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.2.The functions of mon

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.

2.  The functions of money include all one 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.

3.  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.

4.  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.

5.  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.

6.  The money measure M2 includes:

a.  savings deposits.

b.  currency.

c.  travelers checks.

d.  demand deposits at financial institutions.

e.  All of the above.

7.  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.

8.  Which of the following is the least liquid financial asset?

a.  Currency in your pocket.

b.  A savings deposit.

c.  Diamonds.

d.  Traveler’s checks.

e.  A U.S. Savings Bond.

9.  Which of the following would likely best serve as a commodity money?

a.  U.S. dollar bills.

b.  Gold

c.  Tomatoes.

d.  Feathers.

e.  Hydrogen gas.

10.  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.

11.  As Rothbard points out, the monetary units that nations have used were:

a.  arbitrarily created by kings, 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.

12.  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.

13.  A depository institution’s total reserves consist of:

a.  excess reserves and loans.

b.  required reserves and excess reserves.

c.  excess reserves and equity.

d.  required reserves and transactions deposits.

e.  required reserves and treasury securities.

14.  A depository institution that is fully “loaned up” means that:

a.  it lacks sufficient cash required to meet requests for a depositor’s withdrawal.

b.  its total assets are less than its total liabilities.

c.  it has too many bad loans.

d.  it has used all of its excess reserves to make loans.

e.  None of the above .

15.  If a bank needs to have $100 million in order to meet its reserve requirements, but has $90 million to total reserves, then it:

a.  has excess reserves of $10 million.

b.  has a required reserves deficiency of $10 million.

c.  can extend its loans by $10 million.

d.  has a required reserve deposit of $10 million.

e.  will have to borrow money from the Federal Reserve.

16.  Assume that the required reserve ratio is 10%.  How much more can an individual bank lend if a saver deposits $1,000 into her checking account (assuming that the bank was not short of required reserves)?

a.  $100.

b.  $600.

c.  $900.

d.  $1,000.

e.  $100,000.

17.  Suppose that Bank A has $50 million in reserves and $300 million in loans and securities.  Suppose further that it has $400 million in transactions-deposit liabilities.  If the required reserve ratio is 10 percent, then it may be concluded that Bank A presently has:

a.  $5 million in excess reserves.

b.  $10 million in excess reserves.

c.  a required reserve deficiency of $5 million.

d.  a required reserve deficiency of $10 million.

e.  None of the above.

18.  Suppose that depository institutions hold no excess reserves and all money is held as transactions accounts at banks.  If the banking system has $20 million in total reserves and the total quantity of money is $1,000 million, then we can conclude that the required reserves ration is equal to:

a.  2 percent.

b.  5 percent.

c.  20 percent.

d.  50 percent.

e.  The information provided is insufficient to allow this to be calculated.

19.  If the required reserve ratio is 0.1, how much can lending be increase by, in the entire banking system, if the Fed buys $1,000 worth of bonds?  [Assume that banks do not desire to hold any excess reserves and that the public does not desire to hold any currency.]

a.  $100.

b.  $1,000.

c.  $10,000.

d.  $100,000.

e.  None of the above.

20.  The monetary base is equal to:

a.  C+R.

b.  c*D.

c.  C+D.

c.  rr*D.

e.  c*D + rr*D + e*D.

21.  What factors influence the money multiplier?

a.  The amount of currency that consumers and businesses desire to hold relative to transactions deposits.

b.  The quantity of excess reserves that depository institutions wish to keep on hand relative to transactions deposits.

c.  The required reserve ratio set by the Federal Reserve.

d.  All of the above.

e.  None of the above.

22.  During the late 1800s, what was proposed as a form of backing for paper money alongside gold?

a.  Silver.

b.  Platinum.

c.  Copper.

d.  Nickel.

e.  Latinum.

23.  The first central bank of the U.S., which received a federal charter of 20 years, was:

a.  the Bank of North America.

b.  the First Bank of the United States.

c.  the National Bank of the United States.

d.  the Federal Reserve Bank of the United States.

e.  Continental Illinois.

24.  The Federal Reserve was established in:

a.  1766.

b.  1836.

c.  1913.

d.  1936.

e.  1966.

