Wednesday, 11 June 2014
MONEY, BANKING AND MONETARY POLICY
In prosperous times, banks are likely to hold very small
amounts of excess reserves because A. the Fed wants commercial
banks to increase the money supply during economic expansions. B.
the Federal Reserve Banks don't pay interest on bank reserves. C.
it's very costly to transfer funds between commercial banks and the
central banks. D. the Federal Reserve Banks want to minimize their
interest payments on such deposits. 2. Firms whose central business
is providing individual account shares of collections of stocks,
bonds, or both are known as A. mutual funds companies. B.
commercial banks. C. insurance companies. D. thrifts. 3. Paper
money (currency) in the United States is issued by the A. United
States Mint. B. national banks. C. United States Treasury. D.
Federal Reserve Banks. 4. If the economy were encountering a severe
recession, proper monetary and fiscal policies would call for A.
buying government securities, reducing the reserve ratio, reducing
the discount rate, increasing reserves available through the term
auction facility, and a budgetary deficit. B. buying government
securities, reducing the reserve ratio, raising the discount rate,
reducing reserves available through the term auction facility, and
a budgetary deficit. C. buying government securities, raising the
reserve ratio, raising the discount rate, reducing reserves
available through the term auction facility, and a budgetary
surplus. D. selling government securities, raising the reserve
ratio, lowering the discount rate, increasing reserves available
through the term auction facility, and a budgetary surplus. 5.
During periods of rapid inflation, money may cease to work as a
medium of exchange A. because people and businesses won't want to
accept it in transactions. B. unless it's backed by gold. C. unless
it has been designated legal tender. D. because it's too scarce for
everyone to have enough for transactions. 6. The reserve ratio
refers to the ratio of a bank's A. reserves to its liabilities and
net worth. B. capital stock to its total assets. C. checkable
deposits to its total liabilities. D. required reserves and vault
cash to its checkable deposits. 7. Between March 2001 and November
2002, the Fed reduced the federal funds rate from 5 percent to just
above 1 percent. The Fed's purpose was to A. reduce the public
debt. B. prevent rising inflation. C. promote recovery from
recession. D. strengthen the international value of the dollar. 8.
It's costly to hold money because A. the rate at which money is
spent may decline. B. in doing so, one sacrifices interest income.
C. deflation may reduce its purchasing power. D. bond prices are
highly variable. 9. Which one of the following statements about
risky investments is correct? A. Riskier investments tend to sell
for prices directly correlated with expected rates of return. B.
Riskier investments tend to sell for higher prices; that is why
they are considered to be riskier. C. Riskier investments tend to
sell for lower prices so they provide a higher expected rate of
return to compensate for risk. D. Riskier investments tend to sell
for higher prices so they provide a higher expected rate of return
to compensate for risk. 10. Wally owns 100 shares of stock in
Mammoth Corporation that he purchased for $20 per share. Every year
he has received, from company profits, $1 for each share he owns.
If Wally sells all his shares at a price of $30 per share, he'll
receive a A. a capital gain of $30 per share. B. dividend of $10
per share. C. total capital gain of $1,000. D. total capital gain
of $10. 11. Suppose the reserve requirement is 10 percent. If a
bank has $5 million of checkable deposits and actual reserves of
$500,000, the bank A. can safely lend out $5 million. B. can't
safely lend out more money. C. can safely lend out $50,000. D. can
safely lend out $500,000. 12. Other things equal, if the supply of
money is reduced, A. investment spending will increase. B. the
interest rates will fall. C. bond prices will fall. D. the demand
for money will increase. 13. Which one of the following statements
about the money supply is correct? A. The money supply is backed by
government bonds. B. The money supply is backed dollar-for-dollar
with gold bullion. C. The money supply is backed dollar-for-dollar
with gold and silver. D. The money supply is backed by the
government's ability to control the supply of money and therefore
to keep its value relatively stable. 14. If the Fed wants
commercial banks to borrow and expand their reserves by a specific
amount, what monetary policy tool best guarantees that it will
happen? A. Open-market operations B. Term auction facility C.
federal funds rate D. Reserve ratio 15. What concept describes how
quickly an investment increases in value when interest is paid not
only on the original amount invested, but also on the accumulated
interest payments? A. Compound interest B. Real rate of interest C.
Present value D. Future value 16. Checkable deposits are classified
as money because A. banks hold currency equal to the value of their
checkable deposits. B. they can be readily used in purchasing goods
and paying debts. C. they're ultimately the obligations of the
Treasury. D. they earn interest income for the depositor. 17. If
the Fed were to increase the legal reserve ratio, we would expect
A. higher interest rates, a contracted GDP, and depreciation of the
dollar. B. higher interest rates, a contracted GDP, and
appreciation of the dollar. C. lower interest rates, an expanded
GDP, and depreciation of the dollar. D. lower interest rates, an
expanded GDP, and appreciation of the dollar. 18. Which one of the
following is presently a major deterrent to bank panics in the
United States? A. Deposit insurance B. Thefractional reserve system
C. The legal reserve requirement D. The gold standard 19. The
amount that a commercial bank can lend is determined by its A.
outstanding loans. B. required reserves. C. outstanding checkable
deposits. D. excess reserves. 20. If the quantity of money demanded
exceeds the quantity supplied, A. the demand-for-money curve will
shift to the right. B. the supply-of-money curve will shift to the
left. C. the interest rate will rise. D. the interest rate will
fall.
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