1.Which of the following is not included in M1?a.Currency.b.Traveler’s checks.c.Transaction deposits.d.Savings deposits.e.Checking accounts.2.The functions of mon

1.  Which of the following is not included in M1?

a.  Currency.

b.  Traveler’s checks.

c.  Transaction deposits.

d.  Savings deposits.

e.  Checking accounts.

2.  The functions of money include all one of the following, except as a:

a.  medium of exchange.

b.  store of value.

c.  barter.

d.  unit of account.

e.  standard of deferred payment.

3.  Monetary aggregates are groupings of financial assets that are combined based on their degree of liquidity.  Which of the following is most liquid?

a.  M1

b.  M2

c.  M3

d.  Both M1 and M2 are equally liquid, and more so than M3.

e.  M1, M2 and M3 are all equally liquid.

4.  Which of the following would be consistent with a “fiat” money?

a.  It is portable.

b.  It is a commodity money.

c.  It can be converted into a precious metal.

d.  All of the above.

5.  Which of the following is true about “debasing?”

a.  If anything, it will cause deflation.

b.  It promotes the circulation of less popular metals.

c.  It cannot be done to commodity money.

d.  It cannot be done to representative money.

e.  All of the above are true.

6.  The money measure M2 includes:

a.  savings deposits.

b.  currency.

c.  travelers checks.

d.  demand deposits at financial institutions.

e.  All of the above.

7.  A barter system requires:

a.  a medium of exchange.

b.  a double coincidence of wants.

c.  use of a commodity money.

d.  prices measured in nominal terms.

e.  All of the above.

8.  Which of the following is the least liquid financial asset?

a.  Currency in your pocket.

b.  A savings deposit.

c.  Diamonds.

d.  Traveler’s checks.

e.  A U.S. Savings Bond.

9.  Which of the following would likely best serve as a commodity money?

a.  U.S. dollar bills.

b.  Gold

c.  Tomatoes.

d.  Feathers.

e.  Hydrogen gas.

10.  You walk into a store in Mexico.  The prices are in pesos.  The owner will accept pesos or dollars.  In this case, we can say that:

a.  the peso is the unit of account.

b.  the dollar is a medium of exchange.

c.  the peso is a medium of exchange.

d.  All of the above.

e.  None of the above.

11.  As Rothbard points out, the monetary units that nations have used were:

a.  arbitrarily created by kings, emperors, or other national leaders.

b.  measures of differing weights of gold or silver.

c.  never exchangeable for a commodity.

d.  always based on a metric-like system.

e.  None of the above.

12.  What types of liabilities will a successful bank have?

a.  Reserves (vault cash).

b.  Loans.

c.  Demand deposits.

d.  All of the above.

e.  None of the above.

13.  A depository institution’s total reserves consist of:

a.  excess reserves and loans.

b.  required reserves and excess reserves.

c.  excess reserves and equity.

d.  required reserves and transactions deposits.

e.  required reserves and treasury securities.

14.  A depository institution that is fully “loaned up” means that:

a.  it lacks sufficient cash required to meet requests for a depositor’s withdrawal.

b.  its total assets are less than its total liabilities.

c.  it has too many bad loans.

d.  it has used all of its excess reserves to make loans.

e.  None of the above .

15.  If a bank needs to have $100 million in order to meet its reserve requirements, but has $90 million to total reserves, then it:

a.  has excess reserves of $10 million.

b.  has a required reserves deficiency of $10 million.

c.  can extend its loans by $10 million.

d.  has a required reserve deposit of $10 million.

e.  will have to borrow money from the Federal Reserve.

16.  Assume that the required reserve ratio is 10%.  How much more can an individual bank lend if a saver deposits $1,000 into her checking account (assuming that the bank was not short of required reserves)?

a.  $100.

b.  $600.

c.  $900.

d.  $1,000.

e.  $100,000.

17.  Suppose that Bank A has $50 million in reserves and $300 million in loans and securities.  Suppose further that it has $400 million in transactions-deposit liabilities.  If the required reserve ratio is 10 percent, then it may be concluded that Bank A presently has:

a.  $5 million in excess reserves.

b.  $10 million in excess reserves.

c.  a required reserve deficiency of $5 million.

d.  a required reserve deficiency of $10 million.

e.  None of the above.

18.  Suppose that depository institutions hold no excess reserves and all money is held as transactions accounts at banks.  If the banking system has $20 million in total reserves and the total quantity of money is $1,000 million, then we can conclude that the required reserves ration is equal to:

a.  2 percent.

b.  5 percent.

c.  20 percent.

d.  50 percent.

e.  The information provided is insufficient to allow this to be calculated.