25.  Which of the following was a key feature of the changes made to the Federal Reserve in 1935?

a.  It doubled the number of Federal Reserve districts to twelve.

b.  It made the Secretary of the Treasury a member of the Board of Governors.

c.  It eliminated the authority of the Board of Governors to set reserve requirements.

d.  It increased control of the Federal Reserve System by the Board of Governors.

e.  All of the above.

26.  What was the significance of the Federal Reserve-Treasury Accord of 1951?

a.  The Fed agreed to begin purchasing government securities to keep yields on government securities low.

b.  The Fed agreed to purchase all government securities that the Treasury issued.

c.  The Fed was granted total independence from Congress.

d.  The Fed was granted partial independence from Congress.

e.  None of the above.

27.  The structure of the Fed includes:

a.  ten federal reserve district banks.

b.  a board of governors located in New York City, the financial capital of America.

c.  budgetary control in the hands of the U.S. House of Representatives.

d.  the federal open market committee.

e.  All of the above.

28.  The largest asset on the Fed’s balance sheet consists of:

a.  reserves of member banks.

b.  loans to corporations.

c.  loans to banks.

d.  government securities.

e.  Federal Reserve notes.

29.  Which of the following are assets of the Federal Reserve?

a.  Foreign currency reserves.

b.  Federal Reserve notes.

c.  Government securities.

d.  All of the above.

e.  Only A and C of the above.

30.  Which of the following are liabilities of the Federal Reserve?

a.  Reserve deposits of depository institutions.

b.  Federal Reserve notes.

c.  Government securities.

d.  Both A and B of the above.

e.  Both B and C of the above.

31.  Currently, the largest form of liabilities on the Fed’s balance sheet is:

a.  Reserves of member banks.

b.  Federal Reserve notes.

c.  Loans to banks.

d.  Government securities.

e.  Gold certificates.

32.  The deposits of depository institutions held by the Fed:

a.  are a liability to the Fed but an asset to the depository institutions.

b.  are an asset to the Fed but a liability to the depository institutions.

c.  are an asset to both the Fed and the depository institutions.

d.  are a liability to both the Fed and the depository institutions.

e.  do not show up at all in the balance sheet for the Federal Reserve.

33.  The role of the Fed as a fiscal agent to the government refers to the Fed’s services for:

a.  the Congress.

b.  the White House.

c.  the Internal Revenue Service.

d.  the U.S. Treasury Department.

e.  the twelve Federal Reserve district banks.

34.  The purpose of the lender of last resort is to:

a.  raise bank profitability .

b.  make loans to insolvent but liquid banks.

c.  make loans to solvent but illiquid banks.

d.  make loans to individuals and corporations that request them.

e.  provide needed funding for the building of resorts.

35.  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 U.S. during the 1850s.

d.  They earn an income by charging interest on the loans they give out.

e.  All of the above.

36.  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.  international finance.

e.  All of the above.

37.  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.

38.  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.

39.  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.

40.  Banks might be more efficient than individual lenders due to:

a.  returns to scale.

b.  expertise in accounting tasks.

c.  expertise in advertising to borrowers.

d.  ability to assess risk.

e.  All of the above.

41.  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.

42.  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.

43.  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.

44.  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.

45.  Cigarettes are an example of _____ mone.

a.  fiat

b.  representative

c.  credit

d.  commodity

e.  None of the above.

46.  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 of the above.

47.  If an economy uses furs as money and the supply is suddenly cut in half, then prices of other goods 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.

48.  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.

49.  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.

50.  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

51.  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.

52.  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.

53.  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.

54.  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.

55.  Which of the following are examples of transactions costs faced by lenders?

a.  Accounting fees.

b.  Legal fees.

c.  Monitoring costs.

d.  All of the above.

e.  None of the above.

56.  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.

57.  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.

58.  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.

59.  According to Salerno, Rothbard viewed the Federal Reserve as:

a.  a bolstering of the banking system.

b.  the outcome of public spirited responses to shocks to our economy.

c.  an almost perfect example of an institution that works on behalf of the general public interest.

d.  a cartelizing device that limits entry into banking.

e.  All of the above.

60.  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.

61.  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.

c.  a continuous fall in the demand for goods.

d.  All of the above.

e.  Only A and B of the above.

