Question 1

Credit cards are money because they serve the three functions of money.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is a desirable property of money?

Accepted Answer

A)  Scarcity. 
B)  Portability. 
C)  Divisibility. 
D)  All of the above. 
A)  Scarcity. 
B)  Portability. 
C)  Divisibility. 
D)  All of the above.

Question 3

The difference between M1 and M2 is given by which of the following?

Accepted Answer

A)  M1 includes currency, coins, gold and silver, whereas M2 does not contain gold and silver. 
B)  M1 is made up of currency, traveler's checks, and money in checkable accounts, whereas M2 contains M1 plus savings deposits and time deposits. 
C)  M1 is limited to currency, whereas M2 contains M1 plus traveler's checks and money in checkable accounts. 
D)  M1 includes currency and traveler's checks, whereas M2 contains M1 plus money in checking accounts. 
A)  M1 includes currency, coins, gold and silver, whereas M2 does not contain gold and silver. 
B)  M1 is made up of currency, traveler's checks, and money in checkable accounts, whereas M2 contains M1 plus savings deposits and time deposits. 
C)  M1 is limited to currency, whereas M2 contains M1 plus traveler's checks and money in checkable accounts. 
D)  M1 includes currency and traveler's checks, whereas M2 contains M1 plus money in checking accounts.

Question 4

The Monetary Control Act of 1980:

Accepted Answer

A)  allowed savings and loan associations to offer checking accounts. 
B)  allowed more institutions to offer checking account services. 
C)  created greater competition among various financial institutions. 
D)  all of the above. 
E)  none of the above. 
A)  allowed savings and loan associations to offer checking accounts. 
B)  allowed more institutions to offer checking account services. 
C)  created greater competition among various financial institutions. 
D)  all of the above. 
E)  none of the above.

Question 5

Which of the following groups oversees and administers the Federal Reserve System?

Accepted Answer

A)  The House of Representatives. 
B)  The President's Council of Economic Advisors. 
C)  The U.S. Treasury Department. 
D)  None of the above, the Fed is an independent agency. 
A)  The House of Representatives. 
B)  The President's Council of Economic Advisors. 
C)  The U.S. Treasury Department. 
D)  None of the above, the Fed is an independent agency.

Question 6

The Fed's responsibilities include controlling the money supply, clearing checks, and supervising and regulating banks.

Accepted Answer

A) True 
 B)False

Question 7

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 8

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. 
E)  goes up by 50 percent. 
A)  almost doubles. 
B)  more than triples. 
C)  goes up tenfold in size. 
D)  changes very little. 
E)  goes up by 50 percent.

Question 9

The Federal Reserve Board of Governors consists of:

Accepted Answer

A)  50 members selected by state legislatures. 
B)  12 members, one from each Federal Reserve District. 
C)  12 members nominated by the President and confirmed by the Senate. 
D)  seven members elected by Congress. 
E)  seven members nominated by the President and confirmed by the Senate. 
A)  50 members selected by state legislatures. 
B)  12 members, one from each Federal Reserve District. 
C)  12 members nominated by the President and confirmed by the Senate. 
D)  seven members elected by Congress. 
E)  seven members nominated by the President and confirmed by the Senate.

Question 10

Economists who prefer a broader definition of money prefer the:

Accepted Answer

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

Question 11

The characteristics that money should have include:

Accepted Answer

A)  portability, durability, and flexibility. 
B)  durability, flexibility and stability. 
C)  durability, portability, and non-homogeneity. 
D)  scarcity, portability, and divisibility. 
E)  portability, homogeneity, and flexibility. 
A)  portability, durability, and flexibility. 
B)  durability, flexibility and stability. 
C)  durability, portability, and non-homogeneity. 
D)  scarcity, portability, and divisibility. 
E)  portability, homogeneity, and flexibility.

Question 12

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 13

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. 
E)  includes large denomination repurchase agreements. 
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. 
E)  includes large denomination repurchase agreements.

Question 14

The number of presidentially appointed members who sit on the Federal Reserve Board of Governors is:

Accepted Answer

A)  none. 
B)  seven. 
C)  nine. 
D)  twelve. 
A)  none. 
B)  seven. 
C)  nine. 
D)  twelve.

Question 15

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 16

Gold is a perfect medium of exchange and measure of value because of its:

Accepted Answer

A)  divisibility, portability, and homogeneity. 
B)  divisibility and durability. 
C)  durability and relative scarcity. 
D)  durability and homogeneity. 
E)  divisibility, durability, and relative scarcity. 
A)  divisibility, portability, and homogeneity. 
B)  divisibility and durability. 
C)  durability and relative scarcity. 
D)  durability and homogeneity. 
E)  divisibility, durability, and relative scarcity.

Question 17

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 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 18

M1 includes savings accounts.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is not counted as part of M1?

Accepted Answer

A)  Coins. 
B)  Federal Reserve notes or " paper money." 
C)  Passbook savings deposits. 
D)  Checkable deposits. 
A)  Coins. 
B)  Federal Reserve notes or " paper money." 
C)  Passbook savings deposits. 
D)  Checkable deposits.

Question 20

Which definition of the money supply includes credit cards?

Accepted Answer

A)  M1. 
B)  M2. 
C)  M3. 
D)  None of the above includes credit card balances. 
A)  M1. 
B)  M2. 
C)  M3. 
D)  None of the above includes credit card balances.

Exam 18: Money and the Federal Reserve System

Credit cards are money because they serve the three functions of money.

Which of the following is a desirable property of money?

The difference between M1 and M2 is given by which of the following?

The Monetary Control Act of 1980:

Which of the following groups oversees and administers the Federal Reserve System?

The Fed's responsibilities include controlling the money supply, clearing checks, and supervising and regulating banks.

Which of the following assets is most liquid?

When M1 is expanded to M2, the money supply:

The Federal Reserve Board of Governors consists of:

Economists who prefer a broader definition of money prefer the:

The characteristics that money should have include:

The Federal Deposit Insurance Corporation (FDIC):

The money supply known as M2:

The number of presidentially appointed members who sit on the Federal Reserve Board of Governors is:

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

Gold is a perfect medium of exchange and measure of value because of its:

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

M1 includes savings accounts.

Which of the following is not counted as part of M1?

Which definition of the money supply includes credit cards?

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