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University of Maryland, University College Homework 4 ECON 201 Principles of Macroeconomics 1)The people in an economy have $10 million in money

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University of Maryland, University College

Homework 4 ECON 201 Principles of Macroeconomics

1)The people in an economy have $10 million in money. There is only on ebank that all the people deposit their money in and it hold 5% of the deposits as reserves. What is the money multiplier in this economy?

 

A. 10

B. 1

C. 20

D. 5

 

 

 

2). The people in an economy have $10 million moey. There is only one bank that all the people deposit their money in and it hold 10% of the deposits as reserves. What is the money multiplier in this economy?

 

A. 1

B. 10

C. 20

D. 5

 

 

 

3). Which of the following would be classified in the M1 category of the money supply?

 

A. Money market deposit

B. certificates of deposits

C. demand deposits

D. Saving deposits

 

 

 

4). Stealth bank has deposits of $700 million. It hold reserves of $20 million and has purchased government bonds worth $350 million. The bank’s loans, if sold at current market value, would be worth $600 million. What does Stealth bank’s net worth equal?

 

A. $270 million

B. $120 million

C. $1.02 billion

D. $970 million

 

 

 

5). Stealth bank has deposits of $300 million. It holds reserves of $20 million and has purchased government bonds worth $300 million. The bank’s loans, if sold at current market value, would be worth $600 million. What does Stealth bank’s net worth equal?

 

A. $1.22 billion

B. $920 million

C. $20 million

D. $620 million

 

 

 

6). Stealth bank has deposits of $350 million. It holds reserves of $30 million and government bonds worth $70 million. If the bank sells its loans at market value of $400 million, what will its total assets equal?

 

A. $750 million

B. $380 million

C. $450 million

D. $500 million

 

 

 

7). Banks can protect themselves against an unexpectedly high rate of loan defaults and against the risk of ____________________ by adopting a strategy that will ______________.

 

A. an increased reserve requirement ; provide loans to a variety of customers

B. rising interest rates ; diversify its loans

C. an asset-liability time mismatch ; diversify its loans

D. rising interest rates ; provide loans to a variety of customers

 

 

 

8). If mollusk shells were accepted as a method of payment in modern-day markets, what economic role would they play in the financial system?

 

A. unit of exchange

B. capital exchange

C. medium of exchange

D. currency exchange

 

 

 

9). __________________ pool the deposits of many investors together and invest them in a safe way like short-term government bonds.

 

A. Time deposits

B. Certificates of deposit

C. Savings deposit

D. Money market funds

 

 

 

10). ______________ are a form of financial instrument through which corporations and governments borrow money from financial investors and promise to repay with interest.

 

A. Money market funds

B. Time deposits

C. Certificates of deposits

D. Bonds

 

 

 

11). In modern economies, ____________________ receive money from savers and provide funds to borrowers.

 

A. banks

B. governments

C. financial intermediaries

D. credit unions

 

 

 

12). Which of the following is omitted in a barter transaction?

 

A. store of value

B. medium of exchange

C. money

D. trade

 

 

 

13). In macroeconomics, ____________________ describes a situation where a bank’s liabilities can be withdrawn in the short-term while its assets are being repaid in the long-term.

 

A. reserve ratio

B. diversification

C. an asset-liability time mismatch

D. a negative net worth

 

 

 

14). __________________ serves society in three functions : medium of exchange, unit of account, and store of value.

 

A. Currency

B. A double coincidence of wants

C. Barter

D. Money

 

 

 

15). The market in which loans are bought and sold is called the :

 

A. money market.

B. loan market.

C. primary loan market.

D. secondary loan market.

 

Answer :  D

 

16). In modern economies, credit cards are a __________________ because of their wide acceptance as a method of payment for both goods and services.

 

A. store of value

B. unit of exchange

C. medium of exchange

D. unit of account

 

Answer C

 

17). The process of banks making loans in financial capital markets is intimately tied to the :

 

A. redistribution of wealth.

B. financial stress levels of banks

C. home construction industry

D. creation of money.

 

 

 

18). ____________________ are a form of deposits held in banks that are available by making cash withdrawal or writing a check

 

A. Demand deposits

B. Savings deposits

C. Time deposits

D. Direct depostis

 

 

 

19). In uncertain economic times, ____________________ serves as a way of preserving economic value that can be spent or consumed in the future.

 

A. obtaining a credit card

B. owning gold

C. refinancing your home motgage

D. buying a new car

 

 

 

20). Banks typically come under financial stress because of:

 

A. diversification of loan assets.

B. the money multiplier effect.

C. risks associated with extraordinary economic gains

D. a widespread decline in the value of their assets

 

 

 

21). In an economy with ______________, money loses some buying power each year, but it remains money.

 

A. deflation

B. a market orientation

C. inflation

D. currency

 

Answer : inflation

 

22). The quantity of money in an economy and the ____________________ are inextricably intertwined.

 

A. extraordinary gains that can be made with money

B. value of assets for loans

C. quantity of credit for loans

D. financial stress in the banking system

 

 

 

23). The term ______________ describes the proportion of deposits that the bank must hold in the form of reserves that are not loaned out or invested in bonds.

 

A. term deposits

B. reserve funds

C. reserve ratio

D. bond reserves

 

 

 

24). In macroeconomics, ____________________ describes a situation in which two people each want to exchange some good or service that the other can provide.

 

A.  the usefulness of money

B. a medium of exchange

C. interrelated banking

D. a double coincidence of wants

 

 

 

25). Which of the following would function as a store of value, and also provide a medium of exchange, and unit of account?

 

A. gym membership

B. an iPod

C. an estate

D. a new car