Question 1

Suppose you place your savings in a time deposit at the bank,and that bank lends some of those funds to a business that desires a loan.This is an example of

Accepted Answer

This is an example of indirect finance, as the bank is an intermediary between the saver and the borrower. The bank is able to lend out a portion of the saver's funds, while still providing the saver with a safe and secure place to deposit their money.

Question 2

A business owner applies for a bank loan to launch a fairly low-risk project.After receiving the loan,she cancels the low-risk project and instead uses the borrowed funds for a high-risk venture.This is an example of

Accepted Answer

This scenario is an example of moral hazard, where the borrower takes on a riskier venture because they know that they will not face the full consequences if it fails, as they have borrowed money from the bank. This can lead to adverse selection problems for the lender, as they may only attract high-risk borrowers who are more likely to default.

Question 3

Which of the following is NOT included in M1?

Accepted Answer

M1 includes transaction deposits (checking accounts), currency (physical cash), and travelers checks. Small time deposits (CDs) are considered part of M2.

Question 4

Checking accounts are included in

Accepted Answer

Checking accounts are included in M1, which is a measure of the money supply that includes currency, checking accounts, and traveler's checks. Certificates of deposit and lines of credit are not included in M1.

Question 5

Financial institutions participate in which of the following activities?

Accepted Answer

Financial institutions participate in all three activities: financial intermediation, indirect finance, and the issuance of loans. They act as intermediaries between savers and borrowers, facilitate transactions, provide credit and other financial services, and manage risk.

Question 6

The largest component of M1 is

Accepted Answer

Currency and coins are the largest component of M1, which is a category of the money supply that includes all physical money like coins and currency, as well as demand deposits, checking accounts, and negotiable order of withdrawal (NOW) accounts.

Question 7

A checkable and debitable account is

Accepted Answer

The answer of A checkable and debitable account is
...

Question 8

An item to which a business holds legal claim is called a(n)

Accepted Answer

An asset is an item to which a business holds legal claim, such as equipment, inventory, or property. Liabilities are debts or obligations owed by a business to others, loans are a type of liability, and time deposits are a type of financial investment held by a business.

Question 9

Federal Reserve notes are

Accepted Answer

Federal Reserve notes are paper currency issued by the Federal Reserve System, commonly known as "dollars." They are the most common form of physical currency in the United States.

Question 10

How does the liquidity approach to measuring the money supply differ from the transaction approach?

Accepted Answer

The answer of How does the liquidity approach to measuring...

Question 11

Which of the following is NOT an example of a financial intermediary?

Accepted Answer

The Internal Revenue Service is not a financial intermediary. It is a government agency responsible for collecting taxes and enforcing tax laws. Financial intermediaries are institutions that facilitate transactions between parties by taking on risk and providing liquidity, such as credit unions, pension funds, and insurance companies.

Question 12

The term "depository institution" refers to

Accepted Answer

Depository institutions refers to all three: commercial banks, credit unions, and savings and loan associations. They are all financial institutions that accept deposits from customers and hold them in accounts such as savings accounts or checking accounts.

Question 13

Suppose that a new customer opens a checking account and a saving account,placing $50,000 in each.Later,the bank makes a loan of $100,000 to a business firm.For this bank,

Accepted Answer

The answer of Suppose that a new customer opens a...

Question 14

Financial intermediaries are institutions that

Accepted Answer

Financial intermediaries act as middlemen in the process of directing funds from savers to investors by accepting deposits from savers and then lending these funds to borrowers. Examples include banks, credit unions, and other financial institutions that provide loans, mortgages, and other financial services to individuals and businesses.

Question 15

Financial intermediaries are important because

Accepted Answer

Financial intermediaries, such as banks and credit unions, play an important role in the economy by bringing together borrowers and lenders in a way that lowers transaction costs. This makes it easier for individuals and businesses to access credit and funding for investment and encourages economic growth. While financial intermediaries may employ large numbers of people, their primary function is to facilitate financial transactions, not to create jobs. They also do not necessarily increase costs for banks, as they can provide a source of funding and liquidity for banks and other financial institutions.

Question 16

A checking account balance in a commercial bank is

Accepted Answer

A checking account balance in a commercial bank is considered a demand deposit and is readily available for transactions. It may not be part of the physical currency supply, but it is still a liquid asset that can be used for most purchases and payments.

Question 17

A transaction deposit is

Accepted Answer

A transaction deposit is a type of bank account that allows for frequent and easy access to funds through check-writing and debit card transactions. It is also known as a demand deposit.

Question 18

Financial intermediation is best defined as the process by which

Accepted Answer

Financial intermediation involves financial institutions acting as intermediaries between savers and investors. They accept savings from savers in the form of deposits, and then use these funds to make loans to borrowers. This process helps to allocate financial resources more efficiently and effectively than if savers and investors were to interact directly. Therefore, the best definition of financial intermediation is D) financial institutions accept savings from savers and make loans to investors.

Question 19

The financial institutions in our banking system are all in the business of transferring funds from savers to investors.This process is known as

Accepted Answer

Financial intermediation refers to the process of transferring funds from savers to investors through the use of financial institutions. This process allows savers to earn a return on their savings while providing investors with access to funds that they can use to purchase assets or invest in projects. Financial intermediaries such as banks, credit unions, and investment companies play a vital role in this process by providing savings accounts, loans, and other financial products that facilitate the transfer of funds.

Question 20

For the United States,what is money based on the transactions approach to measuring money?

Accepted Answer

The answer of For the United States,what is money based...

Quiz 15: Money, banking, and Central Banking