Deck 26: Money, Banking, and the Federal Reserve System

Question 1

Which of the following assets is money?

A) a $20 bill
B) a work of art
C) a baseball signed by a famous player
D) shares of stock in a profitable company

Answer 1

a $20 bill

Question 2

Which of the following assets is the MOST liquid?

A) checkable bank deposits
B) currency
C) stocks
D) money market mutual funds

Answer 2

currency

Question 3

All of the following are roles of money EXCEPT a:

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

Answer 3

measure of wealth.

Question 4

An economy that lacks a medium of exchange must use a(n) _____ system.

A) anarchist
B) barter
C) communist
D) expanding

Question 5

Which of the following is an asset that most people would consider money?

A) a house
B) shares of stock in a company
C) a checking account balance
D) a car

Question 6

Money is any asset that:

A) the government says is money.
B) can easily be used to purchase goods and services.
C) has a positive value.
D) the government says is money and that has a positive value.

Question 7

When you are using money to purchase a new MP3 player, money is serving as a:

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

Question 8

"Tuition at State University this year is $8,000." Which function of money does this statement best illustrate?

A) store of value
B) medium of exchange
C) unit of account
D) means of deferred payment

Question 9

The double coincidence of wants problem can be solved by:

A) more resources.
B) more production.
C) money.
D) economic growth.

Question 10

Which of the following combinations of assets is considered to be money?

A) currency in circulation, checkable bank deposits, and credit cards
B) currency in circulation, checkable bank deposits, and traveler's checks
C) currency in circulation and in bank vaults, checkable bank deposits, and traveler's checks
D) currency in circulation and in bank vaults, checkable bank deposits, and credit cards

Question 11

The narrowest definition of money EXCLUDES:

A) currency in the vault at the bank.
B) traveler's checks.
C) currency in circulation.
D) checkable bank deposits.

Question 12

Money is:

A) paper money and coins but not checks.
B) currency and stocks.
C) anything that can easily be used to buy goods and services.
D) None of the answers is correct.

Question 13

Currency in circulation is cash: I. held by the public.
II) in the vaults of commercial banks.
III) in the vault of the Federal Reserve.

A) I only
B) II only
C) III only
D) I, II, and III

Question 14

Which of the following is considered to be money?

A) stock
B) bonds
C) credit cards
D) checkable bank deposits

Question 15

Money is anything that:

A) serves as a medium of exchange for goods and services.
B) can be converted to silver with relatively little loss in value.
C) can be converted to gold with relatively little loss in value.
D) is traded in the stock market.

Question 16

Suppose a group of people decided to set up their own economic system with cartons of milk serving as money. If we decided to use this "liquid asset" as our medium of exchange and all prices were measured in cartons of milk, milk would still not be a good form of money mainly because it would not be a good:

A) medium of exchange.
B) unit of account.
C) store of value.
D) near-money.

Question 17

Which of the following is NOT considered one of the three chief characteristics of money?

A) It serves as a medium of exchange.
B) It acts as a store of value.
C) It is a highly illiquid asset.
D) It is a unit of account.

Question 18

Which of the following assets is the MOST liquid?

A) a $50 bill
B) a $50 gift certificate
C) 100 shares of stock
D) an economics textbook

Question 19

An example of a double coincidence of wants is:

A) a car mechanic who wants a TV finding an owner of an electronics store who wants a car repaired.
B) a car dealer who wants a TV finding an electronics store owner who wants money.
C) an electronics store owner who wants car repairs finding a car mechanic who wants money.
D) a car dealer who wants a new employee finding a car mechanic who wants money.

Question 20

Which of the following would NOT fit the economist's definition of money?

A) currency
B) checkable bank deposits
C) coins
D) bonds

Question 21

When you or your parents pay the tuition at college, money is being used mainly as a:

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

Question 22

Money used to buy a ticket to a football game is functioning primarily as a:

A) medium of exchange.
B) store of value.
C) unit of account.
D) standard of deferred payment.

Question 23

Commodity money is:

A) whatever the government has decreed is money.
B) a good used as a medium of exchange that has other uses.
C) money used for commodity futures trading.
D) whatever people accept as money.

Question 24

When we keep part of our wealth in a savings account, money is playing the role mainly of:

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

Question 25

When you are looking at a car's price to decide whether you can afford it, you are using money primarily as a:

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

Question 26

The medium-of-exchange function means that money is used:

A) as the common denominator of prices.
B) as the common denominator of future payments.
C) to pay for goods and services.
D) to accumulate purchasing power.

Question 27

The functions of money are:

A) expander of economic activity, medium of exchange, and store of value.
B) medium of exchange, store of value, and factor of production.
C) store of value, medium of exchange, and determinant of investment.
D) store of value, unit of account, and medium of exchange.

Question 28

When you discover money in your coat that you put there last winter, you unexpectedly find you were using money primarily as a(n):

A) medium of exchange.
B) expander of economic activity.
C) factor of production.
D) store of value.

