WK 4 - PRACTICE: MONEY AND THE FEDERAL RESRVE QUIZ

Use the following graph to answer the next question. The graph shows the supply and demand for money where MD,1,MD,2 and MD,3 represent different demands for money and MS,1, MS,2, and MS,3 represent different levels of the money supply. The initial equilibrium point is A. What will be the new equilibrium point following an autonomous increase in the asset demand for money?

C

Holding the money deposits of businesses and households and making loans to the public are the basic functions of:

Commercial banks and thrift (savings and loan)

Fractional reserve banking refers to a system where banks:

Hold only a fraction of their deposits in their reserves

Use the following diagram of the market for money to answer the next question. The equilibrium interest is

I2

The M2 measure the money consists of the sum of

M1, checking deposits, small time deposits, and money market mutual funds.

Which of the following would be considered to be the most liquid?

checkable deposit

The main function of the federal reserve system is to

control the money supply

If, in the market for money, the amount of money supplied exceeds the amount of money households and bussinesses want to hold, the interest rate will

fall, causing households and business to hold more money.

An increase in the money supply is likely to reduce:

interest rate

Which of the following functions of money enables society to gain the benefits of geographic and labor specialization?

medium exchange

Suppose there is an increase in the total demand for money, as a result interest rate will

rise and the quantity of money will remain constant

Who determines the size of the money supply in the United States?

the Federal Reserve

Which of the following varies directly with the interest rate?

the opportunity cost of holding money

A consumer holds money to meet spending needs. This would be an example of the:

transactions demand for money.

The functions of money are to serve as a

unit of account, a store of value, and a medium of exchange