Question 1

Which of the following best describes the 'double coincidence of wants' problem in a barter economy?

Accepted Answer

It refers to the need for both parties in a transaction to want what the other has at the same time.

Question 2

Which function of money is illustrated when prices of goods are quoted in dollars?

Accepted Answer

Money as a unit of account

Question 3

Suppose $200 is transferred from checkable deposits to a money market account. What is the effect on M1 and M2?

Accepted Answer

M1 decreases by $200; M2 remains unchanged.

Question 4

A bank has $50 million in checkable deposits and is required to hold 10% in reserves. How much are required reserves?

Accepted Answer

$5 million

Question 5

If a bank has $8 million in total reserves and $2 million in required reserves, what are its excess reserves?

Accepted Answer

$6 million

Question 6

Which of the following is NOT included in M1?

Accepted Answer

Money market mutual funds

Question 7

What gives modern fiat money its value?

Accepted Answer

Its general acceptability in exchange

Question 8

Which of the following is an example of indirect finance?

Accepted Answer

A person deposits money in a bank, which then lends it to a business.

Question 9

A bank’s assets are $120 million and its liabilities are $110 million. What is its capital (net worth)?

Accepted Answer

$10 million

Question 10

Which scenario best illustrates a moral hazard problem?

Accepted Answer

A borrower takes on riskier investments after receiving a loan, knowing the lender bears the risk.

Question 11

If the required reserve ratio is 5% and a bank has $40 million in checkable deposits, what is the required reserve amount?

Accepted Answer

$2 million

Question 12

Which of the following is true about credit cards in relation to the money supply?

Accepted Answer

Credit cards do not represent money; they represent loans that must be repaid.

Question 13

A bank reduces its deposits at the Fed by $3 million and increases its vault cash by $3 million. What happens to its total reserves?

Accepted Answer

Total reserves remain unchanged.

Question 14

If a bank’s liabilities exceed its assets, what is the bank’s financial condition?

Accepted Answer

The bank is insolvent.

Question 15

Which of the following is a direct result of asymmetric information in financial markets?

Accepted Answer

Adverse selection and moral hazard

Question 16

A bank has $10 million in reserves, $2 million in required reserves, and a required reserve ratio of 10%. What are its checkable deposits?

Accepted Answer

$20 million

Question 17

Which of the following is NOT a function of money?

Accepted Answer

Money as a means of production

Question 18

Which of the following would increase a bank’s capital (net worth)?

Accepted Answer

An increase in the value of the bank’s assets

Question 19

If excess reserves are $3 million and required reserves are $2 million, what are total reserves?

Accepted Answer

$5 million

Question 20

Which of the following is included in M2 but NOT in M1?

Accepted Answer

Savings deposits

Money, Banking, and the Financial System: Study Notes

Study Guide - Practice Questions