True / False
1. Most observers nowadays see monetary policy as much less important than fiscal policy.
a.
True
b.
False
False
Easy
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
ISSUE: Why Are Banks So Heavily Regulated?
2. In September 2007 the British bank Northern Rock which specialized in home mortgages experienced a noteworthy
bank run.
a.
True
b.
False
True
Easy
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
ISSUE: Why Are Banks So Heavily Regulated?
3. A bank run involves a large inflow of money into commercial banks.
a.
True
b.
False
False
Moderate
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
ISSUE: Why Are Banks So Heavily Regulated?
4. Barter transactions involve a double coincidence of wants.
a.
True
b.
False
True
Easy
DISC: The role of money
5. Barter transactions typically take place between two individuals with the same goods to supply.
a.
True
b.
False
False
Moderate
6. When people trade goods for money, money is being used as a medium of exchange.
a.
True
b.
False
True
Easy
7. When prices for goods and services are quoted in money terms, this is an example of money being used as a store of
value.
a.
True
b.
False
False
Moderate
8. Inflation increases the use of money as a store of value.
a.
True
b.
False
False
Moderate
9. Gold and silver have historically been the most common form of commodity money.
a.
True
b.
False
True
Easy
10. The only major disadvantage of paper money is that it is hard to divide into smaller denominations.
a.
True
b.
False
False
Moderate
11. The new $20 bills were designed with features to make counterfeiting more difficult.
a.
True
b.
False
True
Easy
12. Money that is backed solely by a government decree is referred to as fiat money.
a.
True
b.
False
True
Easy
13. Modern paper money is fiat money because it is backed only by the faith the holder has in the government that issued
it.
a.
True
b.
False
True
Moderate
14. The U.S. government will probably return soon to a system of paper money backed by gold.
a.
True
b.
False
False
Moderate
15. On the Micronesian island of Yap, it is easier to make purchases with stone wheel currency than it is to make
purchases with paper currency including the U.S. dollar.
a.
True
b.
False
True
Difficult
16. The lion’s share of purchases and transactions in the U.S. economy are made with coins and paper money.
a.
True
b.
False
False
Easy
17. When you pay for some purchase with a check, cash must be transferred to another account to pay for the check.
a.
True
b.
False
False
Moderate
18. The amount of money held in checking accounts is significantly greater than money in the form of currency.
a.
True
b.
False
True
Moderate
19. The composition of M2 as of December 2010 includes saving deposits at savings banks and credit unions.
a.
True
b.
False
True
Easy
20. The main advantage of money market deposit accounts over traditional checking accounts is the ease of check writing.
a.
True
b.
False
False
Moderate
21. Many economists believe that the difference between savings accounts and checking accounts is disappearing.
a.
True
b.
False
True
Moderate
22. Liquidity refers to the ability of an asset to hold its value in periods of inflation.
a.
True
b.
False
False
Moderate
23. E-cash cards are considered a major portion of the modern money supply.
a.
True
b.
False
False
Moderate
24. Fractional reserve banking began as a result of the search for additional profits.
a.
True
b.
False
True
Moderate
25. Fractional reserve banking has three crucial features: bank profitability, bank discretion over the money supply, and
bank exposure to runs.
a.
True
b.
False
True
Easy
26. Bank runs are “contagious” in that they often spread to other banks.
a.
True
b.
False
True
Easy
27. A banker motivated by profit maximization may make decisions that destabilize the banking system.
a.
True
b.
False
True
Moderate
28. Most banks in the United States are owned by the government and operate as nonprofit institutions.
a.
True
b.
False
False
Easy
29. Due to the private nature of bank ownership, there is often a difference between bankers’ goals and macroeconomic
objectives.
a.
True
b.
False
True
Moderate
30. Most bank deposits in the United States are insured by the Federal Deposit Insurance Corporation (FDIC).
a.
True
b.
False
True
Easy
31. Unlike recent events in England, the United States has no recent history of bank failures.
a.
True
b.
False
False
Easy
32. Banks in the United States may create new money equal to their amount of required reserves.
a.
True
b.
False
False
Easy
33. To a bank, an asset is an obligation that it owes to someone else.
a.
True
b.
False
False
Easy
34. If you have a checking account at Citibank, the account is a liability of the bank.
a.
True
b.
False
True
Easy
35. Net worth increases in the same proportion as liabilities increase.
a.
True
b.
False
False
Moderate
36. Banks try to keep their excess reserves at a maximum in order to maximize profits.
a.
True
b.
False
False
Moderate
37. The money multiplier process is based on the principle of fractional reserve banking.
a.
True
b.
False
True
Moderate
38. The value of the deposit multiplier is 1 divided by the required reserve ratio.
a.
True
b.
False
True
Easy
39. The value of the deposit multiplier is increased if individuals hold all their money in cash.
a.
True
b.
False
False
Moderate
40. Systemic risks would be most prevalent at larger banks like Bank of America and Citibank.
a.
True
b.
False
True
Moderate
41. During the 2007-2009 financial crisis, the U.S. government decided that Lehman Brothers was not too big to fail and
that AIG was too big to fail.
a.
True
b.
False
True
Moderate
42. A contraction of the money supply would have no effect on a recession.
a.
True
b.
False
False
Moderate
DISC: Monetary and fiscal policy
United States – BPROG: Reflective Thinking – BPROG: Analysis
Monetary and fiscal policy
The Need for Monetary Policy
43. Absent regulation of the money supply, the money supply would likely reflect the business cycle.
a.
True
b.
False
True
Difficult
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Need for Monetary Policy
44. An IOU held by a bank, and signed by a customer is a liability.
a.
