money and the banking system
Unlock all answers in this set
Unlock answersquestion
Most observers nowadays see monetary policy as much less important than fiscal policy.
answer
ANS: F
question
In September 2007 the British bank Northern Rock which specialized in home mortgages experienced a noteworthy bank run.
answer
ANS: T
question
A bank run involves a large inflow of money into commercial banks.
answer
ANS: F
question
Barter transactions involve a double coincidence of wants.
answer
ANS: T
question
Barter transactions typically take place between two individuals with the same goods to supply.
answer
ANS: F
question
When people trade goods for money, money is being used as a medium of exchange.
answer
ANS: T
question
When prices for goods and services are quoted in money terms, this is an example of money being used as a store of value.
answer
ANS: F
question
Inflation increases the use of money as a store of value.
answer
ANS: F
question
Gold and silver have historically been the most common form of commodity money.
answer
ANS: T
question
The only major disadvantage of paper money is that it is hard to divide into smaller denominations.
answer
ANS: F
question
The new $20 bills were designed with features to make counterfeiting more difficult.
answer
ANS: T
question
Money that is backed solely by a government decree is referred to as fiat money.
answer
ANS: T
question
Modern paper money is fiat money because it is backed only by the faith the holder has in the government that issued it.
answer
ANS: T
question
The U.S. government will probably return soon to a system of paper money backed by gold.
answer
ANS: F
question
On the Micronesian island of Yap, it is easier to make purchases with stone wheel currency than it is to make purchases with paper currency including the U.S. dollar.
answer
ANS: T
question
The lion's share of purchases and transactions in the U.S. economy are made with coins and paper money.
answer
ANS: F
question
When you pay for some purchase with a check, cash must be transferred to another account to pay for the check
answer
ANS: F
question
The amount of money held in checking accounts is significantly greater than money in the form of currency.
answer
ANS: T
question
The composition of M2 as of April 2010 includes saving deposits at savings banks and credit unions.
answer
ANS: T
question
The main advantage of money market deposit accounts over traditional checking accounts is the ease of check writing.
answer
ANS: F
question
Many economists believe that the difference between savings accounts and checking accounts is disappearing.
answer
ANS: T
question
Liquidity refers to the ability of an asset to hold its value in periods of inflation.
answer
ANS: F
question
E-cash cards are considered a major portion of the modern money supply.
answer
ANS: F
question
Fractional reserve banking began as a result of the search for additional profits
answer
ANS: T
question
Fractional reserve banking has three crucial features: bank profitability, bank discretion over the money supply, and bank exposure to runs.
answer
ANS: T
question
Bank runs are \"contagious\" in that they often spread to other banks.
answer
ANS: T
question
A banker motivated by profit maximization may make decisions that destabilize the banking system.
answer
ANS: T
question
Most banks in the United States are owned by the government and operate as nonprofit institutions.
answer
ANS: F
question
Due to the private nature of bank ownership, there is often a difference between bankers' goals and macroeconomic objectives.
answer
ANS: T
question
Most bank deposits in the United States are insured by the Federal Deposit Insurance Corporation (FDIC).
answer
ANS: T
question
Unlike recent events in England, the United States has no recent history of bank failures.
answer
ANS: F
question
Banks in the United States may create new money equal to their amount of required reserves.
answer
ANS: F
question
To a bank, an asset is an obligation that it owes to someone else.
answer
ANS: F
question
If you have a checking account at Citibank, the account is a liability of the bank.
answer
ANS: T
question
Net worth increases in the same proportion as liabilities increase.
answer
ANS: F
question
Banks try to keep their excess reserves at a maximum in order to maximize profits.
answer
ANS: F
question
The money multiplier process is based on the principle of fractional reserve banking.
answer
ANS: T
question
The value of the deposit multiplier is 1 divided by the required reserve ratio.
answer
ANS: T
question
The value of the deposit multiplier is increased if individuals hold all their money in cash.
answer
ANS: F
question
Systemic risks would be most prevalent at larger banks like Bank of America and Citibank.
answer
ANS: T
question
During the 2007-2009 financial crisis, the U.S. government decided that Lehman Brothers was not too big to fail and that AIG was too big to fail.
answer
ANS: T
