Question 1

A fall in the level of prices

Accepted Answer

A)  does not affect the value of money. 
B)  has an uncertain effect on the value of money. 
C)  increases the value of money. 
D)  reduces the value of money. 
A)  does not affect the value of money. 
B)  has an uncertain effect on the value of money. 
C)  increases the value of money. 
D)  reduces the value of money. C

Question 2

People hold money even during inflationary episodes when other assets prove to be better stores of value. This can be explained by the fact that money is

Accepted Answer

A)  extremely liquid. 
B)  a unique good for which there are no substitutes. 
C)  the only thing accepted in economic exchange. 
D)  backed by gold. 
A)  extremely liquid. 
B)  a unique good for which there are no substitutes. 
C)  the only thing accepted in economic exchange. 
D)  backed by gold. A

Question 3

When compared to exchange systems that rely on money, disadvantages of the barter system include:

Accepted Answer

A)  the requirement of a double coincidence of wants. 
B)  lowering the cost of exchanging goods over time. 
C)  lowering the cost of exchange to those who would specialize. 
D)  encouraging specialization and the division of labor. 
A)  the requirement of a double coincidence of wants. 
B)  lowering the cost of exchanging goods over time. 
C)  lowering the cost of exchange to those who would specialize. 
D)  encouraging specialization and the division of labor. A

Question 4

If an individual redeems a U.S. savings bond for currency

Accepted Answer

A)  M1 stays the same and M2 decreases. 
B)  M1 increases and M2 increases. 
C)  M1 increases and M2 stays the same. 
D)  M1 stays the same and M2 stays the same. 
A)  M1 stays the same and M2 decreases. 
B)  M1 increases and M2 increases. 
C)  M1 increases and M2 stays the same. 
D)  M1 stays the same and M2 stays the same.

Question 5

During hyperinflations,

Accepted Answer

A)  the value of money rises rapidly. 
B)  money no longer functions as a good store of value and people may resort to barter transactions on a much larger scale. 
C)  middle-class savers benefit as prices rise. 
D)  money's value remains fixed to the price level; that is, if prices double so does the value of money. 
A)  the value of money rises rapidly. 
B)  money no longer functions as a good store of value and people may resort to barter transactions on a much larger scale. 
C)  middle-class savers benefit as prices rise. 
D)  money's value remains fixed to the price level; that is, if prices double so does the value of money.

Question 6

An electronic payments system has not completely replaced the paper payments system because of all of the following reasons except

Accepted Answer

A)  expensive equipment is necessary to set up the system. 
B)  security concerns. 
C)  privacy concerns. 
D)  transportation costs. 
A)  expensive equipment is necessary to set up the system. 
B)  security concerns. 
C)  privacy concerns. 
D)  transportation costs.

Question 7

________ are the time and resources spent trying to exchange goods and services.

Accepted Answer

A)  Bargaining costs. 
B)  Transaction costs. 
C)  Contracting costs. 
D)  Barter costs. 
A)  Bargaining costs. 
B)  Transaction costs. 
C)  Contracting costs. 
D)  Barter costs.

Question 8

________ is the narrowest monetary aggregate that the Fed reports.

Accepted Answer

A)  M0 
B)  M1 
C)  M2 
D)  M3 
A)  M0 
B)  M1 
C)  M2 
D)  M3

Question 9

The currency component includes paper money and coins held in

Accepted Answer

A)  bank vaults. 
B)  ATMs. 
C)  the hands of the nonbank public. 
D)  the central bank. 
A)  bank vaults. 
B)  ATMs. 
C)  the hands of the nonbank public. 
D)  the central bank.

Question 10

Even economists have no single, precise definition of money because

Accepted Answer

A)  money supply statistics are a state secret. 
B)  the Federal Reserve does not employ or report different measures of the money supply. 
C)  the "moneyness" or liquidity of an asset is a matter of degree. 
D)  economists find disagreement interesting and refuse to agree for ideological reasons. 
A)  money supply statistics are a state secret. 
B)  the Federal Reserve does not employ or report different measures of the money supply. 
C)  the "moneyness" or liquidity of an asset is a matter of degree. 
D)  economists find disagreement interesting and refuse to agree for ideological reasons.

Question 11

The other checkable deposits component of the M1 measure reported by the Federal Reserve includes

Accepted Answer

A)  negotiable time deposits. 
B)  money market mutual fund shares. 
C)  automatic transfer from savings accounts. 
D)  money market deposit accounts. 
A)  negotiable time deposits. 
B)  money market mutual fund shares. 
C)  automatic transfer from savings accounts. 
D)  money market deposit accounts.

Question 12

A hyperinflation is

Accepted Answer

A)  a period of extreme inflation generally greater than 50% per month. 
B)  a period of anxiety caused by rising prices. 
C)  an increase in output caused by higher prices. 
D)  impossible today because of tighter regulations. 
A)  a period of extreme inflation generally greater than 50% per month. 
B)  a period of anxiety caused by rising prices. 
C)  an increase in output caused by higher prices. 
D)  impossible today because of tighter regulations.

