Money, Banking and the Economy

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California State University Los Angeles
Department of Economics

Economics 303
Money and Banking and the Economy
Prof. Giorgio Canarella
Fall Quarter 2012
Midterm 2

Return your work Saturday, November 10, at 1:00 pm

Problem (50 points) Use a blue book.

You are given the following estimates about the monetary economy of the US: C/D = 0.1; T/D = 2; ER/D = 0.2, [pic], [pic], MB = 1000. Compute the money multiplier, the money supply, the level of currency and checkable deposits, the level of time deposits and excess reserves, and the level of total reserves and required reserves. Use the model of money supply determination discussed in class. Show your work.

Multiple Choice Questions (50 points) Use a scantron.

1)
As of 2006, about how many banks were there in the United States? 1)
_______
A)
7500
B)
57
C)
2000
D)
14,000

2)
The United States has a dual banking system in the sense that 2)
_______
A)
the public may deposit money in either commercial banks or savings-and-loan associations. B)
banks offer both demand deposits and time deposits to savers. C)
banks both take in deposits and make loans.
D)
banks are chartered by the federal government and by state governments.

3)
What are federally chartered banks called?
3)
_______
A)
Federal banks
B)
Central banks
C)
National banks
D)
Federal Reserve banks

4)
From 1863 to 1914, which banks issued bank notes?
4)
_______
A)
Only national banks
B)
Only state banks
C)
Only Federal Reserve banks
D)
Both state and national banks

5)
Why did state banks begin to offer demand deposits?
5)
_______
A)
They were prohibited by federal banking law from offering loans to small businesses. B)
They were prohibited by federal banking law from offering time deposits. C)
They were prohibited by federal banking law from offering loans to households. D)
Federal banking law imposed a tax on state bank notes.

6)
Congress introduced deposit insurance in response to
6)
_______
A)
the savings-and-loan crisis of the 1980s.
B)
the demise of the Second Bank of the United States in 1836.
C)
the banking crisis of the 1930s.
D)
the demise of the First Bank of the United States in 1811.

7)
Bank holding companies are supervised by
7)
_______
A)
the Office of Thrift Supervision.
B)
state banking authorities in the state in which the holding company is chartered. C)
the Office of the Comptroller of the Currency.
D)
the Federal Reserve System.

8)
A bank run involves
8)
_______
A)
large numbers of depositors withdrawing their deposits within a short period of time. B)
a bank being forced out of business.
C)
fraud on the part of a bank's managers.
D)
a failure by a bank to get the maximum return on its investments.

9)
Contagion refers to
9)
_______
A)
the spreading of bad news about one bank to include other banks. B)
the tendency for one bad loan in a bank portfolio to cause other loans in the portfolio to go bad. C)
the tendency for one bank regulator to become more strict if other bank regulators become more strict. D)
the tendency for the desire for increased bank regulation to spread from one politician to another.

10)
The most important reason for federal government concern about the health of the banking industry is that 10)
______
A)
banks are the primary market for government bonds.
B)
many Americans receive a substantial part of their income as interest on bank deposits. C)
banks are of great importance in reducing information costs in the financial system. D)
banks employ a substantial number of people.

11)
The Federal Reserve...
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