MONEY, PRICE LEVEL, INFLATION
The largest component of M2 is A) savings deposits B) currency C) money market mutual funds D) travelers checks
A
The most direct way in which money eliminates the need for a double coincidence of wants is through its use as a A) medium of exchange. B) standard of deferred payment. C) store of value. D) unit of account.
A
The most direct way in which money replaces barter is through its use as a A) medium of exchange. B) recording device. C) store of value. D) unit of account.
A
Which of the following is NOT included in the M2 definition of money? A) currency held by banks B) money market mutual fund balances C) savings deposits D) checkable deposits
A
Which of the following is a primary function of money? A) to serve as a unit of account B) to serve as an encouragement to work C) to reduce the burden of excessive imports D) to raise funds for the government
A
Which of the following is money? A) checking deposits B) checks in the checkbook C) credit cards D) All of the above are money.
A
Checking deposits are A) not part of money. B) part of money. C) small in volume relative to currency in circulation. D) quite different from checking accounts.
B
Checks and credit cards are NOT considered money because they A) are issued by banks, not the Federal Reserve. B) are not the means of payment. C) typically require an identification check, such as your driver's license. D) are not backed by all commercial banks.
B
Which function of money refers to the use of money to state the prices of goods and services? A) medium of exchange B) unit of account C) store of value D) means of payment
B
Which of the following does NOT describe a function of money? A) a unit of account B) barter C) a medium of exchange D) a store of value
B
Which of the following does NOT describe a function of money? A) a unit of account B) a hedge against inflation C) a medium of exchange D) a store of value
B
Which of the following is NOT included in the M1 definition of money? A) currency held outside banks B) time deposits C) traveler's checks D) checking deposits at savings and loans
B
Which of the following is NOT included in the M1 measure of money? A) currency held outside banks B) currency held in bank vaults C) checking deposits at commercial banks D) checking deposits at credit unions
B
Barter is A) another type of money. B) printing too much money. C) the exchange of goods and services directly for other goods and services. D) the exchange of goods and services for any type of money.
C
Checks ________ money and checking deposits ________ money. A) are; are B) are; are not C) are not; are D) are not; are not
C
Credit cards are A) a part of money because they are used in so many transactions. B) a part of money when the transaction approach is used but not when the liquidity approach is used. C) not part of money because they represent a loan of money to the user. D) not part of money because the government has no control over the amount of credit outstanding.
C
M2 ________. A) does not include currency B) does not include traveler's checks C) is a broader measure of money than M1 D) does not include checking deposits held at credit unions
C
Money's function as a medium of exchange means that A) money is a common denominator for expressing the prices of goods and services. B) money can be used to store wealth. C) money serves as an acceptable means of payment. D) money requires a double coincidence of wants.
C
The direct exchange of goods and services for other goods and services is known as A) primitive trade. B) nonmarket trade. C) barter. D) purchasing power trading.
C
The unit of account A) is a type of accounting of how many currency units there are in an economy. B) is an accounting of the total units of goods and services produced in an economy. C) is an agreed measure for stating the prices of goods and services in an economy. D) is a type of value stored within all assets.
C
When you toss your spare quarters into a jar so you can use them later at the laundromat, you are using money in its function as a A) medium of exchange. B) unit of account. C) store of value. D) record keeping device.
C
Which of the following correctly completes this statement? Money in the United States includes A) the sum of all money incomes. B) the cash in banks plus the sum of all checks written. C) the currency and bank deposits outside of banks. D) the sum of currency, deposits, and bonds held by the public and by the banking industry.
C
Which of the following institutions is NOT a depository institution? A) the Bank of Canada B) a commercial bank C) a money market mutual fund D) a thrift institution, such as a savings and loan association
C
Which of the following is NOT included in M1? A) currency B) checking deposits owned by individuals C) saving deposits D) traveler's checks
C
Which of the following is NOT money? A) currency B) checking deposits C) checks in the checkbook D) All of the above are money.
