Question 1

Which of the following defines the "store of value" function of money?

Accepted Answer

A) A common measurement of the relative value of different goods and services. 
B) The ability of money to hold value over time. 
C) That the materials used to manufacture money are of medium grade or quality, so that people will not hoard money for its commodity value. 
D) That money is widely accepted in exchange for goods and services. 
A) A common measurement of the relative value of different goods and services. 
B) The ability of money to hold value over time. 
C) That the materials used to manufacture money are of medium grade or quality, so that people will not hoard money for its commodity value. 
D) That money is widely accepted in exchange for goods and services.

Question 2

Money is said to be liquid because it is immediately available to spend for goods.

Accepted Answer

A) True 
 B)False

Question 3

The ease with which an asset can be converted into a medium of exchange is known as:

Accepted Answer

A) volatility. 
B) liquidity. 
C) currency. 
D) Gresham's Law. 
E) speculative exchange. 
A) volatility. 
B) liquidity. 
C) currency. 
D) Gresham's Law. 
E) speculative exchange.

Question 4

Which of the following is a desirable property of money?

Accepted Answer

A) Scarcity. 
B) Portability. 
C) Divisibility. 
D) All of these. 
A) Scarcity. 
B) Portability. 
C) Divisibility. 
D) All of these.

Question 5

Which of the following is responsible for controlling the money supply in the United States?

Accepted Answer

A) The U.S. Congress. 
B) The Board of Governors of the Federal Reserve System. 
C) The U.S. Treasury. 
D) The Council of Economic Advisors. 
A) The U.S. Congress. 
B) The Board of Governors of the Federal Reserve System. 
C) The U.S. Treasury. 
D) The Council of Economic Advisors.

Question 6

Decisions to buy or sell securities at the Fed are made by the:

Accepted Answer

A) Congress. 
B) Federal Open Market Committee. 
C) Federal Deposit Insurance Corporation. 
D) President's Council of Economic Advisors. 
A) Congress. 
B) Federal Open Market Committee. 
C) Federal Deposit Insurance Corporation. 
D) President's Council of Economic Advisors.

Question 7

Which one of the following items would be the most liquid?

Accepted Answer

A) Pizza. 
B) Ticket to next week's basketball game. 
C) Stereo. 
D) Dollar bill. 
E) U.S. savings bond. 
A) Pizza. 
B) Ticket to next week's basketball game. 
C) Stereo. 
D) Dollar bill. 
E) U.S. savings bond.

Question 8

The currency of the United States is:

Accepted Answer

A) backed dollar for dollar by gold. 
B) backed by a gold cover of 50 percent. 
C) not backed by any precious metal. 
D) backed by the government's silver reserves. 
E) backed by the government's gold and silver reserves. 
A) backed dollar for dollar by gold. 
B) backed by a gold cover of 50 percent. 
C) not backed by any precious metal. 
D) backed by the government's silver reserves. 
E) backed by the government's gold and silver reserves.

Question 9

A direct exchange of fish for corn is an example of:

Accepted Answer

A) storing value. 
B) a modern exchange method. 
C) barter. 
D) a non-coincidence of wants. 
A) storing value. 
B) a modern exchange method. 
C) barter. 
D) a non-coincidence of wants.

Question 10

In the United States, the purchasing power of money is determined by:

Accepted Answer

A) the underlying precious metals that back each unit of currency. 
B) the value of U.S. treasury bonds that back each unit of currency. 
C) its acceptability. 
D) Congress, which controls the money supply. 
A) the underlying precious metals that back each unit of currency. 
B) the value of U.S. treasury bonds that back each unit of currency. 
C) its acceptability. 
D) Congress, which controls the money supply.

Question 11

The Federal Deposit Insurance Corporation (FDIC):

Accepted Answer

A) insures all demand deposit accounts up to $10 million in banks choosing FDIC protection. 
B) was created as a government-owned corporation following the creation of the World Bank and the International Monetary Fund after World War II. 
C) rarely evaluates bank performance to detect weaknesses in operation. 
D) creates monetary policy in conjunction with the Federal Reserve Board. 
E) was created to reduce the risk of banking by compensating depositors and keeping bank failures from spreading. 
A) insures all demand deposit accounts up to $10 million in banks choosing FDIC protection. 
B) was created as a government-owned corporation following the creation of the World Bank and the International Monetary Fund after World War II. 
C) rarely evaluates bank performance to detect weaknesses in operation. 
D) creates monetary policy in conjunction with the Federal Reserve Board. 
E) was created to reduce the risk of banking by compensating depositors and keeping bank failures from spreading.

