Money, Banking, and the Federal Reserve System MCQ
Stagflation occurs when prices ______ and output ______.
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Rise; falls
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The quantity of money in an economy and the _____________________ are inextricably intertwined.
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Quantity of credit for loans
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Inflation is best understood as the rate at which __________.
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Price for goods and services increase
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A population that is growing logistically _____.
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Grows fastest at an intermediate population density
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The nyse hybrid market allows _____.
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Brokers to send orders either to an electronic system or to a specialist
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A problem for equity contracts is a particular type of ________ called the ________ problem.
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Moral hazard; principal-agent
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A central bank performs all of the following functions except ______.
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It provides general banking services for businesses and individual citizensprovides general banking services for businesses and individual citizens
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Which institution helps prevent runs on banks by promising to make good on the deposits of banks that have run into financial difficulty?
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The Federal Deposit Insurance Corporation
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What was one of the major causes of the bank failures of the 1930s?
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Depositors hearing rumors of failures and converting their deposits to currency
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Compared to the other options that the Federal Reserve has for affecting the money supply, ______ relatively unimportant.
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The discount rate is
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What would the Fed do if it wanted to decrease the money supply?
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It would instruct the trading desk to sell government bonds.
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Most of the key decisions made regarding the U.S. money supply are made ______.
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By the Federal Open Market Committee
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Which statement about the Federal Reserve Board of Governors is true?
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Members of the Board of Governors are appointed by the U.S. president.
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The multiple expansion effect relies on ______.
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Borrowers spending the money they have borrowed
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What does the money multiplier measure?
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The potential amount of money generated by each dollar of bank reserves
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Banks create more money by ______.
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Making loans to borrowers
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What does a bank use to make loans to borrowers?
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Excess reserves
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Which of the following is included in the M1 money definition?
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Demand deposits
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A broker pools depositor funds and invests in Treasury bills. The resulting accounts earn interest, and depositors are allowed to write checks against their individual accounts. This is an example of a ______.
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Money market mutual fund
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Fiat money is money that has been ______.
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Established as a means of exchange by government declaration
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Money’s function as a unit of account refers to its ______.
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Ability to act as a precise measurement of value
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What is the primary function of money?
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To serve as a medium of exchange
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Travellers check is ____ instruments easily convertible into currency
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Transaction
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In which deposits that can be easily converted to currency or used to buy goods and services directly ?
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Transaction
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Highly liquid, interest-paying assets held by the bank is called
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Secondary reserves
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Serving and loan associations are financial institutions organized as cooperative associations that hold demand deposits and savings of members in the form of dividend- bearing shares and make loans, especially home mortgage loans
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True
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Holdings of assets at the bank or at the Federal Reserve Bank as mandated by the Fed is known as
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Preserve requirements
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Required reserve ratio is percentage of ____ that a bank must hold at the Federal Reserve Bank or in bank vaults
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Deposits
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Purchase and sale of U.S. government bonds by the Federal Reserve System is ___ market operations
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Open
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Funds that cannot be used for payment directly but must be converted into currency for general use are non transaction deposits
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True
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Nontransaction deposits that are not money but can be quickly converted into money is called
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Near money
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A measure of the potential amount of money that the banking system generates with each dollar of reserves is money multiplier
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True
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Money market mutual funds is interest-earning accounts provided by brokers that pool funds into such investments as ____ bills
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Treasury
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Anything generally accepted in exchange for goods or services is called
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Money
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Medium of exchange is the primary function of money, which is to facilitate transactions and ____ transaction costs
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Lower
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The attribute of money that makes it easier to borrow and to repay loans is called means of deferred payment
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True
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A broader definition of money that includes M1 plus savings deposits, time deposits, and noninstitutional money market mutual fund shares is called
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M2
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The narrowest definition of money; includes coins, currency, demand deposits, other checkable deposits, and traveler’s checks is called
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M1
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The ease with which one asset can be converted into another asset or into goods and services is known as
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Liquidity
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Coins and paper officially declared to be acceptable for the settlement of financial debts is called
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Legal tender
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Gresham's law principle that “cheap money drives out dear money”; given an alternative, people prefer to spend less valuable money
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True
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Gold standard is defining the dollar as equivalent to a set value of a quantity of gold, allowing direct convertibility from currency to gold
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True
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In which reserve system that requires banks to hold reserves equal to some fraction of their checkable deposits
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Fractional
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A means of exchange established by government declaration is known as
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Fiat money
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Federal funds market in which banks provide short-term loans to other banks that need cash to meet reserve requirements
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True
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____ reserve levels held above that required by the Fed
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Excess
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Interest rate that the Fed charges commercial banks for the loans it extends to them is known as
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Discount rate
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Balances in bank accounts that depositors can access on demand is called
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Demand deposits
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Coins and/or paper created to facilitate the trade of goods and services and the payment of debts is called
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Currency
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Credit unions are financial cooperatives made up of depositors with a common affiliation
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True
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Commercial banks are financial institutions organized to handle everyday financial transactions of businesses and households through demand deposit accounts and savings accounts and by making short-term commercial and consumer loans.
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True
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Barter is ____ exchange of goods and services without the use of money
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Direct
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In which sheet the financial record that indicates the balance between a bank’s assets and its liabilities plus capital ?
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Correct Answer:
Balance
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