Question 1

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 correct because insurance companies act as intermediaries between policyholders and capital markets by collecting premiums and investing them to generate returns. However, Statement II is false because the United States Treasury typically borrows directly from investors through the issuance of Treasury securities, rather than going through financial intermediaries.

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 in the question, where dissimilar goods and services are valued according to a single common denominator, refers to the function of money as a standard of value.

Question 3

The bulk of the M1 money supply is made up of

Accepted Answer

Checkable deposits are the primary component of the M1 money supply, which includes demand deposits and other deposits in checking accounts. Travels checks and currency are also part of M1, but they make up a smaller percentage compared to checkable deposits. Federal Reserve notes are a liability of the Federal Reserve and are not considered part of the M1 money supply.

Question 4

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

Accepted Answer

When receipts issued by goldsmiths were used to make purchases, they became, in effect, paper money. This was the beginning of the paper money system.

Question 5

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 6

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 7

In the late 1980s,our money supply

Accepted Answer

The answer of In the late 1980s,our money supply
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Question 8

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 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 collect smaller sums of money from individuals and pool them together to create larger sums that can be used for lending purposes. Statement II is also true as banks are just one type of financial intermediary, others include insurance companies, mutual funds, 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 (Federal Deposit Insurance Corporation) was established in the US in 1933 to ensure that bank customers' deposits are protected against bank failures. The FDIC is supported by the Congress, the Treasury, and the Federal Reserve. Its main objective is to maintain stability and public confidence in the nation's financial system.

Question 11

The precautionary motive for holding money is

Accepted Answer

The precautionary motive for holding money refers to the desire to hold money for unexpected transactions or emergencies. Holding money as a precautionary measure provides a buffer against uncertainty and ensures that individuals and businesses have enough funds to cover unexpected expenses or needs.

Question 12

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

Accepted Answer

Statement II is true because pension funds are indeed a form of financial intermediary. Statement I is false because not all savings are channeled through financial intermediaries; some savings can be directly invested in securities or other assets.

Question 13

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 would be most applicable in determining the value of a 2-week vacation in Jamaica would be the standard of value. This function of money is used to determine the worth of goods and services in terms of a common unit of measurement, such as a currency.

Question 14

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 serving as a standard of value. This means that money is being used as a unit of measurement for the worth of goods and services. The other options do not fit this scenario - a medium of exchange is when money is used to purchase goods and services, a store of value is when money is held as an asset, and a standard of deferred payment is when money is used to settle debts in the future.

Question 15

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 16

What percentage of the M2 measure of money is currency?

Accepted Answer

Currency (physical cash and coins) makes up about 10% of the M2 money supply. The rest is comprised of non-cash forms of money such as savings deposits, money market securities, and other time deposits.

Question 17

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 18

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 of investing in the stock market after prices fall indicates a speculative demand for holding money. He is holding money now, with the hope of being able to purchase stocks at a lower price in the future.

Question 19

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

Mrs. Fufnik is holding money in anticipation of rising interest rates, which is an example of the speculative motive for holding money.

Question 20

An increase in the rate of interest would increase

Accepted Answer

An increase in the rate of interest would make holding money less attractive because it would be more profitable to invest that money elsewhere, hence increasing the opportunity cost of holding money. This would lead to a decrease in the demand for money and an increase in the demand for other assets like bonds, which would reduce their price. Therefore, options B, C, and D are incorrect.

Quiz 13: Money and Banking

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

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?

The bulk of the M1 money supply is made up of

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

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

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

In the late 1980s,our money supply

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.

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.