Econ Final Exam Review Part 1 – Flashcards

Which of the following would be considered to be the most liquid? A. Savings deposits B. Checkable deposits C. Money market mutual funds D. Small time deposits

The Federal Open Market Committee (FOMC) is made up of: A. the chair of the Board of Governors along with the 12 presidents of the Federal Reserve Banks. B. the seven members 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 Bank presidents on a rotating basis. C. the seven members of the Board of Governors of the Federal Reserve System along with the three members of the Council of Economic Advisers. D. the seven members of the Board of Governors along with the president of the New York Federal Reserve Bank.

How many members can serve on the Board of Governors of the Federal Reserve System? A. 12 B. 9 C. 7 D. 14

When paper money is designated as legal tender, it means that: A. It is printed by the government B. It will be accepted by the government C. Its supply is controlled by the government D. It is a means of payment by law

When the Fed acts as a "lender of last resort", like it did in the financial crisis of 2007-2008, it is performing its role of: A. Providing for check clearing and collection B. Controlling the money supply C. Setting the reserve requirements D. Being the bankers' bank

The Federal Reserve System is divided into: A. 5 districts B. 15 districts C. 7 districts D. 12 districts

The Federal backing for money in the United States comes from: A. Pledging physical assets, such as land, natural resources, and public buildings as collateral for outstanding currency B. Providing sufficient quantities of precious metals such as gold and silver to cover the amount of paper money in circulation C. Controlling the money supply in order to keep the value of money relatively stable over time D. Protecting checkable deposits at financial institutions with deposit guarantees

Which of the following is the main problem with the barter system of exchange? A. It requires a coincidence of wants B. It undermines the right to bequeath C. It fosters the division of labor D. It encourages self-interest

If you are estimating your total expenses for school next semester, you are using money primarily as: A. a unit of account. B. a store of value. C. an economic investment. D. a medium of exchange.

The most important among the Federal Reserve district banks in conducting monetary policy is the: A. Chicago bank B. San Francisco bank C. Boston bank D. New York bank

An economic system in which money is not used is a: A. Mixed economy B. Barter economy C. Planned economy D. Market economy

If you place a part of your summer earnings in a savings account, you are using money primarily as a: A. store of value. B. standard of value. C. unit of account. D. medium of exchange.

The use of money for exchange and trade: A. Reduces consumer sovereignty B. Increases the importance of barter C. Raises the need for a coincidence of wants D. Fosters more specialization in production

The Federal Reserve System performs many functions but its most important one is: A. Controlling the money supply B. Acting as fiscal agent for the U.S. government C. Issuing currency D. Providing for check clearing and collection

To say that the Federal Reserve Banks are quasi-public banks means that: A. they deal only with banks of foreign nations and do not have direct business contact with U.S. banks. B. they are privately owned but managed in the public interest. C. they deal only with commercial banks, and not the public. D. they are publicly owned but privately managed.

Banks lost money during the mortgage default crisis because: A. of defaulted loans to investors in mortgage-backed securities. B. homebuyers defaulted on mortgages held by the banks. C. of all of these reasons. D. they held mortgage-backed securities they had purchased from investment firms.

When there is inflation in the economy, it implies that the: A. Price index is falling and the purchasing power of money is rising B. Price index is rising and the purchasing power of money is also rising C. Price index is rising and the purchasing power of money is falling D. Price index is falling and the purchasing power of money is also falling

The Federal Open Market Committee (FOMC): A. Monitors regulatory banking laws for member banks B. Sets policy on the sale and purchase of government bonds by the Fed C. Follows the actions and operations of financial markets to keep them open and competitive D. Provides advice on banking stability to the Fed

Paper money (currency) in the United States is issued by the: A. U.S. Mint. B. U.S. Treasury. C. Federal Reserve Banks. D. national banks.

In the United States, the money supply (M1) includes: A. coins, paper currency, checkable deposits, and credit balances with brokers. B. paper currency, coins, gold certificates, and time deposits. C. currency, checkable deposits, and Series E bonds. D. coins, paper currency, and checkable deposits.

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: A. shadow banking. B moral hazard. C. adverse selection. D. a prisoner's dilemma.

Michelle transfers $4,000 from her savings account to her checking account. What effect is this change likely to have on M1 and M2? A. M1 increases and M2 decreases B. M1 decreases and M2 increases C. M1 increases and M2 stays the same D. M2 increases and M1 stays the same

Currency in circulation is part of: A. M2 not including M1. B. both M1 and M2. C. neither M1 nor M2. D. M1 only.

