Deck 17: Money and the Federal Reserve

Question 1

Money does NOT function as:

A) a unit of account.
B) a medium of exchange.
C) a means to buy goods and services.
D) an item to barter.
E) a store of value.

Answer 1

an item to barter.

Question 2

What function of money is highlighted when I am comparing the price of one product to another?

A) fiat money
B) store of value
C) medium of exchange
D) unit of account
E) commodity money

Answer 2

unit of account

Question 3

In which of the following situations does money serve as a unit of account?

A) Goods have a value expressed in the same currency, thus allowing comparisons.
B) Goods have a value expressed in both a fiat money and commodity money.
C) Goods have a value expressed in terms of both a commodity money and commodity-backed money.
D) Goods cannot be assigned a value.
E) Goods have a value that changes over time.

Answer 3

Goods have a value expressed in the same currency, thus allowing comparisons.

Question 4

When money is acting as a unit of account,it:

A) allows you to speed up the purchase of goods.
B) allows you to delay the purchase of goods.
C) allows you to measure the value of goods precisely.
D) allows you to make exchanges more efficiently.
E) allows you to make exchanges less efficiently.

Question 5

When money is acting as a medium of exchange,it:

A) stops you from reselling goods once they are purchased.
B) allows you to delay the purchase of goods.
C) allows you to measure the value of goods precisely.
D) allows you to make exchanges more efficiently.
E) allows you to make exchanges less efficiently.

Question 6

Which of the following is not a characteristic of fiat money?

A) It is generally acceptable as a medium of exchange.
B) It provides a way to store wealth over time.
C) It serves as a unit of account.
D) It changes in value over time as the amount of fiat money changes.
E) It is always backed by something of high intrinsic value.

Question 7

What function of money is highlighted when I put cash under my mattress to have on hand for unexpected emergencies?

A) fiat money
B) store of value
C) medium of exchange
D) unit of account
E) commodity money

Question 8

Which of the following would be a consequence in an economy where there is no money?

A) There would be no way to save for the future.
B) There would be no way to borrow.
C) Exchanges would occur more quickly.
D) Exchanges would take longer.
E) There would be no more exchange.

Question 9

What function of money is highlighted when I pay for my cell phone bill with cash?

A) fiat money
B) medium of exchange
C) unit of account
D) store of value
E) commodity money

Question 10

A major advantage of money over barter is that it is:

A) a medium of exchange.
B) fiat money.
C) a unit of account.
D) a store of value.
E) currency.

Question 11

Why isn't the barter method of exchange more common in the U.S.economy?

A) The double coincidence of wants frequently occurs.
B) The level of commodity money is too low.
C) The level of commodity money is too high.
D) The double coincidence of wants infrequently occurs.
E) The amount of money in the economy is easy to measure.

Question 12

Which of the following is an example of barter where the double coincidence of wants may not always occur?

A) An individual uses tobacco to buy everything, and tobacco is an item that all merchants willingly accept.
B) An individual uses fiat money to buy everything, and fiat money is an item all merchants willingly accept.
C) An individual wants to buy a new set of tires using seashells from a merchant who needs seashells.
D) All merchants price goods in terms of number of seashells.
E) All merchants price goods in terms of amount of fiat money.

Question 13

What function of money is highlighted when I buy flowers for my girlfriend for our eighth-day anniversary?

A) medium of exchange
B) fiat money
C) unit of account
D) store of value
E) commodity money

Question 14

Which of the following events could cause inflation in the United States-a country that uses fiat money?

A) There is a discovery of a new silver mine.
B) There has been a decision made to switch from a currency based on the amount of gold (a scarce metal) to a currency based on the amount of silver (a plentiful metal).
C) Individuals are frustrated by the infrequent occurrence of the double coincidence of wants.
D) The government decides to print more money.
E) The government decides to transition to a commodity-backed money.

Question 15

Money eliminated the need for the double coincidence of wants through its role as:

A) fiat money.
B) a unit of account.
C) a store of value.
D) a medium of exchange.
E) currency.

Question 16

In which of the following situations does money serve as a store of value?

A) Money rapidly gains and loses value over time.
B) Money loses a constant amount of value over time.
C) Money can be used to purchase approximately the same amount of goods over time.
D) Money encourages a double coincidence of wants.
E) Money is accepted by all merchants.

Question 17

For something to be considered money,it must:

A) be of low intrinsic value.
B) be of high intrinsic value.
C) have the backing of the government.
D) not be generally accepted as a medium of exchange.
E) be generally accepted as a medium of exchange.

Question 18

Which of the following statements is true?