C
A depository institution is A) the lender of last resort. B) an insurance agency, such as the FDIC. C) the most powerful body within the Federal Reserve. D) as a financial that accepts deposits from households and firms.
d
A money market mutual fund is A) essentially the same as a demand deposit account. B) a time deposit of $100,000 or less. C) a time deposit of more than $100,000. D) a depository institution that sells shares and buys securities such as U.S. Treasury bills.
d
Commercial banks do not A) buy U.S. government Treasury bills. B) accept deposits from their customers. C) make loans to creditworthy individuals and businesses. D) determine what assets are money.
d
Depository institutions do all the following EXCEPT A) minimize the cost of obtaining funds. B) create liquidity. C) pool risks. D) create required reserve ratios.
d
Money market mutual funds invest in A) residential mortgages. B) commercial real estate. C) long-term government securities. D) highly liquid assets.
d
Of the following, the riskiest assets held by commercial banks are A) reserves. B) U.S. government bonds. C) U.S. government Treasury bills. D) loans.
d
Pooling of risk occurs when depository institutions A) make assets more liquid. B) specialize in loaning only to good borrowers. C) bring lenders together. D) lend to a variety of different borrowers.
d
The required reserve ratio ranges from A) 0 to 3 percent. B) 0 to 7 percent. C) 3 to 30 percent. D) 0 to 10 percent.
d
The sale of government securities by the Fed leads to A) a decrease in bank reserves. B) a contraction in bank lending. C) an increase in the federal funds rate. D) All of the above answers are correct.
d
The tools at the disposal of the Fed for changing the quantity of money do NOT include A) open market operations. B) changing the required reserve ratio. C) changing discount rates. D) increasing the number of commercial banks.
d
When the Federal Reserve lends reserves to depository institutions, it charges them interest. That interest rate is called the A) federal funds rate. B) loan rate. C) prime rate. D) discount rate.
d
Which of the following is a service of depository institutions? A) monitoring the Federal Reserve B) decreasing the liquidity drain in the banking system C) loaning funds to other depository institutions at the discount rate D) creating liquidity
d
The functions of money are A) interest rates, prices and output. B) M1, M2 or currency. C) currency, deposits, and traveler's checks. D) medium of exchange, unit of account, and store of value.
D
What is Money? 1) The functions of money are A) medium of exchange and the ability to buy goods and services. B) medium of exchange, unit of account, and means of payment. C) pricing, contracts, and means of payment. D) medium of exchange, unit of account, and store of value.
D
Which of the following is NOT considered a function of money? A) It facilitates exchange. B) It acts as a means of payment. C) It can be held and exchanged for future goods and services. D) It allows banks to lend out funds.
D
Which of the following is an example of using money as a store of value? A) paying for a new dress with a credit card B) paying cash for a new automobile C) paying rent with a check on a demand deposit D) keeping $200 on hand for an emergency
D
An open market purchase of securities by the Fed A) increases banks' reserves and decreases banks' securities. B) decreases banks' reserves and increases banks' securities. C) decreases banks' total assets. D) involves a bank purchasing government securities from the Fed.
a
An open market sale of securities by the Fed A) decreases banks' reserves and increases banks' securities. B) increases banks' reserves and decreases banks' securities. C) increases banks' total assets. D) involves a bank selling government securities to the Fed.
a
Changing which of the following is a Federal Reserve monetary policy tool? A) required reserve ratios. B) desired reserve ratios. C) excess reserve ratios. D) gold and foreign reserve ratios
a
Depository institutions A) make profit from the spread between the interest rate they pay on deposits and the interest rate they receive on loans. B) make a profit according to how much the Federal Reserve pays them. C) make their profit by charging the government for their services. D) make zero profit but receive compensation by the government because their services are so valuable.
a
Depository institutions do all of the following EXCEPT A) set the required reserve ratio B) create liquidity C) pool risks D) minimize the cost of obtaining funds
a
Depository institutions undertake all the following activities except they do not ________. A) print money B) minimize the cost of monitoring borrowers C) pool risk D) create liquidity
a
If the Fed sells government securities, A) commercial bank reserves will decrease. B) the government's debt will be decreased. C) commercial bank reserves will increase. D) there will be no effect on the quantity of money.
a
If the Federal Reserve purchases government securities, A) banks' reserves will increase. B) the federal funds rate will rise. C) the discount rate will be forced higher. D) None of the above answers is correct because none of the effects occur.
a
Reserve requirements are the A) minimum percentages of deposits that banks must hold as reserves. B) minimum amount of an owner's financial resources that must be placed in a depository institution. C) rules covering the types of deposits that banks may offer. D) rules covering the types of assets that banks may purchase.
a
The Fed's purchase of government securities will A) increase loans made by banks. B) be an effective anti-inflationary policy. C) decrease the price level and have no effect on real GDP. D) decrease bank reserves.
a
The interest rate banks charge other banks for overnight loans is A) the federal funds rate. B) targeted by the FDIC C) higher than interest rates for securities and loans. D) lower than interest rates for loans, but higher than interest rates for securities.
