econ quiz 10-12

You have completed the Lesson 10 Quiz.

Score

Your score on this attempt: 17 out of a possible 20 ( 85.0%)Graded Score: 17 out of a possible 20 ( 85.0%)Completion Time: 28 minutes 43 seconds

Question Results

Question 1:

Commercial banking is a dynamic industry which must adjust to ____________ forces by using new technology and adjusting to accommodate new business climates.

Type: Multiple ChoicePoints Awarded: 1/1Your Answer(s):

global

Correct Answer(s) (in green):

global nationwide only local none of the above

Question 2:

________ is the “narrow measure of the money supply” and includes the circulating currency (paper and coin) plus checkable deposits of Households and Businesses.


M1


M4 M3

M2 M1

Question 3:

____________ money is money that is declared as having value (purchasing power) by a government.


fiat


commodity fiat token fake

Question 4:

In “financial panics” prior to 1913, loans were often recalled by the lenders leading to __________ in the money supply and additional “runs” on the banking system.


decreases


increases decreases no changes none of the above

Question 5:

A surplus of funds in the money market can be addressed by the Federal Reserve ___________ bonds to promote deletions from the supply of money.


selling


buying selling printing burning

Question 6:

The FED’s Board of Governors consists of seven members appointed for staggered _________ year terms by the President of the U.S. The purpose of this arrangement is to make the Board less political by having various board members serve under a succession of Presidents.


fourteen


two four eight fourteen

Question 7:

In the graph below (the market for money), the ___________ is determined by the total demand for money intersecting with the total supply of money.


interest rate


price of a dollar interest rate purchasing power none of the above

Question 8:

The value (purchasing power)of money does decline when there is ________________.


inflation


recession depression deflation inflation

Question 9:

The twelve Regional Fed banks are “bankers' banks” and they hold deposits of member banks and make loans to member banks to meet ___________ requirements.


reserve


discount rate fed funds reserve prime rate

Question 10:

_____________________ at commercial banks are considered part of the “money supply” because they represent the debts of those banks that are circulating as purchasing power.


checking accounts


savings accounts checking accounts CD’s None of the above

Question 11:

Approximately ___________ of commercial banks in the U.S. are chartered by state banking commissions with the remainder being chartered by the Federal Comptroller of the Currency.


two-thirds


one-third one-fourth two-thirds nine-tenths

Question 12:

The __________ demand for money stays the same regardless of the interest rate.


asset


asset transactions speculative none of the above

Question 13:

If _________________ choices are made by the newly added “hybrid organization” in our Circular Flow diagram, then a great deal of long term damage can be done to the economy.


weak


net borrowing and spending reserve adjustment strong weak

Question 14:

In general the more money (M1) held by the public, the greater the tendency for people to spend and the public holds more money when interest rates are _________.


low


high moderate low none of the above

Question 15:

In the middle portion of this decade, “currency” was a little over 50 percent of the M1 and “____________________” were a little less than 50% of the M1.


small time deposits (CD’s)


money market accounts checkable deposits savings deposits small time deposits (CD’s)

Question 16:

The ___________ is the source of many decisions regarding the implementation of monetary policy and is closely watched by investors to value stocks.


FOMC


FOMC Federal Advisory Council Board of Governors Chairman of the FED

Question 17:

Because of the definition of M1, when a bank spends (or loans) money or receives money (interest & loan payments, etc.) the size of the money supply (M1)changes.

Type: True or FalsePoints Awarded: 1/1Your Answer(s):True Correct Answer(s) (in green):

TRUE FALSE

Question 18:

Government stabilizes the value (purchasing power) of money by appropriate _________ policies and effective control over the money supply size.


fiscal


fiscal global warming agricultural none of the above

Question 19:

The value of money has a ___________ relationship to the price level ( 1 / price level ).


multiplier


denominator

numerator reciprocal multiplier

Question 20:

When interest rates being paid on new bonds are higher but the interest payments on an existing bond remain fixed, the only way for the existing bond to compete is for its price to go _______________.


down


to zero to infinity up down

Score


Question Results

Question 1:

The money multiplier process also works in reverse when a loan is repaid since fewer checkable funds are then available to generate excess reserves.


TRUE FALSE

Question 2:

_______________ consists of several tools to control and to influence the growth of the money supply.


monetary policy


fiscal policy foreign policy monetary policy military policy

Question 3:

________________are the mandated form of required reserves. These must be in cash in the vault or a deposit with the Fed.


Legal Reserves


Excess Reserves Net Worth Reserves Legal Reserves None of the above

Question 4:

The multiplier process is limited by banks that do not fully loan out, but routinely maintain a ______________ (or during recessions banks may not be willing to lend fully).


safety margin


prime rate fed funds discount rate safety margin

Question 5:

Making the correct adjustments in the money supply can be difficult for the Fed because the economy is constantly ____________.


changing


changing collapsing out of control all the above

Question 6:

Money is __________ when a bank makes a loan to a customer.


created


created not affected destroyed none of the above

Question 7:

Through the operation of the Goldsmiths’ principle and making loans on excess reserves, new _________ and purchasing power was (were) created in the local economy.


money


money credit cards stocks and bonds jewelry

Question 8:

Commercial bank deposits with the Fed become ___________ of the bank making the deposit.


Assets


Profits Assets Net Income Net Worth

Question 9:

When a check is drawn against a customer’s account at Bank A, the legal reserves (cash) is _____________ for Bank A when the check clears through another bank.


decreased


decreased increased zeroed out multiplied by the inverse of the required reserve ratio

Question 10:

Changes in the money supply M1 relate strongly to changes in _____________ that are determined largely by loans made by the banking system.


checkable deposits


savings deposits small time deposits (passbook and CD’s) checkable deposits all the above

Question 11:

Assume a required reserve ratio of 10 percent. If a loan of $100 is deposited into First Bank which then lends out $90 and the process continues to its maximum through the banking system, then the total increase in money supply M1 is $________ .


