1) The confidence you have that a retailer will accept dollars in exchange for goods is based primarily on money
being a unit of account.
being a medium of exchange.
serving as a store of value.
having intrinsic value.
2) Any item that people can use to transfer purchasing power from the present to the future is called
a medium of exchange.
a unit of account.
a store of value.
None of the above is correct.
3) Liquidity refers to
the ease with which an asset is converted to the medium of exchange.
the measurement of the intrinsic value of commodity money.
the measurment of the durability of a good.
how many time a dollar circulates in a given year.
4) Which list ranks assets from most to least liquid?
money, bonds, cars, houses
money, cars, houses, bonds
bonds, money, cars, houses
bonds, cars, money, houses
5) Money is
the most liquid asset and a perfect store of value.
the most liquid asset but an imperfect store of value.
not the most liquid asset but a perfect store of value.
neither the most liquid asset and nor a perfect store of value.
6) The primary difference between commodity money and fiat money is that
commodity money is a medium of exchange but fiat money is not.
fiat money is a medium of exchange but commodity money is not.
commodity money has intrinsic value but fiat money does not.
fiat money has intrinsic value but commodity money does not.
7) John and Jane decide to go on a vacation. As a result, they withdraw $2,500 from their savings account. As a result of this transfer by itself
M1 increases by $2,500 and M2 decreases by $2,500.
M1 increases by $2,500 and M2 stays the same.
M1 decreases by $2,500 and M2 stays the same.
M1 decreases by $2,500 and M2 decreases by $2,500.
8) When conducting an open-market purchase, the Fed
buys government bonds, and in so doing increases the money supply.
buys government bonds, and in so doing decreases the money supply.
sells government bonds, and in so doing increases the money supply.
sells government bonds, and in so doing decreases the money supply.
9) In a system of 100-percent-reserve banking,
banks do not accept deposits.
banks do not influence the supply of money.
loans are the only asset item for banks.
All of the above are correct.
10) Under a fractional-reserve banking system, banks
hold more reserves than deposits.
generally lend out a majority of the funds deposited.
cause the money supply to fall by lending out reserves.
All of the above are correct.
11) A bank's assets equal its liabilities under
both 100-percent-reserve banking and fractional-reserve banking.
100-percent-reserve banking but not under fractional-reserve banking.
fractional-reserve banking but not under 100-percent-reserve banking.
neither 100-percent-reserve banking nor fractional-reserve banking.
12) A bank has $200,000 in deposits and $190,000 in loans. It has loaned out all it can. It has a reserve ratio of
2.5 percent.
5 percent.
9.5 percent.
10 percent.
13) Suppose the banking system currently has $300 billion in reserves; the reserve requirement is 10 percent; and excess reserves amount to $3 billion. What is the level of deposits?
$3,300 billion
$2,970 billion
$2,700 billion
$2,673 billion
14) A bank loans Greg's Ice Cream $250,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is
a liability for the bank and an asset for Greg's Ice Cream. The loan increases the money supply.
a liability for the bank and an asset for Greg's Ice Cream. The loan does not increase the money supply.
an asset for the bank and a liability for Greg's Ice Cream. The loan increases the money supply.
an asset for the bank and a liability for Greg's Ice Cream. The loan does not increase the money supply.
15) A bank has $10,000 in deposits and $8,000 in loans. It has loaned out all it can give the reserve requirement. It follows that the reserve requirement is
2 percent.
12.5 percent.
20 percent.
80 percent.
16) Suppose the banking system currently has $400 billion in reserves, the reserve requirement is 10 percent, and excess reserves are $3 billion. What is the level of loans?
$3,603 billion
$3,600 billion
$3,573 billion
$3,570 billion
17) The manager of the bank where you work tells you that your bank has $5 million in excess reserves. She also tells you that the bank has $300 million in deposits and $255 million dollars in loans. Given this information you find that the reserve requirement must be
50/255.
40/255
50/300
40/300
18) If the reserve ratio is 4 percent, then the money multiplier is
25
20
4
2
19) In a fractional-reserve banking system, an increase in reserve requirements
increases both the money multiplier and the money supply
decreases both the money multiplier and the money supply
increases the money multiplier, but decreases the money supply
decreases the money multiplier, but increases the money supply
20) if the reserve ratio is 5 percent, then $1,000 of additional reserves can create up to
$200 of new money
$2,000 of new money
$20,000 of new money
none of the above is correct
21) The interest rate that the Fed charges banks that borrow reserves from it is the
federal funds rate
discount rate
reserve requirement
prime rate
22) When the Federal Reserve conducts open-market operations to increase the money supply, it
redeems Federal Reserve notes
buys government bonds from the public
raises the discount rate
decreases its lending to member banks
23) The interest rate that the Fed charges banks that borrow reserves from it is the
federal funds rate.
discount rate.
reserve requirement.
prime rate.
