Question 1

What is money? What are the three definitions of money in the United States?

Accepted Answer

Money is anything that serves

Question 2

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 3

For barter to occur, traders must have a:

Accepted Answer

A)  unit of account. 
B)  coincidence of wants. 
C)  medium of exchange. 
D)  central banking facility. 
A)  unit of account. 
B)  coincidence of wants. 
C)  medium of exchange. 
D)  central banking facility.

Question 4

Suppose you transfer $1,000 from your checking account to your savings account. How does this action affect the M1 and M2 money supplies?

Accepted Answer

A)  M1 and M2 are both unchanged. 
B)  M1 falls by $1,000, and M2 rises by $1,000. 
C)  M1 is unchanged, and M2 rises by $1,000. 
D)  M1 falls by $1,000, and M2 is unchanged. 
A)  M1 and M2 are both unchanged. 
B)  M1 falls by $1,000, and M2 rises by $1,000. 
C)  M1 is unchanged, and M2 rises by $1,000. 
D)  M1 falls by $1,000, and M2 is unchanged.

Question 5

Which of the following provides the best explanation of why money is valuable?

Accepted Answer

A)  Money is valuable because it is indivisible. 
B)  Money is valuable because it is scarce. 
C)  Money is valuable because it is backed by precious metals, primarily gold and silver. 
D)  Money is valuable because it has intrinsic value, independent of its use as a means of exchange. 
A)  Money is valuable because it is indivisible. 
B)  Money is valuable because it is scarce. 
C)  Money is valuable because it is backed by precious metals, primarily gold and silver. 
D)  Money is valuable because it has intrinsic value, independent of its use as a means of exchange.

Question 6

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

Question 7

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)  was created to reduce the risk of banking by compensating depositors and keeping bank failures from spreading. 
D)  creates monetary policy in conjunction with the Federal Reserve Board. 
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)  was created to reduce the risk of banking by compensating depositors and keeping bank failures from spreading. 
D)  creates monetary policy in conjunction with the Federal Reserve Board.

Question 8

Which of the following is not considered part of M2?

Accepted Answer

A)  small time deposits of less than $100,000 
B)  money market mutual fund shares 
C)  savings deposits 
D)  large time deposits of more than $100,000 
A)  small time deposits of less than $100,000 
B)  money market mutual fund shares 
C)  savings deposits 
D)  large time deposits of more than $100,000

Question 9

The Monetary Control Act of 1980:

Accepted Answer

A)  extended the Fed's authority to impose required-reserve ratios on all depository institutions. 
B)  excluded the required-reserve ratios as an instrument of short-term policy. 
C)  provided the Fed with the authority to use open market operations. 
D)  closed or sold ailing savings and loan institutions. 
A)  extended the Fed's authority to impose required-reserve ratios on all depository institutions. 
B)  excluded the required-reserve ratios as an instrument of short-term policy. 
C)  provided the Fed with the authority to use open market operations. 
D)  closed or sold ailing savings and loan institutions.

Question 10

Which of the following institutions is responsible for supervising the banking system of the United States?

Accepted Answer

A)  The Federal Reserve System 
B)  The Open Market Committee 
C)  The U.S. Treasury 
D)  The Federal Deposit Insurance Corporation 
A)  The Federal Reserve System 
B)  The Open Market Committee 
C)  The U.S. Treasury 
D)  The Federal Deposit Insurance Corporation

Question 11

Which of the following is not one of the functions of the Federal Reserve?

Accepted Answer

A)  clearing checks 
B)  printing currency 
C)  supervising and regulating banks 
D)  controlling the money supply 
A)  clearing checks 
B)  printing currency 
C)  supervising and regulating banks 
D)  controlling the money supply

Question 12

The M1 money supply is defined to be the sum of currency, traveler's checks, and:

Accepted Answer

A)  checkable deposits. 
B)  Treasury bonds. 
C)  savings accounts. 
D)  large time deposits. 
A)  checkable deposits. 
B)  Treasury bonds. 
C)  savings accounts. 
D)  large time deposits.

Question 13

What is 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)  the quality of money not to be hoarded because of its commodity value 
D)  the function of money to be widely accepted I 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)  the quality of money not to be hoarded because of its commodity value 
D)  the function of money to be widely accepted I exchange for goods and services

Question 14

What is the length of the term of the members of the Board of Governors of the Federal Reserve System?

Accepted Answer

A)  four years 
B)  six years 
C)  fourteen years 
D)  life or until the member resigns 
A)  four years 
B)  six years 
C)  fourteen years 
D)  life or until the member resigns

Question 15

Which of the following statements is false ?

Accepted Answer

A)  Round stones with holes in the center can serve as money. 
B)  Money eases the process of exchanging goods and services in a modern economy. 
C)  Money serves as a measure of value only when it is backed by gold or silver. 
D)  Money is used as a measure of the relative value of goods and services in an economy. 
A)  Round stones with holes in the center can serve as money. 
B)  Money eases the process of exchanging goods and services in a modern economy. 
C)  Money serves as a measure of value only when it is backed by gold or silver. 
D)  Money is used as a measure of the relative value of goods and services in an economy.

Question 16

M2 is equal to M1 plus:

Accepted Answer

A)  savings deposits, money market deposit accounts, small time deposits, and eurodollars. 
B)  savings deposits, money market deposit accounts, money market mutual funds, and eurodollars. 
C)  small time deposits, money market deposit accounts, money market mutual funds, and eurodollars. 
D)  savings deposits and small time deposits of less than $100,000. 
A)  savings deposits, money market deposit accounts, small time deposits, and eurodollars. 
B)  savings deposits, money market deposit accounts, money market mutual funds, and eurodollars. 
C)  small time deposits, money market deposit accounts, money market mutual funds, and eurodollars. 
D)  savings deposits and small time deposits of less than $100,000.

Question 17

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

Accepted Answer

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

Question 18

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 19

The money supply known as M2:

Accepted Answer

A)  includes large denomination time deposits. 
B)  excludes interest-earning checking accounts in savings and loans. 
C)  does not include money market mutual accounts. 
D)  includes savings accounts and small denomination time deposits. 
A)  includes large denomination time deposits. 
B)  excludes interest-earning checking accounts in savings and loans. 
C)  does not include money market mutual accounts. 
D)  includes savings accounts and small denomination time deposits.

Question 20

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.

Exam 24: Money and the Federal Reserve System

What is money? What are the three definitions of money in the United States?

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

For barter to occur, traders must have a:

Suppose you transfer $1,000 from your checking account to your savings account. How does this action affect the M1 and M2 money supplies?

Which of the following provides the best explanation of why money is valuable?

Which of the following assets is most liquid?

The Federal Deposit Insurance Corporation (FDIC):

Which of the following is not considered part of M2?

The Monetary Control Act of 1980:

Which of the following institutions is responsible for supervising the banking system of the United States?

Which of the following is not one of the functions of the Federal Reserve?

The M1 money supply is defined to be the sum of currency, traveler's checks, and:

What is the "store of value" function of money?

What is the length of the term of the members of the Board of Governors of the Federal Reserve System?

Which of the following statements is false ?

M2 is equal to M1 plus:

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

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

The money supply known as M2:

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

Introducing the Economic Way of Thinking

Production Possibilities Opportunity Cost and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Consumer Choice Theory

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution Poverty and Discrimination

Antitrust and Regulation

Environmental Economics

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

Understanding Direct and Inverse Relationships between Variables

Filters