ECO 473 Test Bank 1

ECO 473 Test Bank 1 Which of the following is not included in M1? a. currency b. traveler's checks c. transaction deposits d. savings deposits e. checking accounts - d. savings deposits The functions of money include all of the following, except as a: a. medium of exchange b. store of value c. barter d. unit of account e. standard of deferred payment - c. barter Monetary aggregates are groupings of financial assets that are combined based on their degree of liquidity. Which of the following is most liquid? a. M1 b. M2 c. M3 d. both M1 and M2 are equally liquid, and more so than M3 e. M1, M2, and M3 are all equally liquid - a. M1 Which of the following would be consistent with a "fiat" money? a. it is portable b. it is a commodity money c. it can be converted into a precious metal d. all of the above - a. it is portable Which of the following is true about "debasing?" a. if anything, it will cause deflation b. it promotes the circulation of less popular metals c. it cannot be done to commodity money d. it cannot be done to representative money e. all of the above are true - e. all of the above are true The money measure M2 includes: a. savings deposits b. currency c. traveler's checks d. demand deposits at financial institutions e. all of the above - e. all of the above A barter system requires: a. a medium of exchange b. a double coincidence of wants c. use of a commodity money d. prices measured in nominal terms e. all of the above - b. a double coincidence of wants Which of the following is the least liquid financial asset? a. currency in your pocket b. a savings deposit c. diamonds d. traveler's check e. a US savings bond - e. a US savings bond Which of the following would likely best serve as a commodity money? a. US dollar bills b. gold c. tomatoes d. feathers e. hydrogen gas - b. gold You walk into a store in Mexico. The prices are in pesos. The owner will accept pesos or dollars. In this case, we can say that: a. the peso is the unit of account b. the dollar is a medium of exchange c. the peso is a medium of exchange d. all of the above e. none of the above - d. all of the above As Rothbard points out, the monetary units that nations have used were: a. arbitrarily created by kinds, emperors, or other national leaders b. measures of differing weights of gold or silver c. never exchangeable for a commodity d. always based on a metric-like system e. none of the above - b. measures of differing weights of gold or silver What types of liabilities will a successful bank have? a. reserves (vault cash) b. loans c. demand deposits d. all of the above e. none of the above - c. demand deposits Which of the following accurately characterizes a warehouse bank? a. with a reputation for integrity, their receipts will be traded as money b. the deposits they hold are considered an asset of the bank c. they first emerged in the western parts of the US during the 1850s d. they earn an income by charging interest on the loans they give out e. all of the above - a. with a reputation for integrity, their receipts will be traded as money When a corporation forgoes paying a dividend to expand its business, it is engaging in: a. internal finance b. external finance c. hybrid finance d. internation finance e. all of the above - a. internal finance Which of the following is an example of direct finance? a. a home buyer takes a mortgage b. you borrow money from a friend for lunch c. your parents buy life insurance d. all of the above e. none of the above - c. your parents buy life insurance Which of the following involves a financial intermediary? a. a credit card purchase b. buying stock online c. buying renter's insurance d. all of the above e. none of the above - d. all of the above The problem for lenders, that highest risk borrowers tend to be the most eager to take loans, is an example of: a. adverse selection b. moral hazard c. internal finance d. asymmetric hazard e. the "too big to fail" dilemma - a. adverse selection In the absence of money, people: a. must barter to trade b. produce a greater variety of goods themselves c. face the problem of "double coincidence of wants" d. all of the above e. none of the above - d. all of the above Money: a. is anything generally accepted for trade b. does not have to be valuable except as a means of trade c. can allow people to save more easily d. all of the above e. none of the above - d. all of the above During a period of hyperinflation, money is not functioning well as a: a. medium of exchange b. unit of account c. store of value d. all of the above - c. store of value Slips representing gold deposits with a bank are an example of _____ money. a. fiat