Chapter 14

When economists say that money serves as a unit of account, they mean that it is: A. a way to keep wealth in a readily spendable form for future use. B. a means of payment. C. a monetary unit for measuring and comparing the relative values of goods. D. declared as legal tender by the government.

C

The Board of Governors of the Federal Reserve has ____ members. 5 7 9 14

7

A $70 price tag on a sweater in a department store window is an example of money functioning as a: A. unit of account. B. standard of deferred payments. C. store of value. D. medium of exchange.

A

Assuming no other changes, if checkable deposits decrease by $40 billion and balances in money market mutual funds increase by $40 billion, the: A. M1 money supply will decline and the M2 money supply will remain unchanged. B. M1 and M2 money supplies will not change. C. M1 money supply will increase and the M2 money supply will remain unchanged. D. M1 and M2 money supplies will both decline.

A

Checkable deposits are: A. included in M1. B. not included in either Ml or M2. C. considered to be a near money. D. also called time deposits.

A

In the United States, the money supply (M1) includes: A. coins, paper currency, and checkable deposits. B. currency, checkable deposits, and Series E bonds. C. coins, paper currency, checkable deposits, and credit balances with brokers. D. paper currency, coins, gold certificates, and time deposits.

A

The money supply is backed: A. by the government's ability to control the supply of money and therefore to keep its value relatively stable. B. by government bonds. C. dollar-for-dollar by gold and silver. D. by gold reserves representing a fraction of the total value of dollars in circulation.

A

To say that the Federal Reserve Banks are quasi-public banks means that: A. they are privately owned but managed in the public interest. B. they deal only with banks of foreign nations and do not have direct business contact with U.S. banks. C. they deal only with commercial banks, and not the public. D. they are publicly owned but privately managed.

A

When economists say that money serves as a store of value, they mean that it is: A. a way to keep wealth in a readily spendable form for future use. B. a means of payment. C. a monetary unit for measuring and comparing the relative values of goods. D. declared as legal tender by the government.

A

Which one of the following is true about the U.S. Federal Reserve System? A. There are 12 regional Federal Reserve Banks. B. The head of the U.S. Treasury also chairs the Federal Reserve Board. C. There are 14 members of the Federal Reserve Board. D. The Open Market Committee is smaller in size than the Federal Reserve Board.

A

Assuming no other changes, if checkable deposits increase by $40 billion and currency in circulation decreases by $40 billion, the: A. M1 money supply will decline. B. M1 money supply will not change. C. M2 money supply will decline. D. M2 money supply will increase.

B

In the U.S. economy, the money supply is controlled by the: A. U.S. Treasury. B. Federal Reserve System. C. Senate Committee on Banking and Finance. D. Congress.

B

Money market deposit accounts are included in: A. M1 only. B. M2 only. C. neither M1 nor M2. D. both M1 and M2.

B

The central authority of the U.S. banking system is the: A. Federal Open Market Committee (FOMC). B. Board of Governors of the Federal Reserve. C. Federal Monetary Authority. D. Council of Economic Advisers.

B

If you place a part of your summer earnings in a savings account, you are using money primarily as a: A. medium of exchange. B. store of value. C. unit of account. D. standard of value.

C

In the financial industry, "securitization" refers to: increasing insurance protection on bank deposits. A. requiring greater down payments on home purchases to reduce mortgage default risk. B. bundling groups of loans, bonds, mortgages, and other C. financial debts into new securities. D. increasing collateral requirements on loans.

C

Michelle transfers $4,000 from her savings account to her checking account. What effect is this change likely to have on M1 and M2? A. M1 decreases and M2 increases B. M1 increases and M2 decreases C. M1 increases and M2 stays the same D. M2 increases and M1 stays the same

C

Purchasing common stock by writing a check best exemplifies money serving as a: A. store of value. B. unit of account. C. medium of exchange. D. index of satisfaction.

C

The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 in: A. mutual fund companies and pension fund companies. B. thrifts and insurance companies. C. commercial banks and thrifts. D. securities firms and insurance companies

C

Which of the following is the basic economic policy function of the Federal Reserve Banks? A. Holding the deposits or reserves of commercial banks. B. Acting as fiscal agents for the federal government. C. Controlling the supply of money. D. The collection or clearing of checks among commercial banks.

C

Banks lost money during the mortgage default crisis because: A. of defaulted loans to investors in mortgage-backed securities. B. they held mortgage-backed securities they had purchased from investment firms. C. homebuyers defaulted on mortgages held by the banks. D. of all of these reasons.

D

Currency held in the vault of First National Bank is: A. counted as part of M1. B. counted as part of M2 but not M1. C. only counted as part of M1 if it was deposited into a checking account. D. not counted as part of the money supply.

D

If the price index rises from 200 to 250, the purchasing power value of the dollar: A. may either rise or fall. B. will rise by 25 percent. C. will fall by 25 percent. D. will fall by 20 percent.

D

Joe deposits $200 in currency into his checking account at a bank. This deposit is treated as: A. A subtraction of $200 from the money supply because the $200 in currency is no longer in circulation B. An addition of $200 to the money supply because of the creation of a checkable deposit of $200 C. An addition of $200 to the money supply because the bank holds $200 in currency and the checking account has been increased by $200 D. No change in the money supply because the $200 in currency has been converted to a $200 increase in checkable deposits

D

Money functions as: A. a store of value. B. a unit of account. C. a medium of exchange. D. all of these.

D

The Federal Open Market Committee (FOMC) is made up of: A. the chair of the Board of Governors along with the 12 presidents of the Federal Reserve Banks. B. the seven members of the Board of Governors along with the president of the New York Federal Reserve Bank. C. the seven members of the Board of Governors of the Federal Reserve System along with the three members of the Council of Economic Advisers. D. the seven members of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Bank presidents on a rotating basis.

D

The members of the Federal Reserve Board: A. serve seven-year terms. B. are appointed by the American Economic Association. C. are elected by votes of the 12 presidents of the Federal Reserve Banks. D. are appointed for 14-year terms.

D

When banks bundled mortgage loans and sold the resulting mortgage-backed securities: A. they insulated the banking system from any risk associated with mortgage defaults. B. they greatly reduced the overall risk of mortgage defaults. C. buyers of these securities assumed all of the risk of mortgage defaults. D. they reduced their direct exposure to mortgage default risk but were still exposed through loans to investors in mortgage-backed securities.

D

Which group aids the Board of Governors of the Federal Reserve System in conducting monetary policy? A. U.S. Treasury B. U.S. Congress C. Federal Advisory Council D. Federal Open Market Committee

D