A) Only a few objects are eligible to be considered a commodity.
B) A commodity money comes into existence through private, not government, decisions.
C) A fiat money represents an object that has intrinsic value.
D) A commodity-backed money and fiat money have the same inherent or intrinsic value.
E) A commodity money is often determined by government bureaucrats.

Question 19

In economic terms,how would you state what has happened when your neighbor says he is unwilling to help you mow your lawn because you are unwilling to help him teach his kids how to speak with a British accent?

A) The medium of exchange was too high.
B) Your neighbor's unwillingness to mow your lawn reflects a lack of store of value.
C) The double coincidence of wants was not satisfied.
D) The three functions of money were not satisfied.
E) Your unwillingness to provide British-accent tutoring services reflects that too much fiat money is available.

Question 20

When gasoline gallons are priced in terms of number of seashells,seashells serve as:

A) the medium of exchange.
B) fiat money.
C) a unit of account.
D) a store of value.
E) currency.

Question 21

When an economy experiences inflation,the value of money:

A) increases.
B) decreases.
C) initially increases but then decreases.
D) initially decreases but then increases.
E) does not change.

Question 22

What function of money is highlighted when I am depositing a portion of my paycheck into my savings account to pay for my child's future education?

A) fiat money
B) medium of exchange
C) unit of account
D) store of value
E) commodity money

Question 23

In a fiat money economy,M1 includes currency as well as:

A) certificates of deposit.
B) money market mutual funds.
C) checkable deposits.
D) savings deposits.
E) gold holdings.

Question 24

If I were to give cash to my father for his birthday and he deposited the cash into his savings account,which of the following changes would take place?

A) M1 and M2 would remain unchanged.
B) M1 would decrease; M2 would increase.
C) M1 and M2 would increase.
D) M2 would be unchanged.
E) M1 would increase; M2 would decrease.

Question 25

Which of the following would NOT increase the supply of money in a fiat money economy?

A) The Federal Reserve decides to purchase existing treasury securities.
B) The Federal Reserve decreases the required reserve ratio.
C) The Federal Reserve decreases the discount rate.
D) There is a discovery of gold.
E) The Federal Reserve decides to link the value of money to water (a commodity).

Question 26

Which of the following would NOT decrease the supply of money in a fiat money economy?

A) The Federal Reserve decides to link the value of money to a scarce, rare earth metal.
B) The Federal Reserve decides to sell existing treasury securities.
C) The Federal Reserve increases the required reserve ratio.
D) The Federal Reserve increases the discount rate.
E) The Federal Reserve decides to link the value of money to water (a commodity).

Question 27

Refer to the following table to answer the next three questions:

Using the table,what is the value of M2?

A) $13,500,000
B) $46,500,000
C) $47,500,000
D) $57,500,000
E) $65,000,000

Question 28

Refer to the following table to answer the next three questions:

Using the table,what is the value of M1?

A) $1,150,500,000
B) $1,495,500,000
C) $93,000,000
D) $345,000,000
E) $78,000,000

Question 29

If Ann were to convert some of her checkable deposits into a certificate of deposit,which of the following changes would take place?

A) M1 would decrease and then increase; M2 would increase and then decrease.
B) There would be no changes to M1 or M2.
C) M1 would decrease; there would be no change in M2.
D) M1 would increase; M2 would increase.
E) M1 would decrease; M2 would decrease.

Question 30

I have decided to use my credit card to purchase a new television.What is the immediate consequence of this purchase?

A) There would be a decrease in M1 and an increase in M2.
B) There would be an increase in M1 and an increase in M2.
C) There would be no changes to M1 or M2.
D) There would be a decrease in M1 and a decrease in M2.
E) There would be an increase in M1 and a decrease in M2.

Question 31

Refer to the following table to answer the next three questions:

Using the table,what is the value of M1?

A) $13,500,000
B) $46,500,000
C) $47,500,000
D) $57,500,000
E) $64,500,000

Question 32

Refer to the following table to answer the next three questions:

Using the table,what is the value of M2 that is not part of M1?

A) $1,150,500,00
B) $1,495,500,000
C) $93,000,000
D) $345,000,000
E) $78,000,000

Question 33

If the government were to print more money,which of the following would occur?

A) There would be no changes to M1 or M2.
B) M1 would decrease; M2 would increase.
C) Both M1 and M2 would increase.
D) Both M1 and M2 would decrease.
E) M1 would increase; M2 would decrease.

Question 34

I am about to leave on a trip and I have used cash to buy traveler's checks.Which of the following changes have occurred?

