Question 1

One major advantage of the medium of exchange function of money is that it allows society to:

Accepted Answer

A)  transfer purchasing power from the present to the future.
B)  measure the relative worth of products.
C)  escape the complications of barter.
D)  use credit cards instead of currency.E) B) and C)
F) C) and D)

Question 2

Assume the Standard Toy Company negotiates a loan for $5,000 from the Metro Bank and receives a demand deposit for that amount in exchange for its promissory note (IOU) .As a result of this single transaction:

Accepted Answer

A)  the supply of money is increased by $5,000.
B)  the supply of money declines by the amount of the loan.
C)  a claim has been "demonetized."
D)  the Metro Bank acquires reserves from other banks.E) A) and B)
F) C) and D)

Question 3

What is one significant characteristic of fractional reserve banking?

Accepted Answer

A)  Banks are not subject to "panics" or "runs."
B)  Banks use deposit insurance for loans to customers.
C)  Bank loans will be equal to the amount of gold on deposit.
D)  Banks can create money through lending their reserves.E) A) and C)
F) B) and C)

Question 4

One reason that "near-monies" are important is because:

Accepted Answer

A)  they simplify the definition of money and therefore the formulation of monetary policy.
B)  they can be easily converted into money or vice versa, and thereby can influence the stability of the economy.
C)  they do not reflect the level of consumer spending but they have a critical impact on saving and investment in the economy.
D)  credit cards synchronize one's expenditures and income, thereby reducing the cash and chequeable deposits one must hold.E) A) and B)
F) C) and D)

Question 5

The value of the money multiplier is:

Accepted Answer

A)  1/MPS.
B)  1/Excess Reserves.
C)  1/MPC.
D)  1/Desired Reserve Ratio.E) A) and B)
F) A) and C)

Question 6

The higher desired reserve ratio, the lower is the monetary multiplier.

Accepted Answer

A) True 
 B)False

Question 7

If you write a cheque on a bank in Saskatoon to purchase a new Nissan Murano, you are employing money as:

Accepted Answer

A)  a medium of exchange.
B)  a store of value.
C)  a unit of account.
D)  all of the above.E) C) and D)
F) B) and C)

Question 8

If excess reserves in the banking system are $4,000, demand deposits are $40,000, and the desired reserve ratio is 10 percent, then actual cash reserves:

Accepted Answer

A)  are $4,000.
B)  are $6,000.
C)  are $8,000.
D)  cannot be determined from this information.E) C) and D)
F) A) and B)

Question 9

The following balance sheet is for the First National Bank.Assume the desired reserve ratio is 15 percent.  Refer to the above data, this chartered bank has excess reserves of:

Accepted Answer

A)  $15,000
B)  $18,000
C)  $27,000
D)  $32,000E) All of the above
F) A) and D)

Question 10

A $20 bill is an example of:

Accepted Answer

A)  legal tender.
B)  fiat money.
C)  a store of value.
D)  all of the above.E) A) and B)
F) None of the above

Question 11

What function is money serving when you deposit money in a savings account?

Accepted Answer

A)  a store of value
B)  a unit of account
C)  a chequable deposit
D)  a medium of exchangeE) All of the above
F) B) and C)

Question 12

The functions of money are to serve as a:

Accepted Answer

A)  resource allocator, method for accounting, and means of income distribution.
B)  unit of account, store of value, and medium of exchange.
C)  determinant of consumption, investment, and government spending.
D)  factor of production, exchange, and aggregate supply.E) All of the above
F) A) and B)

Question 13

The multiple by which the chartered banking system can expand the supply of money is equal to the reciprocal of:

Accepted Answer

A)  the MPS.
B)  its actual cash reserves.
C)  its excess reserves.
D)  the desired reserve ratio.E) All of the above
F) A) and D)

Question 14

Currency and demand deposits are money because:

Accepted Answer

A)  they are backed by a precious metal.
B)  the government asserts that they are.
C)  they are "resting" in a chartered bank vault.
D)  they can be redeemed for an intrinsically valuable commodity such as gold.E) B) and C)
F) None of the above

Question 15

When we say that money serves as a unit of account, we mean that it is:

Accepted Answer

A)  a way to keep some of our wealth in a readily spendable form for future use.
B)  a means of payment.
C)  a monetary unit for measuring and comparing the relative values of goods.
D)  declared as legal tender by the government.E) A) and B)
F) A) and C)

Question 16

When a borrower repays a loan of $4000, either in cash or by cheque, the supply of money is reduced by $4000.

Accepted Answer

A) True 
 B)False

Question 17

A basic argument for using the M1 concept of money is that:

Accepted Answer

A)  it includes all of the important financial assets that have any degree of liquidity.
B)  the government collects data for the components of M1, but does not do so for M2 and M2+.
C)  its components are superior to other financial assets as a store of value.
D)  its components are directly and immediately spendable.E) A) and C)
F) B) and C)

Question 18

Which of the following are all assets to a chartered bank?

Accepted Answer

A)  demand deposits, stock shares, and reserves
B)  vault cash, property, and reserves
C)  vault cash, property, and stock shares
D)  vault cash, stock shares, and demand depositsE) A) and B)
F) B) and C)

Question 19

If actual cash reserves in the banking system are $40,000, excess reserves are $10,000, and demand deposits are $240,000, then the desired reserve ratio:

Accepted Answer

A)  is 10 percent.
B)  is 12.5 percent.
C)  is 20 percent.
D)  cannot be determined from this information.E) B) and C)
F) C) and D)

Question 20

When the receipts given by goldsmiths to depositors were used to make purchases:

Accepted Answer

A)  the gold standard was created.
B)  existing banking laws were violated.
C)  the receipts became in effect paper money.
D)  a fractional reserve banking system was created.E) None of the above
F) All of the above

Exam 14: Part B: Money, Banking, and Money Creation

The higher desired reserve ratio, the lower is the monetary multiplier.

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Assume the Standard Toy Company negotiates a loan for $5,000 from the Metro Bank and receives a demand deposit for that amount in exchange for its promissory note (IOU) .As a result of this single transaction:

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Which of the following are all assets to a chartered bank?

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If excess reserves in the banking system are $4,000, demand deposits are $40,000, and the desired reserve ratio is 10 percent, then actual cash reserves:

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If you write a cheque on a bank in Saskatoon to purchase a new Nissan Murano, you are employing money as:

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What is one significant characteristic of fractional reserve banking?

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The value of the money multiplier is:

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When the receipts given by goldsmiths to depositors were used to make purchases:

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If actual cash reserves in the banking system are $40,000, excess reserves are $10,000, and demand deposits are $240,000, then the desired reserve ratio:

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What function is money serving when you deposit money in a savings account?

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The multiple by which the chartered banking system can expand the supply of money is equal to the reciprocal of:

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When we say that money serves as a unit of account, we mean that it is:

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One reason that "near-monies" are important is because:

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The following balance sheet is for the First National Bank.Assume the desired reserve ratio is 15 percent. Refer to the above data, this chartered bank has excess reserves of:

Correct AnswerverifiedShow Answer

The functions of money are to serve as a:

Correct AnswerverifiedShow Answer

Currency and demand deposits are money because:

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When a borrower repays a loan of $4000, either in cash or by cheque, the supply of money is reduced by $4000.

Correct AnswerverifiedShow Answer

A $20 bill is an example of:

Correct AnswerverifiedShow Answer

A basic argument for using the M1 concept of money is that:

Correct AnswerverifiedShow Answer

One major advantage of the medium of exchange function of money is that it allows society to:

Correct AnswerverifiedShow Answer

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