The Banking System Quiz

All of the following would be considered money, narrowly defined, EXCEPT:

• savings accounts
• checking accounts.
• coins.
• currency.

The TWO PRIMARY functions of commercial banks are to:

• hold demand deposits and make loans.
• create money and promote economic growth.
• pay interest and provide customers economic security.
• set interest rates and support the Federal Reserve.

The liabilities of a commercial bank include:

• loans.
• demand deposits.
• net worth.
• shares of stock.

The assets of a commercial bank include:

• loans.
• demand deposits.
• net worth.
• savings accounts.

Public confidence in the commercial banking system has been strengthened by the fact that:

• most banks now maintain cash reserves equal to 50% of demand deposits.
• all banks are now members of the Federal Reserve System.
• banks today are required to use a certain percentage of reserves to purchase government bonds.
• nearly all deposits are insured up to $250,000.

Most economists today agree that a situation like the panic of 1907 is unlikely to recur. This is MAINLY because:

• thanks to better bank management, unwise investments are very rare.
• our economy is no longer as dependent upon the banking system as in the past.
• most people entrust only a small percentage of their money to banks.
• for good reason, people have far more faith in banks than they used to.