A) M1 has increased; M2 has decreased.
B) M1 has decreased; M2 has increased.
C) Both M1 and M2 have increased.
D) Both M1 and M2 have decreased.
E) There have been no changes to M1 or M2.

Question 35

If I were to give cash to my mother for her birthday and she kept the cash under her mattress,which of the following changes would take place?

A) M1 and M2 would remain unchanged.
B) M1 and M2 would increase.
C) M1 and M2 would decrease.
D) M1 would increase; M2 would decrease.
E) M1 would decrease; M2 would increase.

Question 36

Refer to the following table to answer the next three questions:

Using the table,what is the value of M2?

A) $1,150,500,00
B) $1,495,500,000
C) $93,000,000
D) $345,000,000
E) $78,000,000

Question 37

The value of money:

A) increases when the price level increases.
B) decreases when the price level increases.
C) initially increases but then decreases when the price level increases.
D) initially decreases but then increases when the price level increases.
E) does not change.

Question 38

If I were to receive cash from my sister and I deposited it into my checking account,which of the following changes would occur?

A) M1 and M2 would remain unchanged.
B) M1 would decrease; M2 would increase.
C) Both M1 and M2 would increase.
D) Both M1 and M2 would decrease.
E) M1 would increase; M2 would decrease.

Question 39

Which of the following is not a component of M1?

A) coins
B) traveler's checks
C) checking accounts
D) savings accounts
E) paper currency

Question 40

Refer to the following table to answer the next three questions:

Using the table,what is the value of M2 that is not part of M1?

A) $13,500,000
B) $17,500,000
C) $47,500,000
D) $57,500,000
E) $64,500,000

Question 41

If a bank increases the amount of cash it has in its vault,how would this affect the bank's balance sheet?

A) Reserves would increase, liabilities would stay the same, and owner's equity would increase.
B) Reserves would decrease, liabilities would stay the same, and owner's equity would increase.
C) Reserves would increase, liabilities would decrease, and owner's equity would decrease.
D) Reserves would increase, liabilities would stay the same, and owner's equity would decrease.
E) Reserves would decrease, liabilities would increase, and owner's equity would decrease.

Question 42

Which of the following is not a component of M2?

A) currency
B) traveler's checks
C) checking accounts
D) savings accounts
E) gold

Question 43

Loans and deposits within a bank are:

A) liabilities and assets, respectively, on a bank's balance sheet.
B) assets and liabilities, respectively, on a bank's balance sheet.
C) are not found on a bank's balance sheet.
D) both assets.
E) both liabilities.

Question 44

The largest component of M2 is:

A) savings deposits.
B) checking deposits.
C) currency.
D) small time deposits.
E) money market mutual funds.

Question 45

Refer to the following table to answer the next three questions:

Using the table,what is the value of M1?

A) $404,000,000
B) $740,000,000
C) $906,000,000
D) $744,000,000
E) $1,650,000,000

Question 46

Which of the following is most liquid?

A) savings deposits
B) checking deposits
C) credit cards
D) small time deposits
E) money market mutual funds

Question 47

The local bank needs to borrow funds from a bank in the next town.How does this affect the local bank's balance sheet?

A) The balance sheet would show increased borrowings and no change to owner's equity.
B) The balance sheet would show decreased reserves and increased owner's equity.
C) The balance sheet would show increased borrowings and increased owner's equity.
D) The balance sheet would show increased reserves and reduced owner's equity.
E) The balance sheet would show increased borrowings and reduced owner's equity.

Question 48

The Coppock Bank began the day with $10,000,000 in its reserve account and ended the day with the same amount.If loans,other assets,and Treasury securities were $3,000,000 and owner's equity was $2,000,000,what is the bank's total amount of assets?

A) $7,000,000
B) $11,000,000
C) $13,000,000
D) $15,000,000
E) There is not enough information to solve this.

Question 49

I have a checking account at the local bank,and my sister has a car loan at the same bank.How does each of these appear on the bank's balance sheet?

A) The checking account is a liability, and the car loan is an asset.
B) The checking account is an asset, and the car loan is a liability.
C) Both the checking account and the car loan are assets.
D) Both the checking account and the car loan are liabilities.
E) Both the checking account and the car loan are net worth.

Question 50

Refer to the following table to answer the next three questions:

Using the table,what is the value of M2 that is not part of M1?

A) $404,000,000
B) $740,000,000
C) $906,000,000
D) $744,000,000
E) $1,650,000,000

Question 51

Which of the following cannot be found on a bank's balance sheet?

A) deposits
B) cash held by individuals
C) owner's equity
D) reserves
E) loans

Question 52

The bank in your hometown has decided to double the number of its local branch offices.How will this affect the bank's balance sheet?