19.  If the required reserve ratio is 0.1, how much can lending be increase by, in the entire banking system, if the Fed buys $1,000 worth of bonds?  [Assume that banks do not desire to hold any excess reserves and that the public does not desire to hold any currency.]

a.  $100.

b.  $1,000.

c.  $10,000.

d.  $100,000.

e.  None of the above.

20.  The monetary base is equal to:

a.  C+R.

b.  c*D.

c.  C+D.

c.  rr*D.

e.  c*D + rr*D + e*D.

21.  What factors influence the money multiplier?

a.  The amount of currency that consumers and businesses desire to hold relative to transactions deposits.

b.  The quantity of excess reserves that depository institutions wish to keep on hand relative to transactions deposits.

c.  The required reserve ratio set by the Federal Reserve.

d.  All of the above.

e.  None of the above.

22.  During the late 1800s, what was proposed as a form of backing for paper money alongside gold?

a.  Silver.

b.  Platinum.

c.  Copper.

d.  Nickel.

e.  Latinum.

23.  The first central bank of the U.S., which received a federal charter of 20 years, was:

a.  the Bank of North America.

b.  the First Bank of the United States.

c.  the National Bank of the United States.

d.  the Federal Reserve Bank of the United States.

e.  Continental Illinois.

24.  The Federal Reserve was established in:

a.  1766.

b.  1836.

c.  1913.

d.  1936.

e.  1966.

25.  Which of the following was a key feature of the changes made to the Federal Reserve in 1935?

a.  It doubled the number of Federal Reserve districts to twelve.

b.  It made the Secretary of the Treasury a member of the Board of Governors.

c.  It eliminated the authority of the Board of Governors to set reserve requirements.

d.  It increased control of the Federal Reserve System by the Board of Governors.

e.  All of the above.

26.  What was the significance of the Federal Reserve-Treasury Accord of 1951?

a.  The Fed agreed to begin purchasing government securities to keep yields on government securities low.

b.  The Fed agreed to purchase all government securities that the Treasury issued.

c.  The Fed was granted total independence from Congress.

d.  The Fed was granted partial independence from Congress.

e.  None of the above.

27.  The structure of the Fed includes:

a.  ten federal reserve district banks.

b.  a board of governors located in New York City, the financial capital of America.

c.  budgetary control in the hands of the U.S. House of Representatives.

d.  the federal open market committee.

e.  All of the above.

28.  The largest asset on the Fed’s balance sheet consists of:

a.  reserves of member banks.

b.  loans to corporations.

c.  loans to banks.

d.  government securities.

e.  Federal Reserve notes.

29.  Which of the following are assets of the Federal Reserve?

a.  Foreign currency reserves.

b.  Federal Reserve notes.

c.  Government securities.

d.  All of the above.

e.  Only A and C of the above.

30.  Which of the following are liabilities of the Federal Reserve?

a.  Reserve deposits of depository institutions.

b.  Federal Reserve notes.

c.  Government securities.

d.  Both A and B of the above.

e.  Both B and C of the above.

31.  Currently, the largest form of liabilities on the Fed’s balance sheet is:

a.  Reserves of member banks.

b.  Federal Reserve notes.

c.  Loans to banks.

d.  Government securities.

e.  Gold certificates.

32.  The deposits of depository institutions held by the Fed:

a.  are a liability to the Fed but an asset to the depository institutions.

b.  are an asset to the Fed but a liability to the depository institutions.

c.  are an asset to both the Fed and the depository institutions.

d.  are a liability to both the Fed and the depository institutions.

e.  do not show up at all in the balance sheet for the Federal Reserve.

33.  The role of the Fed as a fiscal agent to the government refers to the Fed’s services for:

a.  the Congress.

b.  the White House.

c.  the Internal Revenue Service.

d.  the U.S. Treasury Department.

e.  the twelve Federal Reserve district banks.

34.  The purpose of the lender of last resort is to:

a.  raise bank profitability .

b.  make loans to insolvent but liquid banks.

c.  make loans to solvent but illiquid banks.

d.  make loans to individuals and corporations that request them.

e.  provide needed funding for the building of resorts.

35.  Which of the following accurately characterizes a warehouse bank?

a.  With a reputation for integrity, their receipts will be traded as money.

b.  The deposits they hold are considered an asset of the bank.

c.  They first emerged in the western parts of the U.S. during the 1850s.

d.  They earn an income by charging interest on the loans they give out.

e.  All of the above.

