ECO201 Chapter 12 Exam Solution

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ECO201 Chapter 12 Exam Solution • Question 1 1 out of 1 points Banks in the United States operate under a fractional reserve system, which mea ... [Show More] ns they must maintain only a fraction of their deposits in the form of Selected Answer: b. reserves. Answers: a. loans. b. reserves. c. an insurance policy. d. debt. • Question 2 1 out of 1 points When a country imposes capital controls, it is controlling the Selected Answer: a. amount of money flowing in or out of the country. Answers: a. amount of money flowing in or out of the country. b. portion of bank deposits that must be used for loans to the government. c. amount of reserves that banks must hold. d. portion of bank deposits that must be held at its central bank. • Question 3 1 out of 1 points A savings deposit is a type of Selected Answer: e. interest-earning account at a bank or thrift institution in which funds can be withdrawn at any time without a penalty payment. Answers: a. time deposit that earns interest and allows the depositor to write checks payable to other persons. b. time deposit that is payable on demand. c. time deposit that does not earn interest but does offer limited check-writing services. d. checkable deposit that also pays interest. e. interest-earning account at a bank or thrift institution in which funds can be withdrawn at any time without a penalty payment. • Question 4 1 out of 1 points When a bank makes a loan to one of its customers, to the bank the loan is classified as Selected Answer: b. an asset. Answers: a. a liability. b. an asset. c. an asset in some cases and a liability in other cases, depending on the type of loan. d. neither an asset nor a liability. • Question 5 1 out of 1 points Bank deposits at the Federal Reserve = $40 billion, vault cash = $2 billion, the 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. Selected Answer: e. $40; $42; $2 Answers: a. $42; $40; $2 b. $2; $40; $38 c. $38; $40; $2 d. $42; $42; $2 e. $40; $42; $2 • Question 6 1 out of 1 points The Federal Reserve began paying interest on reserves in 2008. Selected Answer: True Answers: True False • Question 7 1 out of 1 points In which setting are the transaction costs of making an exchange likely to be the highest? Selected Answer: b. buying a house Answers: a. buying stock in a company b. buying a house c. buying cereal at the grocery store d. buying a computer over the Internet e. buying a Big Mac at McDonald's • Question 8 1 out of 1 points Bank A has checkable deposits of $800,000 and total reserves of $200,000. If the required reserve ratio is 0.11, the bank has required reserves of Selected Answer: a. $88,000. Answers: a. $88,000. b. $112,000. c. $600,000. d. $22,000. • Question 9 1 out of 1 points Bank A has checkable deposits of $900,000 and total reserves of $112,000. If the required reserve ratio is 8 percent, the bank has excess reserves of Selected Answer: d. $40,000. Answers: a. $72,000. b. $13,440. c. $4,000. d. $40,000. • Question 10 1 out of 1 points Exhibit 12-1 Balance Sheet BANK A ($ millions) Assets Liabilities Required Reserves $20 Checkable Deposits $ 100 Excess Reserves 0 Nontransaction Deps 50 Loans 100 Borrowings 5 Securities 40 Bank Capital (A) Refer to Exhibit 12-1. If Bank A's assets rise by 5 percent and its liabilities rise by 3 percent, by what percentage would its bank capital change compared to its original bank capital (i.e. the value originally in blank (A))? Selected Answer: a. 67 percent Answers: a. 67 percent b. 40 percent c. 2 percent d. 8 percent e. 28 percent • Question 11 1 out of 1 points M2 includes M1 plus all of the following except Selected Answer: d. short-term U.S. government securities. Answers: a. retail money market mutual funds. b. small-denomination time deposits. c. savings deposits. d. short-term U.S. government securities. • Question 12 1 out of 1 points According to the textbook, many people believe that the character Dorothy, in the book The Wonderful Wizard of Oz, represents Selected Answer: c. presidential candidate William Jennings Bryan. Answers: a. presidential candidate Barry Goldwater. b. President Abraham