A) Assets will increase.
B) Liabilities will increase.
C) Liabilities will decrease.
D) Assets will decrease.
E) Doubling the number of offices would not appear on the balance sheet.

Question 53

Using a credit card is most like:

A) the money supply increasing.
B) the value of fiat money being reduced.
C) the value of fiat money being increased.
D) a short-term loan from a bank.
E) a short-term deposit at a bank.

Question 54

As financial intermediaries,how do commercial banks pay their expenses and earn a profit?

A) Banks pay depositors a higher interest rate than they charge borrowers.
B) Banks pay depositors a lower interest rate than they charge borrowers.
C) Banks earn interest from their deposits at the Federal Reserve.
D) Banks invest funds from stockholders in the stock and bond markets.
E) Banks invest funds from depositors in the stock and bond markets.

Question 55

Which of the following statements about traveler's checks is true?

A) Traveler's checks are included in M1, but not M2.
B) Traveler's checks are considered a savings deposit.
C) Traveler's checks are not money.
D) Traveler's checks are part of M1 and M2.
E) Traveler's checks are considered a checkable deposit.

Question 56

If I were to deposit cash into my savings account,which of the following changes would take place?

A) M1 would remain the same.
B) M2 would remain the same.
C) M2 would decrease.
D) M1 would increase.
E) M2 would increase.

Question 57

Refer to the following table to answer the next three questions:

Using the table,what is the value of M2?

A) $404,000,000
B) $1,650,000,000
C) $740,000,000
D) $906,000,000
E) $744,000,000

Question 58

Which of the following is NOT considered part of M2?

A) currency
B) money
C) traveler's checks
D) credit cards
E) checkable deposits

Question 59

As credit card balances increase,what will be the consequence for M1 and M2?

A) There will be no effect on M1 or M2.
B) M1 will decrease and M2 will increase.
C) M1 will increase and M2 will decrease.
D) M1 and M2 will both decrease.
E) M1 and M2 will both increase.

Question 60

If the Federal Reserve determined that banks needed to increase the amount of owner's equity,how could this be achieved?

A) Banks would decrease reserves, but borrowings would not change.
B) banks would increase reserves, but borrowings would decrease.
C) Banks would increase reserves, but borrowings would decrease.
D) Banks would decrease reserves, but borrowings would increase.
E) Banks' reserves would not change, but borrowings would increase.

Question 61

If a bank has a required reserve ratio of 20% and has required reserves of $300,000,000,how much does the bank hold in deposits?

A) $33,750,000
B) $60,000,000
C) $360,000,000
D) $1,500,000,000
E) There is not enough information to solve this problem.

Question 62

If a local bank decides to convert some of its U.S.Treasury securities into cash,which it will hold in its vault,what impact will this have on the bank's balance sheet?

A) Reserves would increase, liabilities would stay the same, and owner's equity would decrease.
B) Reserves would increase, liabilities would stay the same, and owner's equity would increase.
C) Reserves would decrease, liabilities would decrease, and owner's equity would decrease.
D) Reserves would decrease, liabilities would stay the same, and owner's equity would decrease.
E) Reserves would stay the same, liabilities would increase, and owner's equity would decrease.

Question 63

Use the following example for to answer the next five questions:
Imagine that you deposit $25,000 in currency (which you had been storing in your closet), into your checking account at the bank. Assume that this institution has a required reserve ratio of 25%.
As a result of this deposit,by how much will the bank's required reserves increase?

A) $0
B) $6,250
C) $25,000
D) $31,250
E) $100,000

Question 64

Use the following example for to answer the next five questions:
Imagine that you deposit $25,000 in currency (which you had been storing in your closet), into your checking account at the bank. Assume that this institution has a required reserve ratio of 25%.
As a result of this deposit,by how much will the bank's reserves increase?

A) $0
B) $6,250
C) $25,000
D) $31,250
E) $100,000

Question 65

Use the following example for to answer the next five questions:
Imagine that you deposit $25,000 in currency (which you had been storing in your closet), into your checking account at the bank. Assume that this institution has a required reserve ratio of 25%.
One way to increase a bank's amount of required reserves is to:

A) decrease deposits.
B) increase loans.
C) increase deposits.
D) decrease loans.
E) decrease owner's equity.

Question 66

The Coppock Bank has $34,000,000 in deposits.If borrowings are $7,000,000,reserves are $3,500,000,and owner's equity is $2,000,000,what are the bank's total liabilities and net worth?

