Saturday Quiz – January 16, 2010

Welcome to the billy blog Saturday quiz. The quiz tests whether you have been paying attention over the last seven days. See how you go with the following five questions. Your results are only known to you and no records are retained.

Quiz #43

• 1. In a 100-percent reserve banking system, some depositors may agree to fixed-term deposits to allow the bank to lend their money for the duration of the term. While this would allow for some credit creation the system would not face the same risks that burden the "fractional reserve deposit" system because the banking system would always be able to pay depositors on demand (or when the fixed-terms expired).
• False
• True
• 2. Bank reserves play a vital part in the monetary system. One important function they serve is to allow banks to meet short-term demand for credit in times when they are finding it hard to attract deposits.
• False
• True
• 3. Open market operations (buying and selling bonds in the secondary markets) allow the central market to control the money supply because a sale of bonds will be exchanged with the non-government sector for money and vice versa in the case of a central bank purchase of bonds. These are examples of vertical transactions in modern monetary theory.
• False
• True
• 4. The claim by mainstream economists that a generalised real wage cut will increase employment at the macroeconomic level because firms will face lower costs and thus output will expand, relies on the assumption that the factors that determine aggregate demand (expenditure decisions) are independent of the factors that determine aggregate supply (output and pricing decisions). In practice this assumption is false.
• False
• True
• 5. Bank reserves are maintained to ensure that all the cheques written every day clear when presented. If a bank doesn't have enough reserves then cheques drawn against it will bounce.
• False
• True

Sorry, quiz 43 is now closed.

scroll down to find the answers and explanation below.

Quiz #43 answers

• 1. In a 100-percent reserve banking system, some depositors may agree to fixed-term deposits to allow the bank to lend their money for the duration of the term. While this would allow for some credit creation the system would not face the same risks that burden the "fractional reserve deposit" system because the banking system would always be able to pay depositors on demand (or when the fixed-terms expired).

Answer: False

Explanation: Please see 100-percent reserve banking and state banks for more information or post a comment.

• 2. Bank reserves play a vital part in the monetary system. One important function they serve is to allow banks to meet short-term demand for credit in times when they are finding it hard to attract deposits.

Answer: False

Explanation: Please see 100-percent reserve banking and state banks for more information or post a comment.

• 3. Open market operations (buying and selling bonds in the secondary markets) allow the central market to control the money supply because a sale of bonds will be exchanged with the non-government sector for money and vice versa in the case of a central bank purchase of bonds. These are examples of vertical transactions in modern monetary theory.

Answer: False

Explanation: Please see 100-percent reserve banking and state banks for more information or post a comment.

• 4. The claim by mainstream economists that a generalised real wage cut will increase employment at the macroeconomic level because firms will face lower costs and thus output will expand, relies on the assumption that the factors that determine aggregate demand (expenditure decisions) are independent of the factors that determine aggregate supply (output and pricing decisions). In practice this assumption is false.

Answer: True

Explanation: Please see What causes mass unemployment? for more information or post a comment.

• 5. Bank reserves are maintained to ensure that all the cheques written every day clear when presented. If a bank doesn't have enough reserves then cheques drawn against it will bounce.

Answer: False

Explanation: Please see 100-percent reserve banking and state banks for more information or post a comment.