Question 1

The difference between M1 and M2 is that

Accepted Answer

A)  the former includes time deposits. 
B)  the latter includes small-denominated time deposits, savings accounts, money market deposit accounts, and money market mutual fund balances. 
C)  the latter includes negotiable government bonds. 
D)  the latter includes cash held by commercial banks and the U.S. Treasury. 
A)  the former includes time deposits. 
B)  the latter includes small-denominated time deposits, savings accounts, money market deposit accounts, and money market mutual fund balances. 
C)  the latter includes negotiable government bonds. 
D)  the latter includes cash held by commercial banks and the U.S. Treasury.

Question 2

Which of the following is not true about the Federal Reserve Banks?

Accepted Answer

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. 
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.

Question 3

One reason that near monies are important is because

Accepted Answer

A)  they simplify the deﬁnition of money and therefore the formulation of monetary policy. 
B)  they can be easily converted into money or vice versa, and thereby can inﬂuence the stability of the economy. 
C)  they do not reﬂect the level of consumer spending but they have a critical impact on saving and investment in the economy. 
D)  credit cards synchronize one's expenditures and income, thereby reducing the cash and checkable deposits one must hold. 
A)  they simplify the deﬁnition of money and therefore the formulation of monetary policy. 
B)  they can be easily converted into money or vice versa, and thereby can inﬂuence the stability of the economy. 
C)  they do not reﬂect the level of consumer spending but they have a critical impact on saving and investment in the economy. 
D)  credit cards synchronize one's expenditures and income, thereby reducing the cash and checkable deposits one must hold.

Question 4

$$\begin{array} { | c | c | c | } 
\hline \text { Year } & \text { Price Level } & \text { Value of Dollar } \
\hline 1 & 1.00 & \$ 1.00 \
\hline 2 & 1.25 & \
\hline 3 & 0.80 & \
\hline 4 & 0.50 & \
\hline
\end{array}$$ Refer to the given table. The value of the dollar in year 4 is

Accepted Answer

A)  $1.50. 
B)  $0.33. 
C)  $0.50. 
D)  $2.00. 
A)  $1.50. 
B)  $0.33. 
C)  $0.50. 
D)  $2.00.

Question 5

Which group is responsible for the policy decision of changing the money supply?

Accepted Answer

A)  Federal Open Market Committee 
B)  Oﬃce of Management and Budget 
C)  Thrift Advisory Council 
D)  Federal Advisory Council 
A)  Federal Open Market Committee 
B)  Oﬃce of Management and Budget 
C)  Thrift Advisory Council 
D)  Federal Advisory Council

Question 6

Items 1. Money market mutual funds held by individuals
2) Savings deposits, including money market deposit accounts
3) Money market mutual funds held by businesses
4) Currency held by the public
5) Small time deposits
6) Checkable deposits
Refer to the accompanying list. Which items are included in the M2 money supply but not the M1 money supply?

Accepted Answer

A)  1 and 7 
B)  3 and 5 
C)  1 and 2 
D)  1, 2, and 5 
A)  1 and 7 
B)  3 and 5 
C)  1 and 2 
D)  1, 2, and 5

Question 7

$$\begin{array} { | l | r | } 
\hline { \text { Item } } & \text { Billions of Dollars } \
\hline \text { Checkable Deposits } & \$ 2,180 \
\hline \text { Small Time Deposits } & 350 \
\hline \text { Currency Held by the Public } & 80 \
\hline \text { Savings Deposits, Including Money-Market Deposit Accounts } & 1,300 \
\hline \text { Money-Market Mutual Funds Held by Individuals } & 600 \
\hline \text { Money-Market Mutual Funds Held by Businesses } & 700 \
\hline
\end{array}$$ The accompanying table contains hypothetical data for an economy. The size of the M1 money supply is

Accepted Answer

A)  $2,260 billion. 
B)  $2,180 billion. 
C)  $80 billion. 
D)  $2,860 billion. 
E)  $2,610 billion. 
A)  $2,260 billion. 
B)  $2,180 billion. 
C)  $80 billion. 
D)  $2,860 billion. 
E)  $2,610 billion.

Question 8

Which of the following is included as part of the M1 money supply?

Accepted Answer

A)  $200,000 balance in the checking account of Main Street Trading Corp. 
B)  $200,000 in reserves held by Main Street Commercial Bank in its vaults 
C)  $2 million balance in the checking account of the U.S. Treasury 
D)  $200 million in the vaults of the Federal Reserve Banks 
A)  $200,000 balance in the checking account of Main Street Trading Corp. 
B)  $200,000 in reserves held by Main Street Commercial Bank in its vaults 
C)  $2 million balance in the checking account of the U.S. Treasury 
D)  $200 million in the vaults of the Federal Reserve Banks

Question 9

(Consider This) Are credit cards money? Explain.

Accepted Answer

No, credit cards are not money

Question 10

Checkable deposits include

Accepted Answer

A)  both large- and small-denominated time deposits. 
B)  the deposits held by banks and thrifts on which checks can be written. 
C)  only the checkable deposits of commercial banks. 
D)  only the checkable deposits of thrift institutions. 
A)  both large- and small-denominated time deposits. 
B)  the deposits held by banks and thrifts on which checks can be written. 
C)  only the checkable deposits of commercial banks. 
D)  only the checkable deposits of thrift institutions.