b. representative c. credit d. commodity e. none of the above - b. representative Cigarettes are an example of _____ money. a. fiat b. representative c. credit d. commodity e. none of the above - d. commodity Diamonds would be good to use as money because they are: a. divisible b. durable c. portable d. all of the above e. only b and c - e. only b and c If an economy uses furs as money and the supply is suddenly cut in half, then prices of other foods in terms of furs will: a. double b. be halved c. stay the same d. rise, but to an uncertain extent e. fall, but to an uncertain extent - b. be halved Default risk is a potential problem for which of the following form(s) of money? a. commodity b. representative c. credit d. all of the above e. none of the above - c. credit Which of the following is part of any measure of the money supply? a. cash b. mutual funds c. bank reserves d. commercial loans e. bank equity - a. cash Which of the following is/are desirable attributes of a medium of exchange? a. durability b. elasticity of supply c. divisibility d. portability e. all of the above - e. all of the above According to Rothbard, paper money was issued and used in the 1600s in the Massachusetts colony: a. to pay soldiers when they failed to loot enough from the French b. and issued in only small amounts that were quickly redeemed c. only once prior to the Revolutionary War d. all of the above e. none of the above - a. to pay soldiers when they failed to loot enough from the French Which of the following is an example of a source of internal finance? a. corporate bonds b. withheld earnings c. commercial loans d. commercial paper e. none of the above - b. withheld earnings Which of the following is a technique lenders use to alleviate the adverse selection problem? a. checking credit ratings b. monitoring borrower activity c. restrictive covenants d. all of the above e. none of the above - d. all of the above Which of the following is a technique lenders use to alleviate moral hazard problems? a. specialized lending b. diversified lending c. requiring collateral d. checking credit ratings e. all of the above - d. checking credit ratings Which of the following are examples of transactions faced by lenders? a. accounting fees b. legal fees c. monitoring costs d. all of the above e. none of the above - b. legal fees Restrictive covenants are required by lenders to help solve the problem of: a. adverse selection b. moral hazard c. transactions costs d. all of the above - b. moral hazard Banks are said to ration credit when they refuse to lend above a certain interest rate. The purpose of such a policy is to minimize _____ of lending. a. adverse selection problems b. moral hazard problems c. transactions costs d. all of the above e. none of the above - d. all of the above According to Salerno, the mystery of Banking is considered Murray Rothbard's: a. most important work b. least appreciated work c. longest work d. most widely cited work e. most difficult to understand work - b. least appreciated work According to Rothbard, which of the following have historically been used as money? a. Cowrie shells b. beaver c. tobacco d. iron hoes e. all of the above - e. all of the above Persistent and sustained inflation can be the result of: a. a continuous fall in the supply of goods b. a continuous rise in the supply of money a continuous fall in the demand for goods d. all of the above e. only a and b - e. only a and b How can a bank increase its level of reserves? a. buying securities b. increasing borrowings c. making loans d. all of the above e. none of the above - b. increasing borrowings Which of the following is NOT a method banks use to control credit risk? a. specialization b. credit rationing c. gap analysis d. collateral requirements - c. gap analysis Which of the following is a method banks use to deal with interest rate risk? a. gap analysis b. restrictive covenants c. specialization d. compensating balances e. all of the above - a. gap analysis What are the two main categories of profit making assets on a bank's balance sheet? a. loans and securities b. reserves and loans c. bonds and deposits d. borrowings and deposits e. loans and deposits - a. loans and securities An employee who is primarily concerned with making sure the bank has enough reserves is concerned about the bank's: a. liquidity b. liability c. asset status d. capital adequacy e. none of the above - a. liquidity As Rothbard describes, in the market for a good, the supply is _____ and the demand is _____. a. objective; objective b. objective; subjective c. subjective; objective d. subjective; subjective - b. objective; subjective Unit banks: a. have