Chapter 13 - Money and Banking

1		Statement I: Money does an excellent job as a store of value. Statement II: Although we generally use currency, gold and silver are our basic forms of money.
			A)	Statement I is true and statement II is false.
			B)	Statement II is true and statement I is false.
			C)	Both statements are true.
			D)	Both statements are false.
2		Which is the most accurate statement?
			A)	Barter accounts for about 25 percent of the dollar value of business done in the United States.
			B)	It is harder to barter than to use money.
			C)	The U.S. dollar can be traced back to the English monetary system at the time of the American Revolution.
			D)	The U.S. dollar is backed by gold.
3		Statement I: Credit cards are a form of money. Statement II: M2 is about double M1.
			A)	Statement I is true and statement II is false.
			B)	Statement II is true and statement I is false.
			C)	Both statements are true.
			D)	Both statements are false.
4		The largest component of M2 is
			A)	M1.
			B)	savings deposits (including money market deposit accounts).
			C)	small time deposits.
			D)	money market mutual funds (held by individuals).
5		Between 1992 and 1996 the rate of growth of our money supply
			A)	rose sharply.
			B)	rose slightly.
			C)	fell slightly.
			D)	fell sharply.
6		Which is the most accurate statement?
			A)	The Federal Reserve does not know how much money is circulating in the United States.
			B)	Savings deposits are a major part of our money supply.
			C)	M2 is larger than M3.
			D)	Very little American money circulates abroad.
7		The transactions, precautionary, and speculative motives for holding money were formulated by
			A)	Alan Greenspan.
			B)	Marshall McLuhan.
			C)	Aristotle.
			D)	David Ricardo.
			E)	John Maynard Keynes.
8		When the interest rate goes down, the quantity of money demanded
			A)	rises.
			B)	falls.
			C)	remains the same.
9		According to the liquidity trap,
			A)	at very low interest rates people will hold their money rather than lend it out or put it in the bank.
			B)	people would rather be liquid than have their money "trapped" in illiquid assets.
			C)	during recessions, many firms that are profitable go bankrupt because of a shortage of cash.
			D)	people hold their money while they wait for corporate stocks to fall.
10		Modern banking can trace its roots to
			A)	prehistoric times.
			B)	biblical times.
			C)	the Middle Ages.
			D)	the time of the American revolution.
			E)	the early 20th century.
11		The five largest banks each have assets of over
			A)	$100 million.
			B)	$1 billion.
			C)	$10 billion.
			D)	$100 billion.
			E)	$1 trillion.
12		Before 1980 only __________ were legally considered to be banks.
			A)	savings and loan associations.
			B)	mutual savings banks.
			C)	commercial banks.
			D)	credit unions.
			E)	consumer finance companies.
13		"Welfare banks" are
			A)	owned by welfare recipients.
			B)	run by city and country welfare departments.
			C)	credit unions.
			D)	check-cashing stores.
14		The creation of money is carried out by
			A)	individuals.
			B)	banks.
			C)	private business firms.
			D)	the U.S. Treasury.
15		The Federal Deposit Insurance Corporation does each of the following except: (Hint: This is a tricky question.)
			A)	insure all bank deposits of $100,000 or less.
			B)	act as a fire wall against bank panics.
			C)	bail out banks that have failed.
			D)	finance itself by assessing bank deposits.