62.  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.

63.  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.

64.  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.

For the next 4 questions, use the following bank balance sheet:

65.  If the reserve requirement is 10%, the bank has _____ in excess reserves.

a.  $0

b.  $5

c.  $10

d.  $50

66.  If $100 in transaction deposits were withdrawn as cash, what is the minimum amount the bank would have to borrow to meet the reserve requirement of 10%, if there were no other changes to the balance sheet?

a.  $30

b.  $50

c.  $80

d.  $100

e.  It cannot be determined.

67.  If $100 in transaction deposits were withdrawn and the bank sold the minimum amount of bonds to meet the reserve requirement, what is the value of the bonds remaining on the balance sheet if there were no other changes?

a.  $320

b.  $340

c.  $400

d.  $200

e.  It cannot be determined precisely, but it would be less than $100.

68.  What is the maximum amount of write-downs (defaults) the bank could sustain without becoming insolvent (i.e., bankrupt)?

a.  $0

b.  $260

c.  $600

d.  $1060

e.  $1200

69.  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.

70.  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. 

71.  As Rothbard describes, in the market for an good, the supply is ___ and the demand is ___.

a.  objective;  objective

b.  objective;  subjective

c.  subjective;  objective

d.  subjective;  subjective

72.  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.

73.  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.

74.  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.

75.  Which of the following do NOT generate fees for banks?

a.  Credit cards.

b.  Securitized loans.

c.  Reserves.

d.  The use of ATMs.

76.  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.

e.  silver and fish.

77.  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

78.  In the “market” for money, a decrease 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

79.  In the “market” for money, an increase 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

80.  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.  ½ pound of butter.

c.  1/50 pair of shoes.

d.  All of the above.

e.  None of the above.

81.  Which of the following are liabilities of the Fed?

a.  Federal Reserve notes.

b.  Bank reserves.

c.  Discount loans.

d.  Gold certificates.

e.  Both A and B are liabilities of the Fed.

82.  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

83.  When the Fed sells $100 of bonds, the monetary base falls by an amount _____ $100 and the money supply falls by an amount _____ $100.

a.  less than,  equal to

b.  equal to,  equal to

c.  equal to,  greater than

d.  greater than,  greater than

e.  greater than,  equal to

84.  When the Fed buys securities, how much banks hold as excess reserves affects the:

a.  monetary base.

b.  money supply.

c.  maximum money multiplier.

d.  All of the above.

e.  None of the above.

85.  If the Fed buys $100 in securities and the reserve requirement is 10%, according to the simple formula for the money multiplier, the money supply:

a.  falls by $100.

b.  falls by $1000.

c.  rises by $100.

d.  rises by $1000.

e.  remains unchanged, as the simple multiplier is zero.

86.  A change in the monetary base leads to a larger change in the money supply since

a.  Reserves earn interest for the bank.

b.  Banks lend excess reserves, which become deposits.

c.  A change in the monetary base changes the currency ratio of households.

d.  None of the above.

87.  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.

88.  If the Fed were to sell gold, the money supply would:

a.  Increase.

b.  Decrease.

c.  Stay the same.

d.  Cannot be determined.

89.  The Fed sells $400 in bonds, half to the public and half to the banking system, which means the monetary base falls by _____ and the quantity of reserves falls by ____.

a.  $200, $200

b.  $200, $400

c.  $400, $400

d.  $600, $600

e.  $400, $200

90.  Which of the following equations is correct?

a.  ΔMB = m x ΔMS

b.  ΔMS = m x ΔMB

c.  MS = C + R

d.  MS = D + R

e.  All of the above are correct.

91.  If the required reserve ratio is 0.1, the level of deposits is $1000, the level of currency held by the public is $200 and the level of excess reserves is $300, then m1 is

a.  0.

b.  1.

c.  2.

d.  3.

e.  It cannot be determined from the information available.

92.  If the required reserve ratio is 0.2, the level of deposits is $2000, the level of currency held by the public is $200 and the level of excess reserves is $200, then m1 is

a.  3.75

b.  3.5

c.  3.25

d.  3.0

e.  2.75

93.  An increase in the excess reserve ratio will cause m1 to:

a.  increase.

b.  decrease.

c.  stay the same.

d.  change in an uncertain direction.

