question

The most important function of money is when money is used as a

answer

medium of exchange.

question

Which of the following statements about the FDIC is correct? I. The deposit insurance premiums charged by the FDIC to a member bank fully reflect the riskiness of that bank's assets II. The manner in which the FDIC is set up helps protect depository institutions from the rigors of true market competition

answer

II only

question

The FDIC was created because

answer

there were so many bank failures in the 1930s.

question

The two basic ways to define money are

answer

the transactions approach and the liquidity approach.

question

If the FDIC eliminated its insurance program for deposits, then

answer

individual depositors would have more incentive to ascertain the soundness and solvency of the bank.

question

The possibility that a borrower might engage in riskier behavior after a loan is made is called

answer

moral hazard.

question

When people decide to increase the amount of currency they are currently holding

answer

the actual money multiplier will decrease.

question

Suppose that the Fed purchases $1,000,000 worth of bonds and that the reserve ratio is 25 percent. Then, the maximum potential expansion of deposits is

answer

$4,000,000

question

The actual money multiplier multiplied by the change in total reserves is the

answer

actual change in the money supply.

question

When we examine the U.S. money supply, the smallest component of M1 is

answer

traveler's checks

question

The money supply in the United States is backed by

answer

faith.

question

When you set aside the money you have today in order to purchase goods and services later on, you are using money as a

answer

store of value

question

Which of the following is NOT a reason that people tend to deposit their funds with banks rather than lend their funds directly to other individuals?

answer

liquidity problems

question

The formula (1/required reserve ratio) is the

answer

potential money multiplier.

question

To be accepted as money, an item must perform all of the following functions EXCEPT

answer

be easily reproduced.

question

The designate M1 measure of money consists of

answer

the most liquid types of money in the U.S. system

question

A barter arrangement simply means

answer

a direct exchange of goods without the use of money.

question

For barter to occur there must be

answer

a double coincidence of wants for each good to be exchanged.

question

Which of the following institutions has responsibility for distributing currency and coins to the U.S. banking system?

answer

The Federal Reserve System

question

An increase in the reserve ratio

answer

has a contractionary effect on the money supply.

question

Which of the following represents a function of money?

answer

All of these

question

United States coins and currency are backed by

answer

confidence that they will retain their value.

question

The function of money as a store of value diminishes if

answer

prices of goods and services increase.

question

The potential money multiplier gives us

answer

the maximum potential change in the money supply due to a change in reserves.

question

The Federal Open Market Committee (FOMC)

answer

influences the future growth of the money supply

question

Which of the following is NOT part of M1?

answer

Credit cards

question

In economics, money is

answer

anything that people generally accept in exchange for goods and services.

question

The actual money multiplier multiplied by the change in total reserves is the

answer

actual change in the money supply.

question

A fiduciary monetary system is dependent on

answer

acceptability and predictability of value.

question

If proceeds from loans are NOT deposited back in the banking system, then

answer

the magnitude of the multiplier process is reduced.

question

Which one of the following statements is true?

answer

Not all forms of currency are accepted equally well by the public as a medium of exchange.

question

Which of the following is NOT one of the functions of money?

answer

Source of wealth

question

Which of the following is NOT a reason that people tend to deposit their funds with banks rather than lend their funds directly to other individuals?

answer

liquidity problems

question

Which of the following statements is NOT true about money?

answer

Money can only be coins and paper.

question

Bank runs are a possibility because

answer

banks do not keep enough reserves to cover all their depository liabilities.

question

When you make a purchase at a retail store by giving your bank an instruction to transfer funds directly from your bank account to the store's bank account, you have most likely made the purchase using

answer

a debit card.

question

The Federal Deposit Insurance Corporation insures

answer

the deposits held in member banks.

question

Which of the following represents a function of money?

answer

All of these

question

When you use a debit card to purchase a pair of jeans, you are

answer

giving your bank an instruction to transfer funds directly from your bank account to the store's bank account.

question

The two basic ways to define money are

answer

the transactions approach and the liquidity approach.

question

The value of the money multiplier depends on

answer

the reserve ratio.

question

Stock market price quotations are an example of money serving as a

answer

unit of accounting.

question

The function of money as a store of value diminishes if

answer

prices of goods and services increase.

question

Which of the following would be considered a transaction deposit?

answer

checking account

question

Adverse selection refers to the

answer

likelihood that a potential borrower may use the funds that he receives for unworthy, high risk projects.

question

The current chair of the Board of Governors of the Federal Reserve is

answer

Ben Bernanke.

question

As a result of money in an economy,

answer

real Gross Domestic Product (GDP) and economic growth are greater than they would be in a barter economy

question

United States coins and currency are backed by

answer

confidence that they will retain their value

question

The central bank for the United States is

answer

the Federal Reserve System.

question

When money is accepted as payment in a market transaction, it is functioning as a

answer

medium of exchange.

question

In economics, money is

answer

anything that people generally accept in exchange for goods and services.

question

The possibility that a borrower might engage in riskier behavior after a loan is made is called

answer

moral hazard.

question

When we examine the U.S. money supply, the smallest component of M1 is

answer

traveler's checks.

question

Stock market price quotations are an example of money serving as a

answer

unit of accounting.

question

The manner in which FDIC deposit insurance is set up in the United States encourages banks to

answer

make riskier loans than they otherwise would.

question

The transactions approach to measuring money stresses the role of money as a

answer

medium of exchange.

question

The Federal Open Market Committee (FOMC)

answer

influences the future growth of the money supply.

question

Suppose that the Fed purchases $1,000,000 worth of bonds and that the reserve ratio is 25 percent. Then, the maximum potential expansion of deposits is

answer

the magnitude of the multiplier process is reduced.

question

When you set aside the money you have today in order to purchase goods and services later on, you are using money as a

answer

store of value.

question

If the reserve ratio decreases from 20 percent to 10 percent, then the potential money multiplier

answer

increases from 5 to 10.

question

The use of money as a medium of exchange I.Lowers transaction costs II. Permits more specialization

answer

I & II

question

To the extent that the value of money is less predictable, it becomes

answer

less acceptable as a medium of exchange.

question

Which of the following would be considered a transaction deposit?

answer

checking account

question

Which of the following describes a moral hazard problem?

answer

a post-contractual problem that may result because participants to the exchange process have information that allows them to act in an opportunistic manner

question

When money provides a yardstick that allows individuals to compare the relative values of goods and services, it is functioning as a

answer

unit of accounting

question

The manner in which FDIC deposit insurance is set up in the United States encourages banks to

answer

make riskier loans than they otherwise would.

question

Which of the following represents a function of money

answer

All of these

question

The direct exchange of goods and services for other goods and services is known as

answer

barter.

question

The transactions approach to measuring money (M1) includes all of the following EXCEPT

answer

certificate of deposits

question

Without an accepted medium of exchange, people

answer

have to resort to barter in order to exchange goods and services.

question

When money serves as a standard for comparing values of different things, it is functioning as a

answer

unit of accounting.

question

When you make a purchase at a retail store by giving your bank an instruction to transfer funds directly from your bank account to the store's bank account, you have most likely made the purchase using

answer

a debit card

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