900


1000 900 100 90

Question 12:

When Bank A makes a loan, the funds are deposited into the customer’s checking account and then transferred to Bank B if the customer’s check is deposited there. The funds ____________ then be loaned again by Bank B.


can


can cannot all the above none of the above

Question 13:

During a period of _____________, a tight money policy is recommended to control over expansion of the money supply.


inflation


recession inflation deflation depression

Question 14:

The Fed was created by Congress to be independent so that _________ considerations would not drive the actions of the Fed.


political


military economic political none of the above

Question 15:

Banks play a very important role by providing savers a channel for their funds to be deposited and held safely while at the same time providing those funds as investment into the process of economic growth.


TRUE FALSE

Question 16:

Assume $1,000 is deposited in a checkable account by Mr. X in Bank A. Assume further that the reserve requirement is 0.20. The total amount of money which can be created through the entire banking system is $__________ .


2000


1000 2000 3000 4000

Question 17:

Money (as defined in M1) is created in the loan process because when a bank makes a loan these funds are usually deposited into a _______________ .


checkable account


savings account checkable account Certificate of Deposit (CD) None of the above

Question 18:

A bank pays “interest” (the rental price paid for use of the money) on savings accounts, CD’s and on some types of__________________.


checking accounts


checking accounts coffee can deposits sugar bowl deposits doggy deposits

Question 19:

___________________ are mandated by the Fed to exert control over the amount of funds that banks can loan.


Required Reserves


Fed Funds Required Reserves Extenuating Reserves None of the above

Question 20:

In this decade the average reserve requirement has been in the area of __________ percent.


10


90 50 10 none of the above

You have completed the Lesson 12 Quiz.

Score


Question Results

Question 1:

In the equation of exchange, M x V = P x Q, the V represents ___________________


the average frequency with which a dollar is spent


the average amount of money in circulation the average frequency with which a dollar is spent the average price level quantity purchased

Question 2:

The quantity theory of money is based upon the equation of exchange and assumes that V and Q are both ________ over time.


stable


unstable stable erratic none of the above

Question 3: One problem in the implementation of monetary policy is the lack of control over the __________ (the number of times a dollar is spent).


velocity


acceleration multiplier velocity none of the above

Question 4:

The basic concepts for the Fed to implement an “easy money” policy would include


All the above


Federal Reserve buys securities Reserve ratio is reduced Discount rate is reduced All the above

Question 5:

The level and growth of the NDP is directly impacted by the amount of Business Investment which, in turn, is directly impacted by _______________ (the cost of renting money).


the interest rate


the interest rate the weather global warming the success of whale reproduction

Question 6:

Only funds inside a bank’s vault are counted as part of the M1 money supply.

Type: True or FalsePoints Awarded: 0/1Your Answer(s):

True


TRUE FALSE

Question 7:

When the Fed ___________ reserve requirements, banks are allowed to hold back less money on customer deposits and can make more loans.


decreases


decreases maintains the same increases all the above

Question 8:

In a recession the money supply can be _____________ by the Fed buying securities.


increased


kept from growing decreased increased all the above

Question 9:

_____________ would argue that the unstable nature of V can cause a significant impact on GDP.


Keynesians


Classical economists Monetarists Keynesians All the above

Question 10:

The effectiveness of changes in the Discount Rate depends on commercial banks’ changing their ___________ practices to impact the money supply.


lending


lending bond buying advertising accounting

Question 11:

According to the Monetarist theory, _____________is a critical causal force that determines the nominal GDP.


Money supply


Government spending Money demand Money supply the Trade deficit

Question 12:

A net outflow of dollars resulting from a trade deficit is often returned to the United States for purchase of Treasury bonds that pay a market interest rate with __________ risk.


high


high moderate low none of the above

Question 13:

The Fed sets the percentage of depositor funds which must be retained by the bank in “legal reserves” (cash in the vault or _________________).


on deposit with the Fed


Treasury bonds Treasury bills on deposit with the Fed all of the above

Question 14:

______________ believe that there is only a small amount of crowding-out if any at all.


Keynesians


Monetarists Keynesians All the above None of the above

Question 15:

The open market operations of the FOMC are the _______________ tool of the Fed.


most frequently used


most frequently used most powerful least used least powerful

Question 16:

One reason that monetary policy is believed to be very effective by it supporters is because it does not impact all citizens in an equal manner.

Type: True or FalsePoints Awarded: 1/1Your Answer(s):

False


TRUE FALSE

Question 17:

The _______________ school was very influencial during the Reagan Administration and continues to this day to be an important part of monetary considerations.


Monetarist


Monetarist Keynesian Utopian Socialist None of the above

Question 18:

The Fed’s three basic tools operate by adjusting interest rates (rental price of money) and the __________ of money.


supply


demand supply both a. and b. none of the above

Question 19:

A tight money policy (high interest rates) will _________ the value of the dollar, reduce exports, slow the American economy, but will attract a return of American dollars spent for imports.


increase


increase maintain decrease none of the above

Question 20:

_____________ argue that requiring the Fed to operate with a “monetary rule” for money growth at the same rate as increases in real GDP would be very wise.

Type: Multiple Choice

Points Awarded: 1/1Your Answer(s):

Monetarists


Monetarists Keynesians All the above None of the above

econ quiz 10-12

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