Question 1

The purpose of deregulating banks during the 1980s was to:

Accepted Answer

A)   eliminate the risk that banks incurred.
B)   allow banks to compete with other financial institutions.
C)   allow U.S. banks to compete with foreign banks.
D)   help consumers earn more interest.
E)   decrease the cost of banking regulation.F) A) and B)
G) C) and D)

Question 2

The first step in the evolution of money involved the use of _____.

Accepted Answer

A)   physical commodities
B)   barter
C)   pieces of paper representing claims on physical commodities
D)   pieces of paper with no intrinsic value
E)   electronic entries representing claims on pieces of paper with no intrinsic valueF) D) and E)
G) A) and E)

Question 3

The greater the degree of specialization in the economy, the:

Accepted Answer

A)   easier it is to discover a double coincidence of wants.
B)   more feasible is a barter system.
C)   less likely it is that monetary exchange will develop.
D)   harder it is to negotiate an exchange rate between all pairs of goods.
E)   more likely it is that individual consumers are self-sufficient.F) B) and C)
G) None of the above

Question 4

The reserve requirement refers to:

Accepted Answer

A)   the fraction of deposits that banks are required by the Fed to hold as reserves.
B)   the amount of gold required to back up all Federal Reserve notes.
C)   the requirement that banks reserve part of their lending capacity for small businesses.
D)   the requirement that Reserve bank presidents be part of the FOMC.
E)   the Treasury deposits held by the Fed.F) A) and E)
G) A) and C)

Question 5

One problem with fiat money, as compared to commodity money, is that:

Accepted Answer

A)   more resources are used to create fiat money.
B)   there is frequently too little fiat money available.
C)   there is a greater potential for inflation with fiat money.
D)   fiat money must be turned in to the government to receive the commodity on which it is based.
E)   fiat money is less divisible than commodity money.F) C) and D)
G) A) and D)

Question 6

In order for something to be used as money, it must be _____.

Accepted Answer

A)   issued by the government
B)   issued by banks
C)   declared to be money
D)   generally acceptable
E)   made of something valuableF) A) and D)
G) None of the above

Question 7

What activity does the Fed undertake when it carries out open-market operations?

Accepted Answer

A)   It buys and sells the bonds, but not the notes, of leading U.S. corporations.
B)   It changes the legal reserve requirements for member banks.
C)   It changes the discount rate, which generally increases the amount of available credit.
D)   It provides funds so that healthy depository institutions can purchase weaker ones on the open market.
E)   It deals in the purchase and sale of U.S. government securities.F) B) and C)
G) B) and D)

Question 8

One advantage of a money market mutual fund account is that:

Accepted Answer

A)   it is guaranteed for a larger amount than are FDIC-insured deposits.
B)   it is a riskless asset.
C)   its holders typically earn more interest than they can with a regular bank account.
D)   it earns high interest and is liquid.
E)   it is completely liquid and riskless.F) A) and C)
G) A) and B)

Question 9

T he tendency of bankers to take unwarranted risks in making loans because deposits were insured is an example of  _____.

Accepted Answer

A)   anchoring bias
B)   self-serving bias
C)   moral hazard
D)   hazard pay
E)   banker's lobbyingF) A) and B)
G) B) and D)

Question 10

Which of the following is true of depository institutions?

Accepted Answer

A)   Depository institutions seek to maximize profits.
B)   Depository institutions do not seek to maximize profits.
C)   Depository institutions do not make loans.
D)   Depository institutions make loans.
E)   Depository institutions receive funds primarily through customer depositsF) B) and D)
G) A) and E)

Question 11

Under a fractional reserve banking system, banks have reserves of only a fraction of their total deposits.

Accepted Answer

A) True 
 B)False

Question 12

Specialization of labor means that:

Accepted Answer

A)   production requires a special kind of labor.
B)   the overall skill level of labor is increasing.
C)   individuals produce goods other than those they want to consume.
D)   individuals achieve self-sufficiency in production.
E)   exchange within an economy consists of trading in services.F) A) and B)
G) A) and C)

Question 13

Only Federal Reserve banks can issue paper currency in the United States, and their power to do so is virtually unlimited.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following statements is correct regarding the Fed?

