1. Which of the following assets would be considered least liquid? a. A US Savin
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Question
1. Which of the following assets would be considered least liquid?
a. A US Savings bond
b. a savings account
c. a certificate of deposit
d. an antique automobile
e. a debit card<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
2. The use of money as a unit of account.
a. relies on the existence of a double coincidence of wants.
b. makes it difficult to compare the relative values of goods and services.
c. discourages specialization and division of labor.
d. inhibits the exchange of goods and services.
e. lowers information costs relative to barter as people need to be aware of fewer prices.
3. Perishable goods such as tomatoes and milk are rarely used as a form of money, primarily because they cannot function as:
a. a means of payment.
b. a medium of exchange.
c. a store of purchasing power.
d. a unit of account.
e. a standard of deferred payment.
4. The M2 measure of money supply includes all of the following, EXCEPT:
a. checking or demand deposits
b. savings deposits.
c. U.S. government securities.
d. currency in circulation
5. The profit of a depository institution (like a bank) is derived from the difference between:
a. the interest rate it receives on domestic loans and the rate it receives on Eurodollar loans.
b. its primary deposit and its derivative deposit.
c. its assets and its liabilities.
d. e interest rate it receives on loans and the rate it receives on investments in government securities.
e. the interest rate it receives on loans and the interest rate it pays on deposits.
6. Which of the following is true of the FDIC?
a. It is a federal agency that insures bank deposits in commercial banks.
b. It covers depositors against losses up to $500,000 in a bank account.
c. It is a program run by individual states.
d. It controls the operations of all commercial banks in the U.S.
7. For a depository institution (like a bank), reserves are:
a. borrowings from the central bank.
b. loans to individuals and businesses.
c. checkable deposits.
d. assets on the balance sheet.
e. liabilities it owes to customers.
8. Assume that the reserve requirement is 10%. If a bank has total deposits of $80 million, then the required reserve must equal:
a. $12 million
b. $10 million
c. $80 million
d. $8 million
e. $50 million
9. If the banking system receives an initial deposit of $150000 and the reserve requirement is 40%, the total deposit in the banking system (including the initial deposit) can be expanded by______________.
a. $375,000
b. $60,000
c. $450,000
d. $250,000
e. $150,000
10. Suppose that Mr. Chopp withdraws $500 from his checking account. If the reserve requirement is 5%, what will be the maximum potential change in the money supply forthcoming from Mr. Chopp
Explanation / Answer
1. Which of the following assets would be considered least liquid?
a. A US Savings bond
b. a savings account
c. a certificate of deposit
d. an antique automobile [You need not necessarily be able to find a buyer and even after finding one, you need to negotiate over the price]
e. a debit card
2. The use of money as a unit of account.
a. relies on the existence of a double coincidence of wants.[this is necessary for money to function as a medium of exchange]
b. makes it difficult to compare the relative values of goods and services.
c. discourages specialization and division of labor.
d. inhibits the exchange of goods and services.
e. lowers information costs relative to barter as people need to be aware of fewer prices.
3. Perishable goods such as tomatoes and milk are rarely used as a form of money, primarily because they cannot function as:
a. a means of payment.
b. a medium of exchange.
c. a store of purchasing power.
d. a unit of account.
e. a standard of deferred payment. [these goods lose their intrinsic value and hence becomes useless for transactions in the future]
4. The M2 measure of money supply includes all of the following, EXCEPT:
a. checking or demand deposits
b. savings deposits.
c. U.S. government securities.[M2=Checking/demand deposits + Savings deposits +currency]
d. currency in circulation
5. The profit of a depository institution (like a bank) is derived from the difference between:
a. the interest rate it receives on domestic loans and the rate it receives on Eurodollar loans.
b. its primary deposit and its derivative deposit.
c. its assets and its liabilities.
d. e interest rate it receives on loans and the rate it receives on investments in government securities.
e. the interest rate it receives on loans and the interest rate it pays on deposits. [The profit of the bank depends on its spread rate, which the difference between the two rates]
6. Which of the following is true of the FDIC?
a. It is a federal agency that insures bank deposits in commercial banks.
b. It covers depositors against losses up to $500,000 in a bank account.
c. It is a program run by individual states.
d. It controls the operations of all commercial banks in the U.S.
7. For a depository institution (like a bank), reserves are:
a. borrowings from the central bank.
b. loans to individuals and businesses.
c. checkable deposits.
d. assets on the balance sheet.
e. liabilities it owes to customers.
8. Assume that the reserve requirement is 10%. If a bank has total deposits of $80 million, then the required reserve must equal:
a. $12 million
b. $10 million
c. $80 million
d. $8 million[ Reserves =0.1*80=8million]
e. $50 million
9. If the banking system receives an initial deposit of $150000 and the reserve requirement is 40%, the total deposit in the banking system (including the initial deposit) can be expanded by______________.
a. $375,000 [Increase in money supply = 150000/0.4]
b. $60,000
c. $450,000
d. $250,000
e. $150,000
10. Suppose that Mr. Chopp withdraws $500 from his checking account. If the reserve requirement is 5%, what will be the maximum potential change in the money supply forthcoming from Mr. Chopp
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