Econ Test 3-12

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  • 1. 
    To an economist, money is a synonym for which of the following?
    • A. 

      Income

    • B. 

      Credit

    • C. 

      Wealth

    • D. 

      Salary

    • E. 

      None of the above


  • 2. 
    Barter is
    • A. 

      The exchange of money for goods and then the exchange of those goods for money.

    • B. 

      The exchange of money for money, or the exchange of money for stocks and bonds.

    • C. 

      The exchange of goods and services for goods and services without the use of money.

    • D. 

      Any exchange, with or without the use of money, in which the participants negotiate (or barter) the price of the goods to be exchanged.


  • 3. 
     Which of the following illustrates a barter transaction?
    • A. 

      A bushel of oranges is traded for a bushel of apples.

    • B. 

      Someone buys a pizza for the special price of $4.

    • C. 

      Someone buys a house for $100,000.

    • D. 

      B and c

    • E. 

      A, b, and c


  • 4. 
    Transaction costs are best defined as the
    • A. 

      Various costs of different goods and services.

    • B. 

      Cost of one good in terms of another; that is, the price of apples in terms of oranges.

    • C. 

      Costs involved in borrowing money from someone, that is, the interest that must be paid for the use of someone else's money.

    • D. 

      Costs associated with the time and effort necessary to make an exchange.


  • 5. 
    In which situation are transaction costs most likely to be the lowest?
    • A. 

      Rodney buys antiques; he is currently looking for an eighteenth-century table.

    • B. 

      Cathy is looking for someone who is willing to trade accounting services (in return) for law services.

    • C. 

      Rodriguez wants to buy a house with two master bedrooms.

    • D. 

      Melinda wants to buy a McDonald's Big Mac (she will not be asking for a special order).


  • 6. 
    Which of the following is a correct listing of money's functions?
    • A. 

      Source of credit, value of transaction costs, unit of barter

    • B. 

      Medium of barter, medium of exchange, medium of transactions

    • C. 

      Unit of barter, unit of account, a unit of income

    • D. 

      Store of value, store of exchange, measure of account

    • E. 

      Store of value, medium of exchange, unit of account


  • 7. 
    Money's basic advantage as compared to barter is that
    • A. 

      Everybody has money but not everyone has the opportunity to barter.

    • B. 

      A money system relies on a double coincidence of wants.

    • C. 

      Money reduces transaction costs.

    • D. 

      Money is the only medium you can use to store your wealth.


  • 8. 
    If peanuts were widely accepted for purposes of exchange, then
    • A. 

      Peanuts would be money.

    • B. 

      Peanuts would be less valuable than they are currently.

    • C. 

      We would observe people using peanuts to purchase cars.

    • D. 

      A and c

    • E. 

      A and b


  • 9. 
    A unit of account is
    • A. 

      A bank account.

    • B. 

      A savings account.

    • C. 

      A common measurement in which values are expressed.

    • D. 

      The same as a medium of exchange.

    • E. 

      None of the above


  • 10. 
       10.   If a person uses money to buy a pair of shoes, money is functioning as
    • A. 

      A unit of account.

    • B. 

      A store of value.

    • C. 

      A medium of exchange.

    • D. 

      None of the above


  • 11. 
       12.   According to the text, the good that emerged as money in World War II POW camps was
    • A. 

      Tinned beef

    • B. 

      Toilet paper

    • C. 

      Cigarettes

    • D. 

      Cheese


  • 12. 
       13.   In the Yap civilization of the South Pacific prior to 1920, large, heavy stones in the shape of a wheel were used as money. Which function of money was probably least served by this form of money?
    • A. 

      Medium of exchange

    • B. 

      Store of value

    • C. 

      Unit of account

    • D. 

      Store of wealth


  • 13. 
       14.   Money evolved out of the self-interested actions of
    • A. 

      Economists.

    • B. 

      Governments

    • C. 

      A few kings and queens.

    • D. 

      Individuals.


  • 14. 
       15.   Compared to barter, money __________ transaction costs, making transactions __________ time-consuming.
    • A. 

      Increases; more

    • B. 

      Increases; less

    • C. 

      Reduces; more

    • D. 

      Reduces; less


  • 15. 
       16.   The requirement of a "double coincidence of wants" is the chief __________ of the __________ exchange system.
    • A. 

      Advantage; barter

    • B. 

      Advantage; monetary

    • C. 

      Disadvantage; barter

    • D. 

