question

Smart cards sold by retailers, such as single-store gift cards and prepaid phone cards, are known as:

answer

stored-value cards

question

The M2 money supply is about ________ times larger than the M1 money supply.

answer

5

question

Which of the following is not part of the M2 money supply?

answer

Credit card balances

question

A $70 price tag on a sweater in a department store window is an example of money functioning as a:

answer

unit of account

question

Assuming no other changes, if checkable deposits increase by $40 billion and currency in circulation decreases by $40 billion, the:

answer

M1 money supply will not change

question

Stock market price quotations best exemplify money serving as a(n):

answer

unit of account

question

When economists say that money serves as a store of value, they mean that it is:

answer

a way to keep wealth in a readily spendable form for future use

question

Credit card balances are:

answer

not a component of M1 or M2.

question

If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as:

answer

a medium of exchange

question

A $20 bill is a:

answer

A federal reserve note

question

The purchasing power of money and the price level vary:

answer

inversely

question

If the price index rises from 200 to 250, the purchasing power value of the dollar:

answer

will fall by 20 percent

question

Stabilizing a nation's price level and the purchasing power of its money can be achieved:

answer

with both fiscal and monetary policy.

question

If P equals the price level expressed as an index number and $V equals the value of the dollar, then:

answer

$V = 1/P.

question

During periods of rapid inflation, money may cease to work as a medium of exchange:

answer

because people and businesses will not want to accept it in transactions.

question

To say that the Federal Reserve Banks are quasi-public banks means that:

answer

they are privately owned, but managed in the public interest.

question

The Federal Open Market Committee (FOMC) is made up of:

answer

the seven member of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Banks presidents on a rotating basis.

question

The seven members of the Board of Governors of the Federal Reserve System are:

answer

appointed by the President with the confirmation of the Senate.

question

Research involving industrially advanced countries suggests that:

answer

the less independent the central bank, the higher the average annual rate of inflation.

question

Research for industrially advanced countries indicates that:

answer

the more independent the central bank, the lower the average annual rate of inflation.

question

The Federal Reserve System:

answer

is basically an independent agency.

question

\"Subprime mortgage loans\" refer to:

answer

high-interest rate loans to home buyers with above average credit risk.

question

Collateralized default swaps:

answer

insured holders of loan-backed securities in case they underlying loans were not repaid.

question

Which of the following financial institutions was acquired by Bank of America as a result of the financial crisis of 2007 and 2008?

answer

Merrill Lynch

question

The various lender-of-last-resort programs implemented by the Fed in response to the financial crisis of 2007 and 2008:

answer

increased by moral hazard problem by limiting losses from bad financial decisions.

question

TARP, created in 2008, stands for:

answer

Troubled Asset Relief Program

question

Which of the following programs involves the Federal Reserve directly purchases short-term lending instruments from corporations?

answer

Commercial Paper Funding Facility

question

In 2009, approximately how much of the money on deposit was held by the three largest U.S. banks?

answer

30 percent.

question

Charter One, Pentagon Federal Credit Union, and Boeing Employees Credit Union, are all primarily:

answer

thrifts

question

A bank that has liabilities of $150 billion and a net worth of $20 billion must have:

answer

assets of $170 billion.

question

Bank panics:

answer

are a risk of fractional reserve banking, but are unlikely when banks are highly regulated and lend prudently.

question

A reserve requirement of 20 percent means a bank must have $1,000 of reserves if its checkable deposits are:

answer

$5,000.

question

Suppose the ABC bank has excess reserves of $4,000 and outstanding checkable deposits of $80,000. If the reserve requirement is 25 percent, what is the size of the bank's actual reserves?

answer

$24,000

question

Suppose a commercial bank has checkable deposits of $100,000 and the legal reserve ratio is 10 percent. If the bank's required and excess reserves are equal, then its actual reserves:

answer

are $20,000

question

When a commercial bank has excess reserves:

answer

it is in a position to make additional loans

question

Assume the Standard Internet Company negotiates a loan for $5,000 from the Metro National Bank and receives a checkable deposit for that amount in exchange for its promissory note (IOU). As a result of this transaction:

answer

the supply of money is increased by $5,000.

question

Banks create money when they:

answer

buy government bonds from households.

question

Assume Company X deposits $100,000 in cash in commercial Bank A. If no excess reserves exist at the time this deposit is made and the reserve ratio is 20 percent, Bank A can increase the money supply by a maximum of:

answer

$80,000.

