are generally larger than banks in states that do not require unit banking. Statement II: Two out of five states have unlimited branching.

Statement I: Financial intermediaries repackage the flow of deposits,insurance premiums,and pension contributions into larger chunks that are lent out. Statement II: Banks are one of several types of financial intermediaries.

Statement I: The whole idea of the FDIC is to avert bank panics by assuring the public that the federal government stands behind the banking system. Statement II: The FDIC is backed by the Congress,the Treasury,and the Federal Reserve.

Statement I: Virtually all savings is channeled to borrowers through financial intermediaries. Statement II: Pension funds are a form of financial intermediary.