Deck 18: Money and the Federal Reserve System

Question 1

A barter economy is one in which:

A) money serves as a medium of exchange.
B) only precious metals are accepted as money.
C) goods are traded directly for other goods.
D) paper money is backed by gold.

Answer 1

C

Question 2

Barter is the:

A) direct exchange of goods and services.
B) exchange of goods, but not services.
C) system that does not depend on a coincidence of wants.
D) system used in advanced economies.

Answer 2

A

Question 3

Barter requires:

A) that the exchanged goods be portable.
B) that the exchanged goods be durable.
C) a coincidence of wants.
D) that the exchange medium be divisible.
E) an effective middleman.

Answer 3

C

Question 4

Which of the following defines the "unit of account" function of money?

A) A common measurement of the relative value of different goods and services.
B) The ability of money to hold value over time.
C) The materials used to manufacture money are of medium grade or quality, so that people will not hoard money for its commodity value.
D) Money is widely accepted in exchange for goods and services.

Question 5

Which of the following provides the best explanation of why money is valuable?

A) Money is valuable because it is indivisible.
B) Money is valuable because it is scarce.
C) Money is valuable because it is backed by precious metals, primarily gold and silver.
D) Money is valuable because it has intrinsic value, independent of its use as a means of exchange.

Question 6

Fiat money is money:

A) accepted by law regardless of its intrinsic value.
B) that is not included as part of the M1 money supply.
C) that is backed by gold or silver held on reserve by the government.
D) such as coins that are made from metal.

Question 7

Which of the following defines the "store of value" function of money?

A) A common measurement of the relative value of different goods and services.
B) The ability of money to hold value over time.
C) That the materials used to manufacture money are of medium grade or quality, so that people will not hoard money for its commodity value.
D) That money is widely accepted in exchange for goods and services.

Question 8

Compared to a barter economy, using money increases efficiency by reducing:

A) transaction costs.
B) the need to exchange goods.
C) the need to specialize.
D) inflation.

Question 9

Which of the following correctly describes the difference between commodity money and fiat money? ​

A) ​Fiat money is only used in Italy, and is issued by a major Italian automobile manufacturer to support Italian schools.
B) Commodity money is either made out of a valuable commodity like silver or gold, or is redeemable for a valuable commodity. Fiat money is not.​
C) ​Commodity money can only be used to buy commodities such as grains or lumber, while fiat money can be used to buy anything.
D) ​Fiat money is used during times of emergency, such as hurricanes or war, when the existing stock of commodity money is inadequate to purchase needed goods and services.

Question 10

What is the "store of value" function of money?

A) ​A common measurement of the relative value of different goods and services.
B) ​The ability of money to hold value over time.
C) ​The quality of money not to be hoarded because of its commodity value.
D) ​The function of money to be widely accepted in exchange for goods and services.​

Question 11

In order for barter to occur, traders must have a:

A) unit of account.
B) coincidence of wants.
C) medium of exchange.
D) central banking facility.

Question 12

Money is:

A) valuable because it is backed by gold.
B) any items used in barter.
C) an illiquid asset.
D) none of the above.

Question 13

A direct exchange of fish for corn is an example of:

A) storing value.
B) a modern exchange method.
C) barter.
D) a non-coincidence of wants.

Question 14

The term "near monies" refers to which of the following? ​

A) ​ Savings and small time deposits, which (unlike currency and checkable deposits) are not immediately available as money in a transaction.
B) ​Mexican pesos and Canadian dollars - the money used by our nearest neighbors.
C) ​ Counterfeit money that closely approximates the appearance of real money.
D) ​None of the answers above are correct.

Question 15

What is the "medium of exchange" function of money? ​

A) ​A common measurement of the relative value of different goods and services.
B) ​The ability of money to hold value over time.
C) ​The quality of money not to be hoarded because of its commodity value.
D) ​The function of money to be widely accepted in exchange for goods and services.

Question 16

What is the "unit of account" function of money? ​

A) ​A common measurement of the relative value of different goods and services.
B) ​The ability of money to hold value over time.
C) ​The quality of money not to be hoarded because of its commodity value.
D) ​The function of money to be widely accepted in exchange for goods and services.