Question 29

Money that the government has ordered to be accepted as money is:

A) fiat money.
B) not usable in international transactions.
C) convertible paper money.
D) commodity money.

Question 30

When people purchase downloaded music, they are using money primarily as a:

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

Question 31

Money used to buy groceries is a:

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

Question 32

When, in The Wealth of Nations, Adam Smith wrote of "a sort of waggon-way through the air," he was referring to:

A) the invisible hand.
B) the forces of competition.
C) mass transit systems of the future.
D) paper money.

Question 33

Money that has value apart from its use as money is:

A) fiat money.
B) currency.
C) convertible paper money.
D) commodity money.

Question 34

The store-of-value function of money is:

A) necessary and distinctive.
B) not necessary but distinctive.
C) necessary but not distinctive.
D) not necessary and not distinctive.

Question 35

When countries replaced gold and silver coins with paper money exchangeable for certain amounts of precious metals, the monetary system evolved from using _____ money to using _____ money.

A) commodity; fiat
B) commodity-backed; fiat
C) commodity; commodity-backed
D) fiat; commodity-backed

Question 36

Commodity-backed money is:

A) a medium of exchange with no intrinsic value.
B) equivalent to commodity money.
C) a medium of exchange with alternative economic uses.
D) gold and silver coins used for exchange.

Question 37

When you buy a ticket to the rodeo, you are using money as mainly a(n):

A) expander of economic activity.
B) store of value.
C) factor of production.
D) medium of exchange.

Question 38

When we put a price on a meal, money is playing the role primarily of:

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

Question 39

When a person makes price comparisons among products, money is being used mainly as a(n):

A) unit of account.
B) expander of economic activity.
C) medium of exchange.
D) checkable deposit.

Question 40

Money that some authority, generally a government, has ordered to be accepted as a medium of exchange is called _____ money.

A) fiat
B) intrinsic
C) bank-created
D) debt

Question 41

The U.S. dollar in your pocket today is best described as:

A) commodity money.
B) near-money.
C) fiat money.
D) commodity-backed money.

Question 42

Saving deposits are counted in:

A) M1 but not in M2.
B) vault cash but not in M2.
C) M2 but not in M1.
D) M1, M2, and the gold stock.

Question 43

Which one of the following is NOT included in M1?

A) savings deposits
B) checkable bank deposits
C) currency
D) traveler's checks

Question 44

The U.S. dollar is an example of:

A) commodity-backed money.
B) fiat money.
C) commodity money.
D) near-money.

Question 45

Which of the following is TRUE?

A) M2 includes the gold stock but not M1.
B) M2 includes M1.
C) The gold stock backs M2 but not M1.
D) M1 includes M2 but not the gold stock.

Question 46

Fiat money:

A) is currency from Italy.
B) can include currency backed by gold but not by silver.
C) is currency backed by the gold in Fort Knox.
D) has advantages over commodity-backed money.

Question 47

Money whose value derives entirely from its official status as a means of exchange is known as:

A) commodity money.
B) commodity-backed money.
C) fiat money.
D) bank reserves.

Question 48

Suppose you find a $50 bill that you put in a coat pocket last winter. If you deposit it in your checking account:

A) M1 increases by $50.
B) M2 increases by $50.
C) M1 and M2 both increase by $50.
D) there is no change in M1 or M2.

Question 49

A share of stock is considered:

A) an asset for the owner of the stock.
B) part of M2.
C) a liability for the owner of the stock.
D) part of the money supply.

Question 50

Currency in the United States today is _____ money.

A) fiat
B) intrinsic
C) commodity
D) commodity-backed

Question 51

Use the following to answer questions :
(Table: Monetary Aggregates) Look at the table Monetary Aggregates. M2 is:

A) $2,805 billion.
B) $3,340 billion.
C) $3,355 billion.
D) $2,005 billion.

Question 52

If you transfer $1,000 from your savings account to your checking account:

A) M1 decreases by $1,000, and M2 increases by $1,000.
B) M1 increases by $1,000, and M2 decreases by $1,000.
C) M1 and M2 don't change.
D) M1 increases by $1,000, but M2 doesn't change.

Question 53

Suppose Ronny decides to withdraw all of the cash from his checking account and open a single time deposit account at the same bank. As a result of this transaction:

A) M2 falls but M1 remains unchanged.
B) M1 and M2 both fall.
C) M1 and M2 both remain unchanged.
D) M1 falls but M2 remains unchanged.

Question 54

The largest monetary aggregate is:

A) M1, because it contains all of the currency in circulation.
B) M2, because it contains currency in circulation, all bank deposits, other deposits, and deposit-like assets.
C) the reserves in the vaults of Federal Reserve banks, because they are the money multiplier.
D) the total volume of stocks and bonds, because they store most of the national wealth.

