Question 1

What is included in M1?

Accepted Answer

M1 consists of money that can be directl...

Question 2

Recall Application 4, "Coping with the Financial Chaos Caused by the Mortgage Crisis," to answer the following questions:
-According to Application 4, the solution that the Fed came up with to prevent the collapse of Bear Stearns was to:

Accepted Answer

A)   buy an 80 percent stake in the company.
B)   sell Bear Sterns to JP Morgan Chase and Co.
C)   take over the company.
D)   buy commercial paper issued by Bear Sterns.E) B) and C)
F) A) and D)

Question 3

-Refer to Table 13.4. If the required reserve ratio is 5%, First Charter Bank:

Accepted Answer

A)   is meeting its required reserve ratio and has no excess reserves.
B)   has excess reserves of $100,000.
C)   has too few reserves on hand.
D)   has no excess reserves.E) C) and D)
F) A) and D)

Question 4

The governors of the Board of Governors of the Federal Reserve have terms of what length?

Accepted Answer

A)   14 years
B)   16 years
C)   4 years
D)   10 yearsE) B) and C)
F) A) and C)

Question 5

Saving account balances are included in:

Accepted Answer

A)   M2 only.
B)   M1 only.
C)   neither M1 nor M2.
D)   both M1 and M2.E) B) and C)
F) All of the above

Question 6

Recall Application 1, "City-Issued Money in the Great Depression," to answer the following questions:
-According to the application, which of the following entities issued their own scrip (money issued for emergency use)  during the Great Depression?

Accepted Answer

A)   school boards only
B)   cities only
C)   cities, school boards and corporations
D)   corporations onlyE) B) and D)
F) C) and D)

Question 7

Why is a savings account included in M2 only while a checking account is included in M1 and M2?

Accepted Answer

Savings accounts are investment type ass...

Question 8

If $10,000 of new reserves are deposited in the banking system, what is the maximum amount of money that can be generated by the banking system if the reserve ratio is: (a) 100%
(b) 50%
(c) 25%
(d) 20%
(e) 10%

Accepted Answer

(a) $10,000 (b) $20,...

Question 9

If the money multiplier is 4, the required reserve ratio is:

Accepted Answer

A)   25%.
B)   50%.
C)   20%.
D)   2%.E) B) and C)
F) None of the above

Question 10

If Bob withdraws $100 from his checking account and the reserve requirement is 10 percent, then:

Accepted Answer

A)   the money supply can decrease by as much as $1000, if banks hold some excess reserves.
B)   the money supply can increase by as much as $1000, if banks hold no excess reserves.
C)   the money supply can decrease by as much as $100, if banks hold some excess reserves.
D)   the money supply can decrease by as much as $1000, if banks hold no excess reserves.E) All of the above
F) B) and C)

Question 11

A bank has reserves of $40, loans of $110, deposits of $90, and owners' equity of $60. Which of the following represents the bank's total assets?

Accepted Answer

A)   $130
B)   $150
C)   $180
D)   $110E) A) and C)
F) None of the above

Question 12

Prior to the 1980s, which of the following assets did not pay interest?

Accepted Answer

A)   savings accounts
B)   time deposits
C)   checking accounts
D)   All of the above paid interest prior to the 1980s.E) All of the above
F) A) and B)

Question 13

Which of the following would not be counted as part of M1?

Accepted Answer

A)   demand deposits
B)   traveler's check
C)   currency
D)   money market accountsE) A) and D)
F) B) and C)

Question 14

As a lender of last resort, the Fed avoids most financial crisis by providing liquidity to the financial system.

Accepted Answer

A) True 
 B)False

Question 15

The two sides of a banks balance sheet are labeled:

Accepted Answer

A)   assets and liabilities.
B)   assets and net worth..
C)   deposits and loans.
D)   liabilities and net worth.E) A) and D)
F) A) and C)

Question 16

Suppose that Bob had $500 in travelers checks unused from his trip to Italy and he decides to deposit the checks to his checking account. This transaction will:

Accepted Answer

A)   increase M1 and M2.
B)   keep M1 unchanged and increase M2.
C)   keep M1 and M2 unchanged.
D)   decrease M1 and M2.E) All of the above
F) C) and D)

Question 17

Which of the following assets is the largest component of M2?

Accepted Answer

A)   small time deposits
B)   currency
C)   checking deposits
D)   savings depositsE) None of the above
F) B) and C)

Question 18

Recall Application 2, "The Growth in Excess Reserves" to answer the following questions:
-According to the application, what was the reason why banks started to hold more excess reserves after September 2008?

Accepted Answer

A)   The Fed allowed banks with little excess reserves to be taken over by banks with a large amount of excess reserves.
B)   The Fed lent lots of money to banks, which in turn did not lend any of it.
C)   The Fed started paying interest on bank reserves.
D)   The Fed required that banks hold excess reserves.E) All of the above
F) A) and D)

Question 19

Money is anything that is regularly used in exchange.

Accepted Answer

A) True 
 B)False

Question 20

Traveler's checks are:

Accepted Answer

A)   included only in M1.
B)   not included in M1.
C)   not included in M2.
D)   included in M2.E) A) and C)
F) A) and D)

Exam 13: Money and the Banking System

If Bob withdraws $100 from his checking account and the reserve requirement is 10 percent, then:

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Suppose that Bob had $500 in travelers checks unused from his trip to Italy and he decides to deposit the checks to his checking account. This transaction will:

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Saving account balances are included in:

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The two sides of a banks balance sheet are labeled:

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-Refer to Table 13.4. If the required reserve ratio is 5%, First Charter Bank:

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If the money multiplier is 4, the required reserve ratio is:

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Recall Application 2, "The Growth in Excess Reserves" to answer the following questions: -According to the application, what was the reason why banks started to hold more excess reserves after September 2008?

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What is included in M1?

Correct AnswerverifiedM1 consists of money that can be directl...View AnswerShow Answer

Money is anything that is regularly used in exchange.

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Recall Application 1, "City-Issued Money in the Great Depression," to answer the following questions: -According to the application, which of the following entities issued their own scrip (money issued for emergency use) during the Great Depression?

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The governors of the Board of Governors of the Federal Reserve have terms of what length?

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Why is a savings account included in M2 only while a checking account is included in M1 and M2?

Correct AnswerverifiedSavings accounts are investment type ass...View AnswerShow Answer

As a lender of last resort, the Fed avoids most financial crisis by providing liquidity to the financial system.

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Recall Application 4, "Coping with the Financial Chaos Caused by the Mortgage Crisis," to answer the following questions: -According to Application 4, the solution that the Fed came up with to prevent the collapse of Bear Stearns was to:

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If $10,000 of new reserves are deposited in the banking system, what is the maximum amount of money that can be generated by the banking system if the reserve ratio is: (a) 100% (b) 50% (c) 25% (d) 20% (e) 10%

Correct Answerverified(a) $10,000 (b) $20,...View AnswerShow Answer

Which of the following assets is the largest component of M2?

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Which of the following would not be counted as part of M1?

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A bank has reserves of $40, loans of $110, deposits of $90, and owners' equity of $60. Which of the following represents the bank's total assets?

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Traveler's checks are:

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Prior to the 1980s, which of the following assets did not pay interest?

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M1 consists of money that can be directl...
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Savings accounts are investment type ass...
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(a) $10,000 (b) $20,...
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