Question 1

Fractional reserve banking occurs when:

Accepted Answer

A)  a bank has reserves that exceed its deposits.
B)  a bank has reserves that are equal to its deposits.
C)  a bank has reserves that are less than its deposits.
D)  some depositors lose their deposits through poor bank management.
E)  some lenders fail to repay their loans.

Question 2

Barter is the direct exchange of goods and services for:

Accepted Answer

A)  any kind of money.
B)  other goods and services.
C)  either goods or money.
D)  commodity money.
E)  foreign currency.

Question 3

Any bank that uses deposits to make loans:

Accepted Answer

A)  operates on a 100 percent reserve system.
B)  operates on a fractional reserve system.
C)  does not operate on a reserve system.
D)  does not keep reserves in its vaults.
E)  charges an interest rate determined by the reserve ratio.

Question 4

The greater the degree of specialization in the economy,the:

Accepted Answer

A)  easier it is to discover a double coincidence of wants.
B)  more feasible is a barter system.
C)  less likely it is that monetary exchange will develop.
D)  harder it is to negotiate an exchange rate between all pairs of goods.
E)  more likely it is that individual consumers are self-sufficient.

Question 5

The members of the Board of Governors of the Fed are:

Accepted Answer

A)  elected by the member banks.
B)  chosen by the state governors.
C)  elected for seven-year terms.
D)  all replaced after each Presidential election.
E)  appointed by the president with the approval of the Senate.

Question 6

Which of the following statements is true?

Accepted Answer

A)  Money market mutual funds were originally introduced by the Federal Reserve Bank of New York.
B)  Money market mutual funds initially constituted serious competition to banks and thrifts for the deposits of savers.
C)  Money market mutual funds were not originally offered by commercial banks and still are not offered by them.
D)  Money market mutual funds represent a pooling of cash assets from many countries,like dollars,francs,and pesos.
E)  Money market mutual funds are not able to offer their customers check-writing privileges.

Question 7

The chair of the Board of Governors of the Fed must resign when a new president is elected.

Accepted Answer

A) True 
 B)False

Question 8

The U.S.dollar is a good example of fiat money.

Accepted Answer

A) True 
 B)False

Question 9

The first checks were probably notes written to a goldsmith asking him to transfer ownership of some designated amount of gold from the writer of the note to its bearer.

Accepted Answer

A) True 
 B)False

Question 10

The unit of account function of money:

Accepted Answer

A)  means that money should be durable.
B)  means that money makes price information more accessible.
C)  requires that money be made of something valuable.
D)  means that money can be used to save up purchasing power.
E)  means that money is more easily counted than goods.

Question 11

While deposit insurance was designed to make the banking industry more stable,it contributed to the banking crisis of the 1980s because:

Accepted Answer

A)  the FDIC only insured commercial banks.
B)  the ceiling on insured deposits was too low.
C)  too many banks were insufficiently insured.
D)  depositors became too complacent about the risks that the banks were taking.
E)  unsafe banks were "kicked out" of the deposit insurance system.

Question 12

To minimize the effect of short-term political pressure on the Fed's Board of Governors,the governors are all appointed to their terms:

Accepted Answer

A)  in different years,and their terms are long.
B)  in different years,and their terms are short.
C)  in the same year,and their terms are long.
D)  in the same year,and their terms are short.
E)  in the same year,and their terms are shorter than that of the chairman of the Federal Reserve Board.

Question 13

Paper money is a good example of commodity money.

Accepted Answer

A) True 
 B)False

Question 14

Under a fractional reserve banking system,banks have reserves of only a fraction of their total deposits.

Accepted Answer

A) True 
 B)False

Question 15

Specialization of labor means that:

Accepted Answer

A)  production requires a special kind of labor.
B)  the overall skill level of labor is increasing over time.
C)  individuals produce goods that they are relatively good at producing and trade for those that they do not produce.
D)  individuals achieve self-sufficiency in production by producing all the goods that they require.
E)  exchange within the economy consists of trading in services.

Question 16

Fiat money is backed by:

Accepted Answer

A)  gold or silver.
B)  fractional reserves.
C)  the promise of a bank to redeem it upon presentation.
D)  the commodity in which it is denominated.
E)  nothing.

Question 17

Compared to many other countries,the United States has:

Accepted Answer

A)  fewer banks,with assets distributed more evenly.
B)  fewer commercial banks,with assets concentrated in a few large banks.
C)  more banks,with assets concentrated in a few large banks.
D)  more commercial banks,with deposits widely distributed among the banks.
E)  more commercial banks,with deposits concentrated in a few large banks.

Question 18

Inflation is impossible in a commodity money system.

Accepted Answer

A) True 
 B)False

Question 19

The FDIC insures deposits in:

Accepted Answer

A)  all the commercial banks across the U.S.
B)  Federal Reserve member banks only.
C)  any banking institution that sells FDIC insurance.
D)  any banking institution that purchases FDIC insurance.
E)  any bank approved by the Fed.

Question 20

One characteristic of cattle that makes them unsuitable as a medium of exchange is that they are not easily divisible.

Accepted Answer

A) True 
 B)False

Exam 13: Money and the Financial System

Under a fractional reserve banking system,banks have reserves of only a fraction of their total deposits.

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One characteristic of cattle that makes them unsuitable as a medium of exchange is that they are not easily divisible.

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Which of the following statements is true?

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While deposit insurance was designed to make the banking industry more stable,it contributed to the banking crisis of the 1980s because:

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Fiat money is backed by:

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To minimize the effect of short-term political pressure on the Fed's Board of Governors,the governors are all appointed to their terms:

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Specialization of labor means that:

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The members of the Board of Governors of the Fed are:

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The first checks were probably notes written to a goldsmith asking him to transfer ownership of some designated amount of gold from the writer of the note to its bearer.

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The chair of the Board of Governors of the Fed must resign when a new president is elected.

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Inflation is impossible in a commodity money system.

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Compared to many other countries,the United States has:

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Paper money is a good example of commodity money.

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The unit of account function of money:

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Fractional reserve banking occurs when:

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The U.S.dollar is a good example of fiat money.

Correct AnswerverifiedShow Answer

The greater the degree of specialization in the economy,the:

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The FDIC insures deposits in:

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Barter is the direct exchange of goods and services for:

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Any bank that uses deposits to make loans:

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