Question 1

Using a debit card is like writing a check; the amount will be deducted from one's checking account.

Accepted Answer

A) True 
 B)False

Question 2

Michelle transfers $4,000 from her savings account to her checking account. What effect is this change likely to have on M1 and M2?

Accepted Answer

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 
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

Question 3

Research suggests that

Accepted Answer

A)  the more independent the central bank, the lower the average annual growth of real GDP. 
B)  the more independent the central bank, the higher the average annual growth of real GDP. 
C)  there is no relationship between the degree of independence of a country's central bank and the growth rate of its real GDP. 
D)  the less independent the central bank, the higher the average annual rate of inﬂation. 
A)  the more independent the central bank, the lower the average annual growth of real GDP. 
B)  the more independent the central bank, the higher the average annual growth of real GDP. 
C)  there is no relationship between the degree of independence of a country's central bank and the growth rate of its real GDP. 
D)  the less independent the central bank, the higher the average annual rate of inﬂation.

Question 4

During periods of rapid inﬂation, money may cease to work as a medium of exchange

Accepted Answer

A)  unless it has been designated legal tender. 
B)  unless it is backed by gold. 
C)  because it is too scarce for everyone to have enough for transactions. 
D)  because people and businesses will not want to accept it in transactions. 
A)  unless it has been designated legal tender. 
B)  unless it is backed by gold. 
C)  because it is too scarce for everyone to have enough for transactions. 
D)  because people and businesses will not want to accept it in transactions.

Question 5

The amount of money reported as M2

Accepted Answer

A)  is smaller than the amount reported as M1. 
B)  is larger than the amount reported as M1. 
C)  excludes coins and currency. 
D)  includes large ($100,000 or more) certiﬁcates of deposit. 
A)  is smaller than the amount reported as M1. 
B)  is larger than the amount reported as M1. 
C)  excludes coins and currency. 
D)  includes large ($100,000 or more) certiﬁcates of deposit.

Question 6

What is money? Explain in terms of the functions of money.

Accepted Answer

Money is whatever performs the three bas

Question 7

Which of the following is the basic economic policy function of the Federal Reserve Banks?

Accepted Answer

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)  collecting or clearing checks among commercial 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)  collecting or clearing checks among commercial banks

Question 8

The value of money varies

Accepted Answer

A)  inversely with the price level. 
B)  directly with the volume of employment. 
C)  directly with the price level. 
D)  directly with the interest rate. 
A)  inversely with the price level. 
B)  directly with the volume of employment. 
C)  directly with the price level. 
D)  directly with the interest rate.

Question 9

Checkable deposits are classiﬁed as money because

Accepted Answer

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. 
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.

Question 10

The Federal Reserve System is independent of Congress and the president and does not have to follow orders from
either Congress or the president.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements is true as a result of Federal Reserve efforts to rescue the ﬁnancial industry from the ﬁnancial crisis of 2007-2008?

Accepted Answer

A)  From February 2008 to May 2009, the Fed oversaw the consolidation of 20 major ﬁnancial institutions into fewer than a dozen. 
B)  From March 2008 to February 2009, the Fed experienced a 50 percent decline in the value of assets held. 
C)  From February 2008 to March 2009, Fed assets more than doubled to nearly $2 trillion. 
D)  From February 2008 to March 2009, Fed lending caused the U.S. public debt to rise by over $1 trillion. 
A)  From February 2008 to May 2009, the Fed oversaw the consolidation of 20 major ﬁnancial institutions into fewer than a dozen. 
B)  From March 2008 to February 2009, the Fed experienced a 50 percent decline in the value of assets held. 
C)  From February 2008 to March 2009, Fed assets more than doubled to nearly $2 trillion. 
D)  From February 2008 to March 2009, Fed lending caused the U.S. public debt to rise by over $1 trillion.