Question 17

The exchange of one good for another, without the use of money, is known as:

A) acquisitive exchange.
B) liquidity.
C) volatility.
D) barter.
E) currency.

Question 18

In the United States, the purchasing power of money is determined by:

A) the underlying precious metals that back each unit of currency.
B) the value of U.S. treasury bonds that back each unit of currency.
C) its acceptability.
D) Congress, which controls the money supply.

Question 19

For barter exchange to take place,

A) there has to be a coincidence of wants.
B) the products in question have to be divisible.
C) money has to be used to put a value on the transaction.
D) there has to be a single coincidence of wants.
E) gold has to be one of the goods traded.

Question 20

Which of the following defines the "medium of exchange" function of money?

A) To provide a common measurement of the relative value of different goods and services.
B) The ability of money to hold value over time.
C) The materials used manufacture money are of medium grade so that people will not hoard money for its commodity value.
D) Money that is widely accepted in exchange for goods and services.

Question 21

Which of the following is not a store of value?

A) Federal Reserve notes.
B) Credit card.
C) Debit card.
D) Passbook savings deposit.

Question 22

Currency consists of:

A) coins and Eurodollars.
B) paper money and checks.
C) coins and paper money.
D) paper money and Eurodollars.
E) coins and checks.

Question 23

Buying a cup of coffee with a dollar bill represents the use of money as a:

A) medium of exchange.
B) unit of account.
C) store of value.
D) all of the above.

Question 24

Coins and dollar bills are money in the form of:

A) barter.
B) currency.
C) capital stock.
D) investment.

Question 25

The statement that Computech's profits totaled $500 million last year represents the use of money as a:

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

Question 26

Are outstanding credit card balances counted as part of the money supply?

A) Yes; they are used to purchase things, and therefore, they are included in the money supply figures.
B) No; money is an asset, while the credit card balances are a liability. Thus, they are not included in the money supply figures.
C) Partly; credit card balances of $100 or less are included in the M1 money supply, but the money supply figures do not include balances in excess of $100.
D) Partly; credit card balances are included in the M1 money supply, but not the M2 money supply.

Question 27

Which of the following is not an example of money used as a unit of account?

A) A British pound is worth $3.00.
B) Auto repairs were $3,000 last year.
C) Business travel totaled 12,000 miles.
D) Gasoline sells for $1.20 per gallon and oil is $5.00 per quart.

Question 28

One hundred dollars on deposit in a checking account represents the use of money as a:

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

Question 29

The use of a dollar bill to buy a concert ticket represents the function of money as a:

A) medium of exchange.
B) unit of account.
C) store of value.
D) all of the above.

Question 30

Comparing how many dollars it takes you to run your car each year to annual earnings on a job instead of keeping track of costs in terms of gallons of gasoline and quarts of oil represents the use of money as a:

A) means of payment.
B) unit of account.
C) store of purchasing power.
D) form of plastic money.

Question 31

Which of the following items does not provide a store of value?

A) Currency.
B) Checkable deposits.
C) Credit cards.
D) All of the above are correct.

Question 32

If every person is willing to accept money in payment, rather than goods and services, money serves as a:

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

Question 33

The primary functions of money are:

A) velocity, liquidity, and transactions.
B) speculative demand, measure of value, and precautionary demand.
C) a medium of exchange, a unit of account, and a store of value.
D) a store of value, heterogeneity, and a medium of exchange.
E) currency value, fiat value, and accepted value.

Question 34

If something is a medium of exchange, then it:

A) serves as a yardstick for measuring the value of other goods.
B) is a means of holding wealth for the future.
C) has an absolute value in gold.
D) is widely accepted as payment for purchases.

Question 35

If something is a unit of account, then it:

A) serves as a yardstick for measuring the relative value of other goods
B) is a means of holding wealth for the future
C) is fairly stable
D) is durable and portable
E) is accepted as payment for any purchase

Question 36

Which of the following is the most liquid store of purchasing power?

A) A dollar bill.
B) Common stock.
C) Gold.
D) Real estate.