36.  When a corporation forgoes paying a dividend to expand its business, it is engaging in:

a.  internal finance.

b.  external finance.

c.  hybrid finance.

d.  international finance.

e.  All of the above.

37.  Which of the following is an example of direct finance?

a.  A home buyer takes a mortgage.

b.  You borrow money from a friend for lunch.

c.  Your parents buy life insurance.

d.  All of the above.

e.  None of the above.

38.  Which of the following involves a financial intermediary?

a.  A credit card purchase.

b.  Buying stock online.

c.  Buying renter’s insurance.

d.  All of the above.

e.  None of the above.

39.  The problem for lenders, that highest risk borrowers tend to be the most eager to take loans, is an example of:

a.  adverse selection.

b.  moral hazard.

c.  internal finance.

d.  asymmetric hazard.

e.  the “too big to fail” dilemma.

40.  Banks might be more efficient than individual lenders due to:

a.  returns to scale.

b.  expertise in accounting tasks.

c.  expertise in advertising to borrowers.

d.  ability to assess risk.

e.  All of the above.

41.  In the absence of money, people:

a.  must barter to trade.

b.  produce a greater variety of goods themselves.

c.  face the problem of “double coincidence of wants.”

d.  All of the above.

e.  None of the above.

42.  Money:

a.  is anything generally accepted for trade.

b.  does not have to be valuable except as a means of trade.

c.  can allow people to save more easily.

d.  All of the above.

e.  None of the above.

43.  During a period of hyperinflation, money is not functioning well as a:

a.  medium of exchange.

b.  unit of account.

c.  store of value.

d.  all of the above.

44.  Slips representing gold deposits with a bank are an example of _____ money.

a.  fiat

b.  representative

c.  credit

d.  commodity

e.  None of the above.

45.  Cigarettes are an example of _____ mone.

a.  fiat

b.  representative

c.  credit

d.  commodity

e.  None of the above.

46.  Diamonds would be good to use as money because they are:

a.  divisible.

b.  durable.

c.  portable.

d.  All of the above.

e.  Only B and C of the above.

47.  If an economy uses furs as money and the supply is suddenly cut in half, then prices of other goods in terms of furs will:

a.  double.

b.  be halved.

c.  stay the same.

d.  rise, but to an uncertain extent.

e.  fall, but to an uncertain extent.

48.  Default risk is a potential problem for which of the following form(s) of money?

a.  Commodity.

b.  Representative.

c.  Credit.

d.  All of the above.

e.  None of the above.

49.  Which of the following is part of any measure of the money supply?

a.  Cash.

b.  Mutual funds.

c.  Bank reserves.

d.  Commercial loans.

e.  Bank equity.

50.  Which of the following is/are desirable attributes of a medium of exchange?

a.  Durability.

b.  Elasticity of supply.

c.  Divisibility.

d.  Portability.

e.  All of the above

51.  According to Rothbard, paper money was issued and used in the 1600s in the Massachusetts colony:

a.  to pay soldiers when they failed to loot enough from the French.

b.  and issued in only small amounts that were quickly redeemed.

c.  only once prior to the Revolutionary War.

d.  All of the above.

e.  None of the above.

52.  Which of the following is an example of a source of internal finance?

a.  Corporate bonds.

b.  Withheld earnings.

c.  Commercial loans.

d.  Commercial paper.

e.  None of the above.

53.  Which of the following is a technique lenders use to alleviate the adverse selection problem?

a.  Checking credit ratings.

b.  Monitoring borrower activity.

c.  Restrictive covenants.

d.  All of the above.

e.  None of the above.

54.  Which of the following is a technique lenders use to alleviate moral hazard problems?

a.  Specialized lending.

b.  Diversified lending.

c.  Requiring collateral.

d.  Checking credit ratings

e.  All of the above.

55.  Which of the following are examples of transactions costs faced by lenders?

a.  Accounting fees.

b.  Legal fees.

c.  Monitoring costs.

d.  All of the above.

e.  None of the above.

56.  Restrictive covenants are required by lenders to help solve the problem of:

a.  Adverse selection.

b.  Moral hazard.

c.  Transactions costs.

d.  All of the above.

57.  Banks are said to ration credit when they refuse to lend above a certain interest rate.  The purpose of such a policy is to minimize _____ of lending.

a.  adverse selection problems

b.  moral hazard problems

c.  transactions costs

d.  All of the above.

e.  None of the above.

58.  According to Salerno, the Mystery of Banking is considered Murray Rothbard’s:

a.  most important work.

b.  least appreciated work.

c.  longest work.

d.  most widely cited work.

e.  most difficult to understand work.