question

Answer the question on the basis of the following information about a banking system: new currency deposited in the system = $40 billion; legal reserve ratio = 0.20; excess reserves prior to the currency deposit = $0. (1) 45. Refer to the above information. With the $40 billion deposit, the banking system will be able to expand the money supply through loans by:

answer

$160 Billion

question

If m equals the maximum number of new dollars that can be created for a single dollar of excess reserves and R equals the required reserve ratio, then for the banking system:

answer

m = 1/R.

question

Suppose a commercial banking system has $100,000 of outstanding checkable deposits and actual reserves of $35,000. If the reserve ratio is 20 percent, the banking system can expand the supply of money by the maximum amount of:

answer

$75,000

question

When a bank loan is repaid the supply of money:

answer

is decreased

question

Commercial banks create money when they:

answer

create checkable deposits in exchange for IOUs

question

Which of the following is correct?

answer

Granting a bank loan creates money; repaying a bank loan destroys money.

question

Refer to the above information and assume that Moolah bank is \"loaned up.\" If it receives a $100 deposit of currency, it could safely expand its loans by:

answer

$90

question

The market for immediately available reserve balances at the Federal Reserve is known as the:

answer

Federal funds market

question

Given a 25 percent reserve ratio, assume the commercial banking system is loaned up. Now assume the reserve ratio is reduced to 20 percent. As a result of this reduction:

answer

each dollar of bank reserves will now support a maximum of $5 of checkable deposits

question

The amount of reserves that a commercial bank is required to hold is equal to:

answer

its checkable deposits multiplied by the reserve requirement.

question

Assume that a bank initially has no excess reserves. If it receives $5,000 in cash from a depositor and the bank finds that it can safely lend out $4,500, the reserve requirement must be:

answer

10 percent.

question

Suppose a credit union has checkable deposits of $500,000 and the legal reserve ratio is 10 percent. If the institution has excess reserves of $4,000, then its actual reserves are:

answer

$54,000

question

If the reserve requirement is 10 percent, what amount of excess reserves does a bank acquire when a business deposits a $500 check drawn on another bank?

answer

$450

question

Firms whose central business is providing individual account shares of collections of stocks, bonds, or both are known as:

answer

mutual fund companies

question

Which of the following programs provides loans of U.S. securities to primary dealers for one-month terms, in an effort to enhance liquidity in U.S. securities markets?

answer

Term Securities Lending Facility

question

What is the primary function of the Term Asset-Backed Securities Loan Facility?

answer

Provide funding support for collateralized securities such as student, auto, and credit card loans.

question

What are \"mortgage-backed securities?\"

answer

Bonds backed by mortgage payments.

question

In the U.S. economy the money supply is controlled by the:

answer

Federal Reserve System.

question

An important routine function of the Federal Reserve Bank is to:

answer

provide facilities by which commercial banks and thrift institutions may collect checks.

question

The largest component of the money supply (M1) is:

answer

currency in circulation.

question

In January 2010, the supply of money (M1) in the United States was about:

answer

$1,676 billion.

question

Coins in people's pockets and purses are:

answer

included in both M1 and in M2.

question

Checkable deposits are classified as money because:

answer

they can be readily used in purchasing goods and paying debts.

question

The difference between M1 and M2 is that:

answer

the latter includes small-denominated time deposits, non-checkable savings accounts, money market deposit accounts, and money market mutual fund balances.

question

To say money is socially defined means that:

answer

whatever performs the functions of money extremely well is considered to be money.

question

Currency held within banks is part of:

answer

none of these definitions of the money supply.

question

Time deposits of $100,000 or more are:

answer

not a component of M1 or M2.

question

The value of money varies:

answer

inversely with the price level.

question

The purchasing power of the dollar:

answer

is the reciprocal of the price level.

question

If the price index rises from 100 to 120, the purchasing power value of the dollar:

answer

will fall by one-sixth.

question

The members of the Federal Reserve Board:

answer

are appointed for 14-year terms.

question

The group that sets the Federal Reserve Systems policy on buying and selling government securities (bills, notes, and bonds) is the:

answer

Federal Open Market Committee (FOMC).

question

The \"shadow banking system\" refers to:

answer

the process by which securities exchanges provide credit for personal and business needs apart from traditional bank lending.

question

When banks bundled mortgage loans and sold the resulting mortgage-backed securities:

answer

they reduced their direct exposure to mortgage default risk, but were still exposed through loans to investors in mortgage-backed securities.

question

Banks lost money during the mortgage default crisis because:

answer

all of these reasons.

question

Which of the following programs provides loans of U.S. securities to primary dealers for one-month terms, in an effort to enhance liquidity in U.S. securities markets?

answer

Term Securities Lending Facility

question

Which role of the Federal Reserve was expanded directly as a result of the PDCF and TSLF?