Question 37

Comparing how many dollars it takes to attend college each year to annual earnings on a job represents the use of money as a:

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

Question 38

Anything can be money if it acts as a:

A) unit of account.
B) store of value.
C) medium of exchange.
D) All of the above must be correct.

Question 39

Credit cards are:

A) M1 money.
B) M2 money.
C) near money.
D) not money.

Question 40

Which of the following is not a store of value?

A) Dollar bills.
B) Credit card.
C) Coins.
D) Gold.

Question 41

M1 refers to:

A) Federal Reserve Notes and gold certificates.
B) Currency held by the public plus checking account balances.
C) The largest of the money-supply definitions.
D) None of the above.

Question 42

Which of the following assets is the most liquid?

A) Money.
B) Gold.
C) Land.
D) Stocks.

Question 43

Which of the following statements is false ?

A) Round stones with holes in the center can serve as money.
B) Money eases the process of exchanging goods and services in a modern economy.
C) Money serves as a measure of value only when it is backed by gold or silver.
D) Money is used as a measure of the relative value of goods and services in an economy.

Question 44

Which of the following is not counted as part of M1?

A) Coins.
B) Federal Reserve notes or " paper money."
C) Passbook savings deposits.
D) Checkable deposits.

Question 45

Though many assets can be used as a store of value, money is a particularly attractive method to store value because:

A) it increases in value as prices rise.
B) its purchasing power does not decline when prices rise.
C) it is the most liquid of all assets.
D) it is backed by gold.

Question 46

Which one of the following is part of the official money supply in the United States?

A) Federal Reserve Notes.
B) Gold bars.
C) Common stock.
D) Silver coins.

Question 47

Gold is a perfect medium of exchange and measure of value because of its:

A) divisibility, portability, and homogeneity.
B) divisibility and durability.
C) durability and relative scarcity.
D) durability and homogeneity.
E) divisibility, durability, and relative scarcity.

Question 48

In the United States, the money supply (M1) consists of:

A) paper currency and coins.
B) coins, paper currency and checkable deposits.
C) paper currency, coins, checkable deposits, and savings deposits.
D) government bonds, currency, and checkable deposits.

Question 49

Which one of the following is the largest component of the money supply (M1) in the United States?

A) Checkable deposits.
B) Gold certificates.
C) Credit cards and traveler's checks.
D) Federal Reserve notes.

Question 50

Which of the following forms of money is the least liquid?

A) Dollars.
B) Checking account deposits.
C) Passbook savings.
D) Certificates of deposit.

Question 51

Which one of the following items would be the most liquid?

A) Pizza.
B) Ticket to next week's basketball game.
C) Stereo.
D) Dollar bill.
E) U.S. savings bond.

Question 52

The currency of the United States is:

A) backed dollar for dollar by gold.
B) backed by a gold cover of 50 percent.
C) not backed by any precious metal.
D) backed by the government's silver reserves.
E) back by the government's gold and silver reserves.

Question 53

The ease with which an asset can be converted into a medium of exchange is known as:

A) volatility.
B) liquidity.
C) currency.
D) Gresham's Law.
E) speculative exchange.

Question 54

The ease with which an asset can be converted into a medium of exchange is:

A) currency convertibility.
B) asset convertibility.
C) convertibility.
D) money convertibility.
E) liquidity.

Question 55

The characteristics that money should have include:

A) portability, durability, and flexibility.
B) durability, flexibility and stability.
C) durability, portability, and non-homogeneity.
D) scarcity, portability, and divisibility.
E) portability, homogeneity, and flexibility.

Question 56

Which of the following assets is most liquid?

A) Funds in a checking account.
B) A car.
C) A home.
D) A municipal bond.

Question 57

Which of the following is a desirable property of money?

A) Scarcity.
B) Portability.
C) Divisibility.
D) All of the above.

Question 58

Which of the following is not a component of the M1 money supply?

A) Checkable deposits.
B) Large-denomination (more than $100) bills.
C) Interest-earning checking deposits.
D) Outstanding balances on credit cards.

Question 59

What establishes the value of fiat money?