Accepted Answer

A)   Under the Federal Reserve System, there is one Federal Reserve Bank, located in Washington D.C.
B)   Under the Federal Reserve System, there is one Federal Reserve Bank whose location changes every 14 years.
C)   Under the Federal Reserve System, there is a Federal Reserve Bank in each Congressional district.
D)   Under the Federal Reserve System, there is a Federal Reserve Bank in each state.
E)   Under the Federal Reserve System, there are 12 Federal Reserve banks, one in each of the 12 Federal Reserve districts.F) C) and D)
G) A) and D)

Question 15

Money market mutual funds:

Accepted Answer

A)   offer higher rates of interest than bank checking accounts, but lack check-writing privileges.
B)   offer higher rates of interest than bank checking accounts and also offer limited check-writing privileges.
C)   usually pay lower rates of interest than bank checking accounts.
D)   were originally developed and offered by banks to their customers.
E)   usually do not offer any check-writing privileges.F) B) and C)
G) C) and D)

Question 16

Money does not solve the double coincidence of wants problem unless it is generally acceptable.

Accepted Answer

A) True 
 B)False

Question 17

The value of fiat money is fundamentally determined by the:

Accepted Answer

A)   reputation of the bank that holds it.
B)   reputation of the person who holds it.
C)   value of the gold or silver for which it can be redeemed.
D)   value of the commodities for which it can be traded.
E)   value of comparable stocks and bonds.F) B) and D)
G) A) and E)

Question 18

During the Great Depression, the Federal Reserve Board:

Accepted Answer

A)   prevented many bank failures.
B)   failed to act as a lender of last resort.
C)   failed to clear checks adequately.
D)   began operating as the government's bank.
E)   issued too many bank notes.F) A) and B)
G) A) and C)

Question 19

Which of the following best illustrates the double coincidence of wants?

Accepted Answer

A)   Both Tom and Jerry would like to purchase the same good.
B)   Tom has something he's willing to trade with Jerry; Jerry has something he's not willing to trade with Tom.
C)   Tom and Jerry have very similar tastes; hence, Tom's wants coincide with Jerry's.
D)   Tom has something he's willing to trade with Jerry, who wants it; Jerry has something he's willing to trade with Tom, who wants it.
E)   Tom has something Jerry wants; Jerry has nothing Tom wants.F) A) and E)
G) C) and D)

Question 20

Commodity money is something:

Accepted Answer

A)   that has no intrinsic value.
B)   that has an intrinsic value.
C)   that is based on a valuable metal.
D)   whose value never changes.
E)   whose value cannot be determined.F) B) and E)
G) All of the above

Exam 13: Money and the Financial System

Only Federal Reserve banks can issue paper currency in the United States, and their power to do so is virtually unlimited.

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The first step in the evolution of money involved the use of _____.

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In order for something to be used as money, it must be _____.

Correct AnswerverifiedShow Answer

T he tendency of bankers to take unwarranted risks in making loans because deposits were insured is an example of _____.

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One problem with fiat money, as compared to commodity money, is that:

Correct AnswerverifiedShow Answer

The greater the degree of specialization in the economy, the:

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During the Great Depression, the Federal Reserve Board:

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Money does not solve the double coincidence of wants problem unless it is generally acceptable.

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Money market mutual funds:

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The purpose of deregulating banks during the 1980s was to:

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The value of fiat money is fundamentally determined by the:

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One advantage of a money market mutual fund account is that:

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Which of the following best illustrates the double coincidence of wants?

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The reserve requirement refers to:

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Which of the following statements is correct regarding the Fed?

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Which of the following is true of depository institutions?

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Under a fractional reserve banking system, banks have reserves of only a fraction of their total deposits.

Correct AnswerverifiedShow Answer

Specialization of labor means that:

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What activity does the Fed undertake when it carries out open-market operations?

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Commodity money is something:

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