Question 1

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 2

M1 refers to:

Accepted Answer

A)  Federal Reserve Notes and gold certificates. 
B)  currency held by the public plus checking account balances. 
C)  the largest of the money-supply definitions. 
D)  bank loans. 
A)  Federal Reserve Notes and gold certificates. 
B)  currency held by the public plus checking account balances. 
C)  the largest of the money-supply definitions. 
D)  bank loans.

Question 3

Economists who prefer a broader definition of money prefer the:

Accepted Answer

A)  M1 measure of the money supply to the M4 measure. 
B)  M2 measure of the money supply to the M1 measure. 
C)  M3 measure of the money supply to the M2 measure. 
D)  M1 measure of the money supply to the M2 measure. 
A)  M1 measure of the money supply to the M4 measure. 
B)  M2 measure of the money supply to the M1 measure. 
C)  M3 measure of the money supply to the M2 measure. 
D)  M1 measure of the money supply to the M2 measure.

Question 4

Are outstanding credit card balances counted as part of the money supply?

Accepted Answer

A)  Yes; they are used to purchase things, and therefore, they are included in the money supply figures. 
B)  No; money is an asset, while the credit card balances are a liability. Thus, they are not included in the money supply figures. 
C)  Partly; credit card balances of $100 or less are included in the M1 money supply, but the money supply figures do not include balances in excess of $100. 
D)  Partly; credit card balances are included in the M1 money supply, but not the M2 money supply. 
A)  Yes; they are used to purchase things, and therefore, they are included in the money supply figures. 
B)  No; money is an asset, while the credit card balances are a liability. Thus, they are not included in the money supply figures. 
C)  Partly; credit card balances of $100 or less are included in the M1 money supply, but the money supply figures do not include balances in excess of $100. 
D)  Partly; credit card balances are included in the M1 money supply, but not the M2 money supply.

Question 5

In its function of controlling the money supply, the Fed does not do which one of the following?

Accepted Answer

A)  Controls the money supply. 
B)  Clears checks. 
C)  Regulates banks. 
D)  Offer checking accounts to the public. 
A)  Controls the money supply. 
B)  Clears checks. 
C)  Regulates banks. 
D)  Offer checking accounts to the public.

Question 6

Which of the following is not part of the Federal Reserve System?

Accepted Answer

A)  Council of Economic Advisors 
B)  Board of Governors 
C)  Federal Open Market Committee 
D)  12 Federal Reserve District Banks 
A)  Council of Economic Advisors 
B)  Board of Governors 
C)  Federal Open Market Committee 
D)  12 Federal Reserve District Banks

Question 7

The Monetary Control Act of 1980 extended the Fed's authority to:

Accepted Answer

A)  impose required-reserve ratios on all depository institutions. 
B)  control the discount rate. 
C)  control the federal funds rate. 
D)  carry out a massive federal bailout of failed savings and loan institutions. 
A)  impose required-reserve ratios on all depository institutions. 
B)  control the discount rate. 
C)  control the federal funds rate. 
D)  carry out a massive federal bailout of failed savings and loan institutions.

Question 8

The Monetary Control Act of 1980:

Accepted Answer

A)  required banks to make home loans. 
B)  eliminated many forms of competition among financial institutions. 
C)  created sharper distinctions among various financial institutions. 
D)  eliminated all interest rate ceilings. 
A)  required banks to make home loans. 
B)  eliminated many forms of competition among financial institutions. 
C)  created sharper distinctions among various financial institutions. 
D)  eliminated all interest rate ceilings.

Question 9

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. 
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.

Question 10

Buying a cup of coffee with a dollar bill represents the use of money as a:

Accepted Answer

A)  medium of exchange. 
B)  unit of account. 
C)  store of value. 
D)  commodity. 
A)  medium of exchange. 
B)  unit of account. 
C)  store of value. 
D)  commodity.

Question 11

M1 refers to:

Accepted Answer

A)  the most narrowly defined money supply definition. 
B)  currency held by the public minus checking account balances. 
C)  the largest of the money-supply definitions. 
D)  M2 plus near monies. 
A)  the most narrowly defined money supply definition. 
B)  currency held by the public minus checking account balances. 
C)  the largest of the money-supply definitions. 
D)  M2 plus near monies.

Question 12

The Fed:

Accepted Answer

A)  has little control over the money supply. 
B)  serves as the central bank for the United States. 
C)  often uses a mix of lower taxes in its fiscal policy. 
D)  ensures commercial bank profitability. 
A)  has little control over the money supply. 
B)  serves as the central bank for the United States. 
C)  often uses a mix of lower taxes in its fiscal policy. 
D)  ensures commercial bank profitability.

Question 13

Though many assets can be used as a store of value, money is a particularly attractive method to store value because:

Accepted Answer

A)  it increases in value as prices rise. 
B)  its purchasing power does not decline when prices rise. 
C)  it is the most liquid of all assets. 
D)  it is backed by gold. 
A)  it increases in value as prices rise. 
B)  its purchasing power does not decline when prices rise. 
C)  it is the most liquid of all assets. 
D)  it is backed by gold.

Question 14

Which of the following correctly describes the difference between commodity money and fiat money?

Accepted Answer

A)  Fiat money has value based on the material from which it is made, while commodity money is accepted by law and not because of its tangible value. 
B)  Commodity money is either made out of a valuable commodity like silver or gold, or is redeemable for a valuable commodity. Fiat money is not. 
C)  Commodity money can only be used to buy commodities such as grains or lumber, while fiat money can be used to buy anything. 
D)  Fiat money is used during times of emergency, such as hurricanes or war, when the existing stock of commodity money is inadequate to purchase needed goods and services. 
A)  Fiat money has value based on the material from which it is made, while commodity money is accepted by law and not because of its tangible value. 
B)  Commodity money is either made out of a valuable commodity like silver or gold, or is redeemable for a valuable commodity. Fiat money is not. 
C)  Commodity money can only be used to buy commodities such as grains or lumber, while fiat money can be used to buy anything. 
D)  Fiat money is used during times of emergency, such as hurricanes or war, when the existing stock of commodity money is inadequate to purchase needed goods and services.

Question 15

When M1 is expanded to M2, the money supply:

Accepted Answer

A)  almost doubles. 
B)  more than triples. 
C)  goes up tenfold in size. 
D)  changes very little. 
A)  almost doubles. 
B)  more than triples. 
C)  goes up tenfold in size. 
D)  changes very little.

Exam 24: Money and the Federal Reserve System

Which of the following compose the M2 money supply?

M1 refers to:

Economists who prefer a broader definition of money prefer the:

Are outstanding credit card balances counted as part of the money supply?

In its function of controlling the money supply, the Fed does not do which one of the following?

Which of the following is not part of the Federal Reserve System?

The Monetary Control Act of 1980 extended the Fed's authority to:

The Monetary Control Act of 1980:

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

Buying a cup of coffee with a dollar bill represents the use of money as a:

M1 refers to:

The Fed:

Though many assets can be used as a store of value, money is a particularly attractive method to store value because:

Which of the following correctly describes the difference between commodity money and fiat money?

When M1 is expanded to M2, the money supply:

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