Economics 252 – Review Questions Chapter 13 – Money and Banks

(1) When money is used to express the market value of goods and services, it is functioning as:

(a) a medium of exchange.

(b) a standard of value.

(c) a store of value.

(d) a substitute for precious metals.

(2) When money serves as a mechanism for transforming income into future purchases, it is functioning as a:

(a) medium of exchange.

(b) store of value.

(c) standard of value.

(d) None of the above.

(3) Which of the following appears in M2 but not in M1?

(a) Savings accounts.

(b) Currency in circulation.

(c) Traveler's checks.

(d) Credit cards.

(4) Suppose Mike withdraws $100 from his checking account and deposits it into his savings account. this transaction causes M1 to:

(a) increase by $100 and M2 to remain the same.

(b) decrease by $100 and M2 to remain the same.

(c) decrease by $100 and M2 to increase by $100.

(d) remain the same and M2 to increase by $100.

(5) Which of the following appears in M3 but not in M1 and M2?

(a) Currency in circulation.

(b) Time deposits greater than $100,000.

(c) Time deposits less than $100,000.

(d) Demand or Transactions accounts (checking accounts).

(6) Which of the following appears in L, but not in M1, M2, and M3?

(a) Savings accounts.

(b) Time deposits greater than $100,000.

(c) Commercial paper.

(d) Traveler's checks.

(7) Deposit creation occurs when:

(a) a person puts cash in a bank.

(b) a person deposits a payroll check into his or her own account at a bank.

(c) banks make loans to borrowers.

(d) banks offer check writing privileges.

(8) Suppose a bank has $80,000 in deposits and a required reserve ratio of 20 percent. Then the required reserves are:

(a) $8,000.

(b) $16,000.

(c) $40,000.

(d) $80,000.

(9) Suppose a bank has $1 million in deposits, a required reserve ratio of 20 percent, and reserves of $1 million. Then it has excess reserves of:

(a) $200,000.

(b) $800,000.

(c) $1,000,000.

(d) Zero.

(10) Suppose a bank has $300,000 in deposits, a required reserve ratio of 10 percent, and bank reserves of $45,000. Then the bank can make new loans in the amount of:

(a) $30,000.

(b) $45,000.

(c) $165,000.

(d) $15,000.

(11) If the banking system has a required reserve ratio of 15 percent, then the money multiplier is:

(a) 0.2

(b) 0.8

(c) 5.0

(d) 6.67

(12) Suppose a banking system has $200,000 in deposits, a required reserve ratio of 20 percent, and total bank reserves for the whole system of $50,000. Then the potential deposit creation for the whole system is:

(a) $10,000.

(b) $40,000.

(c) $50,000.

(d) $25,000.

(13) When you pay off a loan at a bank, ceteris paribus:

(a) the money supply becomes smaller.

(b) the money supply becomes larger.

(c) bank reserves become smaller.

(d) deposit creation occurs.

(14) Which of the following insures deposits at banks?

(a) The Federal Reserve.

(b) The RTC.

(c) The FDIC.

(d) The State governments.