no branches b. have a local monopoly c. have little incentive to innovate d. all of the above e. none of the above - d. all of the above Bill has chickens that lay eggs. Bob has pigs that can be turned into tasty bacon. Joe has materials to make 3-legged stools. Bill wants a stool, but Joe wants bacon. Lucky for Bill, Bob wants eggs. In order for Bill to acquire a 3-legged stool what must serve as a medium of exchange? a. eggs b. bacon c. 3-legged stools d. chickens e. pigs - b. bacon The British "pound sterling" originally was a monetary unit that represented: a. a pound of bronze b. a pound of gold c. a pound of silver d. a pound of copper e. an ounce of gold - c. a pound of silver Which of the following do not generate fees for banks? a. credit cards b. securities loans c. reserves d. the use of ATMs – c. reserves According to Rothbard, the two commodities that have dominated as money over time have been: a. gold and bronze b. silver and bronze c. gold and silver d. gold and wheat d. gold and wheat e. silver and fish - c. gold and silver In the "market" for money, an increase in supply will create _____ and lead to a _____. a. a shortage; rise in the PPM b. a shortage; fall in the PPM c. a surplus; rise in the PPM d. a surplus; fall in the PPM - a. a surplus; fall in the PPM In the "market" for money, a decrease in supply will create ____ and will create a _____. a. a shortage; rise in the PPM b. a shortage; fall in the PPM c. a surplus; rise in the PPM d. a surplus; fall in the PPM - a. a shortage; rise in the PPM In the "market" for money, an increase in demand will create ____ and will create a _____. a. a shortage; rise in the PPM b. a shortage; fall in the PPM c. a surplus; rise in the PPM d. a surplus; fall in the PPM - a. a shortage; rise in the PPM Suppose we observe the following prices: eggs - $1/dozen, butter - $2/pound, shoes - $50/pair, MP3 player - $100. Which of the following is true about the purchasing power of $1? a. 1 dozen eggs b. 1/2 pound of butter c. 1/50 pair of shoes d. all of the above e. none of the above - d. all of the above Which of the following is part of the monetary base? a. Federal Reserve notes b. Bonds c. discount loans d. gold certificates e. none of the above - a. Federal Reserve notes Who does Rothbard claim demonstrated that money could not have been created by the state? a. John Maynard Keynes b. Ludwig von Mises c. Friedrich Hayek d. Adam Smith e. Karl Marx - b. Ludwig von Mises According to Rothbard, a barter system limits: a. the division of labor b. the production of goods and services c. the ability of businesses to calculate profits and losses d. all of the above e. none of the above - d. all of the above According to Rothbard, classical economists associated with the _____ did not understand that checking accounts (bank deposits) were part of the money supply. a. currency school b. money standard school c. fiat school of money d. gold standard e. continental club - a. currency school As Rothbard explains, while if some people in a community use fish as a medium of exchange, we would say that: a. fish serve as an instrument of indirect exchange b. fish cannot yet be considered as money c. these people must not have any gold d. all of the above e. only A and B - e. only A and B What qualities would lend themselves to using a particular commodity as money? a. heavy demand b. indivisibility c. low value per unit weight d. all of the above e. none of the above - a. heavy demand According to Rothbard, the term "dollar" came from a coin minted in: a. Brazil b. Botswana c. Belize d. Burma e. Bohemia - e. Bohemia As Rothbard relates, historically governments have debased their money: a. because they can profit from this b. because these precious metals are scarce c. because growing economies need more money d. by raising the amount of gold, or silver, that the monetary unit represented e. all of the above - a. because they can profit from this In the "market" for money ,a decrease in demand will create _____ and lead to a _____. a. a shortage; rise in the PPM b. a shortage; fall in the PPM c. a surplus; rise in the PPM d. a surplus; fall in the PPM - d. a surplus; fall in the PPM Rothbard argues that the optimal level of money is: a. an amount that just keeps up with population growth b. an amount that just keeps up with economic growth c. an amount that just keeps up with technological change d. all of the above e. none of the above - e. none of the above If a society doesn't have/use money, then: a. it is not likely to be able to specialize its labor b. there is an indivisibility problem c. it is very difficult/impossible to determine whether a business makes