Question 1

Why are the following included in the broader definition of supply known as M2?
(a)money market deposit accounts
(b)money market mutual funds
(c)savings accounts

Accepted Answer

(a)Money market deposit accounts: They a...

Question 2

Many economists believe that the difference between savings accounts and checking accounts is disappearing.

Accepted Answer

A) True 
 B)False

Question 3

If Ms.Anniston transfers $1,000 from her checking account to her money market account, then

Accepted Answer

A)   M₁ falls and M2 remains the same.
B)   M₁ falls and M2 rises.
C)   both M₁ and M2 rise.
D)   M₁ remains the same and M2 rises.E) All of the above
F) None of the above

Question 4

Inflation increases the use of money as a store of value.

Accepted Answer

A) True 
 B)False

Question 5

One difference between the assets included in M₁ and those added to calculate M2 is that items in M₁ are

Accepted Answer

A)   better stores of value than those added to compute M2.
B)   more liquid than those added to compute M2.
C)   less liquid than those added to compute M2.
D)   larger than those added to compute M2.E) A) and B)
F) A) and C)

Question 6

Bankers have a reputation for conservatism in politics, dress, and business affairs.Is there an economic rationale for this conservatism? Explain.

Accepted Answer

There is an economic rationale for this ...

Question 7

The lion's share of purchases and transactions in the U.S.economy are made with coins and paper money.

Accepted Answer

A) True 
 B)False

Question 8

Modern paper money is fiat money because it is backed only by the faith the holder has in the government that issued it.

Accepted Answer

A) True 
 B)False

Question 9

The banking system receives a new cash deposit of $250,000.Total deposits eventually rise by $1 million.The value of the reserve ratio is

Accepted Answer

A)   25.
B)   4.
C)   0.50.
D)   0.25.
E)   0.20.F) A) and E)
G) A) and B)

Question 10

Milly Miser removes $250,000 from her mattress and opens a checking account.This single transaction immediately increases the money supply by

Accepted Answer

A)   $250,000.
B)   $50,000.
C)   $0.
D)   -$250,000.E) A) and C)
F) B) and C)

Question 11

Systemic risks are most likely to exist with regard to

Accepted Answer

A)   small governments.
B)   large governments.
C)   small financial institutions.
D)   large financial institutions.E) All of the above
F) B) and D)

Question 12

The narrowest definition of the money supply, including cash and checking deposits, is known as

Accepted Answer

A)   M₀.
B)   M₁.
C)   M payments.
D)   currency.
E)   real-value money.F) D) and E)
G) All of the above

Question 13

A banker operating under a system of fractional reserves

Accepted Answer

A)   is exposed to potential bank runs.
B)   must keep a prudent level of reserves.
C)   must lend money carefully.
D)   All of the above are correct.E) None of the above
F) All of the above

Question 14

In comparison to commodity money, paper money

Accepted Answer

A)   is not portable.
B)   has no intrinsic value.
C)   is not divisible.
D)   cannot be stored.
E)   All of the above are correct.F) B) and E)
G) All of the above

Question 15

Fractional reserve banking has three crucial features: bank profitability, bank discretion over the money supply, and bank exposure to runs.

Accepted Answer

A) True 
 B)False

Question 16

In a market system, the most dangerous types of bankruptcies involve

Accepted Answer

A)   industrial monopolies.
B)   multinational firms.
C)   employment agencies.
D)   financial institutions.E) A) and C)
F) A) and B)

Question 17

An asset of a bank is

Accepted Answer

A)   the value of money that is on deposit.
B)   the amount a depositor may legally borrow.
C)   something of value that the bank owes to a depositor.
D)   something of value that a bank owns.E) B) and D)
F) None of the above

Question 18

Although a variety of commodities have been used as money, the most commonly used have been

Accepted Answer

A)   stones and cattle.
B)   shells and beads.
C)   gold and silver.
D)   cigarettes and candy bars.E) All of the above
F) A) and D)

Question 19

Which of the following are reasons that banks are so heavily regulated?

Accepted Answer

A)   Governments are concerned about the safety of deposits.
B)   The industry is a principal determinant of aggregate demand.
C)   Bank failures are contagious.
D)   All of the above are correct.E) A) and B)
F) C) and D)

Question 20

On which of the following assets are you most likely to earn interest income?

Accepted Answer

A)   cash and currency
B)   checkable deposits
C)   money market deposit accounts
D)   gold and other precious metals
E)   All of the above are correct.F) C) and E)
G) B) and C)

Exam 29: Money and the Banking System

Modern paper money is fiat money because it is backed only by the faith the holder has in the government that issued it.

Correct AnswerverifiedShow Answer

Which of the following are reasons that banks are so heavily regulated?

Correct AnswerverifiedShow Answer

In a market system, the most dangerous types of bankruptcies involve

Correct AnswerverifiedShow Answer

Inflation increases the use of money as a store of value.

Correct AnswerverifiedShow Answer

Why are the following included in the broader definition of supply known as M2? (a)money market deposit accounts (b)money market mutual funds (c)savings accounts

Correct Answerverified(a)Money market deposit accounts: They a...View AnswerShow Answer

If Ms.Anniston transfers $1,000 from her checking account to her money market account, then

Correct AnswerverifiedShow Answer

Bankers have a reputation for conservatism in politics, dress, and business affairs.Is there an economic rationale for this conservatism? Explain.

Correct AnswerverifiedThere is an economic rationale for this ...View AnswerShow Answer

In comparison to commodity money, paper money

Correct AnswerverifiedShow Answer

Systemic risks are most likely to exist with regard to

Correct AnswerverifiedShow Answer

The lion's share of purchases and transactions in the U.S.economy are made with coins and paper money.

Correct AnswerverifiedShow Answer

Fractional reserve banking has three crucial features: bank profitability, bank discretion over the money supply, and bank exposure to runs.

Correct AnswerverifiedShow Answer

Although a variety of commodities have been used as money, the most commonly used have been

Correct AnswerverifiedShow Answer

Many economists believe that the difference between savings accounts and checking accounts is disappearing.

Correct AnswerverifiedShow Answer

On which of the following assets are you most likely to earn interest income?

Correct AnswerverifiedShow Answer

The narrowest definition of the money supply, including cash and checking deposits, is known as

Correct AnswerverifiedShow Answer

Milly Miser removes $250,000 from her mattress and opens a checking account.This single transaction immediately increases the money supply by

Correct AnswerverifiedShow Answer

A banker operating under a system of fractional reserves

Correct AnswerverifiedShow Answer

The banking system receives a new cash deposit of $250,000.Total deposits eventually rise by $1 million.The value of the reserve ratio is

Correct AnswerverifiedShow Answer

One difference between the assets included in M₁ and those added to calculate M2 is that items in M₁ are

Correct AnswerverifiedShow Answer

An asset of a bank is

Correct AnswerverifiedShow Answer

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(a)Money market deposit accounts: They a...
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There is an economic rationale for this ...
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