Question 1

When cash or coins are deposited in a transactions account at a bank,the money supply immediately increases by the amount of the deposit multiplied by the money multiplier.
The process of deposit creation does not occur until the money is lent out to a new customer.

Accepted Answer

When cash or coins are deposited in a transactions account at a bank, the bank is required to keep a percentage of that deposit as reserves and only lend out the remaining amount. This reserve requirement limits the amount of money that can be created through loans and the money multiplier effect. Therefore, the process of deposit creation begins as soon as the bank lends out a portion of the deposit, not when it lends out to a new customer.

Question 2

Checking accounts perform the same market functions as cash.
The essence of money isn't its taste,color,or feel,but rather its ability to purchase goods and services.

Accepted Answer

Checking accounts are a form of electronic money that allows individuals to make purchases and pay bills. They are considered a liquid asset and can be used in the same way as cash to make transactions. The value of money is not based on its physical appearance but on its ability to buy goods and services, which is commonly known as its purchasing power.

Question 3

Only the federal government can create money.
Money can also be created through the banking system with the money multiplier.

Accepted Answer

While the federal government has the power to create money, money can also be created through the banking system with the money multiplier. When banks create loans, they are effectively creating new money in the economy. This is known as fractional reserve banking, where a bank only needs to keep a fraction of their deposits in reserve and can lend out the rest. The amount of money that banks can create through this process is limited by the reserve requirement set by the central bank.

Question 4

One In the News article is titled "CD Yields Stay Unchanged." From this article and from reading the text,one knows that

Accepted Answer

CD balances are included in M2 but not in M1. M2 includes all of M1 plus savings deposits, time deposits like CDs, and other near-money assets.

Question 5

If the required reserve ratio is 10 percent,a $100 deposit will ultimately allow the banking system to create how much money?

Accepted Answer

The banking system can create money by lending out a portion of the deposit that is not held as reserves. With a required reserve ratio of 10 percent, the bank can lend out 90 percent of the deposit. This process can continue through multiple rounds of lending and deposits, known as the money multiplier effect. Therefore, the total amount of money that can be created is 10 times the original deposit of $100, resulting in a total of $1,000.

Question 6

M1 is the most liquid form of money.
M1 is the most liquid form of money,followed by M2.

Accepted Answer

M1 includes cash, demand deposits, and other checkable deposits that are easily accessible making it the most liquid form of money. M2 includes M1 plus savings deposits, time deposits, and money market mutual funds, which are less liquid than M1.

Question 7

According to a World View article titled "The Cashless Society," the Russian economy's turn to a barter system caused a

Accepted Answer

A barter system typically results in a less efficient distribution of goods and can lead to a decrease in overall production, which implies that the economy has moved inside or further inside its production possibilities curve. This is because goods and services may not be exchanged as easily or efficiently as they would with a monetary system. A barter system does not typically cause a shift in the production possibilities curve outward, as the article does not suggest any increase in productive capacity.

Question 8

Without money,the process of acquiring goods and services would be much more efficient.
Barter would be less efficient than using money because it would take extra time and effort to find trading partners.

Accepted Answer

Without money, acquiring goods and services would be less efficient because barter requires a double coincidence of wants, making it time-consuming and cumbersome compared to using money as a medium of exchange.

Question 9

One In the News article titled "CD Yields Stay Unchanged" suggests that

Accepted Answer

The answer of One In the News article titled "CD...

Question 10

The measure of the money supply M1 includes all of the following except

Accepted Answer

The measure of the money supply M1 includes currency in circulation, balances in transactions accounts (such as checking accounts), and travelers checks, but it does not include balances in savings accounts.

Question 11

All checking accounts are transactions accounts.
Any checking account allows the holder to pay sellers directly for goods.So it is considered a transactions account.

Accepted Answer

All checking accounts are designed to perform transactions such as making payments, transferring funds, and receiving deposits. As the holder of a checking account, one can pay sellers directly for goods and services, which supports the statement that any checking account is considered a transactions account.

Question 12

When cash or coins are deposited in a transactions account at a bank,the size of M1 changes.
M1 includes currency in circulation and deposits in transactions accounts.So making the deposit does not actually change the amount of money in M1.

Accepted Answer

When cash or coins are deposited in a transactions account at a bank, the amount of deposits in transactions accounts increases, leading to a change in the size of M1. Therefore, making the deposit does change the amount of money in M1.

Question 13

To calculate required reserves,you must multiply the required reserve ratio by the amount of transactions account balances on the bank's balance sheet.
A bank must hold the required reserves as determined by the Fed; this is a percentage or fraction of its total deposits.