a
The majority of money is created when A) banks make loans B) new coins are minted C) the federal government borrows from the public D) the Fed sells bonds
a
Which of the following are part of a commercial bank's reserves? I. cash in the bank's vaults II. loans III. cash in checking accounts A) I only B) I and II C) I and III D) I, II and III
a
Which of the following is NOT an asset of the Federal Reserve? A) Federal Reserve notes B) government securities C) loans to depository institutions D) None of the above are correct because they are all assets of the Federal Reserve
a
Which of the following is a tool that is used by the Fed to control the quantity of money? A) open market operations B) excess reserves C) government expenditure multiplier D) real interest rate
a
Which of the following is an asset of the Federal Reserve? A) loans to depository institutions B) Federal Reserve notes C) commercial bank deposits D) the monetary base
a
Which of the following is true regarding money market mutual funds? I. Money market mutual funds buy highly liquid assets like Treasury bills. II.Shareholders can obtain loans from money market mutualfunds. A) I only B) II only C) both I and II D) neither I nor II
a
Which of the following is true regarding the required reserve ratio? A) The ratio determines the legally required amount of reserves a bank must hold. B) The ratio determines the amount of excess reserves a bank must hold. C) The ratio is only enforced against banks that are operating in a risky manner. D) None of the above answers is correct.
a
When the Fed wants to undertake open market operations, it A) can require all commercial banks to buy from or sell to it. B) can require all member banks to buy from or sell to it. C) buys or sells securities. D) buys securities from or sells securities to the federal government.
c
A credit union is A) a combination of credit card corporations. B) an depository institution owned by members of a particular group. C) a thrift institution that issues credit cards. D) a commercial bank owned by its depositors.
b
A savings bank is a depository institution that ________. A) sells shares which it uses to purchase shares in U.S. Treasury bills B) makes mostly home-purchase loans C) is owned by a social or economic group D) makes mostly consumer loans
b
Controlling the quantity of money and interest rates to influence aggregate economic activity is called A) foreign policy. B) monetary policy. C) fiscal policy. D) bank antitrust policy.
b
Financial innovation is A) the process of turning assets into a more liquid form. B) the development of new financial products and services. C) responsible for credit cards being included as part of money. D) causing a decrease in bank profits.
b
Liquidity can A) not be created. B) be created by borrowing short and lending long. C) only be created by the government. D) be created by borrowing long and lending short.
b
Reserves are ________. A) gold in a bank's vault plus its gold at Federal Reserve banks B) cash in a bank's vault plus its deposits at Federal Reserve banks C) cash in a bank's vault plus its gold at Federal Reserve banks D) cash in a bank's vault plus the cash carried by its customers
b
The Federal Reserve System A) has officers that are elected, like members of Congress. B) controls the amount of currency in circulation. C) is headquartered in San Francisco. D) was recently declared unconstitutional by the Supreme Court.
b
The discount rate is the interest rate A) that banks charge their best customers. B) that the Fed charges on its last resort loans. C) on interbank lending. D) that bank insurers pay on insured deposits.
b
The minimum percentage of deposits that a depository institution must hold and cannot use for lending is known as the A) minimum rate. B) required reserve ratio. C) money multiplier. D) discount rate.
b
The monetary base is the sum of A) U.S. Treasury notes and other government securities. B) Federal Reserve notes, coins, and deposits of depository institutions. C) foreign and domestic deposits at the Fed. D) coins, currency, and checkable deposits.
b
The required reserve ratio A) is the amount of money that banks require borrowers to reserve in their accounts. B) is the fraction of a bank's total deposits that are required to be held in reserve. C) increases when withdrawals from a bank are made. D) is higher for banks that make riskier loans.
b
When the Fed lowers the federal funds rate, it leads to A) the Fed selling government securities. B) an increase in lending by banks. C) a decrease in demand deposits. D) a decrease in the quantity of money.
b
Which of the following is NOT a monetary policy tool of the Federal Reserve? A) changes in required reserves B) last resort loans C) deposit insurance D) open market operations
c
Which of the following allow banks to minimize the cost to a business of borrowing? I. Borrowing long and lending short. II. Raisingfundsfromalargenumberofdepositors. III. Creating money by lending all their reserves. A) I only B) II only C) I and III D) II and III
b
Examples of thrift institutions include A) savings deposits and checking deposits. B) commercial banks, savings and loan associations, and insurance companies. C) savings and loan associations, savings banks, and credit unions. D) money market mutual funds, commercial banks, and credit unions.