      Disadvantage; monetary


  • 16. 
       17.   Your neighbor has knowledge of economics and you would like her to share it with you. You own a car, a CD player and a new pair of running shoes. You wish to make a trade, but the neighbor does not want what you have. The problem can be stated as follows: You are not satisfying the
    • A. 

      Rule of transaction costs.

    • B. 

      Double coincidence of wants.

    • C. 

      Law of marketability.

    • D. 

      Terms of a common denominator.


  • 17. 
       18.   M1 is comprised of currency held outside banks + traveler’s checks + __________.
    • A. 

      Credit cards

    • B. 

      Savings deposits

    • C. 

      Gold

    • D. 

      Checkable deposits

    • E. 

      Money market mutual funds


  • 18. 
       19.   Historically, which of the following goods have evolved into money?
    • A. 

      Gold

    • B. 

      Salt

    • C. 

      Cattle

    • D. 

      Cocoa beans

    • E. 

      All of the above


  • 19. 
       20.   Which of the following statements is true?
    • A. 

      In March 2010, of the three components of M1, the currency held outside banks component was the largest.

    • B. 

      M1 is sometimes referred to as the “broad definition of the money supply”.

    • C. 

      Time deposits are a part of M1, but not M2.

    • D. 

      M1 is a larger dollar figure than M2.

    • E. 

      All of the above statements are false.


  • 20. 
       21.   A "money market deposit account" is a(n)
    • A. 

      Checking account that pays no interest.

    • B. 

      Bank account with a specified maturity date.

    • C. 

      Store of Federal Reserve Notes held in bank vaults to cash checkable deposits on demand.

    • D. 

      Checking account created from an automatic transfer from a savings account.

    • E. 

      Interest-earning account at a bank or thrift institution that usually has a minimum balance requirement.


  • 21. 
       22.   A savings deposit is a type of
    • A. 

      Time deposit that is payable on demand.

    • B. 

      Time deposit that earns interest and allows the depositor to write checks payable to other persons.

    • C. 

      Time deposit that does not earn interest but does offer limited check-writing services.

    • D. 

      Interest-earning account at a bank or thrift institution in which funds can be withdrawn at any time without a penalty payment.

    • E. 

      Checkable deposit that also pays interest.


  • 22. 
       23.   In a barter economy, people are _________ to specialize in the production of one good or service, compared to in a money economy.
    • A. 

      More likely

    • B. 

      Less likely

    • C. 

      Equally likely

    • D. 

      Almost always going


  • 23. 
       24.   M2 is comprised of
    • A. 

      Small-denomination time deposits + savings deposits + money market accounts.

    • B. 

      Small-denomination time deposits + credit cards + money market accounts + gold deposits.

    • C. 

      M1 + small-denomination time deposits + savings deposits + retail money market mutual funds.

    • D. 

      M1 + small denomination time deposits + credit cards + money market accounts.


  • 24. 
       25.   According to the text, L. Frank Baum, the author of The Wonderful Wizard of Oz, blamed ____________________ for the economic depression of 1893 and the related hardships faced by farmers and workers.
    • A. 

      The gold standard

    • B. 

      The silver standard

    • C. 

      A massive tornado

    • D. 

      High taxes


  • 25. 
       26.   A savings account functions as
    • A. 

      A unit of account.

    • B. 

      A store of value.

    • C. 

      A medium of exchange.

    • D. 

      None of the above


  • 26. 
       27.   The first bankers were
    • A. 

      Sheriffs.

    • B. 

      Goldsmiths.

    • C. 

      Clergy

    • D. 

      Innkeepers.

    • E. 

      Economists.


  • 27. 
       28.   Because money __________________, people are _________________ likely to specialize their work in a money economy.
    • A. 

      Is a store of value; less

    • B. 

      Eliminates the double coincidence of wants; more

    • C. 

      Is a unit of account; more

    • D. 

      Eliminates the need for holdings of precious metals; more


  • 28. 
       29.   Accordidng to the text, The Wonderful Wizard of Oz is alleged to be a story about
    • A. 

      The California gold strikes of 1849.

    • B. 

      The end of the gold standard in 1934.

    • C. 

      The presidential election of 1896.

    • D. 

      The financial panic of 1907.


  • 29. 
       30.   According to the text, in the book version of The Wonderful Wizard of Oz, Dorothy's slippers are
    • A. 

      Gold

    • B. 

      Silver.

    • C. 

      Ruby.

    • D. 

      Paper.


  • 30. 
       31.   In the history of banking, warehouse receipts refer to receipts
    • A. 

      That goldsmiths once issued acknowledging that they held a customer's gold.

    • B. 

      For storing furniture in a warehouse.

    • C. 