A) Our collective trust and confidence that the central government, which decrees that money cannot be refused as payment for debt.
B) Gold and silver owned by the large commercial banks.
C) The central government authority's promise to redeem fiat money for gold or silver upon demand.
D) None of the above.

Question 60

Which of the following assets is the most liquid?

A) Money market mutual fund shares.
B) Certificates of deposit.
C) Dollars.
D) Passbook savings deposits.

Question 61

The M1 definition of the money supply includes currency,

A) checkable deposits, and savings accounts.
B) checkable deposits, and credit cards.
C) checkable deposits, and debit cards.
D) and checkable deposits.

Question 62

The M1 money supply is defined to be the sum of currency, and:

A) checkable deposits.
B) Treasury bonds.
C) savings accounts.
D) large time deposits.

Question 63

Which definition of the money supply includes credit cards?

A) M1.
B) M2.
C) M3.
D) None of the above includes credit card balances.

Question 64

Which one of the following is part of the M2 definition of the money supply, but not part of M1?

A) Checkable deposits.
B) Currency held in banks.
C) Currency in circulation.
D) Small time deposits of less than $100,000.

Question 65

M1 money includes all but which one of the following?

A) Checkable deposits.
B) Savings accounts.
C) Paper money.
D) Coins.

Question 66

Which of the following statements is true ?

A) Money must be relatively "scarce" if it is to have value.
B) Money must be divisible and portable.
C) M1 is the narrowest definition of money.
D) All of the above.

Question 67

The money supply known as M2:

A) includes large denomination time deposits.
B) excludes interest-earning checking accounts in savings and loans.
C) does not include money market mutual accounts.
D) includes savings accounts and small denomination time deposits.
E) includes large denomination repurchase agreements.

Question 68

Which of the following items is included when computing M1?

A) Coins in circulation.
B) Currency in circulation.
C) Checking accounting entries.
D) All of the above.
E) None of the above

Question 69

Which of the following is counted as part of M2?

A) Currency.
B) Checkable deposits.
C) Money-market mutual funds.
D) All of the above.

Question 70

The M1 definition of the money supply includes:

A) currency in circulation and checkable deposits.
B) Federal Reserve Notes, gold certificates, and checkable deposits.
C) Federal Reserve Notes and bank loans.
D) None of the above.

Question 71

The largest component of the M1 definition of the money supply is:

A) traveler's checks.
B) savings accounts.
C) money market accounts.
D) checkable deposits

Question 72

By definition, M1 includes:

A) savings accounts.
B) money market mutual accounts.
C) small denomination time deposits.
D) checkable deposits.

Question 73

Which of the following is considered part of M2?

A) Savings deposits.
B) Money market mutual fund shares.
C) Small time deposits of less than $100,000.
D) All of the above.

Question 74

Which of the following items is included when computing M1?

A) Checking accounting entries.
B) Currency in circulation.
C) All of the above.
D) None of the above.

Question 75

Which of the following is not considered part of M2?

A) Small time deposits of less than $100,000.
B) Money market mutual fund shares.
C) Savings deposits.
D) Large time deposits of more than $100,000.

Question 76

Which of the following compose the M2 money supply?

A) Currency only.
B) Currency, checkable deposits, and traveler's checks.
C) M1 plus large denomination time deposits and Eurodollar deposits.
D) M1 plus savings deposits and small-denomination time deposits.

Question 77

The M1 definition of the money supply includes:

A) coins and currency in circulation.
B) coins and currency in circulation and checkable deposits.
C) Federal Reserve notes, gold certificates, and checkable deposits.
D) Federal Reserve notes and bank loans.

Question 78

M1 refers to:

A) the most narrowly defined money supply definition.
B) currency held by the public plus checking account balances.
C) the smallest of the money-supply definitions.
D) all of the above.

Question 79

Economists who prefer a broader definition of money prefer the:

A) M4 measure of the money supply to the M1 measure.
B) M2 measure of the money supply to the M1 measure.
C) M3 measure of the money supply to the M2 measure.
D) prefer the M1 measure of the money supply to the M2 measure.

Question 80

Which of the following is not part of M1?

A) Checking accounts.
B) Coins.
C) Credit cards.
D) Paper currency.