Multiple Choice Answers
1. When you deposit in your savings account $200 with the objective to buy in the near future a video game that is about to be offered in the market, then the $200 are serving which function?
A. Medium of exchange.
B. Store of real assets.
C. Unit of account.
D. Store of wealth.
2. Suppose the banking system has $100,000 in outstanding deposits and actual reserves of $35,000. If the required reserve ratio is 25% and individuals hold no cash, the maximum amount the banking system can now add to the money supply is:
3. As the reserve ratio goes up, less money will be created because:
A. people will hold less cash.
B. people will hold more cash.
C. banks will extend more loans.
D. banks will extend fewer loans.
4. Money facilitates trade because it:
A. does not require a double coincidence of wants among individuals.
B. requires a double coincidence of wants among individuals.
C. does not require a medium of exchange.
D. requires carrying other goods around for barter.
5. If the total deposits of the banking system are $400 billion, how much money could these reserves support if the required reserve ratio is 0.20, banks hold no excess reserves, and public does not hold currency?
A. $ 400 billion.
B. $1200 billion.
C. $1600 billion.
D. $2000 billion.
6. In real-world, the money multiplier:
A. is the same as the simple money multiplier.
B. differs from the simple money multiplier because in the real world people hold cash.
C. differs from the simple money multiplier because in the real world banks hold excess reserves.
D. differs from the simple money multiplier because in the real world banks do not hold excess reserves.
7. What is exchanged in the financial sector?
A. Money only.
B. Goods and services.
C. All financial assets.
D. All assets with a money price.
8. Flows that do not enter the spending stream enter the financial sector in the form of:
C. real assets.
9. A bank has a reserve requirement of 0.10. If it has demand deposits of $100,000 and is holding $12,000 in reserves:
A. all the bank’s reserves are excess reserves.
B. the bank is not meeting its reserve requirement.
C. the bank is holding $2,000 in excess reserves.
D. all reserves are required reserves.
10. A single bank has a reserve requirement of 10 percent. This means that if a customer deposits $100 million, the bank may lend out:
A. $9 million.
B. $10 million.
C. $90 million.
D. $91 million.
11. The actual reserve ratio:
A. usually is less than the required reserve ratio.
B. usually is equal to the required reserve ratio.
C. usually is greater than the required reserve ratio.
D. can be greater than or less than the required reserves ratio to deposits depending on the currency to deposit ratio.
12. The required reserve ratio refers to the ratio of a bank’s:
A. liabilities to its net worth.
B. required reserves to its deposits.
C. total reserves to its deposits.
D. deposits to its actual reserves.
13. In POW camps during World War II, everything was traded for cigarettes. For example, 1 bar of soap cost 2 cigarettes, 2 candy bars cost 4 cigarettes. During the time the POW camps, cigarettes:
A. did not serve as money because their value was not backed by government.
B. did not serve as money because no one controlled the supply of cigarettes.
C. served as money for those who smoked.
D. served as money because they served as a unit of account, medium of exchange, and store of wealth.
14. Which of the following is one of the factors that determine the value an international business can create in a foreign market?
A. The product’s success in the home market
B. The availability of raw material
C. The inflation rates in the country
D. The suitability of its product offering to that market