Money, Banking, and the Federal Reserve System MCQs
Money, Banking, and the Federal Reserve System MCQs
Answer these 50+ Money, Banking, and the Federal Reserve System MCQs and see how sharp is your knowledge of Money, Banking, and the Federal Reserve System.
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1: In which sheet the financial record that indicates the balance between a bank’s assets and its liabilities plus capital ?
A. Balance
B. Financial
C. Main
D. Extra
2: Barter is ____ exchange of goods and services without the use of money
A. Direct
B. Indirect
C. Main
D. Positive
3: Commercial banks are financial institutions organized to handle everyday financial transactions of businesses and households through demand deposit accounts and savings accounts and by making short-term commercial and consumer loans.
A. True
B. False
4: Credit unions are financial cooperatives made up of depositors with a common affiliation
A. True
B. False
5: Coins and/or paper created to facilitate the trade of goods and services and the payment of debts is called
A. Accuracy
B. Currency
C. Precision
D. All of these
6: Balances in bank accounts that depositors can access on demand is called
A. Full deposits
B. Demand deposits
C. Extra demands
D. None of these
7: Interest rate that the Fed charges commercial banks for the loans it extends to them is known as
A. Positive rate
B. Discount rate
C. Sale rate
D. All of these
8: ____ reserve levels held above that required by the Fed
A. Access
B. Excess
C. Less
D. Zero
9: Federal funds market in which banks provide short-term loans to other banks that need cash to meet reserve requirements
A. True
B. False
10: A means of exchange established by government declaration is known as
A. Full Money
B. Black money
C. Fiat money
D. Standard money
11: In which reserve system that requires banks to hold reserves equal to some fraction of their checkable deposits
A. Fractional
B. Additional
C. Multiple
D. Single
12: Gold standard is defining the dollar as equivalent to a set value of a quantity of gold, allowing direct convertibility from currency to gold
A. True
B. False
13: Gresham's law principle that “cheap money drives out dear money”; given an alternative, people prefer to spend less valuable money
A. True
B. False
14: Coins and paper officially declared to be acceptable for the settlement of financial debts is called
A. Legal order
B. Legal batch
C. Legal tender
D. All of these
15: The ease with which one asset can be converted into another asset or into goods and services is known as
A. Fluidity
B. Liquidity
C. Mobility
D. None of these
16: The narrowest definition of money; includes coins, currency, demand deposits, other checkable deposits, and traveler’s checks is called
A. M1
B. M2
C. M3
D. M4
17: A broader definition of money that includes M1 plus savings deposits, time deposits, and noninstitutional money market mutual fund shares is called
A. M1
B. M2
C. M3
D. M4
18: The attribute of money that makes it easier to borrow and to repay loans is called means of deferred payment
A. True
B. False
19: Medium of exchange is the primary function of money, which is to facilitate transactions and ____ transaction costs
A. Higher
B. Lower
C. Greater
D. Zero
20: Anything generally accepted in exchange for goods or services is called
A. Loan
B. Money
C. Deposit
D. Market
21: Money market mutual funds is interest-earning accounts provided by brokers that pool funds into such investments as ____ bills
A. Good
B. Treasury
C. Deposit
D. Transactions
22: A measure of the potential amount of money that the banking system generates with each dollar of reserves is money multiplier
A. True
B. False
23: Nontransaction deposits that are not money but can be quickly converted into money is called
A. Far money
B. Near money
C. Black money
D. All of these
24: Funds that cannot be used for payment directly but must be converted into currency for general use are non transaction deposits
A. True
B. False
25: Purchase and sale of U.S. government bonds by the Federal Reserve System is ___ market operations
A. Close
B. Open
C. Main
D. Large
26: Required reserve ratio is percentage of ____ that a bank must hold at the Federal Reserve Bank or in bank vaults
A. Transactions
B. Deposits
C. Money
D. All of these
27: Holdings of assets at the bank or at the Federal Reserve Bank as mandated by the Fed is known as
A. Preserve requirements
B. Reserve requirements
C. Essential requirements
D. Basic requirements
28: Serving and loan associations are financial institutions organized as cooperative associations that hold demand deposits and savings of members in the form of dividend- bearing shares and make loans, especially home mortgage loans
A. True
B. False
29: Highly liquid, interest-paying assets held by the bank is called
A. Primary reserves
B. Secondary reserves
C. Essential reserves
D. Basic reserves
30: In which deposits that can be easily converted to currency or used to buy goods and services directly ?
