Deck 29: The Monetary System

Question 1

Money

A)is more efficient than barter.
B)makes trades easier.
C)allows greater specialization.
D)All of the above are correct.

Answer 1

D

Question 2

Which of the following best illustrates the medium of exchange function of money?

A)You keep some money hidden in your shoe.
B)You keep track of the value of your assets in terms of currency.
C)You pay for your double latte using currency.
D)None of the above is correct.

Answer 2

C

Question 3

Treasury Bonds are

A)liquid, but not a store of value.
B)a store of value, but not liquid.
C)both liquid and a store of value.
D)neither liquid nor a store of value

Answer 3

C

Question 4

Economists use the word "money" to refer to

A)income generated by the production of goods and services.
B)those assets regularly used to buy goods and services.
C)the value of a person's assets.
D)the value of stocks and bonds.

Question 5

Changes in the quantity of money affect

A)interest rates
B)prices
C)production
D)All of the above are correct

Question 6

Consider four survivors on an island.

Which of the following pairs have a double-coincidence of wants with each other?

A)Rupert with Amber, and Rob with Tom
B)Amber with Tom
C)Rupert with Rob
D)None of the above have a double-coincidence of wants.

Question 7

Which of the following is a store of value?

A)currency
B)U.S.government bonds
C)fine art
D)All of the above are correct.

Question 8

The existence of money leads to

A)greater specialization in production, but not a higher standard of living.
B)a higher standard of living, but not greater specialization.
C)greater specialization and a higher standard of living.
D)neither greater specialization or a higher standard of living.

Question 9

Which list ranks assets from most to least liquid?

A)currency, fine art, stocks
B)currency, stocks, fine art
C)fine art, currency, stocks
D)fine art, stocks, currency

Question 10

Liquidity refers to

A)the ease with which an asset is converted to the medium of exchange.
B)a measurement of the intrinsic value of commodity money.
C)the suitability of an asset to serve as a store of value.
D)how many time a dollar circulates in a given year.

Question 11

Which of the following functions of money is also a common function of most other financial assets?

A)a unit of account
B)a store of value
C)medium of exchange
D)None of the above is correct.

Question 12

Mia puts money into a piggy bank so she can spend it later.What function of money does this illustrate?

A)store of value
B)medium of exchange
C)unit of account
D)None of the above is correct.

Question 13

An item that people can use to transfer purchasing power from the present to the future is called

A)a medium of exchange.
B)a unit of account.
C)a store of value.
D)None of the above is correct.

Question 14

Which of the following is a function of money?

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

Question 15

You get money for babysitting the neighbors' children.This best illustrates which function of money?

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

Question 16

Paper money

A)has a high intrinsic value.
B)is the primary medium of exchange in a barter economy.
C)is valuable because it is generally accepted in trade.
D)is valuable only because of the legal tender requirement.

Question 17

The "yardstick" people use to post prices and record debts is called

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

Question 18

When we say that trade is roundabout we mean that

A)people sometimes trade goods for goods.
B)trades require a double coincidence of wants
C)currency is accepted primarily to make further trades.
D)people must spend time searching for the products they wish to purchase.

Question 19

Consider the following traders who meet.

Which if any pairs have a double coincidence of wants?

A)Bob with Alice
B)Ted with Alice
C)Bob with Mary, Ted with Bob, and Ted with Alice
D)None of the pairs above have a coincidence of wants with each other

Question 20

Which of the following best illustrates the unit of account function of money?

A)You list prices for candy sold on your Web site, www.sweettooth.com, in dollars.
B)You pay for your WNBA tickets with dollars.
C)You keep $10 in your backpack for emergencies.
D)None of the above is correct.

Question 21

Which of the following is included in M2 but not in M1?

A)currency
B)demand deposits
C)savings deposits
D)All of the above are included in both M1 and M2

Question 22

Savings deposits are included in

A)M1 but not M2.
B)M2 but not M1.
C)M1 and M2.
D)neither M1 nor M2.

Question 23

Which of the following isn't included in either M1 or M2?