59.  According to Salerno, Rothbard viewed the Federal Reserve as:

a.  a bolstering of the banking system.

b.  the outcome of public spirited responses to shocks to our economy.

c.  an almost perfect example of an institution that works on behalf of the general public interest.

d.  a cartelizing device that limits entry into banking.

e.  All of the above.

60.  According to Rothbard, which of the following have historically been used as money?

a.  Cowrie shells.

b.  Beaver.

c.  Tobacco.

d.  Iron hoes.

e.  All of the above.

61.  Persistent and sustained inflation can be the result of:

a.  a continuous fall in the supply of goods.

b.  a continuous rise in the supply of money.

c.  a continuous fall in the demand for goods.

d.  All of the above.

e.  Only A and B of the above.

62.  How can a bank increase its level of reserves?

a.  Buying securities.

b.  Increasing borrowings.

c.  Making loans.

d.  All of the above.

e.  None of the above.

63.  Which of the following is NOT a method banks use to control credit risk?

a.  Specialization.

b.  Credit rationing.

c.  Gap analysis.

d.  Collateral requirements.

64.  Which of the following is a method banks use to deal with interest rate risk?

a.  Gap analysis.

b.  Restrictive covenants.

c.  Specialization.

d.  Compensating balances.

e.  All of the above.

For the next 4 questions, use the following bank balance sheet:

65.  If the reserve requirement is 10%, the bank has _____ in excess reserves.

a.  $0

b.  $5

c.  $10

d.  $50

66.  If $100 in transaction deposits were withdrawn as cash, what is the minimum amount the bank would have to borrow to meet the reserve requirement of 10%, if there were no other changes to the balance sheet?

a.  $30

b.  $50

c.  $80

d.  $100

e.  It cannot be determined.

67.  If $100 in transaction deposits were withdrawn and the bank sold the minimum amount of bonds to meet the reserve requirement, what is the value of the bonds remaining on the balance sheet if there were no other changes?

a.  $320

b.  $340

c.  $400

d.  $200

e.  It cannot be determined precisely, but it would be less than $100.

68.  What is the maximum amount of write-downs (defaults) the bank could sustain without becoming insolvent (i.e., bankrupt)?

a.  $0

b.  $260

c.  $600

d.  $1060

e.  $1200

69.  What are the two main categories of profit making assets on a bank’s balance sheet?

a.  Loans and securities.

b.  Reserves and loans.

c.  Bonds and deposits.

d.  Borrowings and deposits.

e.  Loans and deposits.

70.  An employee who is primarily concerned with making sure the bank has enough reserves is concerned about the bank’s:

a.  liquidity.

b.  liability.

c.  asset status.

d.  capital adequacy.

e.  None of the above. 

71.  As Rothbard describes, in the market for an good, the supply is ___ and the demand is ___.

a.  objective;  objective

b.  objective;  subjective

c.  subjective;  objective

d.  subjective;  subjective

72.  Unit banks:

a.  have no branches.

b.  have a local monopoly.

c.  have little incentive to innovate.

d.  All of the above.

e.  None of the above.

73.  Bill has chickens that lay eggs.  Bob has pigs that can be turned into tasty bacon.  Joe has materials to make 3-legged stools.  Bill wants a stool, but Joe wants bacon. Lucky for Bill, Bob wants eggs.  In order for Bill to acquire a 3-legged stool what must serve as a medium of exchange?

a.  Eggs.

b.  Bacon.

c.  3-legged stools.

d.  Chickens.

e.  Pigs.

74.  The British “pound sterling” originally was a monetary unit that represented:

a.  a pound of bronze.

b.  a pound of gold.

c.  a pound of silver.

d.  a pound of copper.

e.  an ounce of gold.

75.  Which of the following do NOT generate fees for banks?

a.  Credit cards.

b.  Securitized loans.

c.  Reserves.

d.  The use of ATMs.

76.  According to Rothbard, the two commodities that have dominated as money over time have been:

a.  gold and bronze.

b.  silver and bronze.

c.  gold and silver.

d.  gold and wheat.

e.  silver and fish.