A. Admitted
B. Transaction
C. Delivered
D. None of these
31: Travellers check is ____ instruments easily convertible into currency
A. Admitted
B. Transaction
C. Delivered
D. None of these
32: What is the primary function of money?
A. To be a means of deferred payment
B. To serve as a medium of exchange
C. To act as a unit of account
D. To provide a means of storing value
33: Money’s function as a unit of account refers to its ______.
A. Relative stability in value over time
B. Ability to be saved in an efficient manner
C. Role in facilitating transactions and lowering transaction costs
D. Ability to act as a precise measurement of value
34: Fiat money is money that has been ______.
A. Established as a means of exchange by government declaration
B. Recognized as valuable by both parties to a transaction
C. Issued in the form of metallic coins or paper currency
D. Established as valuable by custom or tradition
35: A broker pools depositor funds and invests in Treasury bills. The resulting accounts earn interest, and depositors are allowed to write checks against their individual accounts. This is an example of a ______.
A. Nontransaction deposit account
B. Certificate of deposit
C. Money market mutual fund
D. Time deposit
36: Which of the following is included in the M1 money definition?
A. Noninstitutional money market mutual fund shares
B. Time deposits
C. Demand deposits
D. Savings deposits
37: What does a bank use to make loans to borrowers?
A. Excess reserves
B. The required reserve ratio
C. Secondary reserves
D. Mutual funds
38: Banks create more money by ______.
A. Printing additional currency
B. Making loans to borrowers
C. Selling mutual funds
D. Decreasing demand deposits
39: What does the money multiplier measure?
A. How much a bank has available in excess reserves
B. The potential amount of money generated by each dollar of bank reserves
C. The share of its assets a bank must hold in reserve at the Fed
D. How much liability a bank has at any given moment
40: The multiple expansion effect relies on ______.
A. Banks keeping new cash assets in physical form
B. The Fed raising interest rates
C. Banks holding excess reserves at the Fed
D. Borrowers spending the money they have borrowed
41: Which statement about the Federal Reserve Board of Governors is true?
A. Members of the Board of Governors are appointed by the U.S. president.
B. The Board of Governors has little control over major policy decisions.
C. The 12 Federal Reserve Banks act as a check on the power of the Board of Governors.
D. Senate approval is required for most actions taken by the Board of Governors.
42: Most of the key decisions made regarding the U.S. money supply are made ______.
A. Collectively the 12 Federal Reserve Banks
B. By the president of the Federal Reserve Board of Governors
C. By the Federal Open Market Committee
D. By the president of the United States
43: What would the Fed do if it wanted to decrease the money supply?
A. It would lower banks’ reserve requirements.
B. It would instruct the trading desk to sell government bonds.
C. It would lower the interest rate it pays on reserves.
D. It would lower the interest rate it charges on borrowed reserves.
44: Compared to the other options that the Federal Reserve has for affecting the money supply, ______ relatively unimportant.
A. The reserve requirement is
B. Open market operations are
C. The discount rate is
D. Money market accounts are
45: What was one of the major causes of the bank failures of the 1930s?
A. The national bank holiday declared by President Roosevelt on March 4, 1933
B. The Federal Reserve being too aggressive in its purchase of government bonds.
C. Criminal activity on the part of bank officers at the largest banks in the country
D. Depositors hearing rumors of failures and converting their deposits to currency
46: Which institution helps prevent runs on banks by promising to make good on the deposits of banks that have run into financial difficulty?
A. The Federal Deposit Insurance Corporation
B. The Federal Reserve System
C. The Federal Open Market Committee
D. The New York Federal Reserve Bank
47: A central bank performs all of the following functions except ______.
A. It is a public authority that regulates a nation's depository institutions
B. It provides general banking services for businesses and individual citizensprovides general banking services for businesses and individual citizens
C. It provides banking services to commercial banks provides banking services to commercial banks
D. It acts as a bank's bank
48: A problem for equity contracts is a particular type of ________ called the ________ problem.
A. Adverse selection; principal-agent
B. Moral hazard; principal-agent
C. Adverse selection; free-rider
D. Moral hazard; free-rider
49: The nyse hybrid market allows _____.
A. Brokers to send orders directly to a specialist
B. Individuals to send orders directly to an electronic system
C. Brokers to send orders either to an electronic system or to a specialist
D. Individuals to send orders directly to a specialist
50: A population that is growing logistically _____.
A. The carrying capacity of its environment
B. Contains many more prereproductive than reproductive individuals
C. If there are no limiting factors
D. Grows fastest at an intermediate population density
E. A logistic equation
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Money, Banking, and the Federal Reserve System MCQs