      Goldsmiths issued to each other when they borrowed gold.

    • D. 

      For storing food and other perishables in a warehouse.


  • 31. 
       32.   Fractional reserve banking is a term used to describe a banking system whereby
    • A. 

      Individual banks share a fraction of the total funds deposited in the whole banking system.

    • B. 

      Banks are required to quote interest rates in fractions.

    • C. 

      Banks hold reserves equal to only a fraction of their deposit liabilities.

    • D. 

      Banks hold reserves equal to a multiple of their deposit liabilities; that is, fractional in this case really means multiple.

    • E. 

      Banks are required to maintain a certain fraction of their deposits in the form of checkable deposits, a certain fraction of their deposits in the form of savings deposits, etc.


  • 32. 
       33.   Total bank reserves equal
    • A. 

      Checkable deposits + vault cash + traveler's checks.

    • B. 

      Vault cash + currency in the hands of the nonbanking public.

    • C. 

      Bank deposits at the Federal Reserve.

    • D. 

      Bank deposits at the Federal Reserve + vault cash.


  • 33. 
       34.   Required reserves are the amount of
    • A. 

      Reserves a bank must hold against its deposits as mandated by the Federal Reserve.

    • B. 

      Cash a bank must hold against its deposits as mandated by the Federal Reserve.

    • C. 

      Checkable deposits a bank must hold against all other deposits as mandated by the U.S. Treasury.

    • D. 

      Reserves a bank must hold against all its assets as mandated by the Federal Reserve.


  • 34. 
       35.   If checkable deposits in Bank A total $100 million and the required reserve ratio is 9 percent, then required reserves at Bank A equal
    • A. 

      $81.0 million.

    • B. 

      $9.0 million.

    • C. 

      $9.9 million.

    • D. 

      $900,000


  • 35. 
       37.   Ninth National Bank holds $150,000,000 in checkable deposits and $12,000,000 in total reserves. With a required reserve ratio of 8 percent, how much in excess reserves is Ninth National holding?
    • A. 

      $8,500,000

    • B. 

      $132,000,000

    • C. 

      $14,630,000

    • D. 

      $16,720,000

    • E. 

      $0


  • 36. 
       38.   Tenth National Bank holds $235,000,000 in checkable deposits and $25,500,000 in reserves. With a required reserve ratio of 10 percent, how much in excess reserves is Tenth National holding?
    • A. 

      $20,000,000

    • B. 

      $2,000,000

    • C. 

      $220,500,000

    • D. 

      $18,900,000


  • 37. 
       39.   The amount of required reserves a bank holds depends on the
    • A. 

      Required reserve ratio.

    • B. 

      Demand-deposit ratio.

    • C. 

      Excess-reserve ratio.

    • D. 

      Currency ratio.


  • 38. 
       40.   Reserves held beyond the required amount are called __________ reserves.
    • A. 

      Redundant

    • B. 

      Precautionary

    • C. 

      Excess

    • D. 

      Surplus


  • 39. 
       41.   Bank A has deposits of $8,000 and total reserves of $2,000. If the required reserve ratio is 0.15, the bank has required reserves of
    • A. 

      $4,000.

    • B. 

      $1,200.

    • C. 

      $900

    • D. 

      $300.


  • 40. 
       42.   Bank A has deposits of $200,000 and reserves of $24,000. If the required reserve ratio is 11 percent, the bank has excess reserves of
    • A. 

      $2,000.

    • B. 

      $22,000.

    • C. 

      $220,000.

    • D. 

      $20,000.


  • 41. 
       43.   A bank has $10 million in checkable deposits and $2.5 million in reserves. If the required reserve ratio is 10 percent, then the bank has
    • A. 

      Required reserves of $1.0 million.

    • B. 

      Excess reserves of $1.5 million.

    • C. 

      Excess reserves of $7.5 million.

    • D. 

      Required reserves of $7.5 million.

    • E. 

      A and b


  • 42. 
       44.   Bank A holds $1 million in required reserves and the required reserve ratio is 9 percent. It follows that Bank A holds checkable deposit liabilities that total approximately
    • A. 

      $111 million.

    • B. 

      $11,111,111.

    • C. 

      $90 million.

    • D. 

      $900 million.


  • 43. 
       45.   When a bank makes a loan to one of its customers, to the bank the loan is classified as
    • A. 

      An asset.

    • B. 

      A liability.

    • C. 

      Neither an asset nor a liability.

    • D. 

      An asset in some cases and a liability in other cases, depending on the type of loan.