94.  A change in interest rates could affect:

a.  the currency raio.

b.  the excess reserve ratio.

c.  the required reserve ratio.

d.  All of the above.

e.  Only A and B of the above.

95.  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.  Only A and B of the above.

96.  The required reserve ratio is 0.2, the level of deposits is $1000, the level of currency held by the public is $500, the level of excess reserves is $300, the level of money market funds is $500 and the level of time deposits is $1500. If the Fed lowers the monetary base by $100, what is the change in M1?

a.  Falls by $350.

b.  Falls by $244.

c.  Falls by $150.

d.  Rises by $250.

e.  None of the above.

97.  Which of the following is the key monetary policy tool on a day-to-day basis?

a.  Changing reserve requirements.

b.  Changing the money multiplier.

c.  Open market sale or purchase.

d.  Discount window lending.

98.  The Fed’s discount window policy aims at directly affecting the amount of

a.  borrowed reserves.

b.  nonborrowed reserves.

c.  capital in depository institutions.

d.  foreign reserves.

99.  An open market purchase of securities directly affects the amount of

a.  borrowed reserves.

b.  nonborrowed reserves.

c.  capital in depository institutions.

d.  foreign reserves.

100.  Depository institutions have an incentive to borrow reserves from other depository institutions instead of the Fed when

a.  the amount of nonborrowed reserves is less than the amount of borrowed reserves.

b.  the federal funds rate is below the discount rate.

c.  the discount rate is negative.

d.  the amount of total reserve is less than the amount of required reserve.

101.  If a central bank adopts an interest-rate targeting procedure, then a decrease in total reserve demand will most likely result in

a.  an open market sale.

b.  an increase in nonborrowed reserves.

c.  an increase in total reserves.

d.  an increase in the federal funds rate.

102.  If the Fed aims at keeping interest rate stable, it should apply an operating procedure that targets

a.  free reserves.

b.  borrowed reserves.

c.  nonborrowed reserves.

d.  the federal funds rate.

103.  What is the key interest rate that banking institutions can lend or borrow reserves among each other, from day to day to meet reserve requirements or to fund their extensions of credit?

a.  The discount rate.

b.  The Federal Funds rate.

c.  The real exchange rate.

d.  The real interest rate.

e.  None of the above.

104.  Which Federal Reserve operating procedure generally leads to large variations interest rates relative to variations in bank reserves?

a.  Federal funds rate targeting.

b.  Total reserves targeting.

c.  Borrowed reserves targeting.

d.  Nominal income targeting.

105.  As the federal funds rate rises relative to the discount rate:

a.  there is less incentive for depository institutions to borrow reserves from the Fed.

b.  there is more incentive for depository institutions to borrow reserves from the Fed.

c.  depository institutions will have no incentive to borrow reserves from the Fed.

d.  the Fed must, then, lower the federal funds rate to close this gap.

e.  the market rate of interest (on Treasury securities) will have to fall.

106.  Which of the following monetary policy actions would lower the equilibrium federal funds rate?

a.  An open market purchase.

b.  A discount rate increase.

c.  Both an open market purchase and a discount rate increase.

d.  Both a discount rate increase and a cut in the required reserve ratio.

e.  None of the above.

107.  What is not a characteristic of intermediate targets?

a.  Consistent with end goals

b.  Unmeasurable 

c.  Frequently observable 

d.  Controllable 

e.  Definable 

108.  Variations in real GDP relative to its long-run growth path are known as:

a.  expansions.

b.  peaks.

c.  business cycles.

d.  Natural GDP.

109.  What suggestion does Milton Friedman offer to eliminate economic instability?

a.  Increased use of discretionary policy 

b.  Increased use of fiscal policy 

c.  Implementation of policy rules 

d.  All of the above 

e.  None of the above 

110.  A conservative central banker is one who:

a.  dislikes inflation more than the average citizen and is more willing to risk a recession.

b.  has a performance based contract with the government.

c.  is willing to tolerate increased inflation in order to reduce unemployment.

d.  likes to have more political influence in the monetary policymaking process.

111.  When Rothbard wrote the Mystery of Banking, measures of the money supply:

a.  were limited to the “monetary base” and M1.

b.  were limited to M1a and M1b.

c.  went up to M8.

d.  ranged from M1 to M27.

e.  were not yet developed.