A)U.S.Treasury bills
B)small time deposits
C)demand deposits
D)money market mutual funds

Question 24

If an economy used gold as money,its money would be

A)commodity money, but not fiat money.
B)fiat money, but not commodity money.
C)both fiat and commodity money.
D)neither fiat nor commodity money.

Question 25

Money market mutual funds are included in

A)M1 but not M2.
B)M1 and M2.
C)M2 but not M1.
D)neither M1 or M2.

Question 26

Commodity money is

A)backed by gold.
B)the principal type of money in use today.
C)money with intrinsic value.
D)receipts created in international trade that are used as a medium of exchange.

Question 27

Which of the following is included in the M2 definition of the money supply?

A)credit cards
B)money market mutual funds
C)corporate bonds
D)large time deposits

Question 28

Credit card limits are included in

A)M1 but not M2.
B)M2 but not M1.
C)M1 and M2.
D)neither M1 nor M2.

Question 29

Demand deposits are a type of

A)checking account.
B)time deposit.
C)money market mutual fund.
D)savings deposit.

Question 30

The legal tender requirement means that

A)people are more likely to accept the dollar as a medium of exchange.
B)the government must hold enough gold to redeem all currency.
C)people may not make trades with anything else.
D)All of the above are correct.

Question 31

Which of the following is not included in M1?

A)currency
B)demand deposits
C)traveler's checks
D)credit cards

Question 32

Which of the following is not included in M1?

A)currency
B)demand deposits
C)savings deposits
D)travelers' checks

Question 33

Demand deposits are included in

A)M1 but not M2.
B)M2 but not M1.
C)M1 and M2.
D)neither M1 nor M2.

Question 34

Fiat money

A)has no intrinsic value.
B)is backed by gold.
C)has intrinsic value equal to its value in exchange.
D)is any close substitute for currency such as checkable deposits.

Question 35

Fiat money

A)is worthless.
B)has no intrinsic value.
C)may be used as a medium of exchange, but is not legal tender.
D)performs all the functions of money except providing a unit of account.

Question 36

Which type of currency has intrinsic value?

A)commodity money
B)fiat money
C)both commodity money and fiat money
D)neither commodity money nor fiat money

Question 37

Which of the following is included in M2 but not in M1?

A)demand deposits
B)corporate bonds
C)large time deposits
D)money market mutual funds

Question 38

M1 includes

A)currency.
B)demand deposits.
C)travelers' checks.
D)All of the above are correct.

Question 39

Current U.S.currency is

A)fiat money with intrinsic value.
B)fiat money with no intrinsic value.
C)commodity money with intrinsic value.
D)commodity money with no intrinsic value.

Question 40

M1 equals currency + demand deposits +

A)nothing else.
B)other checkable deposits.
C)traveler's checks + other checkable deposits.
D)traveler's checks + other checkable deposits + savings deposits.

Question 41

Credit cards

A)are included in M1 but not M2.
B)are included in M1 and M2.
C)are included in M2 but not M1
D)are not included in any measure of the money supply.

Question 42

Credit cards

A)defer payments.
B)are a store of value.
C)have led to wider use of currency.
D)are part of the money supply.

Question 43

The agency responsible for regulating the money supply in the United States is

A)the Comptroller of the Currency.
B)the U.S.Treasury.
C)the Federal Reserve.
D)the U.S.Bank.

Question 44

The amount of currency per person in the United States is about

A)$200.
B)$800.
C)$1,600.
D)$3,100.

Question 45

Use the (hypothetical) information in the following table to answer the following Questions.
Table 29-1

Refer to Table 29-1.What is the M1 money supply?

A)$215 billion
B)$216 billion
C)$226 billion
D)$301 billion

Question 46

The New York Federal Reserve Bank

A)president always gets to vote at the FOMC meetings.
B)conducts open market transactions.
C)is located in the traditional financial center of the United States.
D)All of the above are correct.

Question 47

Each Federal Reserve District Bank president is appointed by

A)the US president with the approval of the Senate.
B)the Board of Governors.
C)the voting members of the FOMC.
D)each bank's board of directors.

