Question 1

The Consumer Price Index (CPI) is:

Accepted Answer

A)  an example of an index that uses variable expenditure weights. 
B)  a fixed-expenditure-weight index used to measure changes in the GDP Deflator. 
C)  a fixed-expenditure weight-index used to measure changes in purchasing power for households. 
D)  the least commonly used measure of inflation. 
A)  an example of an index that uses variable expenditure weights. 
B)  a fixed-expenditure-weight index used to measure changes in the GDP Deflator. 
C)  a fixed-expenditure weight-index used to measure changes in purchasing power for households. 
D)  the least commonly used measure of inflation.

Question 2

Which of the following lists correctly orders assets from most liquid to least liquid?

Accepted Answer

A)  Stocks, house, paper currency, savings deposits 
B)  Stocks, paper currency, house, savings deposits 
C)  Savings deposits, paper currency, house, stocks 
D)  Paper currency, savings deposits, stocks, house 
A)  Stocks, house, paper currency, savings deposits 
B)  Stocks, paper currency, house, savings deposits 
C)  Savings deposits, paper currency, house, stocks 
D)  Paper currency, savings deposits, stocks, house

Question 3

The most commonly quoted monetary aggregate is:

Accepted Answer

A)  money-market mutual fund shares. 
B)  M1 since it is the most liquid. 
C)  public currency. 
D)  M2 since its movement is most closely related to interest rates and economic growth. 
A)  money-market mutual fund shares. 
B)  M1 since it is the most liquid. 
C)  public currency. 
D)  M2 since its movement is most closely related to interest rates and economic growth.

Question 4

When the Continental Congress issued currency to finance the Revolutionary War, the Continental Congress:

Accepted Answer

A)  issued too many "continentals," eventually making the currency worthless. 
B)  tied the value of the "continental" to gold. 
C)  tied the value of the "continental" to gold to French "assignats." 
D)  made "continentals" legal tender. 
A)  issued too many "continentals," eventually making the currency worthless. 
B)  tied the value of the "continental" to gold. 
C)  tied the value of the "continental" to gold to French "assignats." 
D)  made "continentals" legal tender.

Question 5

Explain why credit cards are not considered money even though people seem to use them like money.

Accepted Answer

A credit card isn't money for a few reas

Question 6

The U.S. Treasury estimates that the fraction of U.S. currency held outside the United States is:

Accepted Answer

A)  about one-fourth. 
B)  about half. 
C)  between one-half and two-thirds. 
D)  less than 10%. 
A)  about one-fourth. 
B)  about half. 
C)  between one-half and two-thirds. 
D)  less than 10%.

Question 7

In countries with low inflation:

Accepted Answer

A)  M2 growth is a very strong forecaster of inflation. 
B)  there tends to be a greater reliance on checks than electronic payments. 
C)  M2 growth is a poor forecaster of inflation. 
D)  money stocks are a larger percentage of GDP. 
A)  M2 growth is a very strong forecaster of inflation. 
B)  there tends to be a greater reliance on checks than electronic payments. 
C)  M2 growth is a poor forecaster of inflation. 
D)  money stocks are a larger percentage of GDP.

Question 8

Historically, some governments have relied on the revenue generated from printing currency to finance government spending. Give two examples of government's relying on paper currency to finance wartime expenditures. What do you expect happened to inflation rates during these historical episodes?

Accepted Answer

The Continental Congress issued continen

Question 9

The value of fiat money:

Accepted Answer

A)  comes from its intrinsic value. 
B)  is worth more as a commodity than its value as money. 
C)  comes from government decree. 
D)  means that it is more desirable than currency. 
A)  comes from its intrinsic value. 
B)  is worth more as a commodity than its value as money. 
C)  comes from government decree. 
D)  means that it is more desirable than currency.

Question 10

In comparing money to a U.S. Treasury bond held by an individual, we can say:

Accepted Answer

A)  the treasury bond is an asset but money is not. 
B)  money is an asset but the U.S. bond is a liability of the individual. 
C)  both are stores of value. 
D)  money is a store of value but the bond is not. 
A)  the treasury bond is an asset but money is not. 
B)  money is an asset but the U.S. bond is a liability of the individual. 
C)  both are stores of value. 
D)  money is a store of value but the bond is not.

Question 11

The unit of account characteristic of money:

Accepted Answer

A)  makes it difficult to compare the relative prices of goods and services. 
B)  refers to how we use money to transfer purchasing power over time. 
C)  means prices are expressed in terms of money. 
D)  means that money finalizes payments. 
A)  makes it difficult to compare the relative prices of goods and services. 
B)  refers to how we use money to transfer purchasing power over time. 
C)  means prices are expressed in terms of money. 
D)  means that money finalizes payments.

Question 12

Which of the following statements is most correct?

