chapter 2 MC

A ____________ is a short-term debt instrument issued by commercial banks in denominations of $100,000 or more with typical maturities ranging from one month to one year that have an active secondary market that allows short-term investors to easily match their cash or liquidity needs when they arise. a. negotiable certificate of deposit (NCD) b. A repurchase agreement c. government bond d. money market security e. none of the above

a

All money should perform the following functions EXCEPT: a. guarantee of validity b. medium of exchange c. standard of value d. store of value

a

Any circulating money which has little real value relative to its monetary value is called: a. credit money b. representative full-bodied money c. full-bodied money d. all of the above

a

Historically speaking, ___________ taken as a group has/have generally been a surplus economic unit in the past: a. individuals b. business c. financial institutions d. a and c e. none of the above

a

Increased credit card usage: a. may expand money supply b. may contract the money supply c. neither expands nor contracts money supply d. none of the above

a

The advantages claimed for a bimetallic standard were not gained in actual practice because: a. one of the metals disappeared from circulation because the mint and market ratios were not the same b. the supply of gold was inadequate c. the supply of silver and gold was not balanced among the nations that were on a bimetallic standard d. all of the above

a

The velocity of money measures the rate of circulation of the money supply and can be expressed by the following equation (note: GDP = gross domestic product and MS = money supply): a. VM = GDP/MS b. VM = MS/GDP c. VM = MS x GDP d. all of the above e. none of the above

a

When coins have an intrinsic value equal to the value of the metal they contain, they are referred to as: a. full-bodied money b. representative full-bodied money c. token coins d. all of the above

a

Which of the following are not depository institutions? a. The Federal Reserve b. credit unions c. savings banks d. commercial banks

a

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

a

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.

a

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.

a

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. M2 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.

a

With a mint ration of 15 ounces of silver to 1 ounce of gold and a market ratio of 15.5 ounces of silver to 1 ounce of gold: a. gold coins should go out of circulation b. silver coins should go out of circulation c. paper money will predominate d. the bimetallic standard will be stable

a

A monetary standard based on two metals, usually silver and gold is called: a. full-bodied money b. a bimetallic standard c. Fiat money d. none of the above

b

A rise in prices not offset by increases in quality is called: a. deflation b. inflation c. stagflation d. none of the above

b

An increase in the general overall prices of goods and services that is not offset by increases in the quality of those goods and services is the definition for: a. liquidity b. inflation c. full-bodied goods and services d. store of purchasing power

b

Legal tender proclaimed to be money by law is called: a. representative money b. fiat money c. representative full-bodied money d. none of the above

b

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

b

The U.S. bimetallic standard was based on: a. gold and platinum b. silver and gold c. gold and copper d. silver and copper

b

The function of money that expresses prices and contracts for deferred payments in terms of the monetary unit is referred to as: a. store of purchasing power b. standard of value c. medium of exchange d. credit money

b

The supply of a currency in international markets depends largely on the: a. Federal Reserve System b. imports of the issuing country c. amount of exports that currency will buy from the issuing country d. confidence of market participants in the restraint and ability of the monetary authority issuing the currency

b

The velocity of money measures: a. the quantity of money in an economy b. the rate of circulation of the money supply c. the level of inflation caused by the money supply d. none of the above

b

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

b

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

b

____________ are debt instruments or securities with maturities of one year or less and have low default risk and high liquidity. a. capital market securities b. money market securities c. derivative securities d. all of the above e. none of the above

b

____________ include the direct ownership of land, buildings or homes, equipment, inventories, durable goods, and even precious metals. a. financial assets b. real assets c. government investments d. all three (A, B, and C) are included e. none of three (A, B, and C) are included

b

_____________ 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. a. Monetarists b. Keynesians c. Neo Classicalists d. none of the above

b

____________ accounts are increasingly used to make direct deposits to, and payments from, checkable deposit accounts. a. single balance b. money market c. automatic transfer service (ATS) d. capital market e. none of the above

c

____________ include money, debt instruments, equity securities, and other financial contracts that are backed by real assets and the earning abilities of issuers. a. financial assets b. real assets c. government investments d. all three (A, B, and C) are included e. none of three (A, B, and C) are included

a

_____________ believe that when the money supply exceeds the amount of money demanded, the public will spend more rapidly, causing real economic activity or prices to rise. They also believe that a too-rapid rate of growth in the money supply will ultimately result in rising prices or inflation because excess money will be used to bid up the prices of existing goods. a. Monetarists b. Keynesians c. Neo Classicalists d. none of the above

a

_____________ is a short-term debt instrument issued by commercial banks in denominations of $100,000 or more with typical maturities ranging from one month to one year that have an active secondary market that allows short-term investors to easily match their cash or liquidity needs when they arise. a. A negotiable certificate of deposit (NCD) b. A repurchase agreement c. Commercial paper d. Government bond e. all of the above

a

_______________________issue shares to customers and invest the proceeds in highly liquid, very-short- maturity, interest-bearing debt instruments called money market investments. a. Money market mutual funds (MMMFs) b. Corporations c. Insurance companies d. none of the above

a

f the money supply for an economy is $3 trillion and GDP is $10 trillion, then the velocity of money is: (Chose the closest answer.) a. 3.33 b. 13.0 c. 7.0 d. 30

a

The price level of goods and services may be expressed as the ratio of _____________. a. GDP to real output b. real output to GDP c. Velocity to GDP d. real output to velocity

a RO×PL = GDP → PL = 𝐆𝐃𝐏/𝐑𝐎

_____________ is a short-term debt security sold by a business firm or financial institution to another business or institution where the seller agrees to buy back the security at a specified price and date. a. A negotiable certificate of deposit (NCD) b. A repurchase agreement c. Commercial paper d. A banker's acceptance e. none of the above