a profit or incurs a loss d. all of the above e. only A and C - d. all of the above Rothbard tells a story where Angel Gabriel, hearing the people complain about a lack of money, magically doubles everyone's money holdings. The result is that: a. everyone is happy and feels richer, at first b. everyone will try to spend their money and find they are no better off c. everyone will try to save their money, thinking that they will be better off in the future d. both A and B are true e. both A and C are true - d. both A and B are true In describing the effects of counterfeiting, Rothbard writes of a ripple effect where: a. there are winners and losers, unlike in the Angel Gabriel model b. those at the beginning of the ripple lose c. those at the end of the ripple gain d. all of the above e. none of the above - a. there are winners and losers, unlike the Angel Gabriel model The relatively famous saying about the worthlessness of paper money is: a. not worth a plug nickel b. not worth a Continental c. not worth a convertible d. not worth a Greenback e. not worth a brass button - b. not worth a Continental During the Revolutionary and Civil Wars we observed inflation: a. only with regard to paper money b. only with refard to gold and silver coins c. with regard to both paper currency and metal coins d. none of the above; prices actually fell during those times - c. with regard to both paper currency and metal coins A bank that channels deposits into investments is known as a: a. fractional reserve bank b. warehouse bank c. loan bank d. state-chartered bank e. credit union - c. loan bank In this kind of bank, you deposit money and get a receipt (or many of them) acknowledging your claim to these funds, which are then merely stored in the bank. a. fractional reserve bank b. warehouse bank c. loan bank d. state-chartered bank e. credit union - b. warehouse bank According to Rothbard, which of the following is true about loan banks? a. they are unproductive in that they waste resources b. they can raise funds by selling bonds and selling stock c. they are inherently inflationary d. if a bank of this type fails, the money supply will fall e. all of the above - d. if a bank of this type fails, the money supply will fall Which of the following is an example of a loan bank? a. a finance company b. an investment bank c. in ancient times, what we call "moneylenders" d. all of the above e. none of the above - d. all of the above Numerous court cases in the early 1800s in the US declared that: a. deposits were a "bailment" of the bank b. deposits were not a "bailment" of the bank c. deposits were not an asset of the bank d. both A and C are true e. both B and C are true - a. deposits were a "bailment" of the bank Fractional reserve banking is not inflationary if they hold _____ reserves. a. 10% b. 25% c. 50% d. 75% e. 100% - e. 100% What are the three main assets of commercial banks? a. cash assets, vault cash, and reserve deposits b. installment credit, revolving credit, and term federal funds c. consumer loans, real estate loans, and federal funds d. loans, securities, and cash assets e. loans, liabilities, and liquidity - d. loans, securities, and cash assets The first form of depository financial institutions were: a. national banks b. commercial banks c. goldsmiths d. Italian merchant stores e. fractional-reserve banks - c. goldsmiths What is a bank "asset"? a. anything the bank owns that has a market value b. only loans that commercial banks and other depository institutions make to businesses c. only the cash that is withdrawn at a depository institution by depositors d. only the reserves that are held in excess of what is required - a. anything the bank owns that has a market value Which of the following economists won the Nobel Prize in Economics? a. Carl Menger b. Friedrich Hayek c. Ludwig von Mises d. Murray Rothbard e. John Maynard Keynes - c. Ludwig von Mises Among the problems solved by the existence of money is/are: a. indivisibilities so that we can trade with fractional amounts b. the ability to calculate whether a business makes a profit or a loss c. the triple coincidence of wants, which promotes the ability to specialize our labor d. all of the above e. only A and B - e. only A and B Which of the following has been used as money in America? a. Continentals b. silver certificates c. Federal Reserve notes d. gold coins e. all of the above - e. all of the above The income that accrues to the government from its involvement in the production of money is called: a. debasement b. barter c. a bill of attainder d. seigniorage e. fiat funds - d. seigniorage The US was on a full gold standard, where our currency