77.  In the “market” for money, an increase in supply will create ___ and lead to a ___.

a.  a shortage;  rise in the PPM

b.  a shortage;  fall in the PPM

c.  a surplus;  rise in the PPM

d.  a surplus;  fall in the PPM

78.  In the “market” for money, a decrease in supply will create ___ and lead to a ___.

a.  a shortage;  rise in the PPM

b.  a shortage;  fall in the PPM

c.  a surplus;  rise in the PPM

d.  a surplus;  fall in the PPM

79.  In the “market” for money, an increase in demand will create ___ and lead to a ___.

a.  a shortage;  rise in the PPM

b.  a shortage;  fall in the PPM

c.  a surplus;  rise in the PPM

d.  a surplus;  fall in the PPM

80.  Suppose we observe the following prices:  eggs – $1/dozen, butter – $2/pound, shoes – $50/pair, MP3 player – $100.  Which of the following is true about the purchasing power of $1?

a.  1 dozen eggs.

b.  ½ pound of butter.

c.  1/50 pair of shoes.

d.  All of the above.

e.  None of the above.

81.  Which of the following are liabilities of the Fed?

a.  Federal Reserve notes.

b.  Bank reserves.

c.  Discount loans.

d.  Gold certificates.

e.  Both A and B are liabilities of the Fed.

82.  Which of the following is part of the monetary base?

a.  Federal Reserve notes.

b.  Bonds.

c.  Discount loans.

d.  Gold certificates.

e.  None of the above

83.  When the Fed sells $100 of bonds, the monetary base falls by an amount _____ $100 and the money supply falls by an amount _____ $100.

a.  less than,  equal to

b.  equal to,  equal to

c.  equal to,  greater than

d.  greater than,  greater than

e.  greater than,  equal to

84.  When the Fed buys securities, how much banks hold as excess reserves affects the:

a.  monetary base.

b.  money supply.

c.  maximum money multiplier.

d.  All of the above.

e.  None of the above.

85.  If the Fed buys $100 in securities and the reserve requirement is 10%, according to the simple formula for the money multiplier, the money supply:

a.  falls by $100.

b.  falls by $1000.

c.  rises by $100.

d.  rises by $1000.

e.  remains unchanged, as the simple multiplier is zero.

86.  A change in the monetary base leads to a larger change in the money supply since

a.  Reserves earn interest for the bank.

b.  Banks lend excess reserves, which become deposits.

c.  A change in the monetary base changes the currency ratio of households.

d.  None of the above.

87.  Who does Rothbard claim demonstrated that money could not have been created by the state?

a.  John Maynard Keynes.

b.  Ludwig von Mises.

c.  Friedrich Hayek.

d.  Adam Smith.

e.  Karl Marx.

88.  If the Fed were to sell gold, the money supply would:

a.  Increase.

b.  Decrease.

c.  Stay the same.

d.  Cannot be determined.

89.  The Fed sells $400 in bonds, half to the public and half to the banking system, which means the monetary base falls by _____ and the quantity of reserves falls by ____.

a.  $200, $200

b.  $200, $400

c.  $400, $400

d.  $600, $600

e.  $400, $200

90.  Which of the following equations is correct?

a.  ΔMB = m x ΔMS

b.  ΔMS = m x ΔMB

c.  MS = C + R

d.  MS = D + R

e.  All of the above are correct.

91.  If the required reserve ratio is 0.1, the level of deposits is $1000, the level of currency held by the public is $200 and the level of excess reserves is $300, then m1 is

a.  0.

b.  1.

c.  2.

d.  3.

e.  It cannot be determined from the information available.

92.  If the required reserve ratio is 0.2, the level of deposits is $2000, the level of currency held by the public is $200 and the level of excess reserves is $200, then m1 is

a.  3.75

b.  3.5

c.  3.25

d.  3.0

e.  2.75

93.  An increase in the excess reserve ratio will cause m1 to:

a.  increase.

b.  decrease.

c.  stay the same.

d.  change in an uncertain direction.

94.  A change in interest rates could affect:

a.  the currency raio.

b.  the excess reserve ratio.

c.  the required reserve ratio.

d.  All of the above.

e.  Only A and B of the above.

95.  According to Rothbard, a barter system limits:

a.  the division of labor.

b.  the production of goods and services.

c.  the ability of businesses to calculate profits and losses.

d.  All of the above.

e.  Only A and B of the above.

96.  The required reserve ratio is 0.2, the level of deposits is $1000, the level of currency held by the public is $500, the level of excess reserves is $300, the level of money market funds is $500 and the level of time deposits is $1500. If the Fed lowers the monetary base by $100, what is the change in M1?

a.  Falls by $350.

b.  Falls by $244.

c.  Falls by $150.

d.  Rises by $250.

e.  None of the above.

97.  Which of the following is the key monetary policy tool on a day-to-day basis?

a.  Changing reserve requirements.

b.  Changing the money multiplier.

c.  Open market sale or purchase.

d. 

Leave a Reply

Your email address will not be published. Required fields are marked *