Question 1

A unit of account 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) None of the above
G) C) and E)

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

The store of value function of money refers to the ability of money to

Accepted Answer

A)  facilitate the exchange of goods and services.
B)  maintain its value over time.
C)  express relative scarcity.
D)  earn interest over time.
E)  increase its value over time.F) C) and D)
G) A) and B)

Question 4

The first bankers were

Accepted Answer

A)  sheriffs.
B)  goldsmiths.
C)  clergy.
D)  innkeepers.
E)  economists.F) B) and D)
G) A) and E)

Question 5

Money is an invention of government.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements is false?

Accepted Answer

A)  Asymmetric information can exist both before and after a transaction.
B)  Moral hazard occurs when one party to a transaction changes his or her behavior in a way that is hidden from and costly to the other party.
C)  Adverse selection has the potential to eliminate some markets.
D)  none of the aboveE) B) and C)
F) A) and D)

Question 7

"Barter" implies that

Accepted Answer

A)  to get one good or service,an individual offers another.
B)  to get one good or service,an individual offers money.
C)  to get a check,an individual offers a good or service.
D)  different kinds of money are exchanged for each other.
E)  none of the aboveF) A) and C)
G) C) and D)

Question 8

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 C)
F) A) and B)

Question 9

Moral hazard occurs when the parties on once side of the market,who have information not known to others,self select in a way that adversely affects the parties on the other side of the market.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is not included in M1?

Accepted Answer

A)  retail money market mutual funds
B)  checkable deposits
C)  traveler's checks
D)  all of the aboveE) B) and C)
F) A) and D)

Question 11

In a barter economy,

Accepted Answer

A)  money is a medium of exchange.
B)  coins are used to facilitate trade.
C)  money is a store of value.
D)  goods and services are traded directly for each other.
E)  the money supply consists entirely of coins and currency.F) B) and E)
G) B) and D)

Question 12

If a bank's assets are $500 million and its liabilities are $380 million,then its net worth (bank capital) is ____________________.If the bank's assets then rise by 6 percent at the same time that its liabilities rise by 5 percent,the percentage change in the bank's net worth will be approximately _______________ percent.

Accepted Answer

A)  $440 million;10.2
B)  $120 million;1.2
C)  $100 million;11.2
D)  $120 million;9.2E) B) and D)
F) C) and D)

Question 13

Which of the following statements is false?

Accepted Answer

A)  Currency is money,but money is more than just currency.
B)  M1 is a component of M2.
C)  Retail money market mutual funds are part of M2,but institutional money market mutual funds are not.
D)  Credit cards are money since they are widely accepted for purposes of exchange.
E)  Money reduces the transaction costs of making exchanges.F) None of the above
G) A) and B)

Question 14

A moral hazard problem occurs before a loan is made,and the adverse selection problem occurs after a loan is made.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A)  $910,000.
B)  $90,000.
C)  $900,000.
D)  $1,000,000.
E)  There is not enough information provided to answer this question.F) None of the above
G) C) and D)

Question 16

Fractional reserve banking is a term used to describe a banking system whereby

Accepted Answer

A)  individual banks share a fraction of the total funds deposited in the whole banking system.
B)  banks are required to quote interest rates in fractions.
C)  banks hold reserves equal to only a fraction of their deposit liabilities.
D)  banks hold reserves equal to a multiple of their deposit liabilities;that is,fractional in this case really means multiple.
E)  banks are required to maintain a certain fraction of their deposits in the form of checkable deposits,a certain fraction of their deposits in the form of savings deposits,etc.F) C) and D)
G) B) and E)

Question 17

Bank A has checkable deposits of $900,000 and total reserves of $112,000.If the required reserve ratio is 8 percent,the bank has excess reserves of

Accepted Answer

A)  $40,000.
B)  $72,000.
C)  $13,440.
D)  $4,000.E) C) and D)
F) All of the above

Question 18

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) B) and D)
G) A) and D)

Question 19

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 D)

Question 20

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) A) and C)
F) C) and D)

Exam 12: Money,banking,and the Financial System

The store of value function of money refers to the ability of money to

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The amount of required reserves a bank holds depends on the

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Which of the following is not included in M1?

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

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The first bankers were

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Moral hazard occurs when the parties on once side of the market,who have information not known to others,self select in a way that adversely affects the parties on the other side of the market.

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A unit of account is

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Which of the following statements is false?

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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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Fractional reserve banking is a term used to describe a banking system whereby

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Which of the following statements is false?

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Money is an invention of government.

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A moral hazard problem occurs before a loan is made,and the adverse selection problem occurs after a loan is made.

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Bank A has checkable deposits of $900,000 and total reserves of $112,000.If the required reserve ratio is 8 percent,the bank has excess reserves of

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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

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In a barter economy,

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

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"Barter" implies that

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