  • 44. 
       46.   A bank has $10,000 in excess reserves and the required reserve ratio is 20 percent. This means the bank could have __________ in checkable deposit liabilities and __________ in reserves.
    • A. 

      $80,000, $10,000

    • B. 

      $100,000, $20,000

    • C. 

      $50,000, $25,000

    • D. 

      $100,000, $30,000


  • 45. 
       47.   Which of the following is true?
    • A. 

      Reserves = required reserves - excess reserves.

    • B. 

      Reserves - required reserves = excess reserves.

    • C. 

      Reserves = required reserves + excess reserves.

    • D. 

      B and c

    • E. 

      A and b


  • 46. 
       51.   The store of value function of money refers to the ability of money to
    • A. 

      Facilitate the exchange of goods and services.

    • B. 

      Maintain its value over time.

    • C. 

      Express relative scarcity.

    • D. 

      Earn interest over time.


  • 47. 
       50.   The unit of account function of money refers to the
    • A. 

      Fact that money and income are the same thing.

    • B. 

      Common denominator of measurement provided by money.

    • C. 

      Characteristic that all money is intrinsically valuable.

    • D. 

      All of the above


  • 48. 
       52.   M2 includes M1 plus all of the following except
    • A. 

      Savings deposits.

    • B. 

      Retail money market mutual fund balances.

    • C. 

      Short-term U.S. government securities.

    • D. 

      Time deposits.


  • 49. 
       56.   Money is defined by economists as
    • A. 

      The market value of an asset.

    • B. 

      The funds one receives during a specified period of time.

    • C. 

      Any good that is widely accepted in exchange and for the repayment of debts.

    • D. 

      Both b and c

    • E. 

      All of the above


  • 50. 
       59.   The M2 money supply
    • A. 

      Includes M1.

    • B. 

      Is the most common broad definition of the money supply.

    • C. 

      Includes savings deposits.

    • D. 

      Is larger than M1.

    • E. 

      All of the above


  • 51. 
       95.   If reserves equal $59 million and vault cash equals $29 million, it follows that
    • A. 

      Bank deposits at the Federal Reserve equal $29 million.

    • B. 

      Currency in the hands of the public equals $29 million.

    • C. 

      Excess reserves equal $30 million.

    • D. 

      Bank deposits at the Federal Reserve equal $30 million.

    • E. 

      There is not enough information to answer the question.


  • 52. 
       99.   The potential buyer of a house has less information about the house than the seller of the house. This is a case of
    • A. 

      Externality information.

    • B. 

      Free ridership.

    • C. 

      Asymmetric information.

    • D. 

      Biased information.

    • E. 

      A public good not being a private good.


  • 53. 
       96.   If excess reserves are $10 million, (total) reserves are $14 million, and the required reserve ratio is 10%, then required reserves equal ________________ and checkable deposits equal ____________________.
    • A. 

      $4 million; $40 million

    • B. 

      $40 million; $4 million

    • C. 

      $24 million; $240 million

    • D. 

      $7 million; $70 million


  • 54. 
       93.   A bank has $50,000 in excess reserves and the required reserve ratio is 10 percent. This means the bank could have __________ in checkable deposit liabilities and __________ in (total) reserves.
    • A. 

      $500,000; $90,000

    • B. 

      $100,000; $20,000

    • C. 

      $50,000; $25,000

    • D. 

      $250,000; $75,000


  • 55. 
       79.   Banks in the United States operate under a fractional reserve system, which means they must maintain only a fraction of their deposits in the form of
    • A. 

      Debt.

    • B. 

      Loans.

    • C. 

      An insurance policy.

    • D. 

      Reserves


  • 56. 
       76.   Consider the following data: currency (held outside banks) = $354 billion, checkable deposits = $250 billion, traveler's checks = $4 billion, small-denomination time deposits = $200 billion, savings deposits = $100 billion, retail money market mutual funds = $160 billion. M1 equals __________ billion and M2 equals __________ billion.
    • A. 

      $608; $1,068

    • B. 

      $708; $1,038

    • C. 

      $708; $948

    • D. 

      $694; $1,038

    • E. 

      None of the above


  • 57. 
       78.   Bank deposits at the Federal Reserve = $40 billion, vault cash = $2 billion, required reserve ratio = 0.10, and total checkable deposits = $400 billion. It follows that required reserves equal __________ billion, (total) reserves equal __________ billion and excess reserves equal __________ billion.
    • A. 

      $42; $42; $2

    • B. 

      $42; $40; $2

    • C. 

      $2; $40; $38

    • D. 

      $38; $40; $2

    • E. 

      $40; $42; $2


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