Deck 4: Money and Inflation

Question 1

To increase the money supply, the Federal Reserve:

A)buys government bonds.
B)sells government bonds.
C)buys corporate stocks.
D)sells corporate stocks.

Answer 1

A

Question 2

The quantity of money in the United States is essentially controlled by the:

A)President of the United States.
B)Department of the Treasury.
C)Federal Reserve.
D)system of commercial banks.

Answer 2

C

Question 3

Demand deposits are funds held in:

A)currency.
B)certificates of deposit.
C)checking accounts.
D)money markets.

Answer 3

C

Question 4

The use of fei as money on the island of Yap illustrates the idea of money as a social convention because:

A)only fei physically in the possession of the owner is accepted in transactions.
B)legal claim to a fei never seen by current generations was accepted in transactions.
C)the central bank of Yap accepts fei in exchange for paper certificates.
D)the government of Yap verifies the authenticity of fei used for transactions.

Question 5

When a pizza maker lists the price of a pizza as $10, this is an example of using money as a:

A)store of value.
B)unit of account.
C)medium of exchange.
D)flow of value.

Question 6

Money's liquidity refers to the ease with which:

A)coins can be melted down.
B)illegally obtained money can be laundered.
C)loans can be floated.
D)money can be converted into goods and services.

Question 7

Economists use the term money to refer to:

A)income.
B)profits.
C)assets used for transactions.
D)earnings from labor.

Question 8

People use money as a unit of account when they:

A)hold money to transfer purchasing power into the future.
B)use money as a measure of economic transactions.
C)use money to buy goods and services.
D)hold money to gain power and esteem.

Question 9

Macroeconomists call assets used to make transactions:

A)real income.
B)nominal income.
C)money.
D)consumption.

Question 10

In a country on a gold standard, the quantity of money is determined by the:

A)government.
B)central bank.
C)amount of gold.
D)buying and selling of government securities.

Question 11

Currency equals:

A)M₁.
B)the sum of funds in checking accounts.
C)the sum of checking accounts and paper money.D.the sum of coins and paper money.

Question 12

In prisoner of war camps during World War II, the "currency" used was:

A)chocolates.
B)cigarettes.
C)gold.
D)IOUs.

Question 13

The central bank in the United States is the:

A)Bank of America.
B)U.S. Treasury.
C)U.S. National Bank.
D)Federal Reserve.

Question 14

All of the following assets are included in M₁ except:

A)currency.
B)demand deposits.
C)traveler's checks.
D)money market deposit accounts.

Question 15

People use money as a medium of exchange when they:

A)hold money to transfer purchasing power into the future.
B)use money as a measure of economic transactions.

Question 16

In the United States, monetary policy is controlled by:

A)the President.
B)the Congress.
C)the Federal Reserve.
D)the Treasury Department.

Question 17

Money that has no value other than as money is called money.

A)fiat
B)intrinsic
C)commodity
D)government

Question 18

To reduce the money supply, the Federal Reserve:

A)buys government bonds.
B)sells government bonds.
C)creates demand deposits.
D)destroys demand deposits.

Question 19

An important factor in the evolution of commodity money to fiat money is:

A)a desire to reduce transaction costs.
B)a desire to increase transaction costs.
C)the fact that gold is no longer highly
D)valued. a desire to use gold for jewelry.

Question 20

Money market mutual fund shares are included in:

A)M₁ only.
B)M₂ only.
C)both M₁ and M₂.
D)neither M₁ nor M₂.

Question 21

Credit card balances are included in:

A)M₁ only.
B)M₂ only.
C)both M₁ and M₂.
D)neither M₁ nor M₂.

Question 22

In a 100-percent-reserve banking system, banks:

A)can increase the money supply.
B)can decrease the money supply.
C)can either increase or decrease the money supply.
D)cannot affect the money supply.

Question 23

Credit cards:

A)are part of the M₁ money supply.
B)are part of the M₂ money supply.
C)are part of both the M₁ and M₂ money
D)supply. may affect the demand for money.