Question 48

Members of the Board of Governors

A)are appointed by the U.S.president, while presidents of the Federal Reserve regional banks are appointed by the banks' boards of directors.
B)are appointed by the banks' boards of directors while the presidents of the Federal Reserve regional banks are appointed by the U.S.president.
C)and the presidents of the Federal Reserve regional banks are appointed by the U.S.president.
D)and the presidents of the Federal Reserve regional banks are appointed by the banks' boards of directors.

Question 49

What part of the Fed meets to discuss changes in the economy and determine monetary policy?

A)the Board of Governors
B)the FOMC
C)the regional Federal Reserve Bank presidents
D)the Central Bank Policy Commission.

Question 50

Which of the following might explain why the United States has so much currency per person?

A)U.S.citizens are holding a lot of foreign currency.
B)Currency may be a preferable store of wealth for criminals.
C)People use credit and debit cards more frequently.
D)All of the above help explain the abundance of currency.

Question 51

Which of the following defer payments?

A)credit cards and debit cards
B)neither credit cards or debit cards
C)credit cards but not debit cards
D)debit cards but not credit cards

Question 52

In the US there is about $3,100 of

A)currency per person.
B)demand deposits per person.
C)M1 per person.
D)M2 per person.

Question 53

Debit cards

A)defer payments.
B)are equivalent to credit cards.
C)are included in M2.
D)are used as a method of payment.

Question 54

The Federal Reserve does all except which of the following?

A)control the supply of money
B)control the value of money
C)make loans to individuals
D)regulate the banking system

Question 55

Which of the following is included in both M1 and M2?

A)savings deposits
B)demand deposits
C)small time deposits
D)money market mutual funds

Question 56

Which of the following executes open-market operations?

A)Board of Governors
B)New York Federal Reserve Bank
C)The FOMC
D)None of the above is correct.

Question 57

Given the following information,what would be the values of M1 and M2?

A)M1 = $400 billion, M2 = $2,475 billion.
B)M1 = $125 billion, M2 = $3,025 billion.
C)M1 = $425 billion, M2 = $2, 450 billion.
D)M1 = $425 billion, M2 = $1,875 billion.

Question 58

In the United States,per person

A)average currency holdings are about $800.One explanation for this relatively small average is that money people use credit and debit cards to make transactions.
B)average currency holdings are about $800.One explanation for this relatively small average is that U.S.citizens hold a lot of foreign currency.
C)average holdings of currency are about $3,100.One explanation for this relatively large amount is that criminals may prefer currency as a medium of exchange.
D)average holdings are about $3,100.One explanation for this relatively large average is that U.S.citizens hold a lot of foreign currency.

Question 59

Use the (hypothetical) information in the following table to answer the following Questions.
Table 29-1

Refer to Table 29-1.What is the M2 money supply?

A)$125 billion
B)$341 billion
C)$421 billion
D)$431 billion

Question 60

One puzzle about the U.S.money stock is that

A)banks hold so much currency relative to the public.
B)the public holds so much currency relative to banks.
C)there is so little currency per person.
D)there is so much currency per person.

Question 61

Which of the following is not always a voting member of the FOMC?

A)the president of the New York Federal Reserve District Bank
B)the Chairman of the Board of Governors
C)a member of the Board of Governors other than the chair
D)the president of the Boston Federal Reserve District Bank

Question 62

When the Fed conducts open-market purchases,

A)it buys Treasury securities, which increases the money supply.
B)it buys Treasury securities, which decreases the money supply.
C)it borrows money from member banks, which increases the money supply.
D)it lends money to member banks, which decreases the money supply.

Question 63

The Board of Governors

A)is currently chaired by Paul Volcker.
B)are appointed by the president and confirmed by the Senate.
C)has twelve members.
D)All of the above are correct.

Question 64

When the Fed conducts open-market purchases,

A)it buys Treasury securities, which increases the money supply.
B)it buys Treasury securities, which decreases the money supply.
C)banks buy Treasury securities from Fed, which increases the money supply.
D)banks buy Treasury securities from the Fed, which decreases the money supply.

