Question 1

If depositors become worried about the safety of their deposit accounts, they may trigger a

Accepted Answer

A)  deposit surplus.
B)  bank run.
C)  fiscal policy crisis.
D)  required reserve increase.E) B) and C)
F) B) and D)

Question 2

Bank failures in the United States occurred

Accepted Answer

A)  frequently through the 1960s and declined since then.
B)  infrequently through the 1960s and have become more common since then.
C)  frequently through the 1930s, declined after that time, and became more common in 2008.
D)  infrequently through the 1930s, increased after that time, and became less common in 2008.E) A) and B)
F) All of the above

Question 3

Money market mutual funds are accounts that are

Accepted Answer

A)  usually offered by banks.
B)  do not pay interest income.
C)  insured by the federal government.
D)  usually offered by brokerage and insurance firms.E) A) and B)
F) A) and C)

Question 4

Recently, the financial crisis led to a bank run in

Accepted Answer

A)  Brazil.
B)  Germany and France.
C)  Japan.
D)  England.E) A) and B)
F) B) and C)

Question 5

Most banks in the United States are owned by the government and operate as nonprofit institutions.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following was true regarding subprime mortgages that were popular in 2005-2006?

Accepted Answer

A)  More than 90 percent of these loans were made by regulated banks.
B)  Bankers expected higher default rates on these loans.
C)  They were generally fixed rate loans.
D)  All of these responses are correct.E) A) and B)
F) B) and D)

Question 7

Fiat money is

Accepted Answer

A)  always backed by gold or silver.
B)  useful in buying Italian cars.
C)  only backed by government decree.
D)  not as liquid as precious metals.E) None of the above
F) A) and B)

Question 8

A liability to a bank is

Accepted Answer

A)  something that the bank owns.
B)  something that the bank owes.
C)  something a customer owes the bank.
D)  the value of bank buildings and hardware.E) None of the above
F) B) and C)

Question 9

Liquidity refers to the

Accepted Answer

A)  rapidity with which money flows through the economy.
B)  ease with which an asset can be converted into cash.
C)  ease with which banks move funds from checking to savings accounts.
D)  All of these responses are correct.E) B) and D)
F) B) and C)

Question 10

The M2 definition of the money supply is based on the concept that

Accepted Answer

A)  M1 is a small number and should be increased in size.
B)  many types of deposits can be used as both payments and stores of value.
C)  checking deposits are used for payments, and therefore, not part of M1.
D)  cash is not used for the majority of payments.E) All of the above
F) B) and D)

Question 11

In which of the following monetary aggregates are Treasury Bills included?

Accepted Answer

A)  M1 only
B)  M2 only
C)  Both M1 and M2
D)  Neither M1 nor M2E) All of the above
F) A) and B)

Question 12

Excess reserves make a bank less vulnerable to runs, but bankers do not like to hold excess reserves because holding excess reserves

Accepted Answer

A)  are disliked by depositors.
B)  means lower profits for banks.
C)  are discouraged by government regulators.
D)  All of these responses are correct.E) C) and D)
F) B) and C)

Question 13

Banks that are managed in a very safe and conservative manner can be expected to earn

Accepted Answer

A)  high, steady profits.
B)  high but volatile profits.
C)  low and consistent profits.
D)  low profits with occasional major losses.E) A) and B)
F) C) and D)

Question 14

Nowadays, most observers believe that monetary policy

Accepted Answer

A)  is less important than fiscal policy.
B)  is more important than fiscal policy.
C)  and fiscal policy are equally important.
D)  and fiscal policy are both unimportant.E) A) and C)
F) B) and C)

Question 15

The largest portion of the M1 money supply consists of

Accepted Answer

A)  coins in circulation.
B)  paper currency in circulation.
C)  savings deposits at credit unions.
D)  checkable deposits.E) B) and C)
F) A) and B)

Question 16

As of December 2010, the largest single component of M2 consists of

Accepted Answer

A)  checkable deposits at banks.
B)  cash, coins, and other currency.
C)  savings deposits.
D)  gold and silver in commodity accounts.E) B) and C)
F) A) and D)

Question 17

Why are checking account balances included in the M1 definition of the money supply?

Accepted Answer

A)  Checking account balances are a traditional form of money that predates paper money.
B)  Checking account balances are used to make so many payments.
C)  Checking account balances are backed by gold and silver.
D)  Checking account balances pay interest.E) A) and B)
F) All of the above

Question 18

A store of value is the function of money when used to transfer purchasing power to the future.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is a bank liability?

Accepted Answer

A)  Cash in the vault
B)  Loans made to customers
C)  Money market deposit accounts
D)  Bank computers
E)  All of these responses are correct.F) A) and D)
G) A) and C)

Question 20

Many economists believe that savings accounts should be added to M1 because they

Accepted Answer

A)  are larger in size than conventional checking accounts.
B)  pay larger interest than checking accounts.
C)  can be transferred quickly into checkable accounts.
D)  are also insured by the federal government.E) A) and B)
F) All of the above

Exam 28: Money and the Banking System

Which of the following is a bank liability?

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Fiat money is

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In which of the following monetary aggregates are Treasury Bills included?

Correct AnswerverifiedShow Answer

Why are checking account balances included in the M1 definition of the money supply?

Correct AnswerverifiedShow Answer

The M2 definition of the money supply is based on the concept that

Correct AnswerverifiedShow Answer

If depositors become worried about the safety of their deposit accounts, they may trigger a

Correct AnswerverifiedShow Answer

Liquidity refers to the

Correct AnswerverifiedShow Answer

Banks that are managed in a very safe and conservative manner can be expected to earn

Correct AnswerverifiedShow Answer

The largest portion of the M1 money supply consists of

Correct AnswerverifiedShow Answer

Many economists believe that savings accounts should be added to M1 because they

Correct AnswerverifiedShow Answer

Bank failures in the United States occurred

Correct AnswerverifiedShow Answer

Nowadays, most observers believe that monetary policy

Correct AnswerverifiedShow Answer

Which of the following was true regarding subprime mortgages that were popular in 2005-2006?

Correct AnswerverifiedShow Answer

A store of value is the function of money when used to transfer purchasing power to the future.

Correct AnswerverifiedShow Answer

A liability to a bank is

Correct AnswerverifiedShow Answer

Recently, the financial crisis led to a bank run in

Correct AnswerverifiedShow Answer

Money market mutual funds are accounts that are

Correct AnswerverifiedShow Answer

Excess reserves make a bank less vulnerable to runs, but bankers do not like to hold excess reserves because holding excess reserves

Correct AnswerverifiedShow Answer

As of December 2010, the largest single component of M2 consists of

Correct AnswerverifiedShow Answer

Most banks in the United States are owned by the government and operate as nonprofit institutions.

Correct AnswerverifiedShow Answer

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Why are checking account balances included in the M₁ definition of the money supply?

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The M₂ definition of the money supply is based on the concept that

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The largest portion of the M₁ money supply consists of

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Many economists believe that savings accounts should be added to M₁ because they

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As of December 2010, the largest single component of M₂ consists of

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