Question 12

Studies show that

Accepted Answer

A)  the more independent the central bank, the lower the average annual rate of inﬂation. 
B)  the more independent the central bank, the higher the average annual rate of inﬂation. 
C)  there is no relationship between the degree of independence of a country's central bank and its inﬂation rate. 
D)  the more independent the central bank, the higher the average annual rate of unemployment. 
A)  the more independent the central bank, the lower the average annual rate of inﬂation. 
B)  the more independent the central bank, the higher the average annual rate of inﬂation. 
C)  there is no relationship between the degree of independence of a country's central bank and its inﬂation rate. 
D)  the more independent the central bank, the higher the average annual rate of unemployment.

Question 13

Which deﬁnition(s) of the money supply include(s) only items that are directly and immediately usable as a medium of exchange?

Accepted Answer

A)  M1 
B)  M2 
C)  neither M1 nor M2 
D)  M1 and M2 
A)  M1 
B)  M2 
C)  neither M1 nor M2 
D)  M1 and M2

Question 14

Which of the following items are included in money supply M2 but not M1?

Accepted Answer

A)  Federal Reserve notes 
B)  coins 
C)  savings deposits 
D)  checkable deposits 
A)  Federal Reserve notes 
B)  coins 
C)  savings deposits 
D)  checkable deposits

Question 15

When banks bundled mortgage loans and sold the resulting mortgage-backed securities,

Accepted Answer

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. 
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.

Question 16

The M1 money supply is composed of

Accepted Answer

A)  all coins and paper money held by the general public and the banks. 
B)  bank deposits of households and business ﬁrms. 
C)  bank deposits and mutual funds. 
D)  checkable deposits and currency in circulation. 
A)  all coins and paper money held by the general public and the banks. 
B)  bank deposits of households and business ﬁrms. 
C)  bank deposits and mutual funds. 
D)  checkable deposits and currency in circulation.

Question 17

The functions of money are to serve as a

Accepted Answer

A)  resource allocator, method for accounting, and means of income distribution. 
B)  unit of account, store of value, and medium of exchange. 
C)  determinant of consumption, investment, and government spending. 
D)  factor of production, exchange, and aggregate supply. 
A)  resource allocator, method for accounting, and means of income distribution. 
B)  unit of account, store of value, and medium of exchange. 
C)  determinant of consumption, investment, and government spending. 
D)  factor of production, exchange, and aggregate supply.

Question 18

What are the two major components of the M1 money supply?

Accepted Answer

The narrowest deﬁnition of the U.S. mone

Question 19

What did the Federal Reserve do during the ﬁnancial crisis of 2007 and 2008?

Accepted Answer

The Federal Reserve served as the lender

Question 20

A $70 price tag on a sweater in a department store window is an example of money functioning as a

Accepted Answer

A)  unit of account. 
B)  standard of deferred payments. 
C)  store of value. 
D)  medium of exchange. 
A)  unit of account. 
B)  standard of deferred payments. 
C)  store of value. 
D)  medium of exchange.

Exam 14: Money, Banking, and Financial Institutions

Using a debit card is like writing a check; the amount will be deducted from one's checking account.

Michelle transfers $4,000 from her savings account to her checking account. What effect is this change likely to have on M1 and M2?

Research suggests that

During periods of rapid inﬂation, money may cease to work as a medium of exchange

The amount of money reported as M2

What is money? Explain in terms of the functions of money.

Which of the following is the basic economic policy function of the Federal Reserve Banks?

The value of money varies

Checkable deposits are classiﬁed as money because

The Federal Reserve System is independent of Congress and the president and does not have to follow orders from either Congress or the president.

Which of the following statements is true as a result of Federal Reserve efforts to rescue the ﬁnancial industry from the ﬁnancial crisis of 2007-2008?

Studies show that

Which deﬁnition(s) of the money supply include(s) only items that are directly and immediately usable as a medium of exchange?

Which of the following items are included in money supply M2 but not M1?

When banks bundled mortgage loans and sold the resulting mortgage-backed securities,

The M1 money supply is composed of

The functions of money are to serve as a

What are the two major components of the M1 money supply?

What did the Federal Reserve do during the ﬁnancial crisis of 2007 and 2008?

A $70 price tag on a sweater in a department store window is an example of money functioning as a

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

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