Macro Chapter 14 Homework

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) M1 increases and M2 stays the same

If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as A) a medium of exchange. B) a store of value. C) a unit of account. D) an economic investment.

A) a medium of exchange

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) Board of Governors of the Federal Reserve

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

B) M2 only

If you are estimating your total expenses for school next semester, you are using money primarily as A) a medium of exchange. B) a store of value. C) a unit of account. D) an economic investment.

C) a unit of account

In defining money as M1, economists exclude time deposits because A) the intrinsic value of time deposits is nil. B) the purchasing power of time deposits is much less stable than that of checkable deposits and currency. C) they are not directly or immediately a medium of exchange. D) they are not recognized by the federal government as legal tender.

C) they are not directly or immediately a medium of exchange

The Federal Reserve System was created in A) 1926. B) 1946. C) 1895. D) 1913.

D) 1913

The group that sets the Federal Reserve System's policy on buying and selling government securities (bills, notes, and bonds) is the A) Federal Deposit Insurance Corporation (FDIC). B) Federal Bond Sale Authority. C) Council of Economic Advisers. D) Federal Open Market Committee (FOMC).

D) Federal Open Market Committee (FOMC)

As it relates to Federal Reserve activities, the acronym FOMC describes the A) Federal Open Market Committee. B) Federal Options Market Committee. C) Federal Organization for Monetary Control. D) Federal Organization for Money Creation.

A) Federal Open Market Committee

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) M1 money supply will decline and the M2 money supply will remain unchanged

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) There are 12 regional Federal Reserve Banks

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) by the government's ability to control the supply of money and therefore to keep its value relatively stable

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) coins, paper currency, and checkable deposits

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) they are privately owned but managed in the public interest

Checkable deposits are classified as money because A) they can be readily used in purchasing goods and paying debts. B) banks hold currency equal to the value of their checkable deposits. C) they are ultimately the obligations of the Treasury. D) they earn interest income for the depositor.

A) they can be readily used in purchasing goods and paying debts

Which of the following statements best describes the 12 Federal Reserve Banks? A) They are privately owned and privately controlled central banks whose basic goal is to provide an ample and orderly market for U.S. Treasury securities. B) They are privately owned and publicly controlled central banks whose basic function is to minimize the risks in commercial banking in order to make it a reasonably profitable industry. C) They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare. D) They are privately owned and publicly controlled central banks whose basic goal is to earn profits for their owners.

C) They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare

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) a monetary unit for measuring and comparing the relative values of goods

The basic requirement for an item to function as money is that it be A) backed by precious metals—gold or silver. B) authorized as legal tender by the central government. C) generally accepted as a medium of exchange. D) some form of debt or credit.

C) generally accepted as a medium of exchange

The Federal Open Market Committee (FOMC) A) provides advice on banking stability to the Fed. B) monitors regulatory banking laws for member banks. C) sets policy on the sale and purchase of government bonds by the Fed. D) follows the actions and operations of financial markets to keep them open and competitive.

C) sets policy on the sale and purchase of government bonds by the Fed

Which of the following is not true about the Federal Reserve Banks? A) They serve as bankers' banks. B) They are privately owned but government controlled. C) Unlike other banks, they are not motivated by profits. D) They compete with commercial banks in their basic functions.

D) They compete with commercial banks in their basic functions

Currency in circulation is part of A) M1 only. B) M2 only. C) neither M1 nor M2. D) both M1 and M2.

D) both M1 and M2

To keep high inflation from eroding the value of money, monetary authorities in the United States A) create token money that is less than its intrinsic value. B) make paper money legal tender for the payment of debt. C) establish insurance on checkable deposit accounts. D) control the supply of money in the economy.

D) control the supply of money in the economy

The Federal Reserve Banks are owned by the A) federal government. B) Board of Governors. C) United States Treasury. D) member banks.

D) member banks

An important routine function of the Federal Reserve Bank is to A) supervise the liquidation of the assets of bankrupt state banks. B) help large commercial banks develop correspondent relationships with smaller commercial banks. C) advise commercial banks as to the most profitable ways of reinvesting profits. D) provide facilities by which commercial banks and thrift institutions may collect checks.

D) provide facilities by which commercial banks and thrift institutions may collect checks

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 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