b

_______________________ is the sum of an individual's money, real assets, and financial assets or claims against others less the individual's debt obligations. a. Portfolio value b. Individual net worth c. Personal wealth d. Investment value e. None of the above

b

If annual GDP is $100 billion and the MS is $20 billion, the velocity of money (VM) is ________. a. 2 b. 5 c. 20 d. 50 e. none of the above

b MS×VM = GDP → ($100 billion) ÷ ($20 billion) = 5

"Continentals" were backed by: a. gold b. silver c. possible future tax revenues d. none of the above

c

A major international development occurred on January 1, 1999, when twelve European countries gave up their individual currencies and adopted a unified currency called the _____________. a. Dollar b. Pound c. Euro d. none of the above

c

A measure of the output of goods and services in an economy is called: a. output b. money supply c. gross domestic product d. velocity

c

Credit money is backed by: a. gold b. silver c. creditworthiness of the issuer d. creditworthiness of the depository institution e. none of the above

c

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

c

Functions of money include all of the following EXCEPT: a. Money serves as a medium of exchange. b. Money may be held as a store of value. c. Money determines the wealth of a nation. d. All of the above are functions of money.

c

Inflation is: a. an increase in the purchasing power of money b. a decrease in the quality of goods and services c. an increase in the prices of goods and services not offset by increases in the quality of those goods and services d. a measure of the money supply

c

Paper money backed by a precious metal is called: a. full-bodied money b. a bimetallic standard c. representative full-bodied money d. none of the above

c

Three of the functions of money are: a. medium of exchange, store of value, and measure of liquidity b. conduit for international trade, store of value, and standard of value c. medium of exchange, store of value, and standard of value d. inflation hedge, measure of liquidity, and medium of exchange

c

Today's Federal Reserve notes are: a. backed by gold b. backed by silver c. fiat money d. none of the above

c

Under the Bretton Woods agreement, a fixed exchange rate system tied to gold and the U.S. dollar dominated international trade during: a. World War II b. 1880-1914 c. 1944-1971 d. 1914-1932

c

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

c

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

c

____________ is anything generally accepted as a means of paying for goods and services and for paying off debts. It must be easily divisible, so that exchanges can take place in small or large quantities; relatively inexpensive to store and transfer; and reasonably stable in value over time. a. A financial asset b. A real asset c. money d. all of the above e. none of the above

c

____________ provide predetermined credit limits to consumers at the time the cards are issued. a. debit cards b. ATM cards c. credit cards d. none of the above

c

_____________ are very short-term loans, usually with maturities of one day to one week made between depository institutions. a. Overnight loans b. Commercial paper c. Federal funds d. A banker's acceptance e. none of the above

c

_____________ is a short-term unsecured promissory note issued by a high credit-quality corporation with maturities generally of one to three months in length with an active secondary market. a. A negotiable certificate of deposit (NCD) b. A repurchase agreement c. Commercial paper d. Government bond e. none of the above

c

A major factor in the severity of the 2007-09 financial crisis was the massive amounts of debt taken on by: a. individuals b. business c. government d. all of the above e. none of the above

d

A rise in prices that is fully offset by increases in quality is called: a. deflation b. inflation c. stagflation d. none of the above

d

Barter involves the exchange of: a. goods for gold b. goods for silver c. gold for silver d. goods and services

d

Deposit money is backed by: a. gold b. silver c. creditworthiness of the issuer d. creditworthiness of the depository institution e. none of the above

d

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

d

Functions of money include all of the following EXCEPT: a. Money serves as a medium of exchange. b. Money may be held as a store of value. c. Money serves as a standard of value. d. All of the above are functions of money.

d

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

d

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

d

The only paper money of significance in the economy today is: a. silver certificates b. demand deposits these are not paper money, they are 1's and 0's in banks' computers c. greenbacks d. Federal Reserve notes look at the paper money in your wallet

d

The savings-investment process a. involves the transfer of business funds to individuals for investing in stocks and bonds b. involves the transfer of business funds to individuals for investing in homes c. involves the transfer in individual savings to the Federal Government. d. involves the transfer in individual savings to business firms in exchange for their securities.

d

Which are included in the money supply? a. outstanding balances on credit cards b. credit card limits c. both the above d. neither the above

d

Which of the following would not be considered liquid? a. money in savings accounts can be converted into money quickly and without significant loss of value b. coins c. currency d. all the above are liquid e. none of the above are liquid

d

_____________ 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. a. Monetarists b. Supply Siders c. Neo Classicalists d. none of the above

d

_____________ is a promise of future payment issued by a firm and guaranteed by a bank that is used to finance international trade with typical maturities ranging from one to six months. a. A negotiable certificate of deposit (NCD) b. A repurchase agreement c. Commercial paper d. A banker's acceptance e. none of the above

d

_______________________issue shares to customers and invest the proceeds in highly liquid, very-short- maturity, interest-bearing debt instruments called money market investments. a. Commercial banks b. Corporations c. Insurance companies d. none of the above

d

f the money supply for an economy is $3 trillion and the velocity of money is 4.5, then GDP is: (Chose the closest answer.) a. $0.67 trillion b. $1.5 trillion c. $7.5 trillion d. $13.5 trillion

d

Real output in an economy may be expressed as the ratio of _____________. a. GDP to real output b. real output to GDP c. price level to GDP d. GDP to price level

d RO×PL = GDP → RO = 𝐆𝐃𝐏/PL

A major factor in the severity of the 2007-09 financial crisis was the massive reduction in the level of debt taken on by: a. individuals b. business c. financial institutions d. all of the above e. none of the above

e

The price level of goods and services may be expressed as the ratio of _____________. a. GDP to GNP b. real output to GDP c. Velocity to GDP d. real output to velocity e. none of the above

e