Exam 3

1.

Almost all money in the world today is ____ money

a. commodity
b. fiat
c. industrial
d. contractural

2.

Prior to the 1900s, most countries in the world used ______ as their money.
a. only gold
b. only silver
c. both silver and gold
d. either silver or gold, but not both

3.

(True/False) On Yap large rocks are used as money, tobacco leaves were once money in the
USA.

4.

Which of the following is not one of the functions of money?

a. medium of exchange
b. store of value
c. moderator of wealth
d. unit of account

5.

When David Hume said that money was the oil of trade, he meant which function of money?
a. medium of exchange
b. store of value
c. moderator of wealth
d. unit of account

6.

An economic system without money is a _____________ system.

7.

____________ is a word that means easy to spend

8.

(True/False) An increase in the money supply should lower interest rates.

9.

The largest bill printed by the US is the past was the:

a. $100
b. $1,000
c. $10,000
d. none of the above

_____

10.

(True/False) In the last 20 years of the 1800s, prices fell (deflation) almost continuously.
This was caused by the U.S. unofficially going on a gold standard, without enough gold
available to fund the system where it was.

11.

(True/False) The changes made in US currency were made to lower the cost of printing and
extend the life of the bills.

12.

In todays financial system, the value of our money depends only on our _______ in it,
according to your professor.

13.

(True/False) An increase in the money supply should lower inflation.

14.
_____

The Federal Reserve is intended to be:

a. independent of Congress and the president to keep inflation lower
b. independent of Congress and the president to keep unemployment lower
c. controlled by Congress and the president to keep inflation lower
d. controlled by Congress and the president to keep unemployment lower

15.

The central bank increases the money supply by __________ bonds.

16.

The Fed is divided into 12 districts which are supposed to:

a. simplify the Feds accounting
b. each contain 1/12 of the population, creating a monetary congress
c. represent the unique economic interests of different parts of the country
d. all members of congress to appoint those who run their local economy

17.

There are supposed to be ______ members of the Fed Board of Governors, who are supposed
to serve for ______ years.

18.

Most of the money in the world is:

a. cash printed by the government
b. created by banks when they make loans
c. created through printing bonds
d. created by banks taking deposits

19.

(True/False) A credit default swap is really an insurance policy, but one that you can take out
on something you dont own (someone elses mortgage, someone elses bond, etc.).

20.

The entity intended to be the central bank for the world is the:
a. ECB
b. IMF
c. World Bank
d. Wynn Resorts

21.

When the entity in #18 makes a loan to a country, it requires a(n) _____ program in exchange
a. re-invigoration
b. austerity
c. spending
d. re-capitalization

22.

Banks borrow from each other overnight. In the US, they are charged the ______ rate, in the
rest of the world, they are charged the ______.
a. discount, LIBOR
b. Federal Funds, LIBOR
c. LIBOR, LIBOR
d. Federal Funds, discount

23.

_____ (True/False) Several countries in Central America and South America have eliminated
their own money in favor of using the dollar. The US opposes this due to the increase it has
caused in counterfeit money imported into the US.

24.

A currency board issues money:

a. backed partly by metals such as gold or silver
b. backed by the money of other countries such as the U.S. or Japan
c. backed by assets such as stocks from U.S. or Japanese stock markets
d. without backing of any kind

____

25.
____

The changes made to U.S. currency have been made to:

a. lengthen the time the money is used in circulation
b. prevent counterfeiting
c. lower the costs of printing
d. b and c

26.

_________________________________ and __________________________________ are the two

major components of M1.

27.

Greshams Law states that:

a. supply creates its own demand
b. bad money drives good money out of circulation
c. good money drives bad money out of circulation
d. gold and silver will drive all other currencies out of circulation

____

28.
____

In a fractional reserve banking system, banks must keep a percentage of their ________:
a. actual reserves
b. deposits
c. loans
d. total liabilities

29.

The required reserve ratio used most often today is ______________________ percent.

30.

The formula for the money multiplier is: _____________________________

31.

(True/False) All banks must have a Federal charter, and a charter from each state in which
they operate.

32.

(True/False) Credit unions and thrifts do not need a charter, and do not have deposit
insurance.

Ninth National Bank

Cash: $5,000
Securities: $4,000
Deposits: $20,000
Required Reserve Ratio = 10%
33.

The 9th National Bank as listed above has $______________________________ in loans.

34.

The required reserves of the 9th National Bank are $ _____________________________

35.

The actual reserves of the 9th National Bank are $ _____________________________

36.

The excess reserves of the 9th National Bank are $ _____________________________

37.

A deposit of $2,000 in cash could create a maximum of $__________________________ in

deposits (including the original $2,000).

38.

Draw the T account for the Ninth National Bank.

39.

Redo the T account assuming a new customer comes to the bank with $500 in cash to deposit.

40.

(true/false) Based on the intent of law, banks should never be leveraged more than about
eight to 1, yet some were as high as 30 and 40 to 1 in 2007.

41.

(True/False) Part of the proposal to fix the financial crisis was to shift to one charter for all
banks, but it failed in Congress.

42.

The _________ Act separated banking and stock brokers. It has since been repealed.

43.

(True/False) Prior to 2000, banks in the US could only operate in one state.

44.

(True/False) Congress in 1999 passed a law which prohibited the government from creating
rules that regulated mortgage backed securities.

45.

What are the functions of a central bank?

46.

Why is the Fed supposed to be independent from Congress and the President and how do we
keep it independent?