112.  What are some of the potential intermediate target variables?

a.  Interest rate.

b.  Credit aggregates.

c.  Nominal GDP.

d.  Monetary aggregates.

e.  All of the above.

113.  Inflation begins to rise in the U.S.  After three weeks, policymakers notice the increase and spend six weeks deciding what course of action to take.  The six week time gap is known as the:

a.  Recognition lag.

b.  Foreign lag.

c.  Response lag.

d.  Transmission lag.

e.  Refurbishing lag.

114.  Which of the following represents the recognition lag?

a.  The amount of time between the realization of the need for a policy action and the actual implementation of that policy.

b.  The amount of time between the need for a policy action and the realization of that need.

c.  The amount of time between the implementation of a policy action and its macroeconomic effects.

d.  None of the above.

115.  In an environment of discretionary policymaking, lower policy credibility will likely result in a:

a.  lower inflation rate.

b.  higher inflation rate.

c.  lower real output level.

d.  higher real output level.

116.  Which of the following is a desirable characteristic of an intermediate target?

a.  It is frequently observable.

b.  It is definable and measurable.

c.  It is controllable.

d.  All of the above.

e.  None of the above.

117.  The use of a monetary aggregate as an intermediate target will cause:

a.  the interest rate to fluctuate.

b.  the use of an interest rate as an ultimate target.

c.  the use of an interest rate as an operating target.

d.  high real output growth over time.

e.  low real output growth over time.

118.  Because policymakers have limited long-term information about the economy, they typically will set:

a.  no targets.

b.  autonomous targets.

c.  hidden targets.

d.  ultimate targets.

e.  intermediate targets.

119.  Which of the following potential targets can the Federal Reserve observe with the highest frequency?

a.  M1.

b.  Interest rates.

c.  Real GDP.

d.  Nominal GDP.

e.  Inflation.

120.  What is the term for a central bank pre-commitment to following a specific monetary policy strategy without regard to changing economic conditions?

a.  Policy rule.

b.  Discretionary policy.

c.  Laissez faire policy.

d.  Inflationary policy.

e.  All of the above.

121.  A specific monetary policy strategy that departs from a pre-announced policy strategy because of changes in economic conditions is known as:

a.  a policy rule.

b.  discretionary policy. 

c.  laissez faire policy.

d.  inflationary policy.

122.  Greater central bank independence has the beneficial effect of lowering which of the following:

a.  real GDP.

b.  nominal GDP.

c.  average inflation.

d.  the inherent bias of monetary policy towards lower inflation.

e.  All of the above.

123.  The problem with time lags, insofar as monetary policy is concerned, is that:

a.  business cycles variation may be dampened.

b.  business cycles variation may be worsened.

c.  business cycles variation may be unaffected.

d.  inflation is generally the less serious problem our economy faces.

124.  Making policy rules credible is essential to making them successful.  Some ways in which this may be done include:

a.  placing constitutional limits on discretionary monetary policy.

b.  keeping the Fed’s intentions secret.

c.  tying the Fed’s policy more closely with Congressional intent.

d.  tying the Fed’s policy more closely with Presidential intent.

e.  appointing central bankers that are unconcerned with the problems of inflation.

125.  Which of the following can make monetary policy credible?

a.  The imposition of constitutional limits on monetary policy.

b.  The appointment of conservative policymakers.

c.  The willingness to react and respond to changing economic conditions.

d.  All of the above.

e.  Only A and B of the above.

126.   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

127.  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 of the above.

128.  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.

129.  According to Rothbard, the term “dollar” came from a coin minted in:

a.  Brazil.

b.  Botswana.

c.  Belize.

d.  Burma.

e.  Bohemia.

130.  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.

131.  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

132.  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.

133.  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 of the above

134.  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.

135.  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.

136.  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.”

e.  “Not worth a brass button.”

137.  During the Revolutionary and Civil wars we observed inflation:

a.  only with regard to paper money.

b.  only with regard to gold and silver coins.

c.  with regard to both paper currency and metal coins.

d.  None of the above, as prices actually fell during those times.

138.  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.

139.  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.

140.  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.