Question 13

Whatever a society uses as money, the distinguishing characteristic is that it must

Accepted Answer

A)  be completely inflation proof. 
B)  be generally acceptable as payment for goods and services or in the repayment of debt. 
C)  contain gold. 
D)  be produced by the government. 
A)  be completely inflation proof. 
B)  be generally acceptable as payment for goods and services or in the repayment of debt. 
C)  contain gold. 
D)  be produced by the government.

Question 14

Which of the following statements accurately describes the two measures of the money supply?

Accepted Answer

A)  The two measures do not move together, so they cannot be used interchangeably by policymakers. 
B)  The two measures' movements closely parallel each other, even on a month-to-month basis. 
C)  Short-run movements in the money supply are extremely reliable. 
D)  M2 is the narrowest measure the Fed reports. 
A)  The two measures do not move together, so they cannot be used interchangeably by policymakers. 
B)  The two measures' movements closely parallel each other, even on a month-to-month basis. 
C)  Short-run movements in the money supply are extremely reliable. 
D)  M2 is the narrowest measure the Fed reports.

Question 15

If an individual uses money from a demand deposit account to purchase a U.S. savings bond,

Accepted Answer

A)  M1 decreases and M2 stays the same. 
B)  M1 stays the same and M2 increases. 
C)  M1 stays the same and M2 stays the same. 
D)  M1 decreases and M2 decreases. 
A)  M1 decreases and M2 stays the same. 
B)  M1 stays the same and M2 increases. 
C)  M1 stays the same and M2 stays the same. 
D)  M1 decreases and M2 decreases.

Question 16

Which of the following is a true statement?

Accepted Answer

A)  Money and income are flow variables. 
B)  Money is a flow variable. 
C)  Income is a flow variable. 
D)  Money and income are stock variables. 
A)  Money and income are flow variables. 
B)  Money is a flow variable. 
C)  Income is a flow variable. 
D)  Money and income are stock variables.

Question 17

Which of the following is not included in the monetary aggregate M2?

Accepted Answer

A)  Currency 
B)  Savings bonds 
C)  Traveler's checks 
D)  Checking deposits 
A)  Currency 
B)  Savings bonds 
C)  Traveler's checks 
D)  Checking deposits

Question 18

For a commodity to function effectively as money it must be

Accepted Answer

A)  easily standardized, making it easy to ascertain its value. 
B)  difficult to make change. 
C)  deteriorate quickly so that its supply does not become too large. 
D)  hard to carry around. 
A)  easily standardized, making it easy to ascertain its value. 
B)  difficult to make change. 
C)  deteriorate quickly so that its supply does not become too large. 
D)  hard to carry around.

Question 19

If an individual moves money from currency to a demand deposit account,

Accepted Answer

A)  M1 decreases and M2 stays the same. 
B)  M1 stays the same and M2 increases. 
C)  M1 stays the same and M2 stays the same. 
D)  M1 increases and M2 stays the same. 
A)  M1 decreases and M2 stays the same. 
B)  M1 stays the same and M2 increases. 
C)  M1 stays the same and M2 stays the same. 
D)  M1 increases and M2 stays the same.

Question 20

Which of the following statements uses the economists' definition of money?

Accepted Answer

A)  I plan to earn a lot of money over the summer. 
B)  Betsy is rich-she has a lot of money. 
C)  I hope that I have enough money to buy my lunch today. 
D)  The job with New Company gave me the opportunity to earn more money. 
A)  I plan to earn a lot of money over the summer. 
B)  Betsy is rich-she has a lot of money. 
C)  I hope that I have enough money to buy my lunch today. 
D)  The job with New Company gave me the opportunity to earn more money.

Exam 3: What Is Money

A fall in the level of prices

People hold money even during inflationary episodes when other assets prove to be better stores of value. This can be explained by the fact that money is

When compared to exchange systems that rely on money, disadvantages of the barter system include:

If an individual redeems a U.S. savings bond for currency

During hyperinflations,

An electronic payments system has not completely replaced the paper payments system because of all of the following reasons except

________ are the time and resources spent trying to exchange goods and services.

________ is the narrowest monetary aggregate that the Fed reports.

The currency component includes paper money and coins held in

Even economists have no single, precise definition of money because

The other checkable deposits component of the M1 measure reported by the Federal Reserve includes

A hyperinflation is

Whatever a society uses as money, the distinguishing characteristic is that it must

Which of the following statements accurately describes the two measures of the money supply?

If an individual uses money from a demand deposit account to purchase a U.S. savings bond,

Which of the following is a true statement?

Which of the following is not included in the monetary aggregate M2?

For a commodity to function effectively as money it must be

If an individual moves money from currency to a demand deposit account,

Which of the following statements uses the economists' definition of money?

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

Understanding Interest Rates

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Financial Crises

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Nonbank Finance

Financial Derivatives

Conflicts of Interest in the Financial Industry

Central Banks and the Federal Reserve System

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, Inflation, and the Demand for Money

Aggregate Demand and Supply Analysis

Monetary Policy Theory

Transmission Mechanisms of Monetary Policy

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