answer

Lender of last resort

question

The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 in:

answer

commercial banks and thrifts.

question

Which of the following would reduce the money supply?

answer

Commercial banks sell government bonds to the public.

question

Commercial banks monetize claims when they:

answer

make loans to the public.

question

A bank temporarily short of required reserves may be able to remedy this situation by:

answer

borrowing funds in the Federal funds market.

question

Other things equal, if the required reserve ratio was lowered:

answer

the size of the monetary multiplier would increase.

question

Money market deposit accounts are included in:

answer

M2 only

question

Plastic cards that contain computer chips that store account balances are known as:

answer

smart cards

question

The M2 money supply includes:

answer

individual shares in money market mutual funds.

question

The M1 definition of money comprises

answer

Currency (coins and paper money) in circulation, & Checkable deposits

question

If you place a part of your summer earnings in a savings account, you are using money primarily as a:

answer

store of value.

question

Electronic money is:

answer

closely associated with smart cards.

question

Other things equal, an excessive increase in the money supply will:

answer

decrease the purchasing power of each dollar.

question

Commercial banks and thrift institutions:

answer

have become increasingly similar in recent years.

question

Approximately how many commercial banks are now operating in the United States?

answer

6,800

question

Which of the following financial institutions declared bankruptcy as a result of the financial crisis of 2007 and 2008?

answer

Lehman Brothers

question

In the financial industry, \"securitization\" refers to:

answer

bundling groups of loans, bonds, mortgages, and other financial debts into new securities.

question

When commercial banks use excess reserves to buy government securities from the public:

answer

new money is created.

question

Some economists are concerned that the financial rescue provided by the TARP will encourage financial investors and firms to take on greater risks in the future. This is an example of:

answer

moral hazard

question

New York Life, Prudential, and Hartford, are all primarily:

answer

insurance companies.

question

A commercial bank can expand its excess reserves by:

answer

demanding and receiving payment on an overdue loan.

question

If D equals the maximum amount of new demand-deposit money that can be created by the banking system on the basis of any given amount of excess reserves; E equals the amount of excess reserves; and m is the monetary multiplier, then:

answer

D = E ×m.

question

To say that coins are \"token money\" means that:

answer

their face value is greater than their intrinsic value.

question

Currency held in the vault of First National Bank is:

answer

not counted as part of the money supply.

question

The money supply is backed:

answer

by the government's ability to control the supply of money and therefore to keep its value relatively stable.

question

Smith Barney, Charles Schwab, and Merrill Lynch, are all primarily:

answer

securities firms.

question

If you deposit a $50 bill in a commercial bank that has a 10 percent legal reserve requirement the bank will:

answer

have $45 of additional excess reserves.

question

Assume that Smith deposits $600 in currency into her checking account in the XYZ Bank. Later that same day Jones negotiates a loan for $1,200 at the same bank. In what direction and by what amount has the supply of money changed?

answer

increased by $1,200

question

The primary purpose of the legal reserve requirement is to:

answer

provide a means by which the monetary authorities can influence the lending ability of commercial banks.

question

In prosperous times commercial banks are likely to hold very small amounts of excess reserves because:

answer

the Federal Reserve Banks pay lower rates of interest on bank reserves than could be earned by the commercial banks loaning out the reserves.

question

Refer to the above table. When the legal reserve ratio is 30 percent, the monetary multiplier is:

answer

3.33

question

The multiple by which the commercial banking system can increase the supply of money on the basis of each dollar of excess reserves is equal to:

answer

the reciprocal of the required reserve ratio.

question

The amount of money reported as M2:

answer

is larger than the amount reported as M1.

question

If you are estimating your total expenses for school next semester, you are using money primarily as:

answer

a unit of account

question

Small-denominated time deposits, by definition:

answer

are less than $100,000

question

TIAA-CREF, Teamsters' Union, and CalPERS, are all primarily:

answer

pension funds

question

Refer to the above data. This bank can safely expand its loans by a maximum of:

answer

$5,000.

question

When economists say that money serves as a medium of exchange, they mean that it is:

answer

a means of payment.

question

Currency (paper money plus coins) constitutes about

answer

51 percent of the U.S. M1 money supply.

question

Which of the following does not explain what backs the money supply in the United States?

answer

It is back by gold.

question

How much did the U.S. Congress allocate to the Troubled Asset Relief Program in 2008?

answer

$700 billion

question

The multiple by which the commercial banking system can expand the supply of money on the basis of excess reserves:

answer

is larger the smaller the required reserve ratio.

Econ chapter 31 & 32 Review

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