Question 1

If reserves equal $29 million and vault cash equals $29 million, it follows that

Accepted Answer

If reserves equal the vault cash, then there are no excess reserves that could be deposited with the Federal Reserve, making bank deposits at the Federal Reserve equal to $0.

Question 2

To a bank, reserves are classified as

Accepted Answer

Reserves are considered assets for banks as it represents the portion of deposits that the bank must keep on hand to meet its obligations to its depositors.

Question 3

Which of the following statements is false?

Accepted Answer

All of the statements are true. Asymmetric information refers to situations where one party has more information than the other, and this can occur before or after a transaction. Moral hazard refers to the risk that a party will take actions that are hidden and costly to the other party, and adverse selection can result in certain markets being eliminated due to a reduction in the number of quality options available.

Question 4

If reserves equal $59 million and vault cash equals $29 million, it follows that

Accepted Answer

Bank deposits at the Federal Reserve equal the total reserves minus the vault cash. Therefore, if reserves are $59 million and vault cash is $29 million, bank deposits at the Federal Reserve would be $59 million - $29 million = $30 million.

Question 5

Asymmetric information exists when

Accepted Answer

Asymmetric information refers to a situation where one party in an exchange possesses more or better information than the other party. In this case, there is a difference in knowledge about the good being exchanged between the two parties. Option A is incorrect because it describes a situation of perfect information where both parties have access to all relevant information. Option B refers to goods that are nonrivalrous (can be used by multiple people at the same time) or nonexcludable (it is difficult to prevent others from using it once it is made available), which is not related to asymmetric information. Option D describes a situation of incomplete information where both parties lack knowledge about the quality of the good being exchanged, but it does not necessarily mean that one party has more or better information than the other.

Question 6

If M1 is $1,200 billion, currency held outside banks is $400 billion, and traveler's checks is $10 billion, then small-denomination time deposits equal

Accepted Answer

The question asks for the value of small-denomination time deposits, but the information provided (M1, currency held outside banks, and traveler's checks) does not include or directly relate to small-denomination time deposits. Therefore, there is not enough information to answer the question.

Question 7

Which of the following statements is true?

Accepted Answer

A savings deposit is not included in M1, the narrowest definition of the money supply, which focuses on liquidity and includes only the most liquid assets. M1 is indeed referred to as transactions money because it consists of currencies and other liquid assets used for transactions. Money facilitates trade by reducing transaction costs, making exchanges easier compared to barter systems.

Question 8

A bank has $50,000 in excess reserves and the required reserve ratio is 10 percent. This means the bank could have __________ in checkable deposit liabilities and __________ in (total) reserves.

Accepted Answer

The answer of A bank has $50,000 in excess reserves...

Question 9

To a bank, a checkable deposit is classified as

Accepted Answer

Checkable deposits are the funds that can be withdrawn by depositors at any time. Since the bank owes these funds to their customers, checkable deposits are considered a liability for the bank.

Question 10

When people in a barter economy began to accept the good that had greater acceptability than all other goods, they weren't trying to create the institution of money. They were simply trying to __________.

Accepted Answer

When people in a barter economy began to accept the good that had greater acceptability than all other goods, they were simply trying to make trading easier for themselves. By using a more widely accepted good in transactions, they could avoid the difficulties of finding someone who wanted what they had to trade. This eventually led to the development of money as a commonly accepted medium of exchange.

Question 11

If excess reserves are $10 million, (total) reserves are $14 million, and the required reserve ratio is 10%, then required reserves equal ________________ and checkable deposits equal ____________________.

Accepted Answer

Required reserves are calculated as the difference between total reserves and excess reserves, which is $14 million - $10 million = $4 million. Checkable deposits are calculated by dividing the required reserves by the required reserve ratio, which is $4 million / 0.10 = $40 million.

Question 12

Which of the following is not a component of M1?

Accepted Answer

M1 includes currency held outside banks, traveler's checks, and checkable deposits. Savings deposits are not included in M1.

Question 13

Which of the following statements is false?