Question 65

The Federal Open Market Committee is made up of

A)5 Federal Reserve Regional Bank Presidents and all the members of the Board of Governors.
B)5 Federal Reserve Regional Bank Presidents and 5 members of the Board of Governors.
C)12 Federal Reserve Regional Bank Presidents and all the members of the Board of Governors.
D)12 Federal Reserve Regional Bank Presidents and 5 members of the Board of Governors.

Question 66

When the Federal Reserve conducts open-market operations to increase the money supply,it

A)redeems Federal Reserve notes.
B)buys government bonds from the public.
C)raises the discount rate.
D)decreases its lending to member banks.

Question 67

The Fed's primary tool to change the money supply is

A)changing the discount rate.
B)changing the reserve requirement.
C)conducting open market operations.
D)redeeming Federal Reserve notes.

Question 68

Which of the following is correct?

A)The Federal Reserve has 14 regional banks.The Board of Governors has 12 members who serve 7-year terms.
B)The Federal Reserve has 14 regional banks.The Board of Governors has 7 members who serve 14-year terms.
C)The Federal Reserve has 12 regional banks.The Board of Governors has 12 members who serve 7-year terms.
D)The Federal Reserve has 12 regional banks.The Board of Governors has 7 members who serve 14-year terms.

Question 69

Which of the following has a four-year term?

A)the members of the Board of Governors
B)the Chair of the Board of Governors
C)the members of the FOMC
D)All of the above are correct.

Question 70

In a 100-percent-reserve banking system,

A)banks can create money by issuing currency.
B)banks can create money by lending out reserves.
C)the Fed can increase the money supply with open-market sales.
D)banks hold as many reserves as they hold deposits.

Question 71

Which of the following statements about the Federal Reserve is not correct?

A)The members of the Board of Governors are also presidents of the Federal Reserve's regional banks.
B)The Federal Open Market Committee makes monetary policy.
C)All members of the Board of Governors sit on the Federal Open Market Committee.
D)The Federal Reserve serves as a bank regulator.

Question 72

Monetary policy affects employment

A)only in the long run.
B)only in the short run.
C)in both the long run and the short run.
D)in neither the long run nor the short run.

Question 73

Which of the following does the Federal Reserve not do?

A)conduct monetary policy
B)act as a lender of last resort
C)convert Federal Reserve Notes into gold
D)serve as a bank regulator

Question 74

There is a

A)short-run tradeoff between inflation and unemployment.
B)short-run tradeoff between an increase in the money supply and inflation.
C)long-run tradeoff between inflation and unemployment.
D)long-run tradeoff between an increase in the money supply and inflation.

Question 75

When the Fed conducts open-market sales,

A)it sells Treasury securities, which increases the money supply.
B)it sells Treasury securities, which decreases the money supply.
C)it borrows from member banks, which increases the money supply.
D)it lends money to member banks, which decreases the money supply.

Question 76

The Fed can influence unemployment in

A)the short and long run.
B)the short run, but not the long run.
C)the long run, but not the short run.
D)neither the short nor long run.

Question 77

Over one time horizon or another Fed policy decisions influence

A)inflation and employment.
B)inflation but not employment.
C)employment but not inflation.
D)neither inflation nor employment.

Question 78

The Fed can increase the price level by conducting open market

A)sales and raising the discount rate.
B)sales and lowering the discount rate.
C)purchases and raising the discount rate.
D)purchases and lowering the discount rate.

Question 79

The 12 regional Federal Reserve Banks

A)are not allowed to make loans to banks in their districts.
B)regulate banks in their districts.
C)have more voting members on the FOMC than does the Board of Governors.
D)are each headed by a member of the Board of Governors.

Question 80

The Fed can increase the money supply by conducting open market

A)sales and raising the discount rate.
B)sales and lowering the discount rate.
C)purchases and raising the discount rate.
D)purchases and lowering the discount rate.