Question 55

Use the following to answer questions :
(Table: Monetary Aggregates) Look at the table Monetary Aggregates. The value of M1 is:

A) $880 billion.
B) $895 billion.
C) $2,005 billion.
D) $920 billion.

Question 56

The U.S. dollar is defined as:

A) fiat money, because it was established as money by an act of law.
B) faith money, because we trust the government to defend its value.
C) commodity-backed money, because it is convertible to gold.
D) commodity money, because it is widely used to buy commodities.

Question 57

Which of the following is near-money?

A) a traveler's check
B) a credit card
C) a debit card
D) a savings account

Question 58

A bond is considered:

A) an asset for the owner of the bond that is not part of the money supply.
B) M1.
C) M2.
D) a liability for the owner of the bond that is part of the money supply.

Question 59

If monetary aggregates were ranked from most liquid to least liquid, the order would be:

A) M1 and M2.
B) stocks and bonds, M2, and M1.
C) M2, private equity investments, and M1.
D) gold, M1, and M2.

Question 60

The primary difference between M1 and M2 is that:

A) the dollar amount of M1 is much larger than the dollar amount of M2.
B) M1 includes checkable deposits, but M2 does not.
C) M2 includes checkable deposits, but M1 does not.
D) M2 includes savings deposits and time deposits, but M1 does not.

Question 61

Currency, checkable deposits, and traveler's checks are about _____ of M1.

A) 10%
B) 55%
C) 75%
D) 100%

Question 62

Which of the following financial assets belongs to M2 but not to M1?

A) a savings account
B) a checkable deposit
C) currency
D) traveler's checks

Question 63

Use the following to answer questions
Table: Components of the Money System
(Table: Components of the Money Supply) Look at the table Money Supply. The money supply measured by M2 is:

A) $450 billion.
B) $1,425 billion.
C) $1,725 billion.
D) $2,075 billion.

Question 64

M1 consists of:

A) currency only.
B) currency and checkable bank deposits only.
C) currency in circulation and checkable bank deposits only.
D) currency in circulation, checkable bank deposits, and traveler's checks only.

Question 65

When a waiter deposits his cash tips in his savings account:

A) M2 increases.
B) M1 decreases.
C) M2 decreases.
D) M3 increases.

Question 66

Which of the following is part of M1?

A) short-term certificates of deposit
B) shares of corporate stock
C) currency in a bank's vault
D) checkable bank deposits

Question 67

Included in M1 are:

A) checkable bank deposits.
B) savings deposits.
C) U.S. Treasury bills.
D) demand deposits, savings deposits, and U.S. Treasury bills.

Question 68

Included in M2 is (are):

A) currency in circulation only.
B) money market funds only.
C) traveler's checks only.
D) currency in circulation, money market funds, and traveler's checks.

Question 69

If the currency in circulation is $100 million, checkable bank deposits are $500, savings deposits are $300 million, and traveler's checks are $10 million, then M1 is:

A) $100 million.
B) $410 million.
C) $610 million.
D) $900 million.

Question 70

Use the following to answer questions
Table: Components of the Money System
(Table: Components of the Money Supply) Look at the table Money Supply. The money supply measured by M1 is:

A) $325 billion.
B) $450 billion.
C) $1,425 billion.
D) $1,875 billion.

Question 71

Suppose you transfer $500 from your checking account to your savings account. With this transaction, M1 _____ and M2_____.

A) increases; stays the same
B) stays the same; increases
C) decreases; increases
D) decreases; stays the same

Question 72

After 1873, the U.S. government:

A) stopped redeeming greenbacks for gold.
B) guaranteed the value of a dollar in terms of gold.
C) guaranteed the value of a dollar in terms of gold or silver.
D) stopped the use of commodity-backed money.

Question 73

Which of the following is part of M1?

A) long-term certificates of deposit
B) corporate bonds
C) currency in a person's purse
D) money market fund account balances

Question 74

Suppose you transfer $500 from your savings account to your checking account. With this transaction, M1 _____ and M2 _____.

A) increases; decreases
B) increases; stays the same
C) decreases; decreases
D) stays the same; decreases

Question 75

Currency is about _____ of M1.

A) 10%
B) 22%
C) 75%
D) 100%

Question 76

Which of the following is part of M1?

A) gold
B) shares of corporate stock
C) currency in a bank's vault
D) traveler's checks

Question 77

Checkable deposits are about _____ of M1.

A) 100%
B) 67%
C) 30%
D) 10%

Question 78

Prior to the Civil War:

A) the U.S. government issued paper money but only in small quantities.
B) the U.S. government did not allow banks to issue private money.
C) the U.S. government did not issue paper money.
D) all private money issued by banks was of equal value.

Question 79

Near-moneys are:

A) paper money.
B) fiat money.
C) highly liquid financial assets.
D) any financial assets.

Question 80

The Federal Reserve reports on two main monetary aggregates:

A) M2 and total debt.
B) M1 and currency held by banks.
C) M1 and M2.
D) M1 and total stock purchases.