c
If the Fed buys $100,000 in U.S. government securities from a commercial bank, the bank now has an additional $100,000 of A) total assets. B) excess reserves. C) actual reserves. D) net worth.
c
Money is created by A) government taxation. B) banks taking in deposits. C) banks making loans. D) banks paying for depositor's insurance.
c
The discount rate is the interest rate A) paid on time deposits. B) paid on funds banks borrow from other banks. C) paid on funds that depository institutions borrow from the Federal Reserve. D) that banks charge their "best" customers.
c
The major role of a commercial bank is to A) make mortgage loans. B) sell shares and use the proceeds to buy stocks. C) receive deposits and make loans. D) restrain the growth of the quantity of money.
c
The monetary base does NOT include A) Federal Reserve notes. B) reserves of depository institutions. C) checking accounts at commercial banks. D) commercial banks' reserves.
c
The risk of making a loan is A) earning profits that are too high and cause higher taxes. B) the risk that lender does not pay. C) the risk that the borrower does not pay. D) called "default risk" when taxes are not paid.
c
When banks use specialized resources to monitor borrowers, they are A) pooling risk. B) lowering the cost of creating liquidity. C) minimizing the cost of assessing borrowers' creditworthiness. D) lending to only high-risk borrowers.
c
Which of the following is a service of depository institutions? A) decreasing the liquidity drain of funds in the banking system B) monitoring the Federal Reserve C) pooling risk D) loaning funds to other depository institutions at the discount rate
c
A medium of exchange is A) an object that sellers will accept as payment. B) a measure by which prices are expressed. C) an asset that is used to settle future debts. D) the thing traded when barter takes place.
A
M1 includes A) currency, checking deposits and traveler's checks. B) money, stocks and bonds. C) money, checking deposits and traveler's checks. D) money market mutual funds, stocks and bonds.
A
Liquidity is the A) degree to which an asset acts as money without a loss of value. B) ease with which an asset can be converted into a means of payment with little loss of value. C) degree to which money can be converted into an asset with little loss of value. D) ease with which credit cards are accepted as a means of payment.
B
Nicholas is saving money collected from his paper route in order to purchase a new bicycle. His saving represents using money as A) a medium of exchange. B) a store of value. C) an unit of account. D) none of the above
B
The fact that money can be exchanged for goods reflects money's role as a A) cause of inflation. B) medium of exchange. C) unit of account. D) store of value.
B
The money aggregate M1 consists of A) currency and savings accounts. B) currency and demand deposits, including traveler's checks. C) only demand deposits and time deposits. D) checking accounts, savings accounts and Treasury bills.
B
The definition of M2 includes A) M1. B) savings deposits. C) time deposits. D) all of the above
D
A highly liquid asset A) has high transaction costs associated with its sale. B) is highly leveraged. C) generally has a very limited market for its resale. D) can be converted into a means of payment easily without loss of value.
D
Checks ________ money and credit cards ________ money. A) are; are B) are not; are C) are; are not D) are not; are not
D
During periods of inflation, which function of money is most severely affected? A) medium of exchange B) unit of account C) means of payment D) store of value
D
Liquidity is the A) speed with which the price of an asset changes as its intrinsic value changes. B) inverse of the velocity of money. C) same as the velocity of money. D) ease with which an asset can be converted into money.
D
Liquidity is the same as A) easy conversion of money to an asset, allowing for loss of value. B) diversification of an investor's store of value. C) easy conversion of an asset to a means of payment, allowing for loss of value. D) easy conversion of an asset to a means of payment, with little or no loss of value.
D
Money ________. A) is always composed of coins and paper B) loses its value as it becomes older C) requires a double coincidence of wants D) is any commodity that is generally acceptable as a means of payment
D
73) The required reserve ratio is the ratio of reserves to ________ required by banking regulations. A) deposits B) loans C) profits D) cash
a
A bank creates money by A) lending its excess reserves B) purchasing currency from the Federal Reserve C) buying bonds from the Federal Reserve D) printing more checks
a
A depository institution is a firm that takes deposits from ________ and makes loans to ________. A) households and firms; other households and firms B) firms; households C) households; firms D) firms; other firms
a
An open market operation involves A) the Federal Reserve's purchase or sale of securities. B) the Federal Reserve's issuance of new stock. C) changing federal income tax rates. D) raising the debt limit of the United States.
a