Accepted Answer

This statement is true. Banks are required to hold a percentage of their total deposits as reserves, which is determined by the Federal Reserve's required reserve ratio. The calculation for required reserves involves multiplying this ratio by the amount of transactions account balances on the bank's balance sheet.

Question 14

A reduction in the minimum required reserve ratio will reduce the money multiplier.
A reduction in the minimum required reserve ratio will actually increase the money multiplier.

Accepted Answer

A reduction in the minimum required reserve ratio allows banks to lend more of their deposits, thereby increasing the money multiplier.

Question 15

Which of the following is included in M1?

Accepted Answer

M1 includes only the most liquid forms of money, which are balances in transactions accounts such as checking accounts. Savings accounts and certificates of deposit are less liquid, while treasury bills are not considered part of the money supply.

Question 16

If the minimum reserve ratio is 20 percent,then $1 of reserves can support a maximum of $10 more in transactions deposits.
In this case,$1 in deposits can support $5 in transactions deposits because the money multiplier is 5.

Accepted Answer

The given statement is incorrect. The money multiplier is calculated using the formula:

Money multiplier = 1 / Required reserve ratio

In this case, the required reserve ratio is 20%, so the money multiplier would be:

Money multiplier = 1 / 0.2 = 5

This means that each $1 of reserves can support up to $5 of transactions deposits, not $10. Therefore, the correct answer is B (False).

Question 17

The required reserve ratio is the

Accepted Answer

The required reserve ratio is the fraction of total deposits that banks must keep on reserve and cannot lend out. This reserve requirement is set by the Federal Reserve and is used as a tool to control the money supply in the economy. The higher the reserve requirement, the less money banks can lend out and the lower the money supply.

Question 18

One In the News article titled "CD Yields Stay Unchanged" suggests that

Accepted Answer

The answer of One In the News article titled "CD...

Question 19

Each bank can lend an amount equal to its total reserves and no more.
The bank can lend only a fraction of its total deposits because the Fed requires it to hold some as reserves.

Accepted Answer

The statement is incorrect. Banks are able to lend more than their total reserves through the process of fractional reserve banking, where they only need to hold a fraction of their total deposits as reserves. This allows them to create new money by making loans that exceed their actual reserves.

Question 20

Transactions accounts allow for direct payment to a third party.
A checking account or other transactions account allows a buyer to pay the seller from the account.

Accepted Answer

Transactions accounts such as checking accounts allow for direct payment from the account to a third party, allowing a buyer to pay a seller directly.

Quiz 13: Money and Banks

When cash or coins are deposited in a transactions account at a bank,the money supply immediately increases by the amount of the deposit multiplied by the money multiplier. The process of deposit creation does not occur until the money is lent out to a new customer.

Checking accounts perform the same market functions as cash. The essence of money isn't its taste,color,or feel,but rather its ability to purchase goods and services.

Only the federal government can create money. Money can also be created through the banking system with the money multiplier.

One In the News article is titled "CD Yields Stay Unchanged." From this article and from reading the text,one knows that

If the required reserve ratio is 10 percent,a $100 deposit will ultimately allow the banking system to create how much money?

M1 is the most liquid form of money. M1 is the most liquid form of money,followed by M2.

According to a World View article titled "The Cashless Society," the Russian economy's turn to a barter system caused a

Without money,the process of acquiring goods and services would be much more efficient. Barter would be less efficient than using money because it would take extra time and effort to find trading partners.

One In the News article titled "CD Yields Stay Unchanged" suggests that

The measure of the money supply M1 includes all of the following except

All checking accounts are transactions accounts. Any checking account allows the holder to pay sellers directly for goods.So it is considered a transactions account.

When cash or coins are deposited in a transactions account at a bank,the size of M1 changes. M1 includes currency in circulation and deposits in transactions accounts.So making the deposit does not actually change the amount of money in M1.

To calculate required reserves,you must multiply the required reserve ratio by the amount of transactions account balances on the bank's balance sheet. A bank must hold the required reserves as determined by the Fed; this is a percentage or fraction of its total deposits.

A reduction in the minimum required reserve ratio will reduce the money multiplier. A reduction in the minimum required reserve ratio will actually increase the money multiplier.

Which of the following is included in M1?

If the minimum reserve ratio is 20 percent,then $1 of reserves can support a maximum of $10 more in transactions deposits. In this case,$1 in deposits can support $5 in transactions deposits because the money multiplier is 5.

The required reserve ratio is the

One In the News article titled "CD Yields Stay Unchanged" suggests that

Each bank can lend an amount equal to its total reserves and no more. The bank can lend only a fraction of its total deposits because the Fed requires it to hold some as reserves.

Transactions accounts allow for direct payment to a third party. A checking account or other transactions account allows a buyer to pay the seller from the account.