Dr. C.

Chen
2013

CH 13
Money and Banking
Multiple Choice Questions
1.

The direct exchange of one good for another is known as:

A) A basic transaction. B) Barter. C) A debit. D) A trade permit.

2.

Which of the following is considered to be an essential characteristic of money?

A) It serves as a medium of exchange.
C) It serves as a standard of measurement.
B) It serves as a store of value.
D) All of the above.

3.

Money is functioning as a medium of exchange when you:

A) Buy lunch at a restaurant.
B) Use it to compare the cost of a steak dinner to the cost of a hamburger.
C) Decide to save your cash for future education.
D) All of the above.

4.

Which of the following is considered as money in economics?

A) The coins you use for transaction.
B) The Visa credit card you carry.
C) The reward points of online retail.
D) All of the above.

5.

The basic money supply (M1) includes:

A) Currency, transactions accounts, and traveler's checks.
B) Currency, transactions accounts, and savings account balances.
C) Currency, transactions accounts, and credit card balances.
D) Currency, savings account balances, and traveler's checks.

6.

The smallest component of the basic money supply (M1) is:

A) Gold. B) Money in checking accounts. C) Currency.

D) Traveler's checks.

7.

James takes $50 out of her cookie jar and deposits it in his checking account. As a result of this transaction,
M1 eventually:
A) Does not change.
C) Increases by less than $50.
B) Increases by more than $50.
D) Increases by $50.

8.

Which of the following functions like near money?

A) Savings accounts.
B) Money-market mutual funds.

C) Certificates of deposit.
D) All of the above.

9.

Money creation occurs when:

A) A person puts cash in a bank.
B) A person deposits a payroll check in their checking account.
C) Banks make loans to borrowers.
D) The Federal Reserve increases the reserve requirement.

10.

The main goal of a private commercial bank is to:

A) Earn a profit. B) Create money. C) Initiate loans.

11.

The reserve ratio is equal to:

D) Help customers.

Dr. C. Chen
2013

12.

A) Bank reserves plus total deposits.

B) Bank reserves divided by total deposits.

C) Total deposits minus bank reserves.

D) Total deposits divided by bank reserves.

The legal minimum-reserve ratio is set by:

A) Commercial banks. B) Treasury department.

C) Federal Reserve bank.

D) Congress.

13.

Suppose a bank has $300,000 in deposits and a required reserve ratio of 15 percent. Then required reserves
are:
A) $4,500. B) $45,000. C) $300,000. D) $345,000.

14.

Initially a bank has a required reserve ratio of 20 percent. If $10,000 is deposited in the bank, then the bank
can:
A) Lend $10,000.
C) Hold less than $2,000 as reserves.
B) Lend $8,000.
D) All of the above.

15.

The money creation multiplier is defined as:

A) A bank's transaction deposits divided by its reserves.
B) The amount of a bank's extra reserves divided by its required reserves.
C) The amount of a bank's required reserves divided by its total deposits.
D) 1 divided by the required reserve ratio.

16.

If the banking system has a required reserve ratio of 20 percent, then the money multiplier is:
A) 0.2. B) 0.8. C) 1.25. D) 5.0.

17.

If the required reserve ratio (RRR) in the U.S. is 40 percent and Allen deposits a $10,000 U.S. National
Bank check from his parents into his checking account in another U.S. bank, then the change in the U.S.
money supply should be
A) No change.
B) A $4,000 increase.
C) A $15,000 increase.
D) A $25,000 increase.

18.

If the required reserve ratio (RRR) in the U.S. is 40 percent and Allen receives $10,000 wiring money from
his parents in Germany into his U.S. National Bank checking account, then the change in the U.S. money
supply should be
A) No change.
B) A $4,000 increase.
C) A $15,000 increase.
D) A $25,000 increase.

19.

If the required reserve ratio (RRR) in the U.S. and Germany are both 40 percent and Allen receives $10,000
wiring money from his parents in Germany into his U.S. National Bank checking account, then the change
in the Germany money supply should be
A) No change.
B) A $4,000 decrease.
C) A $10,000 decrease.
D) A $25,000 decrease.

20.

If the required reserve ratio (RRR) in the U.S. is 40 percent and Allen gathers $10,000 from cash sales and
deposit the money into his U.S. National Bank checking account, then the change in the U.S. money supply
should be
A) No change.
B) A $4,000 increase.
C) A $15,000 increase.
D) A $25,000 increase.

Dr. C. Chen
2013

21.

For circulation, the commodity value of coins is generally less than their face value because
A) The Government has insufficient gold to support the issued coins.
B) People will collect coins if their commodity value is higher or equal to their face value.
C) Coins are only good for cash transaction.
D) The weight of coins cannot be too high.

22.

Which of the following macroeconomic view believes that the rising money supply will only cause
inflation?
A) Classical view.
B) Keynesian view.
C) Monetarist.
D) Neoclassical view.

23.

Assume that an economys velocity of money circulation (V) is 4 and its nominal GDP (P*Y) is $20
trillion. How much money supply is enough for transaction in the economy? (Hint: apply Equation for
Exchange)
A) $2 trillion
B) $5 trillion
C) $20 trillion
D) $80 trillion

24.

Which of the following CANNOT explain why the multiple creation of money supply from checking
deposit is less than the theoretical result?
A) Cash leakage from money borrowers.
B) Banks cannot always lend all the excess reserve to customers.
C) In order to avoid risk, banks set a reserve ratio higher than the required reserve ratio.
D) The Fed buys bonds from banks frequently.

25.

In the view of monetarists with the Equation of Exchange, if the economic growth rate is 3% and
inflation rate is 1%, then the money supply growth rate should be ____ to support money demand?
A) 2%
B) 3%
C) 4%
D) 5%

Dr. C. Chen
2013

Answer Key
1. B
2. D
3. A
4. A
5. A
6. D
7. B
8. D
9. C
10. A
11. B
12. C
13. B
14. B
15. D
16. D
17. A
18. D
19. C
20. C
21. B
22. A
23. B
24. D
25. C