141.  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.

142.  Numerous court cases in the early 1800s in the U.S. 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.

143.  Fractional reserve banking is not inflationary if they hold ___ reserves.

a.  10%

b.  25%

c.  50%

d.  75%

e.  100%

144.  The expansion of credit by fractional reserve banks:

a.  mostly benefits those who receive the credit late as prices rise.

b.  must match, dollar for dollar, with the amount held in reserve.

c.  increases the money supply.

d.  All of the above.

e.  None of the above.

145.  In a system of free banking, what serves as a day-to-day constraint on a bank’s expansion of credit?

a.  The trust that depositors have in the bank.

b.  The extent to which bank notes are used as money.

c.  The contribution this makes to the boom-bust cycle.

d.  The limited clientele of the bank.

e.  All of the above.

146.  In a system of free banking, credit expansion will be most magnified if:

a.  there is just one bank.

b.  there are just a few large banks.

c.  there are many, smaller banks.

d.  there are no banks.

e.  None of the above, as credit expansion has nothing to do with banks.

147.  The creation of a central bank tends to:

a.  hurt smaller banks that must meet new regulatory requirements.

b.  hurt banks by taking away their ability to print up bank notes.

c.  help banks by allowing them all to expand credit together.

d.  help banks by raising their required reserve ratio.

e.  Both A and B are true.

148.  A bank can get more reserves from:

a.  the public if they can attract more deposits.

b.  other banks if they can borrow funds from them.

c.  the central bank.

d.  All of the above.

e.  None of the above.

149.  Because of the creation of the FDIC,

a.  banks are less likely to suffer from bank runs.

b.  banks are less likely to inflate credit.

c.  banks are more likely to inflate credit.

d.  Both A and B are true.

e.  Both A and C are true.

150.  The major way in which the Fed affects bank reserves is through:

a.  the federal funds market.

b.  cash advances to banks.

c.  the discount rate of interest.

d.  the required reserve ratio.

e.  the capital requirements imposed on banks.

151.  The phrase “monetize the debt” refers to a situation in which the federal government finances its spending by:

a.  raising taxes.

b.  selling bonds to the public.

c.  literally printing money.

d.  selling bonds to the central bank.

e.  foreign borrowing.

152.  Which of the following is true about the Bank of England?

a.  It was founded in the late 1700s.

b.  It never had to suspend specie payment.

c.  During its first hundred years, it faced stiff competition from the National Land Bank.

d.  During its first hundred years, it didn’t buy any government debt.

e.  Their notes didn’t become legal tender until the 1830s.

153.  Rothbard speculates that without the Second Bank of the U.S., then we (in the U.S.):

a.  would have gotten off the gold standard much sooner.

b.  would have seen the money supply grow by exponential amounts.

c.  may have seen the end of inflation, perhaps forever.

d.  All of the above.

e.  None of the above.

154.  When the Second Bank of the U.S. failed to get a 20 year extension on its life:

a.  it failed immediately.

b.  it applied for, and received, a state charter to stay in business.

c.  it was purchased by the Bank of England.

d.  the national sentiment was so negative that the Congress nearly impeached President Jackson.

e.  All of the above.

155.  To decrease the political fallout from the “pet bank” controversy, President Van Buren established the:

a.  Independent Treasury System.

b.  Federal Reserve System.

c.  national bank charter.

d.  International Monetary Fund.

e.  None of the above.

156.  Which of the following is not true with regard to the Suffolk System?

a.  Country banks were required to hold gold deposits with Suffolk.

b.  Suffolk would redeem country bank notes at par.

c.  This insulated banks in New England from the bank panic of 1837.

d.  Its strength led to specie redemption throughout the panic of 1837.

e.  It replaced the earlier Bank of Mutual Redemption.

157.  Among the changes brought about by the American Civil War was/were:

a.  the creation of nationally-chartered banks.

b.  the creation of nationally-chartered credit unions.

c.  the elimination of small country banks.

d.  the proliferation of banks printing up their own notes.

e.  All of the above.

158.  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.

159. The first form of depository financial institutions were:

a.  national banks.

b.  commercial banks.

c.  goldsmiths.

d.  Italian merchant stores.

e.  fractional-reserve banks.

160.  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.

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