Accepted Answer

Credit cards are not actually money, but rather a means of accessing money that the consumer has available in a bank account or credit line.

Question 14

To a bank, a loan the bank has made to its borrowers is classified as

Accepted Answer

A loan is an asset to the bank as it represents the money that the bank expects to receive back with interest from its borrowers.

Question 15

The risk of specializing (in the production of one good or service) is

Accepted Answer

In a barter economy, the risk of specializing is greater because there is a higher likelihood of not finding someone with a double coincidence of wants to trade with. In a money economy, the risk is lower because money serves as a medium of exchange, making it easier to trade and find buyers for specialized goods or services.

Question 16

When economists say that banks must hold a percentage of their total deposits in reserve form, what does this mean?

Accepted Answer

When economists say that banks must hold a percentage of their total deposits in reserve form, it means that banks must hold a fraction of their customers' deposits either as bank deposits at the Federal Reserve, or as vault cash, or both. This percentage is known as the reserve requirement, and it is set by the central bank. The purpose of holding reserves is for banks to have enough money on hand to meet the demand of customers who want to withdraw cash or make payments.

Question 17

If checkable deposits rise, it follows that the

Accepted Answer

With an increase in checkable deposits, banks will need to hold more reserves to meet deposit withdrawal demands. Therefore, the dollar amount of reserves will rise to accommodate the increase in checkable deposits.

Question 18

Bank deposits at the Federal Reserve = $40 billion, vault cash = $2 billion, the required reserve ratio = 0.10, and total checkable deposits = $400 billion. It follows that required reserves equal __________ billion, (total) reserves equal __________ billion and excess reserves equal __________ billion.

Accepted Answer

The answer of Bank deposits at the Federal Reserve =...

Question 19

Banks in the United States operate under a fractional reserve system, which means they must maintain only a fraction of their deposits in the form of

Accepted Answer

Banks in the United States must maintain a fraction of their deposits in the form of reserves, which are funds that are not loaned out and are held in reserve to meet withdrawal and other demands from customers. This system allows banks to create loans and expand the money supply, but also requires them to maintain a certain level of liquidity to ensure they can meet the needs of their customers.

Question 20

In which setting are the transaction costs of making an exchange likely to be the highest?

Accepted Answer

Buying a house typically involves many different parties (real estate agents, lawyers, lenders, etc.), each of whom may charge their own fees and incur additional costs such as inspections and appraisals. This can result in high transaction costs.

Quiz 12: Money Banking and the Financial System

If reserves equal $29 million and vault cash equals $29 million, it follows that

To a bank, reserves are classified as

Which of the following statements is false?

If reserves equal $59 million and vault cash equals $29 million, it follows that

Asymmetric information exists when

If M1 is $1,200 billion, currency held outside banks is $400 billion, and traveler's checks is $10 billion, then small-denomination time deposits equal

Which of the following statements is true?

A bank has $50,000 in excess reserves and the required reserve ratio is 10 percent. This means the bank could have in checkable deposit liabilities and in (total) reserves.

To a bank, a checkable deposit is classified as

When people in a barter economy began to accept the good that had greater acceptability than all other goods, they weren't trying to create the institution of money. They were simply trying to __________.

If excess reserves are $10 million, (total) reserves are $14 million, and the required reserve ratio is 10%, then required reserves equal and checkable deposits equal ____.

Which of the following is not a component of M1?

Which of the following statements is false?

To a bank, a loan the bank has made to its borrowers is classified as

The risk of specializing (in the production of one good or service) is

When economists say that banks must hold a percentage of their total deposits in reserve form, what does this mean?

If checkable deposits rise, it follows that the

Bank deposits at the Federal Reserve = $40 billion, vault cash = $2 billion, the required reserve ratio = 0.10, and total checkable deposits = $400 billion. It follows that required reserves equal billion, (total) reserves equal billion and excess reserves equal __ billion.

Banks in the United States operate under a fractional reserve system, which means they must maintain only a fraction of their deposits in the form of

In which setting are the transaction costs of making an exchange likely to be the highest?