Lincoln. c. presidential candidate William Jennings Bryan. d. President William McKinley. • Question 13 1 out of 1 points The amount of required reserves a bank holds depends on the Selected Answer: d. required reserve ratio. Answers: a. currency ratio. b. demand-deposit ratio. c. excess-reserve ratio. d. required reserve ratio. • Question 14 1 out of 1 points Bank A has $75,000 in total reserves, and zero excess reserves. The required reserve ratio is 12 percent. Bank A has checkable deposits of Selected Answer: d. $625,000. Answers: a. $62,500. b. $84,000. c. $6,250,000. d. $625,000. e. $840,000 • Question 15 1 out of 1 points Bank A has checkable deposits of $10 million and total reserves of $1 million. The required reserve ratio is 9 percent. The bank has required reserves of Selected Answer: c. $900,000. Answers: a. $910,000. b. $90,000. c. $900,000. d. $1,000,000. e. There is not enough information provided to answer this question. • Question 16 1 out of 1 points The term federal reserve notes refers to coins minted by the U.S. Treasury. Selected Answer: False Answers: True False • Question 17 1 out of 1 points Changing from a barter economy to a money economy can reduce transaction costs. Selected Answer: True Answers: True False • Question 18 0 out of 1 points If a bank’s assets are $500 million and its liabilities are $380 million, then its net worth (bank capital) is ____________________. If the bank’s assets then rise by 6 percent at the same time that its liabilities rise by 5 percent, the percentage change in the bank’s net worth will be approximately _______________ percent. Selected Answer: a. $120 million; 1.2 Answers: a. $120 million; 1.2 b. $440 million; 10.2 c. $100 million; 11.2 d. $120 million; 9.2 • Question 19 1 out of 1 points In direct finance, funds are loaned and borrowed through a financial intermediary. Selected Answer: False Answers: True False • Question 20 1 out of 1 points Exhibit 12-1 Balance Sheet BANK A ($ millions) Assets Liabilities Required Reserves $20 Checkable Deposits $ 100 Excess Reserves 0 Nontransaction Deps 50 Loans 100 Borrowings 5 Securities 40 Bank Capital (A) Refer to Exhibit 12-1. How much bank capital does Bank A have (i.e.what dollar value goes in blank (A))? Selected Answer: c. $5 Answers: a. $20 b. $10 c. $5 d. $0. e. $50 • Question 21 1 out of 1 points If reserves equal $59 million and vault cash equals $29 million, it follows that Selected Answer: d. bank deposits at the Federal Reserve equal $30 million. Answers: 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. • Question 22 1 out of 1 points Which of the following illustrates a barter transaction? Selected Answer: a. A bushel of oranges is traded for a bushel of apples. Answers: 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 • Question 23 1 out of 1 points In the history of banking, warehouse receipts refer to receipts Selected Answer: c. that goldsmiths once issued acknowledging that they held a customer's gold. Answers: a. for storing furniture in a warehouse. b. for storing food and other perishables in a warehouse. c. that goldsmiths once issued acknowledging that they held a customer's gold. d. goldsmiths issued to each other when they borrowed gold. • Question 24 1 out of 1 points Because money __________________, people are _________________ likely to specialize in their work in a money economy. Selected Answer: c. eliminates the double coincidence of wants; more Answers: a. is a store of value; less b. is a unit of account; more c. eliminates the double coincidence of wants; more d. eliminates the need for holdings of precious metals; more • Question 25 1 out of 1 points Which of the following statements is false? Selected Answer: a. Money is the only good that can (or does) serve as a store of value. Answers: a. Money is the only good that can (or does) serve as a store of value. b. In a barter economy, there is no good that serves as a unit of account. c. There are higher transaction costs of making exchanges in a barter economy than in a money economy. d. Money functions as a medium of exchange, unit of account, and store of value. [Show Less]

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