Question 1. Suppose total deposits in the First Bank of Commerc

1. Suppose total deposits in the First Bank of Commerce are $200,000 and required reserves are $10,000. Based on this information, the required reserve ratio is: (Points : 5)
.05.
.10.
.20.
20.

2. If instead of bartering, a person uses money to buy a pair of shoes, money is functioning as: (Points : 5)
a unit of account.
a store of wealth.
a medium of exchange.
none of the above.

3. As the interest rate falls, the price of bonds: (Points : 5)
falls.
rises.
remains unchanged.
is undetermined.

4. If the currency-to-deposit ratio is 0.25 and the reserve ratio is 0.15, then the money multiplier will be: (Points : 5)
2.50.
4.
3.125.
6.667.

5. If you are worried that you may need extra cash to pay for your car repairs given the age and condition of your clunker, then you would hold cash for the: (Points : 5)
transactions motive.
precautionary motive.
speculative motive.
impulsive motive.

6. A financial asset is liquid: (Points : 5)
if it can be carried easily from one place to another.
if it can be readily exchanged for another asset or good.
only if it takes the form of cash.
if it is held by the public and earning interest.

7. Refer to the graph depicting the market for loanable funds. If the quantity of savings exceeds the quantity of investment, and all savings are not channeled back into investment, the long-term interest rate in this economy is:

(Points : 5)
5 percent.
3 percent.
1 percent.
none of the above.

8. The interest rate is the price paid for the use of a: (Points : 5)
real liability.
real asset.
financial liability.
financial asset.

9. The short-term interest rate is determined in the: (Points : 5)
loanable funds market.
stock market.
exchange rate market.
money market.

10. Excess reserves equal: (Points : 5)
total deposits.
total deposits minus required reserves.
total reserves.
total reserves minus required reserves.

11. If the currency-to-deposit ratio is 0.15 and the reserve ratio is 0.05, then the money multiplier will be: (Points : 5)
4.25.
5.75.
7.25.
2.75.

12. The reason why the banking system can increase checkable deposits by a multiple of initial deposits is that: (Points : 5)
the banking system must keep reserves equal to 100% of its checkable deposits.
the central bank does not stipulate a minimum amount of deposits that must be held as reserves.
reserves lost by any particular bank are gained by the Federal Reserve Bank.
borrowers often spend most of a loan, which is then deposited and available for more loans.

13. Which of the follow rankings lists the measures of money from most liquid to least liquid? (Points : 5)
M1, L, M2, M3
M1, M2, M3, L
L, M1, M2, M3
L, M3, M2, M1

14. Which of the following are examples of financial assets that pay a long-term interest rate? (Points : 5)
Saving deposits and checking accounts
Mortgages and government bonds
Cash and currency
Money and CDs

15. When money is used to set the relative value of goods such as cars, VCRs, and TVs, money is serving as a: (Points : 5)
medium of exchange.
unit of account.
store of wealth.
unit of wealth.

16. When a bank creates loans, it also creates money. (Points : 5)
True
False

17. The fraction of deposits a bank must hold in the form of reserves is called the: (Points : 5)
reserve ratio.
excess reserve ratio.
required reserve ratio.
currency to reserve ratio.

18. When a clerk gives you a pair of jeans for your $20 bill, money is serving which function? (Points : 5)
Medium of exchange
Store of real assets
Unit of account
Store of wealth

19. The amount of money ultimately created per dollar deposited when people hold no cash is the: (Points : 5)
M1.
excess reserve ratio.
required reserve ratio.
simple money multiplier.

20. Non-liquid assets are least able to perform which of the following functions? (Points : 5)
Medium of exchange
Financial asset
Store of value

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