True
b.
False
False
Moderaste
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Origins of the Money Supply
Multiple Choice
45. In addition to fiscal policy, the other main tool used to affect aggregate demand is
a.
trade policy.
b.
industrial policy.
c.
planning policy.
d.
monetary policy.
Easy
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
ISSUE: Why Are Banks So Heavily Regulated?
46. Nowadays, most observers believe that monetary policy
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.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
ISSUE: Why Are Banks So Heavily Regulated?
47. Which of the following was a result of the Dodd-Frank Act?
a.
restricted bank activities
b.
established a new consumer protection agency
c.
tougher regulations for banks
d.
All of the above
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
ISSUE: Why Are Banks So Heavily Regulated?
48. In a market system, the most dangerous types of bankruptcies involve
a.
industrial monopolies.
b.
multinational firms.
c.
employment agencies.
d.
financial institutions.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
ISSUE: Why Are Banks So Heavily Regulated?
49. Which of the following are reasons that banks are so heavily regulated?
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.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
ISSUE: Why Are Banks So Heavily Regulated?
50. If depositors become worried about the safety of their deposit accounts, they may trigger a
a.
deposit surplus.
b.
bank run.
c.
fiscal policy crisis.
d.
required reserve increase.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
ISSUE: Why Are Banks So Heavily Regulated?
51. The banking industry is heavily regulated because
a.
banking is a monopoly industry.
b.
most banks are owned by government agencies.
c.
bankers do what is best for their stockholders, not necessarily what is best for the economy.
d.
All of the above are correct.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
ISSUE: Why Are Banks So Heavily Regulated?
52. Bankers’ business decisions effect the money supply because bankers
a.
are respected men and women.
b.
have the ability to create money.
c.
use a special accounting system developed by the Federal Reserve Board.
d.
All of the above are correct.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
ISSUE: Why Are Banks So Heavily Regulated?
53. Bank failures in the U.S.
a.
occurred frequently through the 1960s and declined since then.
b.
occurred infrequently through the 1960s and have become more common since then.
c.
occurred frequently through the 1930s, declined after that time, and became more common in 2008.
d.
occurred infrequently through the 1930s, increased after that time, and became less common in 2008.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
ISSUE: Why Are Banks So Heavily Regulated?
54. A bank run involves a large flow of money
a.
into bank depositors’ accounts.
b.
into checking and savings accounts.
c.
out of depositors’ accounts.
d.
out of individuals’ cash reserves into money market funds.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
ISSUE: Why Are Banks So Heavily Regulated?
55. Barter is a system of
a.
trade without the use of money.
b.
trading one good for another.
c.
the double coincidence of wants.
d.
All of the above are correct.
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
56. One advantage of a money system compared to a barter system is that
a.
barter never works.
b.
money creates the need for banks.
c.
money is more efficient.
d.
everyone has money.
c
Easy
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
57. The most common form of trading goods for goods is
a.
bilateral trade.
b.
government commodity distribution.
c.
status-based trades.
d.
barter.
e.
payments in kind.
Easy
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
58. In order for barter trades to occur, there must be a
a.
singularity of interests.
b.
bargaining intermediary.
c.
double coincidence of wants.
d.
sufficient supply of cash.
c
Moderate
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
59. Agraria sends wheat to Cyberia in exchange for computers and technology goods. This is an example of
a.
unidirectional trade.
b.
joint venture.
c.
barter.
d.
monetary exchange.
c
Easy
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
60. The “efficiency of the payments mechanism” refers to
a.
the ease and speed of exchanging money for goods and services.
b.
how fast member banks replenish required reserves.
c.
how fast banks pay interest on deposit accounts.
d.
how fast countries pay off foreign debts.
a
Moderate
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
61. The primary benefit of a monetary system of exchange compared to a barter system is the increased
a.
ability to record transactions.
b.
time necessary to find trading partners.
c.
time devoted to shopping.
d.
efficiency in arranging transactions.
Moderate
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
62. Money’s principal function is to serve as a
a.
standard for making loans.
b.
standard for credit reporting.
c.
medium of exchange.
d.
method for storing wealth.
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
63. Which of the following is an example of money serving as a medium of exchange?
a.
Richard puts money into a piggy bank.
b.
Ellen deposits cash into a money market account.
c.
Sean puts a new $20 bill into his currency collection.
d.
Marian buys a carbo-loaded drink before a marathon.
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
64. Money is an imperfect store of value when
a.
the rate of inflation is high.
b.
the unemployment rate is high.
c.
gold prices are falling.
d.
businesses are failing due to bankruptcy.
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
65. Money is almost always used to quote prices. This illustrates the function of money as a
a.
medium of exchange.
b.
store of value.
c.
unit of account.
d.
commodity value.
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
66. Agraria uses bushels of wheat to quote prices. In this case, bushels of wheat act as a
a.
medium of exchange.
b.
store of value.
c.
commodity value.
d.
unit of account.
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
67. Liquidity refers to the
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 the above are correct.
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
68. Fiat money is
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.
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
69. Which of the following assets is most liquid?
a.
short-term government bonds
b.
savings accounts
c.
checking accounts
d.
currency and coins
Easy
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
70. In a monetary system, people will exchange a good for
a.
another good.
b.
a service.
c.
money.
d.
gold or other precious metals.
c
Easy
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
71. The primary feature of money is that it serves as
a.
barter value.
b.
a medium of exchange.
c.
intrinsic value.
d.
commodity value.
Moderate
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
72. The concept of money as a “unit of account” involves the use of money to
a.
speed transactions.