Question 11

An inﬂation rate of 8 percent would erode the purchasing power of the dollar by

Accepted Answer

A)  8.0 percent. 
B)  7.4 percent. 
C)  4.4 percent. 
D)  12.5 percent. 
A)  8.0 percent. 
B)  7.4 percent. 
C)  4.4 percent. 
D)  12.5 percent.

Question 12

When paper money is designated as legal tender, it means that

Accepted Answer

A)  it is printed by the government. 
B)  its supply is controlled by the government. 
C)  it is a means of payment by law. 
D)  it will be accepted by the government. 
A)  it is printed by the government. 
B)  its supply is controlled by the government. 
C)  it is a means of payment by law. 
D)  it will be accepted by the government.

Question 13

When you use money to purchase groceries, money is functioning as a store of value.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is not true about subprime mortgage loans?

Accepted Answer

A)  They played a central role in the ﬁnancial crisis of 2007-2008. 
B)  They were encouraged by the Federal government for many years before the ﬁnancial crisis. 
C)  They had always been discouraged by the government and even banned in some cases. 
D)  They were considered high-risk loans because the borrowers had poor credit ratings. 
A)  They played a central role in the ﬁnancial crisis of 2007-2008. 
B)  They were encouraged by the Federal government for many years before the ﬁnancial crisis. 
C)  They had always been discouraged by the government and even banned in some cases. 
D)  They were considered high-risk loans because the borrowers had poor credit ratings.

Question 15

In the ﬁnancial industry, "securitization" refers to

Accepted Answer

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

Question 16

(Consider This) Which of the following is not part of the M2 money supply?

Accepted Answer

A)  currency in circulation 
B)  credit card balances 
C)  small-denominated time deposits of less than $100,000 
D)  checkable deposits 
A)  currency in circulation 
B)  credit card balances 
C)  small-denominated time deposits of less than $100,000 
D)  checkable deposits

Question 17

The currency held in the vaults of commercial banks is included in the money supply M1.

Accepted Answer

A) True 
 B)False

Question 18

Money market deposit accounts are included in

Accepted Answer

A)  M1 only. 
B)  M2 only. 
C)  neither M1 nor M2. 
D)  both M1 and M2. 
A)  M1 only. 
B)  M2 only. 
C)  neither M1 nor M2. 
D)  both M1 and M2.

Question 19

To say that the Federal Reserve Banks are quasi-public banks means that

Accepted Answer

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. 
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.

Question 20

Which of the following statements is true about the high rate of mortgage defaults that contributed to the ﬁnancial crisis of 2007-2008?

Accepted Answer

A)  High interest rates on mortgage loans were the primary cause of defaults. 
B)  The high rate of defaults occurred despite the efforts of government to discourage new home ownership and slow the growth of the housing bubble. 
C)  Prior to the rise in defaults, banks had become lax in their lending practices, resulting in a large number of bad loans. 
D)  The high rate of defaults resulted primarily from the two years of recession preceding the mortgage default crisis. 
A)  High interest rates on mortgage loans were the primary cause of defaults. 
B)  The high rate of defaults occurred despite the efforts of government to discourage new home ownership and slow the growth of the housing bubble. 
C)  Prior to the rise in defaults, banks had become lax in their lending practices, resulting in a large number of bad loans. 
D)  The high rate of defaults resulted primarily from the two years of recession preceding the mortgage default crisis.

The difference between M1 and M2 is that

Which of the following is not true about the Federal Reserve Banks?

One reason that near monies are important is because

Year Price Level Value of Dollar 1 1.00 \ 1.00 2 1.25 3 0.80 4 0.50 Refer to the given table. The value of the dollar in year 4 is

Which group is responsible for the policy decision of changing the money supply?

Which of the following is included as part of the M1 money supply?

(Consider This) Are credit cards money? Explain.

Checkable deposits include

An inﬂation rate of 8 percent would erode the purchasing power of the dollar by

When paper money is designated as legal tender, it means that

When you use money to purchase groceries, money is functioning as a store of value.

Which of the following is not true about subprime mortgage loans?

In the ﬁnancial industry, "securitization" refers to

(Consider This) Which of the following is not part of the M2 money supply?

The currency held in the vaults of commercial banks is included in the money supply M1.

Money market deposit accounts are included in

To say that the Federal Reserve Banks are quasi-public banks means that

Which of the following statements is true about the high rate of mortgage defaults that contributed to the ﬁnancial crisis of 2007-2008?

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters

Exam 14: Money, Banking, and Financial Institutions

The difference between M1 and M2 is that

Which of the following is not true about the Federal Reserve Banks?

One reason that near monies are important is because

Year Price Level Value of Dollar 1 1.00 \ 1.00 2 1.25 3 0.80 4 0.50 Refer to the given table. The value of the dollar in year 4 is

Which group is responsible for the policy decision of changing the money supply?

Which of the following is included as part of the M1 money supply?

(Consider This) Are credit cards money? Explain.

Checkable deposits include

An inﬂation rate of 8 percent would erode the purchasing power of the dollar by

When paper money is designated as legal tender, it means that

When you use money to purchase groceries, money is functioning as a store of value.

Which of the following is not true about subprime mortgage loans?

In the ﬁnancial industry, "securitization" refers to

(Consider This) Which of the following is not part of the M2 money supply?

The currency held in the vaults of commercial banks is included in the money supply M1.

Money market deposit accounts are included in

To say that the Federal Reserve Banks are quasi-public banks means that

Which of the following statements is true about the high rate of mortgage defaults that contributed to the ﬁnancial crisis of 2007-2008?

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters