ECON 102 Chapter Notes - Chapter 27: Debit Card, Financial Intermediary, Profit Motive
ECON 102 Full Course Notes
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QUESTION 31
The Board of Governors of the Federal Reserve System is
composed of seven members who are appointed by the President and approved by the Senate. | ||
composed of 12 members of the Senate and the U.S. House of Representatives. | ||
elected by the general public. | ||
composed of representatives from the country's 12 largest commercial banks. |
1.11 points
QUESTION 32
The Fed is said to be the "lender of last resort" in that
it charges a higher interest rate to borrowers than does any other bank. | ||
it functions as the government's bank only when commercial banks fail to do so. | ||
it makes loans to individuals whom commercial banks do not believe are credit-worthy. | ||
it stands ready to lend to any depository institution that it has decided should not fail. |
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QUESTION 33
The Federal Reserve System acts as the government's fiscal agent by
providing checking account services for the government. | ||
preparing the budget the President presents to Congress every year. | ||
determining how to finance a deficit. | ||
auditing taxpayers. |
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QUESTION 34
The Federal Reserve System was established in which year?
1913. | ||
1929. | ||
1865. | ||
1941. |
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QUESTION 35
By serving as the lender of last resort,
the Fed provides check clearing services. | ||
the Fed aids in the sale of government securities. | ||
the Fed supervises depository institutions. | ||
the Fed can prevent bank failures. |
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QUESTION 36
Depository institutions must
use and pay for the services of the Federal Reserve System. | ||
set their interest rates according to schedules established by the Federal Reserve System. | ||
keep a certain percentage of their deposits as reserves. | ||
turn over a percentage of their profits to the Federal Reserve System as payment for services provided by the Fed. |
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QUESTION 37
The Federal Reserve System has
50 district banks. | ||
24 district banks. | ||
12 district banks. | ||
7 district banks. |
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QUESTION 38
The part of the Federal Reserve System (the Fed) that holds the reserve balances of depository institutions is
the Board of Governors. | ||
the Federal Advisory Committee. | ||
the Federal Open Market Committee. | ||
the Federal Reserve district banks. |
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QUESTION 39
The potential for a financial breakdown at one financial institution to spread throughout the financial system is known as a
systemic risk. | ||
liquidity risk. | ||
lending risk. | ||
moral hazard. |
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QUESTION 40
A system in which depository institutions hold reserves that are less than the amount of total deposits is called
fiat money banking. | ||
required reserve banking. | ||
fractional reserve banking. | ||
central banking system. |
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QUESTION 41
Total reserves of private banks are
all customer deposits. | ||
the minimum amount banks need to hold against time deposits. | ||
federal reserve notes. | ||
deposits held at the Fed and vault cash. |
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QUESTION 42
A statement of assets and liabilities of any business entity is called
a cash flow statement. | ||
an income statement. | ||
a balance sheet. | ||
a statement of net worth. |
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QUESTION 43
Which of the following actions has no effect on the total money supply?
The Federal Open Market Committee buys government securities. | ||
There is a transfer of deposits from one bank to another bank. | ||
There is change in the money multiplier. | ||
The Federal Open Market Committee sells government securities. |
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QUESTION 44
Given a required reserve ratio of 20 percent, a commercial bank that has received a new deposit of $100 can make additional loans of
$80. | ||
$0. | ||
$400. | ||
$20. |
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QUESTION 45
The Federal Open Market Committee has responsibility for
appointing members to the Board of Governors of the Federal Reserve system. | ||
issuing orders to buy or sell government securities for the Fed. | ||
advising the Treasury Department on monetary policy. | ||
printing money. |
QUESTION 46
When the Fed buys a U.S. bond in the open market
its action has no effect on the total reserves or the money supply because the check it writes increases reserves at one bank but they fall at another. | ||
its action expands total reserves and the money supply. | ||
its action contracts total reserves and the money supply. | ||
total reserves increase by the amount of the purchase but the money supply stays the same. |
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QUESTION 47
When the Fed sells government securities,
reserves increase, leading to a decrease in the money supply by an amount more than the sale of the government securities. | ||
reserves decrease, leading to a decrease in the money supply by an amount more than the sale of the government securities. | ||
reserves increase, leading to a increase in the money supply by an amount more than the sale of the government securities. | ||
reserves decrease, leading to a increase in the money supply by an amount more than the sale of the government securities. |
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QUESTION 48
The maximum potential money multiplier is equal to
the reserve ratio. | ||
one minus the reserve ratio | ||
the inverse of the required reserve ratio. | ||
the number of dollars on reserve. |
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QUESTION 49
The potential money multiplier gives us
the growth in the money supply when income increases. | ||
the growth in real national income when the money supply increases. | ||
the maximum potential change in the money supply due to a change in income. | ||
the maximum potential change in the money supply due to a change in reserves. |
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QUESTION 50
An increase in the reserve ratio
increases the money multiplier. | ||
will cause banks to make more loans. | ||
has an expansionary effect on the money supply. | ||
has a contractionary effect on the money supply. |
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QUESTION 51
The Federal Deposit Insurance Corporation insures
banks against lawsuits. | ||
the deposits held in member banks. | ||
the deposits held in the Fed. | ||
the federal funds market. |
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QUESTION 52
Bank runs are a possibility because
in difficult times people want currency instead of demand deposits. | ||
the FDIC is inefficient. | ||
banks do not keep enough reserves to cover all their depository liabilities. | ||
bankers are often poor businesspeople. |
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QUESTION 53
The manner in which FDIC deposit insurance is set up in the United States encourages banks to
make riskier loans than they otherwise would. | ||
reject some loans that probably would be profitable. | ||
maintain excess reserves that are too great. | ||
be too conservative in their lending practices. |
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QUESTION 54
The Federal Deposit Insurance Corporation
discourages banks from engaging in excessive risk taking. | ||
was established after the Panic of 1907. | ||
only insures deposits in money-center banks. | ||
increases the stability of the banking system by reducing the likelihood of bank runs. |
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QUESTION 55
What are the two features of money that distinguish it from all other goods in the economy?
Money is government issued and it is redeemable for gold or silver. | ||
Money is part of every barter transaction and it is divisible. | ||
Money is accepted as a medium of exchange and it is the common unit of account used to express prices. | ||
Money is a common unit of account and it is also can be traded for other currencies at a guaranteed exchange rate. |
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QUESTION 56
Holding money to meet unplanned expenditures and emergencies is known as
asset demand. | ||
precautionary demand. | ||
aggregate demand. | ||
transactions demand. |
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QUESTION 57
When people want to hold money to make regular planned expenditures, this is
the transaction demand for money. | ||
the spending demand for money. | ||
the asset demand for money. | ||
the precautionary demand for money. |
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QUESTION 58
When interest rates rise, the transactions demand for money usually
decreases. | ||
increases. | ||
decreases initially and then increases to the original position. | ||
does not change. |
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QUESTION 59
As nominal Gross Domestic Product (GDP) rises, the transactions demand for money
increases, and the money demand curve shifts to the right. | ||
remains constant, and the money demand curve remains the same. | ||
decreases, and the money demand curve shifts to the left. | ||
increases, and the money demand curve shifts to the left. |
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QUESTION 60
One of the economic costs of holding currency is that
it fulfills no precautionary role. | ||
it fulfills no transactions role. | ||
it earns no interest income. | ||
its real value always increases. |