A) $46,500,000
B) $21,500,000
C) $24,000,000
D) $43,000,000
E) $43,500,000

Question 67

Use the following example for to answer the next five questions:
Imagine that you deposit $25,000 in currency (which you had been storing in your closet), into your checking account at the bank. Assume that this institution has a required reserve ratio of 25%.
What is true about banks in a fractional reserve banking system?

A) Banks can lend all of the deposits that are received.
B) Banks have to purchase gold that has the value of the deposits received.
C) Banks must deposit all cash from depositors with the Federal Reserve.
D) Banks face the risk of not having enough cash to meet withdrawal needs.
E) Banks have to deposit all cash from depositors in their own bank vault.

Question 68

Use the following example for to answer the next five questions:
Imagine that you deposit $25,000 in currency (which you had been storing in your closet), into your checking account at the bank. Assume that this institution has a required reserve ratio of 25%.
As a result of this deposit,what is the maximum amount in loans that can be made by all the banks in the banking system?

A) $0
B) $18,750
C) $25,000
D) $31,250
E) $100,000

Question 69

Use the following example for to answer the next five questions:
Imagine that you deposit $25,000 in currency (which you had been storing in your closet), into your checking account at the bank. Assume that this institution has a required reserve ratio of 25%.
As a result of this deposit,what is the maximum amount the bank can hold as loans?

A) $0
B) $18,750
C) $25,000
D) $31,250
E) $100,000

Question 70

If a bank has a required reserve ratio of 15% and has required reserves of $225,000,000,how much does the bank hold in deposits?

A) $33,750,000
B) $210,000,000
C) $240,000,000
D) $1,500,000,000
E) There is not enough information to solve this problem.

Question 71

One reason why banks are required to deposit a minimum amount of reserves at the Federal Reserve is so that:

A) banks will have more liquidity.
B) banks will be able to make more loans.
C) depositors will feel their deposits are protected.
D) the Federal Reserve can own a portion of all banks they regulate.
E) the Federal Reserve can control the ability of banks to lend money to others.

Question 72

Which of the following would NOT be an asset for a commercial bank?

A) loans
B) cash in the vault
C) borrowings
D) deposits at the Federal Reserve
E) U.S.Treasury securities

Question 73

The Coppock Bank has $34,000,000 in deposits.If total liabilities and net worth are $47,000,000,loans are $25,000,000,and borrowings are $17,000,000,what is the amount of assets?

A) $5,000,000
B) $34,000,000
C) $47,000,000
D) $106,000,000
E) $123,000,000

Question 74

____________ is/are considered a liability on a bank's balance sheet.

A) Cash in the vault
B) U.S.Treasury securities
C) Property owned by the bank
D) Deposits
E) Loans

Question 75

How is owner's equity calculated?

A) assets - liabilities - cash held by individuals
B) liabilities - assets
C) assets - liabilities
D) assets - liabilities - U.S.Treasury securities
E) Owner's equity cannot be calculated from the information on a bank's balance sheet.

Question 76

Use the following example for to answer the next five questions:
Imagine that you deposit $25,000 in currency (which you had been storing in your closet), into your checking account at the bank. Assume that this institution has a required reserve ratio of 25%.
As a result of this deposit,by how much will the bank's excess reserves increase?

A) $0
B) $18,750
C) $25,000
D) $31,250
E) $100,000

Question 77

When I decide to deposit $100 in cash into my savings account at the bank,how would this be reflected on the bank's balance sheet?

A) Reserves increase and deposits increase by the same amount as the deposit.
B) Reserves decrease and deposits decrease by the same amount as the deposit.
C) This activity would not be recorded on a bank's balance sheet.
D) Reserves increase and deposits decrease by the same amount as the deposit.
E) Reserves decrease and deposits increase by the same amount as the deposit.

Question 78

My sister has been given a loan for $10,000,and she deposited the full loan amount into her checking account.How would this be reflected on her bank's balance sheet?

A) Loans would increase by $10,000, but deposits would decrease by less than $10,000.
B) Loans would be unaffected, but deposits would increase by $10,000.
C) Loans and deposits would be unaffected.
D) Loans would decrease and deposits would increase by the same amount as the deposit.
E) Loans and deposits would increase by the same amount as the deposit.

Question 79

When a bank decided to invest in cash-counting equipment and new cubicles for its loan officers,they were recorded on the bank balance sheet as:

A) liabilities.
B) assets.
C) vault cash.
D) deposits.
E) loans.

Question 80

Which of the following would NOT be an asset for a commercial bank?

A) loans
B) cash in the vault
C) deposits at the Federal Reserve
D) U.S.Treasury securities
E) deposits