Question 12

Which of the following is not a function of the Federal Reserve System?

Accepted Answer

A) To control the money supply. 
B) To print new money. 
C) To supervise and regulate banks. 
D) To aid in the check clearing process. 
E) To maintain and circulate currency. 
A) To control the money supply. 
B) To print new money. 
C) To supervise and regulate banks. 
D) To aid in the check clearing process. 
E) To maintain and circulate currency.

Question 13

The Fed is often considered the bankers' bank because it:

Accepted Answer

A) demands much more currency than it has available. 
B) no longer has a monopoly on printing paper currency. 
C) lowers the discount rate in order to restrict the money supply. 
D) holds bankers reserves, provides banks with currency and loans, and clears their checks. 
E) refuses to uses its power of open market operations when a quorum of state-chartered bankers petitions it. 
A) demands much more currency than it has available. 
B) no longer has a monopoly on printing paper currency. 
C) lowers the discount rate in order to restrict the money supply. 
D) holds bankers reserves, provides banks with currency and loans, and clears their checks. 
E) refuses to uses its power of open market operations when a quorum of state-chartered bankers petitions it.

Question 14

The Federal Reserve's most important function is to change the money supply in order to smooth out the business cycle.

Accepted Answer

A) True 
 B)False

Question 15

Decisions regarding purchases and sales of government securities by the Fed are made by the:

Accepted Answer

A) Federal Funds Committee. 
B) Discount Committee. 
C) Federal Open Market Committee. 
D) FDIC. 
A) Federal Funds Committee. 
B) Discount Committee. 
C) Federal Open Market Committee. 
D) FDIC.

Question 16

M1 includes savings accounts.

Accepted Answer

A) True 
 B)False

Question 17

The main purpose of the Fed is to:

Accepted Answer

A) serve as the bankers' bank for member banks. 
B) regulate interest rates. 
C) print Federal Reserve Notes. 
D) regulate financial institutions. 
E) maintain the proper functioning of our money system. 
A) serve as the bankers' bank for member banks. 
B) regulate interest rates. 
C) print Federal Reserve Notes. 
D) regulate financial institutions. 
E) maintain the proper functioning of our money system.

Question 18

The major protection against sudden mass attempt to withdraw cash from banks is the:

Accepted Answer

A) Federal Reserve. 
B) Consumer Protection Act. 
C) deposit insurance provided by the FDIC. 
D) gold and silver backing the dollar. 
A) Federal Reserve. 
B) Consumer Protection Act. 
C) deposit insurance provided by the FDIC. 
D) gold and silver backing the dollar.

Question 19

Which of the following compose the M2 money supply?

Accepted Answer

A) Currency only. 
B) Currency, checkable deposits, and traveler's checks. 
C) M1 plus large denomination time deposits and Eurodollar deposits. 
D) M1 plus savings deposits and small-denomination time deposits. 
A) Currency only. 
B) Currency, checkable deposits, and traveler's checks. 
C) M1 plus large denomination time deposits and Eurodollar deposits. 
D) M1 plus savings deposits and small-denomination time deposits.

Question 20

Which of the following assets is most liquid?

Accepted Answer

A) Funds in a checking account. 
B) A car. 
C) A home. 
D) A municipal bond. 
A) Funds in a checking account. 
B) A car. 
C) A home. 
D) A municipal bond.

Exam 14: Money and the Federal Reserve System

Which of the following defines the "store of value" function of money?

Money is said to be liquid because it is immediately available to spend for goods.

The ease with which an asset can be converted into a medium of exchange is known as:

Which of the following is a desirable property of money?

Which of the following is responsible for controlling the money supply in the United States?

Decisions to buy or sell securities at the Fed are made by the:

Which one of the following items would be the most liquid?

The currency of the United States is:

A direct exchange of fish for corn is an example of:

In the United States, the purchasing power of money is determined by:

The Federal Deposit Insurance Corporation (FDIC):

Which of the following is not a function of the Federal Reserve System?

The Fed is often considered the bankers' bank because it:

The Federal Reserve's most important function is to change the money supply in order to smooth out the business cycle.

Decisions regarding purchases and sales of government securities by the Fed are made by the:

M1 includes savings accounts.

The main purpose of the Fed is to:

The major protection against sudden mass attempt to withdraw cash from banks is the:

Which of the following compose the M2 money supply?

Which of the following assets is most liquid?

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

The Keynesian Model in Action

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money Creation

Monetary Policy

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Applying Graphs to Economics

Consumer Surplus, Producer Surplus, and Market Efficiency

the Self-Correcting Aggregate Demand and Supply Model

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

Filters