First Money and Banking Take Home Exam

Course Number: 

First Exam



1.     Spend no more than 3 hours working on the exam.
2.     You may use your text and class notes as resources.
3.     You may NOT collaborate with other students, or use resources not listed above.
4.     You may ask me questions about the exam, which I may or may not answer.
5.     You will write the following statement at the end of your exam and sign it: “On my honor, and with full knowledge of the University’s academic integrity policy, I attest that I have not violated the terms of this take home exam, and have not received nor given any unauthorized assistance.”
6.     You will turn in the exam at the beginning of class on Thursday, October 10th.

Part I: Short Answer

Answer each of the following questions in 3-5 sentences. 5 points each, for a total of 35 points.


1.     What is the difference between a debt and equity?

2.     How is a central bank different from a commercial bank?

3.     Explain if a person would be more or less willing to buy stock if their wealth falls. If the bond market becomes more liquid?

4.     What is fractional reserve banking?

5.     What are the five reasons bond yields would fall solely due to a shift in the demand for bonds?

6.     IBM announces that Miley Cyrus will take over as CEO of the company. What would be the effect on IBM’s bond yield?

7.     What is the difference between reciprocity and redistribution?

Part II: Longer Answer

Answer each of these questions in a paragraph (-ish). 8 points each, for a total of 48 points.

1.     List and fully explain the functions of money.

2.     It is often said that the role of financial markets is to funnel money from savers to spenders. How does this funneling work and why is this role so important in the economy?

3.     Explain, in as much detail as possible, why the relationship between bond prices and yields (interest rates) is an inverse one.

4.     Paper money was created because of the demands of trade. Defend.

5.     What is the difference between commodity and fiat money? Describe some problems with each and some advantages of each.

6.     What is the difference between a petty money and an international money? Give a contemporary example of each, and explain how a money becomes international.


Part III: Essays

Answer each of these questions in three to five paragraphs. 15 points each for a total of 45 points.


1.     Discuss Money as stuff, money as an idea, and money as a process. Why do the distinctions matter?

2.     Explain the construction of the demand and supply curves for bonds using both graphs and words. Translate this to a supply and demand graph for loanable funds. 

3.     Defend or criticize the following statement: Money has more social meaning than economic meaning.