Deck 2: Money and the Monetary System

Question 1

According to the Bretton Woods agreement, one ounce of gold is set equal to US $35, and each participating country pegs its currency to gold or the U.S.dollar.

Answer 1

True

Question 2

Fiat money is a form of credit money.

Answer 2

True

Question 3

A bimetallic standard is a monetary standard based only on gold.

Answer 3

False

Question 4

No other asset is as liquid as money, because money is itself, a medium of exchange.

Question 5

Our monetary standard today is the paper dollar, issued by the Federal Reserve, and can be exchanged for gold or silver.

Question 6

Even though credit card balances and limits are not included in any definition of money supply, these balances and limits can affect the rate of turnover of money supply and contribute to money supply expansion.

Question 7

Representative full-bodied money consists of paper money fully backed by a precious metal.

Question 8

M1 includes currency and demand deposits but excludes travelers' checks.

Question 9

The faster velocity of money, the greater an economy's GDP.

Question 10

"Continentals" were denominated in dollars and were backed by gold.

Question 11

One reason the Fed defines so many measures of money is that economists have different opinions as to which measure is most consistently related to spending and other economic activity.

Question 12

A major objective of the Fed is to regulate and control the supply of money and the availability of credit.

Question 13

Demand deposits are issued by commercial banks and savings banks, and do not earn interest.

Question 14

The two basic components of the U.S.money supply are physical money and deposit money.

Question 15

Fiat money is legal tender proclaimed to be money by law.

Question 16

The use of "continentals" led to a long period of distrust of paper money.

Question 17

Physical money includes coin and currency.

Question 18

A store of purchasing power is the most important function of money.

Question 19

No full-bodied or representative full-bodied money is in use in the United States today.

Question 20

Fiat money must be backed by a specific amount of gold or silver.

Question 21

Fiat money generally becomes worthless if the issuing government - such as the Confederate government of the Civil War -fails.

Question 22

The bimetallic standard was difficult to maintain because the market ratio between silver and gold changed constantly.

Question 23

A central bank defines and regulates the amount of the money supply in the financial system.

Question 24

Inflation leads to an increase in the purchasing power of money.

Question 25

Money is perfectly liquid.

Question 26

M1 money supply consists of currency, travelers' checks, demand deposits, and other checkable deposits.

Question 27

Inflation reflects a rise in prices whether or not that rise in prices is offset by an increase in quality.

Question 28

Currency held in vaults of depository institutions is excluded from M1.

Question 29

The monetary system is responsible for carrying out the financial functions of creating and transferring money.

Question 30

Money is anything generally accepted as a means of paying for goods and services and for paying off debts.

Question 31

Fiat money is paper money fully backed by a precious metal such as gold.

Question 32

Primitive economies have little occasion to exchange goods or services.

Question 33

Currently, the international monetary system can best be described as a managed floating exchange rate system.

Question 34

Representative full-bodied money is paper money that is backed by an amount of precious metal equal in value to the face amount of the paper money.

Question 35

Deposit money is backed by the creditworthiness of the depository institution that issued the deposit.

Question 36

Currently, the international monetary system can best be described as a managed pegged exchange rate system.

Question 37

The U.S.dollar was defined in terms of gold until the 1980s.

Question 38

Because credit card balances and limits can affect the rate of turnover of money supply and contribute to money supply expansion, these balances and limits are included in the M3 definition of money supply.

Question 39

The faster the rate of circulation of the money supply, the greater the output of goods and services in an economy.

Question 40

Inflation reflects a rise in prices not offset by increases in quality.

Question 41

Which of the following statements are correct?

A)debit cards provide for the immediate direct transfer of deposit accounts
B)debit cards may be used for cash advances, even when there is not sufficient money in the account
C)debit cards may not be used to make cash withdrawals from automatic teller machines
D)all the above
E)none of the above

Question 42

Full-bodied money is a monetary standard based on two metals, usually silver and gold.

Question 43

Which of the following would not be considered liquid?

A)money in savings accounts
B)coins
C)currency
D)all the above are liquid
E)none of the above are liquid

Question 44

Most of the financial assets added to the M2 definition of money supply provide their owners with a higher rate of return than do M1 financial assets.

Question 45

A bimetallic standard is a monetary standard based on two metals, usually silver and gold.

Question 46

Keynesians believe that a change in the money supply first causes a change in interest rate levels, which, in turn, alters the demand for goods and services.

Question 47

M3 money supply includes M2 plus large time deposits and institutional MMMFs, repurchase agreements, and Eurodollar deposits.

Question 48

Fiat money is:

A)representative full-bodied money
B)full-bodied money
C)legal tender proclaimed to be money by law
D)all of the above

Question 49

The U.S.bimetallic standard was based on:

A)gold and platinum
B)silver and gold
C)gold and copper
D)silver and copper

Question 50

The only paper money of significance in the economy today is:

A)silver certificates
B)demand deposits
C)greenbacks
D)Federal Reserve notes

Question 51

Keynesians believe that when the supply of money exceeds the quantity demanded, the public will spend more rapidly causing inflation.

Question 52

Representative full-bodied money is paper money fully backed by a precious metal such as gold.

