Question 1

Although it has considerable political independence, the Fed is legally a branch of the U.S. Treasury Department.

Accepted Answer

A) True 
 B)False

Question 2

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 3

Coins and dollar bills are money in the form of:

Accepted Answer

A)  barter. 
B)  currency. 
C)  capital stock. 
D)  investment. 
A)  barter. 
B)  currency. 
C)  capital stock. 
D)  investment.

Question 4

Barter is a system of exchange that does not depend on a coincidence of wants.

Accepted Answer

A) True 
 B)False

Question 5

The Federal Reserve System is divided into:

Accepted Answer

A)  2 districts. 
B)  12 districts. 
C)  26 districts. 
D)  50 districts. 
E)  1 district. 
A)  2 districts. 
B)  12 districts. 
C)  26 districts. 
D)  50 districts. 
E)  1 district.

Question 6

Which of the following defines the "medium of exchange" function of money?

Accepted Answer

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

Question 7

For barter exchange to take place,

Accepted Answer

A)  there has to be a coincidence of wants. 
B)  the products in question have to be divisible. 
C)  money has to be used to put a value on the transaction. 
D)  there has to be a single coincidence of wants. 
E)  gold has to be one of the goods traded. 
A)  there has to be a coincidence of wants. 
B)  the products in question have to be divisible. 
C)  money has to be used to put a value on the transaction. 
D)  there has to be a single coincidence of wants. 
E)  gold has to be one of the goods traded.

Question 8

What is the "medium of exchange" 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 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)  ​The quality of money not to be hoarded because of its commodity value. 
D)  ​The function of money to be widely accepted in exchange for goods and services.

Question 9

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 10

In the United States, the money supply (M1) consists of:

Accepted Answer

A)  paper currency and coins. 
B)  coins, paper currency and checkable deposits. 
C)  paper currency, coins, checkable deposits, and savings deposits. 
D)  government bonds, currency, and checkable deposits. 
A)  paper currency and coins. 
B)  coins, paper currency and checkable deposits. 
C)  paper currency, coins, checkable deposits, and savings deposits. 
D)  government bonds, currency, and checkable deposits.

Question 11

If every person is willing to accept money in payment, rather than goods and services, money serves as a:

Accepted Answer

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

Question 12

Which of the following is not a component of the M1 money supply?

Accepted Answer

A)  Checkable deposits. 
B)  Large-denomination (more than $100) bills. 
C)  Interest-earning checking deposits. 
D)  Outstanding balances on credit cards. 
A)  Checkable deposits. 
B)  Large-denomination (more than $100) bills. 
C)  Interest-earning checking deposits. 
D)  Outstanding balances on credit cards.

Question 13

The Federal Reserve System is owned by:

Accepted Answer

A)  federal government agencies such as the Treasury. 
B)  the Congress of the United States. 
C)  the banks that are members of the Federal Reserve System. 
D)  anyone who buys stock over the counter. 
E)  people who have deposits in member banks. 
A)  federal government agencies such as the Treasury. 
B)  the Congress of the United States. 
C)  the banks that are members of the Federal Reserve System. 
D)  anyone who buys stock over the counter. 
E)  people who have deposits in member banks.

Question 14

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 15

Currency consists of:

Accepted Answer

A)  coins and Eurodollars. 
B)  paper money and checks. 
C)  coins and paper money. 
D)  paper money and Eurodollars. 
E)  coins and checks. 
A)  coins and Eurodollars. 
B)  paper money and checks. 
C)  coins and paper money. 
D)  paper money and Eurodollars. 
E)  coins and checks.

Question 16

M1 money includes all but which one of the following?

Accepted Answer

A)  Checkable deposits. 
B)  Savings accounts. 
C)  Paper money. 
D)  Coins. 
A)  Checkable deposits. 
B)  Savings accounts. 
C)  Paper money. 
D)  Coins.

Question 17

Which of the following is considered part of M2?

Accepted Answer

A)  Savings deposits. 
B)  Money market mutual fund shares. 
C)  Small time deposits of less than $100,000. 
D)  All of the above. 
A)  Savings deposits. 
B)  Money market mutual fund shares. 
C)  Small time deposits of less than $100,000. 
D)  All of the above.

Question 18

M2 money includes all but which one of the following?

Accepted Answer

A)  Checkable deposits. 
B)  Savings accounts. 
C)  Large denomination time deposits. 
D)  Money market deposit accounts. 
E)  Money market mutual accounts. 
A)  Checkable deposits. 
B)  Savings accounts. 
C)  Large denomination time deposits. 
D)  Money market deposit accounts. 
E)  Money market mutual accounts.

Question 19

The M1 definition of the money supply includes:

Accepted Answer

A)  coins and currency in circulation. 
B)  coins and currency in circulation and checkable deposits. 
C)  Federal Reserve notes, gold certificates, and checkable deposits. 
D)  Federal Reserve notes and bank loans. 
A)  coins and currency in circulation. 
B)  coins and currency in circulation and checkable deposits. 
C)  Federal Reserve notes, gold certificates, and checkable deposits. 
D)  Federal Reserve notes and bank loans.

Question 20

The Federal Reserve System:

Accepted Answer

A)  was created by and is owned by the government. 
B)  pursues independent fiscal policy at the behest of Congress. 
C)  never acts to control inflation. 
D)  pursues an independent monetary policy which can conflict with the government's economic policy. 
E)  only acts to lower taxes and increase spending when there are recessionary tendencies in the economy. 
A)  was created by and is owned by the government. 
B)  pursues independent fiscal policy at the behest of Congress. 
C)  never acts to control inflation. 
D)  pursues an independent monetary policy which can conflict with the government's economic policy. 
E)  only acts to lower taxes and increase spending when there are recessionary tendencies in the economy.

Exam 18: Money and the Federal Reserve System

Although it has considerable political independence, the Fed is legally a branch of the U.S. Treasury Department.

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

Coins and dollar bills are money in the form of:

Barter is a system of exchange that does not depend on a coincidence of wants.

The Federal Reserve System is divided into:

Which of the following defines the "medium of exchange" function of money?

For barter exchange to take place,

What is the "medium of exchange" function of money? ​

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

In the United States, the money supply (M1) consists of:

If every person is willing to accept money in payment, rather than goods and services, money serves as a:

Which of the following is not a component of the M1 money supply?

The Federal Reserve System is owned by:

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

Currency consists of:

M1 money includes all but which one of the following?

Which of the following is considered part of M2?

M2 money includes all but which one of the following?

The M1 definition of the money supply includes:

The Federal Reserve System:

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money Creation

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

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Filters

What is the "medium of exchange" function of money?