24) When the Fed decreases the discount rate, banks will
borrow more from the Fed and lend more to the public. The money supply increases.
borrow more from the Fed and lend less to the public. The money supply decreases.
borrow less from the Fed and lend more to the public. The money supply increases.
borrow less from the Fed and lend less to the public. The money supply decreases.
25) The Fed can decrease the money supply by conducting open-market
sales or by raising the discount rate.
sales or by lowering the discount rate.
purchases or by raising the discount rate.
purchases or by lowering the discount rate.
26) If the government's expenditures exceeded its receipts, it would likely
lend money to a bank or other financial intermediary.
borrow money from a bank or other financial intermediary.
buy bonds directly from the public.
sell bonds directly to the public.
27) . We associate the term debt finance with
the bond market, and we associate the term equity finance with the stock market.
the stock market, and we associate the term equity finance with the bond market.
financial intermediaries, and we associate the term equity finance with financial markets.
financial markets, and we associate the term equity finance with financial intermediaries.
28) We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that
Bond A was issued by a financially weak corporation and Bond B was issued by a financially strong corporation.
Bond A was issued by the Exxon Mobil Corporation and Bond B was issued by the state of New York.
Bond A has a term of 20 years and Bond B has a term of 1 year.
All of the above are correct.
29) Suppose the city of Des Moines has a high credit rating, and so when Des Moines borrows funds by selling bonds,
the city's high credit rating and the tax status of municipal bonds both contribute to a lower interest rate than would otherwise apply.
the city's high credit rating and the tax status of municipal bonds both contribute to a higher interest rate than would otherwise apply.
the city's high credit rating contributes to a lower interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a higher interest rate than would otherwise apply.
the city's high credit rating contributes to a higher interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a lower interest rate than would otherwise apply.
30) A perpetuity is distinguished from other bonds in that it
pays continuously compounded interest.
pays interest only when it matures.
never matures.
will be used to purchase another bond when it matures unless the owner specifies otherwise.
31) In the late summer of 2005 some regions of the country were suffering from drought. What effect would we expect this to have on the stock of companies such as John Deere that manufacture farm equipment?
raise the demand for existing shares of the stock, causing the price to rise
decrease the demand for existing shares of the stock, causing the price to fall
raise the supply of the existing shares of stock, causing the price to rise
raise the supply of the existing shares of stock, causing the price to fall
32) World Wide Delivery Service Corporation develops a way to speed up its deliveries and reduce its costs. We would expect that this would
raise the demand for existing shares of the stock, causing the price to rise.
decrease the demand for existing shares of the stock, causing the price to fall.
raise the supply of the existing shares of stock, causing the price to rise.
raise the supply of the existing shares of stock, causing the price to fall.
33) The old adage, "Don't put all your eggs in one basket," is very similar to a modern bit of advice concerning financial matters:
"Buy low-risk bonds."
"Use a medium of exchange."
"Diversify."
"Intermediate."
34) You observe a closed economy that has a government deficit and positive investment. Which of the following is correct?
Private and public saving are both positive.
Private saving is positive; public saving is negative.
Private saving is negative; public saving is positive.
Both private saving and public saving are negative.
35) For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $3 trillion and the government runs a surplus of $1 trillion. What are private saving and national saving?
$4 trillion and $1 trillion, respectively
$4 trillion and $5 trillion, respectively
$1 trillion and $2 trillion, respectively
$1 trillion and $1 trillion, respectively
36) In a small closed economy investment is $50 billion and private saving is $55 billion. What are public saving and national saving?
$60 billion and $5 billion
$50 billion and -$5 billion
$5 billion and $60 billion
-$5 billion and $50 billion
37) According to the definitions of private and public saving, if Y, C, and G remained the same, an increase in taxes would
raise both private and public saving.
raise private saving and lower public saving.
lower private saving and raise public saving.
lower private and public saving.
38) . Suppose that in a closed economy GDP is 11,000, consumption is 7,500, and taxes are 2,000. What value of government purchases would make national savings equal to 1,000 and at that value would the government have a deficit or surplus?
2,500, deficit
2,500, surplus
1,000, deficit
1,000, surplus
39) If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied,
there is a surplus and the interest rate is above the equilibrium level.
there is a surplus and the interest rate is below the equilibrium level.
there is a shortage and the interest rate is above the equilibrium level.
there is a shortage and the interest rate is below the equilibrium level.
40) If, between 2003 and 2013, the economy's real GDP grew from $20 billion to $40 billion, what was the average annual growth rate in the economy?
3%
7%
20%
100%
41) If in the past Congress had taken additional actions to make saving more rewarding, then today it is likely that the equilibrium interest rate
and the equilibrium quantity of loanable funds both would be lower.
and the equilibrium quantity of loanable funds both would be higher.
would be higher and the equilibrium quantity of loanable funds would be lower.
would be lower and the equilibrium quantity of loanable funds would be higher.
42) Suppose the banking system currently has $300 billion in reserves; the reserve requirement is 10 percent; and excess reserves amount to $3 billion. What is the level of deposits?
$3,300 billion
$2,970 billion
$2,700 billion
$2,673 billion
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