Members of the Federal Reserve Board of Governors are: A. Appointed by the President to staggered 14-year terms B. Selected by each of the Federal Reserve banks for 4-year terms C. Selected by the Federal Open Market Committee for 4-year terms D. Appointed by Congress to staggered 14-year terms

Money market deposit accounts are included in: A. M2 only. B. both M1 and M2. C. neither M1 nor M2. D. M1 only.

When a commercial bank has excess reserves: A. its reserves exceed its assets. B. it is charging too high an interest rate on its loans. C. its actual reserves are less than its required reserves. D. it is in a position to make additional loans.

The basic reason why the commercial banking system can increase its checkable deposits by a multiple of its excess reserves is that: A. the central banks follow policies that prevent reserves from falling below the level required by law. B. the MPC of borrowers is greater than zero but less than 1. C. the banking system must keep reserves equal to 100 percent of its checkable-deposit liabilities. D. reserves lost by any particular bank will be gained by some other bank.

A bank's required reserves can be calculated by: A. Dividing its excess reserves by its required reserves B. Multiplying its checkable-deposit liabilities by the reserve ratio C. Dividing its required reserves by its excess reserves D. Multiplying its checkable-deposit liabilities by its excess reserves

In a fractional reserve banking system: A. the monetary system must be backed by gold. B. the Federal Reserve has no control over the amount of money in circulation. C. bank panics cannot occur. D. banks can create money through the lending process.

In prosperous times, commercial banks are likely to hold very small amounts of excess reserves because: A. it is very costly to transfer funds between commercial banks and the central banks. B. the Fed forces commercial banks to increase the money supply during economic expansions. C. Federal Reserve Banks want to minimize their interest payments on such deposits. D. Federal Reserve Banks pay lower rates of interest on bank reserves than could be earned by the commercial banks loaning out the reserves.

(Last Word) The term "leverage" refers to: A. Fed sales and purchases of bonds to stabilize the money supply. B. using borrowed money in an attempt to increase profits. C. the Fed's ability to control money creation through the reserve ratio. D. investing in stocks from multiple companies in an effort to spread risk.

(Last Word) The greater the leverage in the financial system, all else equal: A. the greater the stability of the financial system. B. the smaller the monetary multiplier. C. the smaller the profit and loss margins of financial firms. D. the greater the instability of the financial system.

A checkable deposit at a commercial bank is a(n): A. Asset to both the depositor and the bank B. Liability to both the depositor and the bank C. Liability to the depositor and an asset to the bank D. Asset to the depositor and a liability to the bank

Excess reserves refer to the: A. difference between actual reserves and loans. B. difference between a bank's vault cash and its reserves deposited at the Federal Reserve Bank. C. minimum amount of actual reserves a bank must keep on hand to back up its customers deposits. D. difference between actual reserves and required reserves.

Which one of the following is presently a major deterrent to bank panics in the United States? A. The gold standard. B. The fractional reserve system. C. Deposit insurance. D. The legal reserve requirement.

If the monetary authorities want to reduce the monetary multiplier, they should: A. raise the required reserve ratio. B. increase bank reserves. C. lower interest rates. D. lower the required reserve ratio.

The reserve ratio refers to the ratio of a bank's: A. reserves to its liabilities and net worth. B. required reserves to its checkable-deposit liabilities. C. capital stock to its total assets. D. checkable deposits to its total liabilities.

The federal funds market is the market in which: A. banks borrow reserves from one another on an overnight basis. B. banks borrow from the Federal Reserve Banks. C. Federal Reserve Banks borrow from one another. D. U.S. securities are bought and sold.

The primary purpose of the legal reserve requirement is to: A. prevent commercial banks from earning excess profits. B. prevent banks from hoarding too much vault cash. C. provide a means by which the monetary authorities can influence the lending ability of commercial banks. D. provide a dependable source of interest income for commercial banks.

The amount of reserves that a commercial bank is required to hold is equal to: A. its checkable deposits multiplied by the reserve requirement. B. the amount of its checkable deposits. C. its checkable deposits divided by its total assets. D. the sum of its checkable deposits and time deposits.

Other things equal, if the required reserve ratio was lowered: A. the actual reserves of banks would increase. B. the federal funds interest rate would rise. C. the size of the monetary multiplier would increase. D. banks would have to reduce their lending.

When commercial banks use excess reserves to buy government securities from the public: A. the money supply falls. B. checkable deposits decline. C. commercial bank reserves increase. D. new money is created.

Requiring banks to use less leveraging is equivalent to: A. Reducing the banks' reserve ratio B. Requiring banks to accept more deposits C. Expanding the loan portfolio of banks D. Requiring a higher level of bank net worth

Cash held by a bank in its vault is a part of the bank's: A. Liabilities B. Money supply C. Net worth D. Reserves