Ch 13 – Flashcards
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Which of the following is not true about barter?
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It allows people to obtain more goods than they would under a money payment system
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Which of the following is not a characteristic of money?
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Mechanism for barter
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Money is functioning as a standard of value when you
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Use it to compare two houses that are different prices
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When money serves as a mechanism for transforming current income into future purchases, it is functioning as a
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Store of value
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Money is functioning as a store of value when you
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Save your cash to pay for tuition next semester
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Money is used to acquire goods and services, it is functioning as a
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Medium of exchange
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Trusted money does all of the following except
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Reduce the efficiency with which market exchanges take place
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Which of the following gave the US federal government permanent authority to issue money?
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The national banking act of 1863
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Which of the following statements is not correct about the US monetary system?
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Credit cards are the most common form of money today
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Which of the following is not included in the narrowest definition of the money supply or M1
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Credit card balances
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Which of the following is not true about M1?
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Savings accounts makes up approximately one third of it
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Which of the following is true about the quantity of money in the US economy
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It is much greater than the amount of currency in circulation
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Which of the following is not correct about the money kept in transaction accounts
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It is backed by gold held by the government
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The different components of the money supply reflect
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Variations in liquidity and accessibility of assets
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Currency in circulation is included in
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Both M1 and M2 accounts
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Savings account are included in
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M2 only
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Which of the following appears in M2 but not in M1?
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Savings accounts
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Suppose Oscar withdraws $100 from his checking account and deposit it into his savings account. This transaction causes M1 to
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Decrease by $100 and M2 to remain the same
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Suppose Jarryd takes $200 from his savings account and holds it as cash. The immediate result of this transaction is that M2
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Remains the same and M1 increases by $200
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The various money supply measures (M1 and M2) are used to distinguish the
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Liquidity and accessibilty of assets
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When a bank makes a loan, it
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Creates a transactions account balance for the borrower
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One of the main functions of Banks is
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Creating money
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Banks make loans to which of the following?
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All choices are correct businesses for the new plants and equipment, consumers for new homes and cars, the government for its projects
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If bank customers decide as a group to pay off their loans and not take out any new loans, ceteris paribus
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The money supply will decrease
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One of the essential functions a bank performs is that of
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Transferring money from savers to borrowers
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When cash or coins are initially deposited into a bank
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The composition of the money supply changes but the size of the money supply does not change
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Which of the following reflects the concept of fractional reserves
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The money multiplier is greater than 1
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The banking system can lend the sum of its excess reserves because
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banks are required to keep only a fraction of deposits on reserve
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The ratio of a banks total reserves to its total transactions deposits is known as the
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Reserved ratio
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The minimum amount of reserves a bank is required to hold is known as
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Required reserves
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When the rerserve requirement changes, which of the following will change for an individual bank?
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Reserves, excess reserves, and lending capacity
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Suppose a bank has $500,000 in deposits and a required reserve ratio of 10%. Then required reserves are
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$50,000
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Banks are required to keep a minimum amount of funds in reserve because
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Depositors may decide to withdraw funds at any time
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A single bank with $10,000 of reserves and a reserve ratio of 25% could support total transactions account balances of at most
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$40,000
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Suppose university bank has zero excess reserves. If the require reserve Ratio decreases, the
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Bank will be able to make more loans
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Initially a bank has a required reserve ratio of 20% and no excess reserves. If $5000 is deposited into the bank, then initially, ceteris paribus
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This bank can increase its loans by $4000
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Which of the following explains why banks try to keep their holdings of excess reserves low
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To maximize profits
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Which of the following is a bank liability
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Transactions account balances
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Suppose a bank has $2 million in deposits, a required reserve ratio of 10%, and total reserves of $500,000. Then it has excess reserves of
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$300,000
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Suppose a bank has$200,000 in deposits, A required reserve ratio of 10%, and bank reserves of $45,000. Then this bank can make new loan in the amount of
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$25,000
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A bank may lend an amount equal to its
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Excess reserves
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Ceteris paribus, The money supply becomes smaller when
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A loan is repaid to the banking system by a bank customer
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The money supply will grow even larger through deposit creation when
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Consumers, businesses, and government increasing their borrowing
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Which of the following constraint on deposit creation
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The interest rate falls, making borrowing less costly for businesses and consumers
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Students bank and trust has zero excess reserves. Ceteris paribus, if the required reserve ratio decreases
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The bank will be able to make additional loans
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Which of the following could cause the money supply to decrease
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Banks become more conservative in making loans
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In the 2008 Credit crisis,
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Home prices fell and caused homeowners to default on loans
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Which of the following insures deposits at bank
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The FDIC
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The primary purpose of both the FDIC and the savings association insurance funf ,SAIF, is to
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Increase depositor confidence in the banking system
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In the 2008 credit crisis, The FDIC increase the limit on insured deposits from
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$100,000 to $250,000