Question 53

Paper money fully backed by a precious metal and issued by the government is called:

A)fiat money
B)representative full-bodied money
C)full-bodied money
D)credit money

Question 54

The role of financial institutions in a country's financial system is to accumulate and invest savings.

Question 55

The role of financial markets in a country's financial system is to accumulate and invest savings.

Question 56

In the U.S., the dollar was defined in terms of gold until the:

A)present time
B)1980s
C)1970s
D)1960s

Question 57

An international gold standard dominated international trade during:

A)World War II
B)1880-1914
C)1944-1971
D)1914-1932

Question 58

When it is a means of paying for goods and services and discharging debts, money is referred to as a:

A)store of purchasing power
B)medium of exchange
C)standard of value
D)liquid asset

Question 59

Token coins are:

A)full-bodied coins
B)coins containing metal of less value than their stated value
C)coins containing gold or silver
D)representative full-bodied money

Question 60

With a mint ratio of 15 to 1 between gold and silver and a market ratio of 15.5 to 1:

A)gold should go out of circulation
B)silver should go out of circulation
C)paper money will predominate
D)the bimetallic standard will be stable

Question 61

Which of the following describes the basic function of money?

A)store of purchasing power
B)standard of value
C)medium of exchange
D)liquidity

Question 62

Eurodollars are included in

A)M1
B)M2
C)both the above
D)neither the above

Question 63

Overnight repurchase agreements are not included in which of the following definition of the money supply?

A)M1
B)M2
C)M3
D)all of the above

Question 64

The M1 definition of the money supply includes which of the following items?

A)currency
B)demand deposits and other checkable deposits at depository institutions
C)travelers' checks
D)all of the above

Question 65

Which of the following are not included in M1?

A)negotiable orders of withdrawal
B)automatic transfer service accounts
C)money market deposit accounts
D)credit union share draft accounts

Question 66

Credit money includes:

A)checking accounts at commercial banks
B)checkable deposits at savings and loan associations
C)checking accounts at credit unions
D)all the above
E)none of the above

Question 67

Which of the following statements is most correct?

A)Both gold and silver have now been completely removed from any monetary role in the U.S.economy.
B)Savings deposits and small time deposits at depository institutions constitute part of the M1 money supply definition.
C)Fiat money is gold coins issued by central banks under authority of the government.
D)The monetary system of the United States today is based on a dollar standard, and the dollar can be converted into gold.

Question 68

Money market funds are not included in which of the following definitions of the money supply?

A)M1
B)M2
C)M3
D)M4 or L

Question 69

Fiat money is:

A)paper money issued by central banks with full metallic backing
B)government notes representing a specific amount of gold in storage
C)full-bodied money
D)none of the above

Question 70

Which of the following statements is false?

A)M1, M2, and M3 include demand deposits and other checkable deposits.
B)Term repurchase agreements are included in M3, but not in M1 and M2.
C)U.S.savings bonds are included in M3, but not in M1 and M2.
D)Travelers' checks are included in M1, M2, and M3.

Question 71

Travelers' checks are included in which of the following money supply definitions?

A)M1
B)M2
C)M3
D)all of the above

Question 72

Which of the following statements is false?

A)Legal tender is money backed only by government credit.
B)Credit money represents any circulating medium which has little real value relative to its monetary value.
C)The Monetary Act of 1792 resulted in an early monetary system that relied almost exclusively on the use of foreign coins.
D)All of the above statements are correct.

Question 73

Which of the following statements about greenbacks is false?

A)Greenbacks were money issued by the U.S.government to help finance the Civil War.
B)Greenbacks were fiat money.
C)Greenbacks were not redeemable for gold or silver.
D)All of the above statements are correct.

Question 74

Large time deposits (over $100,000) are included in which of the following money supply definitions?

A)M1
B)M2
C)M3
D)all of the above

Question 75

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

A)travelers' checks
B)savings and small time deposits at depository institutions
C)currency held by the non-bank public
D)demand deposits at depository institutions

Question 76

Which of the following statements about L is not true?

A)L is the broadest measure of money available to the public
B)L includes commercial paper
C)L includes mortgages
D)All of the above statements are correct.

Question 77

Which of the following statements is false?

A)Money can always function as a store of purchasing power, even if its value is relatively unstable.
B)The ease with which an asset can be exchanged for money or other assets is referred to as liquidity.
C)Credit money is any circulating medium which has little intrinsic value relative to its monetary value.
D)In the future, electronic funds transfer systems may be used to such an extent that a virtually checkless society may result.

Question 78

Which of the following statements is false?

A)Until the Civil War, the federal government was the major issuer of paper money.
B)In order for traders in early economies to accept or barter for items, the supply of the item had to be limited in relation to the desire of individual in the economy to have the item.
C)Collectors of old coins and paper money are referred to as numismatists.
D)All of the above statements are false.

Question 79

Money market mutual funds do which of the following?

A)issue shares to customers
B)invest in liquid instruments
C)invest in interest-bearing debt instruments
D)all the above

Question 80

Which of the following statements is false?

A)The Bretton Wood System of fixed exchange rates was maintained until 1975.
B)Under the Bretton Wood System, one ounce of gold was set equal to $35.
C)Under the Bretton Wood System, each participating country had it currency pegged to either gold or the U.S.dollar.
D)All of the above statements are correct.