Question 1

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

Accepted Answer

A)   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.
B)   It means that banks reserve the right to turn away customers a certain percentage of the time.
C)   It means that the fraction of vault cash a bank has cannot be greater than the fraction of bank deposits (it has)  at the Federal Reserve.
D)   Essentially, it means that total reserves are greater than required reserves.
E)   none of the aboveF) A) and D)
G) All of the above

Question 2

Which of the following statements is false?

Accepted Answer

A)   Money is the only good that can (or does)  serve as a store of value.
B)   In a barter economy, there is no good that serves as a unit of account.
C)   There are higher transaction costs of making exchanges in a barter economy than in a money economy.
D)   Money functions as a medium of exchange, unit of account, and store of value.E) A) and D)
F) A) and C)

Question 3

To an economist,money is a synonym for which of the following?

Accepted Answer

A)   income
B)   credit
C)   wealth
D)   salary
E)   none of the aboveF) A) and E)
G) B) and C)

Question 4

Bank A holds $1 million in required reserves and the required reserve ratio is 9 percent.It follows that Bank A holds checkable deposit liabilities that total approximately

Accepted Answer

A)   $111 million.
B)   $11.11 million.
C)   $90 million.
D)   $900 million.E) A) and D)
F) A) and C)

Question 5

The potential buyer of a house has less information about the house than the seller of the house.This is a case of

Accepted Answer

A)   externality information.
B)   free ridership.
C)   asymmetric information.
D)   biased information.
E)   a public good not being a private good.F) B) and C)
G) B) and E)

Question 6

Required reserves are a set percentage of total reserves that must be held in cash in a bank's vault or in the bank's reserve account at the Fed.

Accepted Answer

A) True 
 B)False

Question 7

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

A)   debt.
B)   loans.
C)   an insurance policy.
D)   reserves.E) A) and D)
F) B) and C)

Question 8

Describe the differences between M1 and M2.

Accepted Answer

M1 is the narrow definition of the money...

Question 9

The requirement of a "double coincidence of wants" is the chief __________ of the __________ exchange system.

Accepted Answer

A)   advantage; barter
B)   advantage; monetary
C)   disadvantage; barter
D)   disadvantage; monetaryE) B) and D)
F) None of the above

Question 10

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

A)   $790 billion.
B)   $390 billion.
C)   $800 billion.
D)   $1,190 billion.
E)   There is not information to answer the question.F) A) and D)
G) C) and E)

Question 11

Total bank reserves equal

Accepted Answer

A)   checkable deposits + vault cash + traveler's checks.
B)   vault cash + currency in the hands of the nonbanking public.
C)   bank deposits at the Federal Reserve.
D)   bank deposits at the Federal Reserve + vault cash.E) C) and D)
F) A) and D)

Question 12

Historically,which of the following goods have evolved into money?

Accepted Answer

A)   gold
B)   salt
C)   cattle
D)   cocoa beans
E)   all of the aboveF) C) and D)
G) A) and D)

Question 13

Ninth National Bank holds $200 million in checkable deposits and $18,000,000 in total reserves.With a required reserve ratio of 8 percent,how much in excess reserves is Ninth National holding?

Accepted Answer

A)   $1,440,000
B)   $218,000,000
C)   $17,440,000
D)   $16,000,000
E)   $2,000,000F) A) and D)
G) A) and E)

Question 14

A medium of exchange is

Accepted Answer

A)   anything that is generally accepted in exchange for goods and services.
B)   a common measurement in which relative values are expressed.
C)   an item's ability to hold value over time.
D)   the exchange of goods and services for other goods and services.
E)   both a and dF) A) and D)
G) A) and C)

Question 15

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

Accepted Answer

A)   an asset.
B)   a liability.
C)   vault cash.
D)   excess reserves.
E)   bank capital.F) B) and E)
G) B) and D)

Question 16

To an economist,the terms "money" and "wealth" are synonyms.

Accepted Answer

A) True 
 B)False

Question 17

A bank has $7 million in checkable deposits and $1.2 million in total reserves.If the required reserve ratio is 10 percent,then the bank has

Accepted Answer

A)   required reserves of $700,000.
B)   excess reserves of $500,000.
C)   excess reserves of $1,080,000.
D)   required reserves of $120,000.
E)   a and bF) B) and D)
G) A) and B)

Question 18

Money evolved out of the self-interested actions of

Accepted Answer

A)   economists.
B)   governments.
C)   a few kings and queens.
D)   individuals.E) B) and D)
F) B) and C)

Question 19

The amount of required reserves a bank holds depends on the

Accepted Answer

A)   required reserve ratio.
B)   demand-deposit ratio.
C)   excess-reserve ratio.
D)   currency ratio.E) B) and D)
F) A) and C)

Question 20

Bank A has checkable deposits of $10 million and total reserves of $1 million.The required reserve ratio is 9 percent.The bank has excess reserves of

Accepted Answer

A)   $910,000.
B)   $91,000.
C)   $100,000.
D)   $10,000.
E)   There is not enough information provided to answer this question.F) C) and E)
G) B) and E)

Exam 12: Money, Banking,and the Financial System

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

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Money evolved out of the self-interested actions of

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Total bank reserves equal

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

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The potential buyer of a house has less information about the house than the seller of the house.This is a case of

Correct AnswerverifiedShow Answer

Historically,which of the following goods have evolved into money?

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Required reserves are a set percentage of total reserves that must be held in cash in a bank's vault or in the bank's reserve account at the Fed.

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Ninth National Bank holds $200 million in checkable deposits and $18,000,000 in total reserves.With a required reserve ratio of 8 percent,how much in excess reserves is Ninth National holding?

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Bank A holds $1 million in required reserves and the required reserve ratio is 9 percent.It follows that Bank A holds checkable deposit liabilities that total approximately

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Which of the following statements is false?

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

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Bank A has checkable deposits of $10 million and total reserves of $1 million.The required reserve ratio is 9 percent.The bank has excess reserves of

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A medium of exchange is

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The requirement of a "double coincidence of wants" is the chief __________ of the __________ exchange system.

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To an economist,the terms "money" and "wealth" are synonyms.

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Describe the differences between M1 and M2.

Correct AnswerverifiedM1 is the narrow definition of the money...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

The amount of required reserves a bank holds depends on the

Correct AnswerverifiedShow Answer

A bank has $7 million in checkable deposits and $1.2 million in total reserves.If the required reserve ratio is 10 percent,then the bank has

Correct AnswerverifiedShow Answer

To an economist,money is a synonym for which of the following?

Correct AnswerverifiedShow Answer

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The requirement of a "double coincidence of wants" is the chief of the exchange system.

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M1 is the narrow definition of the money...
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