Accepted Answer

A)  Money is wealth but not all wealth is money. 
B)  Money is a means of payment but is not part of wealth. 
C)  In order to be considered part of a person's wealth, an asset must have a positive return. 
D)  Wealth is a store of value and a means of payment. 
A)  Money is wealth but not all wealth is money. 
B)  Money is a means of payment but is not part of wealth. 
C)  In order to be considered part of a person's wealth, an asset must have a positive return. 
D)  Wealth is a store of value and a means of payment.

Question 13

How useful is M2 in tracking inflation? Explain.

Accepted Answer

Empirical research mentioned in the chap

Question 14

Ava buys a $2,000 computer using a paper check. At which step does $2,000 get recorded in M1?

Accepted Answer

A)  When Ava hands the $2,000 check to the computer merchant. 
B)  Once the $2,000 is credited to the merchant bank's reserve account and is debited from Ava's bank account. 
C)  Once the Federal Reserve sends the paper check (or an electronic image) to Ava's bank. 
D)  The check is never M1. The $2,000 is M1 both in Ava's bank account and, later, in the merchant's account. It is the deposit balance that is counted. 
A)  When Ava hands the $2,000 check to the computer merchant. 
B)  Once the $2,000 is credited to the merchant bank's reserve account and is debited from Ava's bank account. 
C)  Once the Federal Reserve sends the paper check (or an electronic image) to Ava's bank. 
D)  The check is never M1. The $2,000 is M1 both in Ava's bank account and, later, in the merchant's account. It is the deposit balance that is counted.

Question 15

An automobile is an asset, but it is not liquid because:

Accepted Answer

A)  the transactions costs for turning it into money are high. 
B)  the owner may still be making payments on the loan. 
C)  the automobile may not be in good repair. 
D)  the automobile cannot be sold without a loss in value. 
A)  the transactions costs for turning it into money are high. 
B)  the owner may still be making payments on the loan. 
C)  the automobile may not be in good repair. 
D)  the automobile cannot be sold without a loss in value.

Question 16

Explain why the following statement is true, "money is an asset but not all assets are money."

Accepted Answer

Money is an asset because it r

Question 17

A famous American has been visiting the same tropical island for 15 years for vacations. When she goes she pays for everything by writing checks drawn on her U.S. bank. The currency
the natives use are not U.S. dollars; they use a currency called a fungo. The natives never cash her checks. She is so well known on the island that the natives simply trade her checks among themselves. The question you need to answer, complete with an explanation, is: who is paying for her vacation? (You can assume her bank would honor the checks if presented for payment even after a considerable period of time has passed.)

Accepted Answer

Obviously neither the famous American no

Question 18

How has the Bureau of Labor Statistics (BLS) changed the calculation of the CPI in order to take substitution bias into account?

Accepted Answer

Substitution bias is an overstatement of

Question 19

Without the use of money, workers in an economy would:

Accepted Answer

A)  become more specialized 
B)  have to spend a lot less time trading 
C)  probably specialize less 
D)  be far more productive 
A)  become more specialized 
B)  have to spend a lot less time trading 
C)  probably specialize less 
D)  be far more productive

Question 20

How many prices would a trader of a particular good need to know in a barter economy with 5 goods?

Accepted Answer

A)  5 
B)  10 
C)  20 
D)  50 
A)  5 
B)  10 
C)  20 
D)  50

Exam 2: Money and the Payments System

The Consumer Price Index (CPI) is:

Which of the following lists correctly orders assets from most liquid to least liquid?

The most commonly quoted monetary aggregate is:

When the Continental Congress issued currency to finance the Revolutionary War, the Continental Congress:

Explain why credit cards are not considered money even though people seem to use them like money.

The U.S. Treasury estimates that the fraction of U.S. currency held outside the United States is:

In countries with low inflation:

Historically, some governments have relied on the revenue generated from printing currency to finance government spending. Give two examples of government's relying on paper currency to finance wartime expenditures. What do you expect happened to inflation rates during these historical episodes?

The value of fiat money:

In comparing money to a U.S. Treasury bond held by an individual, we can say:

The unit of account characteristic of money:

Which of the following statements is most correct?

How useful is M2 in tracking inflation? Explain.

Ava buys a $2,000 computer using a paper check. At which step does $2,000 get recorded in M1?

An automobile is an asset, but it is not liquid because:

Explain why the following statement is true, "money is an asset but not all assets are money."

How has the Bureau of Labor Statistics (BLS) changed the calculation of the CPI in order to take substitution bias into account?

Without the use of money, workers in an economy would:

How many prices would a trader of a particular good need to know in a barter economy with 5 goods?

An Introduction to Money and the Financial System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange Rate Policy and the Central Bank

Money Growth, Money Demand and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

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