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Chapter 15 Answers

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The most important function of money is when money is used as a
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medium of exchange.
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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
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II only
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The FDIC was created because
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there were so many bank failures in the 1930s.
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The two basic ways to define money are
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the transactions approach and the liquidity approach.
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If the FDIC eliminated its insurance program for deposits, then
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individual depositors would have more incentive to ascertain the soundness and solvency of the bank.
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The possibility that a borrower might engage in riskier behavior after a loan is made is called
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moral hazard.
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When people decide to increase the amount of currency they are currently holding
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the actual money multiplier will decrease.
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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
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$4,000,000
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The actual money multiplier multiplied by the change in total reserves is the
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actual change in the money supply.
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When we examine the U.S. money supply, the smallest component of M1 is
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traveler’s checks
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The money supply in the United States is backed by
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faith.
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When you set aside the money you have today in order to purchase goods and services later on, you are using money as a
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store of value
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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?
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liquidity problems
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The formula (1/required reserve ratio) is the
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potential money multiplier.
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To be accepted as money, an item must perform all of the following functions EXCEPT
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be easily reproduced.
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The designate M1 measure of money consists of
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the most liquid types of money in the U.S. system
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A barter arrangement simply means
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a direct exchange of goods without the use of money.
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For barter to occur there must be
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a double coincidence of wants for each good to be exchanged.
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Which of the following institutions has responsibility for distributing currency and coins to the U.S. banking system?
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The Federal Reserve System
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An increase in the reserve ratio
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has a contractionary effect on the money supply.
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Which of the following represents a function of money?
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All of these
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United States coins and currency are backed by
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confidence that they will retain their value.
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The function of money as a store of value diminishes if
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prices of goods and services increase.
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The potential money multiplier gives us
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the maximum potential change in the money supply due to a change in reserves.
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The Federal Open Market Committee (FOMC)
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influences the future growth of the money supply
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Which of the following is NOT part of M1?
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Credit cards
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In economics, money is
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anything that people generally accept in exchange for goods and services.
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The actual money multiplier multiplied by the change in total reserves is the
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actual change in the money supply.
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A fiduciary monetary system is dependent on
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acceptability and predictability of value.
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If proceeds from loans are NOT deposited back in the banking system, then
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the magnitude of the multiplier process is reduced.
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Which one of the following statements is true?
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Not all forms of currency are accepted equally well by the public as a medium of exchange.
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Which of the following is NOT one of the functions of money?
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Source of wealth
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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?
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liquidity problems
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Which of the following statements is NOT true about money?
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Money can only be coins and paper.
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Bank runs are a possibility because
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banks do not keep enough reserves to cover all their depository liabilities.
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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
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a debit card.
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The Federal Deposit Insurance Corporation insures
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the deposits held in member banks.
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Which of the following represents a function of money?
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All of these
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When you use a debit card to purchase a pair of jeans, you are
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giving your bank an instruction to transfer funds directly from your bank account to the store’s bank account.
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The two basic ways to define money are
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the transactions approach and the liquidity approach.
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The value of the money multiplier depends on
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the reserve ratio.
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Stock market price quotations are an example of money serving as a
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unit of accounting.
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The function of money as a store of value diminishes if
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prices of goods and services increase.
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Which of the following would be considered a transaction deposit?
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checking account
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Adverse selection refers to the
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likelihood that a potential borrower may use the funds that he receives for unworthy, high risk projects.
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The current chair of the Board of Governors of the Federal Reserve is
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Ben Bernanke.
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As a result of money in an economy,
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real Gross Domestic Product (GDP) and economic growth are greater than they would be in a barter economy
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United States coins and currency are backed by
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confidence that they will retain their value
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The central bank for the United States is
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the Federal Reserve System.
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When money is accepted as payment in a market transaction, it is functioning as a
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medium of exchange.
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In economics, money is
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anything that people generally accept in exchange for goods and services.
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The possibility that a borrower might engage in riskier behavior after a loan is made is called
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moral hazard.
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When we examine the U.S. money supply, the smallest component of M1 is
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traveler’s checks.
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Stock market price quotations are an example of money serving as a
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unit of accounting.
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The manner in which FDIC deposit insurance is set up in the United States encourages banks to
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make riskier loans than they otherwise would.
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The transactions approach to measuring money stresses the role of money as a
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medium of exchange.
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The Federal Open Market Committee (FOMC)
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influences the future growth of the money supply.
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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
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the magnitude of the multiplier process is reduced.
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When you set aside the money you have today in order to purchase goods and services later on, you are using money as a
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store of value.
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If the reserve ratio decreases from 20 percent to 10 percent, then the potential money multiplier
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increases from 5 to 10.
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The use of money as a medium of exchange I.Lowers transaction costs II. Permits more specialization
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I & II
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To the extent that the value of money is less predictable, it becomes
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less acceptable as a medium of exchange.
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Which of the following would be considered a transaction deposit?
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checking account
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Which of the following describes a moral hazard problem?
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a post-contractual problem that may result because participants to the exchange process have information that allows them to act in an opportunistic manner
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When money provides a yardstick that allows individuals to compare the relative values of goods and services, it is functioning as a
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unit of accounting
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The manner in which FDIC deposit insurance is set up in the United States encourages banks to
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make riskier loans than they otherwise would.
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Which of the following represents a function of money
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All of these
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The direct exchange of goods and services for other goods and services is known as
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barter.
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The transactions approach to measuring money (M1) includes all of the following EXCEPT
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certificate of deposits
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Without an accepted medium of exchange, people
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have to resort to barter in order to exchange goods and services.
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When money serves as a standard for comparing values of different things, it is functioning as a
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unit of accounting.
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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
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a debit card