was freely redeemable for gold by anyone, up until: a. 1879 b. 1913 c. 1933 d. 1945 e. 1971 - c. 1933 The limestone wheels that served as money on the South Pacific island nation of Yap would seem, at first glance, to be a poor form of money because they: a. are not durable b. are not easily recognized c. are not scarce d. all of the above e. none of the above - e. none of the above Liquidity is defined as how _____ an asset can be converted into _____ at its _____. a. fast; store of value; discounted present value b. slow; gold; discretion c. fast; medium of exchange; full market value d. slow; a unit of account; fixed exchange rate e. fast; gold; nominal rate of interest - c. fast; medium of exchange; full market value Suppose that jack takes $1000 out of his checking account at an ATM machine (he receives cash). Which of the following is/are true? a. M1 will rise; M2 will rise. b. M1 will remain the same; M2 will rise. c. M1 will fall; M2 will remain the same. d. M1 will rise; M2 will fall. e. M1 and M2 will remain the same - M1 and M2 will remain the same Which of the following is included in our M1 measure of the money supply? a. coins in circulation b. currency held in the cash drawer at WalMart c. the value of your checking account d. the value of traveler's checks circulating e. all of the above - e. all of the above Funds in your checking account count as part of the measured: a. monetary base b. M1 c. M2 d. all of the above e. only B and C of the above - d. all of the above It can be said that the Federal Reserve has perfect control over the size of: a. M1 b. M2 c. MZM d. all of the above e. none of the above - e. none of the above According to Rothbard, it can be said that: a. we are worse off with a lower supply of money. b. we are better off with a higher supply of money. c. we are better off with a lower supply of money. d. Both A and B are true. e. None of the above. - e. none of the above Since 2008, when the monetary base was about $800 billion, it has: a. fallen to about $600 billion. b. stayed constant, more or less. c. risen to about $1 trillion. d. risen to about $4 trillion. e. risen to about $14 trillion. - d. risen to about $4 trillion The existence of "sweep programs" has led to: a. an underestimate of the true value of M1 b. a decreased reliance on M2 as the best single measure of the money supply c. banks having to hold more reserves for their transaction deposits d. all of the above e. none of the above - d. all of the above Demand can increase for all goods across the economy if: a. the money supply shrinks b. we have economic growth c. there is a persistent fall in our standard of living d. all of the above e. only A and B - e. only A and B This bank cannot affect the money supply through its actions nor does it accept deposits. a. loan bank b. warehouse bank c. modern banks d. all of the above e. none of the above - a. loan bank Eve has a bad credit history, but it was under another name (somehow she got it changed). she has a steady job and wants to buy a house. she applies at a bank, honestly detailing her past history and is able to borrow $100,000. Two years later she hasn't missed a mortgage payment. what asymmetric information problems are present in this story? a. Adverse selection. b. Moral hazard. c. Principal-agent. d. All of the above. e. None of the above. - e. none of the above As compared to 2008, at the end of 2014, on the asset side of the balance sheet for commercial banks: a. total loans shrank to about 40% of the total b. holdings of US government securities rose to over $2 trillion c. cash holdings soared to nearly 20% of the total d. all of the above e. only B and C - e. only b and c This bank management strategy relies on a predictable stream of income generated by installment loans: a. real bills doctrine b. shiftability theory c. anticipated income d. conversion of funds e. gap management - c. anticipated income This bank management strategy involves highly liquid loans, made at a rather low interest rate, mainly to finance the shipment of goods: a. real bills doctrine b. shiftability theory c. anticipated income d. conversion of funds e. gap management - a. real bills doctrine The reason we no longer have a gold standard is because: a. banks refused to accept gold for deposit b. banks refused to issue gold for paper money c. people grew tired of using gold d. the government made it illegal to use gold as money e. both a and b - d. the government made it illegal to use gold as money It is estimated by some that Bernie Madoff's fraud cost his investors about: a. $1 billion. b. $5 billion. c. $10 billion. d. $15 billion. e. $50 billion. - e. $50 billion