Question 1

The government agency that insures deposits held in banks in the United States is

Accepted Answer

A)   the Federal Reserve System.
B)   the Federal Bank Insurance Corporation.
C)   the Federal Asset Insurance Corporation.
D)   the Federal Deposit Insurance Corporation.E) All of the above
F) None of the above

Question 2

Financial institutions that receive most of their funds from the savings of the public are

Accepted Answer

A)   the fiduciary monetary system.
B)   the world index fund.
C)   universal banking.
D)   thrift institutions.E) B) and C)
F) B) and D)

Question 3

Who appoints the chair of the Federal Reserve System?

Accepted Answer

A)   the Senate and Congress
B)   member banks of the Federal Reserve System
C)   the President of the United States
D)   the Federal Open Market Committee (FOM
C)  E) A) and B)
F) C) and D)

Question 4

The main difference between paper money and coins as forms of money is that

Accepted Answer

A)   the metallic content of coins makes them more acceptable as money.
B)   paper money issued by the Federal Reserve Board is backed by gold while coins are not.
C)   paper money serves as a unit of account while coins do not.
D)   the metal in coins is more durable than paper.E) All of the above
F) A) and D)

Question 5

When we examine the U.S. money supply, the smallest component of M1 is

Accepted Answer

A)   currency and coins.
B)   transaction deposits.
C)   certificates of deposit.
D)   traveler's checks.E) B) and C)
F) A) and B)

Question 6

Lenders generally want borrowers to agree to invest prudently, yet once a loan is made borrowers may use the funds in a highly risky fashion. This leads to the problem of

Accepted Answer

A)   critical mass.
B)   deposit insurance.
C)   investor selection.
D)   moral hazard.E) B) and C)
F) A) and D)

Question 7

A barter arrangement simply means

Accepted Answer

A)   a direct exchange of goods without the use of money.
B)   a promise to pay in the future.
C)   that gold must be offered from one party.
D)   the government has to facilitate the exchange.E) C) and D)
F) A) and B)

Question 8

If the reserve ratio is 20 percent and reserves in the commercial banking system increase by $10,000, the maximum possible expansion of demand deposits is

Accepted Answer

A)   $10,000.
B)   $80,000.
C)   $50,000.
D)   $500,000.E) A) and D)
F) All of the above

Question 9

The Fed sells $1 million in bonds to a bond dealer. The bond dealer's bank experiences

Accepted Answer

A)   a decrease in assets of $1 million as its reserves decrease and an increase in liabilities of $1 million as its deposits rise.
B)   a decrease in assets of $1 million as its reserves decrease and a decrease in liabilities of $1 million as its deposits fall.
C)   an increase in assets of $1 million as its deposits fell by $1 million, and a decrease in liabilities as its reserves fell by $1 million.
D)   no change in assets or liabilities.E) A) and B)
F) A) and C)

Question 10

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

Accepted Answer

A)   a credit union
B)   a pension fund
C)   the U.S. Treasury Department
D)   an insurance companyE) None of the above
F) A) and D)

Question 11

Which one of the following is NOT a part of the M1 definition of money?

Accepted Answer

A)   paper currency (i.e., Federal Reserve notes) 
B)   coins
C)   savings accounts
D)   checkable and debitable accountsE) All of the above
F) None of the above

Question 12

Which of the following is NOT part of M1?

Accepted Answer

A)   credit cards
B)   checking accounts
C)   currency
D)   traveler's checksE) None of the above
F) All of the above

Question 13

A property of an asset that makes it desirable for use as a means of settling debts maturing in the future is a(n)

Accepted Answer

A)   medium of exchange.
B)   unit of accounting.
C)   store of value.
D)   standard of deferred payment.E) C) and D)
F) A) and B)

Question 14

To be accepted as money, an item must perform all of the following functions EXCEPT

Accepted Answer

A)   serve as a store of value.
B)   be easily reproduced.
C)   be a medium of exchange.
D)   serve as a standard of deferred payment.E) A) and B)
F) B) and C)

Question 15

How many Federal Reserve district banks are there in the United States?

Accepted Answer

A)   12
B)   5
C)   7
D)   none of the aboveE) B) and C)
F) A) and D)

Question 16

Bank X had a reputation for asking few questions when it provided loans. Five years later, the majority of the loans were not repaid. This is because the bank had failed to address the

Accepted Answer

A)   adverse selection problem.
B)   moral hazard problem.
C)   contrary selection problem.
D)   free-rider problem.E) None of the above
F) B) and C)

Question 17

Who benefits from the process of financial intermediation?

Accepted Answer

A)   savers only
B)   borrowers only
C)   both savers and borrowers
D)   There is no benefit, because money does not create wealth.E) All of the above
F) A) and D)

Question 18

Which of the following would reduce the money multiplier?

Accepted Answer

A)   the purchase of bonds by the Fed
B)   lowering the reserve ratio
C)   increases in the reserve ratio
D)   a flow of currency into the banking systemE) A) and B)
F) A) and D)

Question 19

If the reserve ratio is 100 percent, the maximum potential money multiplier is

Accepted Answer

A)   0.
B)   1.
C)   10.
D)   100.E) All of the above
F) A) and C)

Question 20

Which of the following is NOT an asset of commercial banks?

Accepted Answer

A)   consumer loans
B)   business loans
C)   savings deposits
D)   home mortgagesE) A) and B)
F) A) and C)

Exam 15: Money, Banking, and Central Banking

Which of the following is NOT an asset of commercial banks?

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Who appoints the chair of the Federal Reserve System?

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A barter arrangement simply means

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If the reserve ratio is 100 percent, the maximum potential money multiplier is

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Which one of the following is NOT a part of the M1 definition of money?

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The Fed sells $1 million in bonds to a bond dealer. The bond dealer's bank experiences

Correct AnswerverifiedShow Answer

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

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How many Federal Reserve district banks are there in the United States?

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Bank X had a reputation for asking few questions when it provided loans. Five years later, the majority of the loans were not repaid. This is because the bank had failed to address the

Correct AnswerverifiedShow Answer

Financial institutions that receive most of their funds from the savings of the public are

Correct AnswerverifiedShow Answer

The government agency that insures deposits held in banks in the United States is

Correct AnswerverifiedShow Answer

A property of an asset that makes it desirable for use as a means of settling debts maturing in the future is a(n)

Correct AnswerverifiedShow Answer

To be accepted as money, an item must perform all of the following functions EXCEPT

Correct AnswerverifiedShow Answer

The main difference between paper money and coins as forms of money is that

Correct AnswerverifiedShow Answer

Who benefits from the process of financial intermediation?

Correct AnswerverifiedShow Answer

Which of the following would reduce the money multiplier?

Correct AnswerverifiedShow Answer

When we examine the U.S. money supply, the smallest component of M1 is

Correct AnswerverifiedShow Answer

Lenders generally want borrowers to agree to invest prudently, yet once a loan is made borrowers may use the funds in a highly risky fashion. This leads to the problem of

Correct AnswerverifiedShow Answer

If the reserve ratio is 20 percent and reserves in the commercial banking system increase by $10,000, the maximum possible expansion of demand deposits is

Correct AnswerverifiedShow Answer

Which of the following is NOT part of M1?

Correct AnswerverifiedShow Answer

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